SIM REPORT: North America, Issue 2

Issue 2, 21 October 2019

CANADA: Voters head to the polls as closely-fought election campaign concludes

On 21 October, millions of Canadians will go to the polls to vote in this year’s federal election. Seeking re-election, incumbent Prime Minister Justin Trudeau and his centre-left Liberal Party are looking to withstand a challenge from the Conservative Party of Canada, led by Andrew Scheer. Other parties hoping to increase their representation in the House of Commons include the New Democratic Party (NDP), the Bloc Québécois (BQ), the Green Party, and the People's Party of Canada (PPC). In the six weeks prior to polling day, the Liberals and Conservatives have been extremely close in the race, with a maximum of 2 percentage points separating each party in the polls.

Throughout the election campaign, debate has centred on Trudeau’s record in government, particularly regarding the economy, extractives industries, and environmental protection. In the final weeks of the campaign, however, attention has shifted to Trudeau’s wearing of blackface on multiple occasions in the early 2000s, which sparked outcry among many voters and prompted apologies from the candidate. Furthermore, in the final election debate on 10 October, Scheer repeatedly criticised Trudeau for alleged political interference in the SNC-Lavalin affair, and questioning the prime minister’s suitability for office.

In the most recent poll averages, published on 13 October, the Conservatives had a modest lead over the Liberals, with the two parties polling 32.4 and 31.8 per cent, respectively. In third place, the NDP stood at 16.7 per cent, followed by the Green Party on 9.4 per cent, the BQ on 6.5 per cent, and the PPC on 2.5 per cent. Given Canada’s first-past-the-post electoral system, however, polling data does not necessarily offer a precise indication of the number of seats likely to be won. Current projections indicate that the Liberals are most likely to win the highest number of seats and therefore have the opportunity to form the next government, however slight fluctuations in voter preferences would likely place Scheer in this position.

There is a moderate to high likelihood, however, that the next administration is a coalition or minority-led government, given that neither the Liberals nor the Conservatives appear likely to win a majority. This scenario would give considerable leverage to the leftist NDP and its leader Jagmeet Singh to extract policy concessions; a Liberals-NDP coalition led by Trudeau is one highly plausible outcome. In turn, such a coalition administration would likely place increased emphasis on strengthening workers’ rights and protecting the environment, two key NDP proposals.

Companies with interests in Canada, particularly in the large extractives sector where the major parties advocate significantly different policy approaches, should closely monitor the outcome of the upcoming election, as well as the policies of a possible coalition agreement. Businesses considering investment in the country should adjust medium- and long-term plans to account for the election’s result, and monitor short-term impacts on the value of the Canadian dollar. Business travellers in Canada on 21 October are unlikely to face travel disruption due to the election, however should exercise heightened caution near polling stations, in light of recent security threats against Trudeau, which led him to wear a bulletproof vest to a campaign event on 12 October in Mississauga, Ontario.

UNITED STATES: Airlines prolong removal of Boeing 737 MAX from schedules

In the past two weeks, several major North American airlines, including Air Canada, American, United and Southwest, have extended the removal of Boeing 737 MAX aircraft from their schedules into early 2020. While most scheduled flights will go ahead as planned, these will be transferred to other comparable models, such as the Boeing 737-800s and Airbus A320. This extends the worldwide grounding of the most recent version of Boeing’s popular 737 short- and medium-range jet to ten months following two fatal crashes between October 2018 and March 2019. The crashes, on Indonesia-based Lion Air and Ethiopian Airlines respectively, were attributed to the malfunctioning of the Maneuvering Characteristics Augmentation System (MCAS), a flight control software which automatically lowers the plane’s nose when it is deemed too high.

The grounding of the 737 MAX has caused significant financial and reputation damage to Boeing, the world’s largest aerospace manufacturer and the US’s largest exporter. The consequences for the company and its leadership have spread far beyond the 737 MAX; on 11 October, Boeing’s directors removed CEO Dennis Muilenburg from his parallel role as chairman, while several airlines have scrapped orders of Boeing jets since the fatal crashes and the model’s grounding. Last month, Russian airline Aeroflot cancelled a 2007 order for 22 Boeing 787 Dreamliner aircraft. This follows on from Saudi budget airline Flyadeal’s decision in July to cancel an order of 50 Boeing 737 MAX aircraft, and Indonesian flag carrier Garuda’s cancellation of an order for 49 737 MAX jets in March. Furthermore, on 7 October, the Southwest Airlines Pilots Association (SWAPA) sued Boeing for USD115 million in lost pay for its 10,000 members who have been impacted by the plane’s grounding.

As of October 2019, Boeing’s efforts to address the flaws in the MCAS system continue. The manufacturer has reportedly adjusted the software so that the nose does not repeatedly pull the aircraft downwards when pilots attempt to raise it. Media reports also suggest that pilots did not responded to the MCAS system’s activation as Boeing and the Federal Aviation Administration (FAA) had anticipated, and that additional pilot training is likely to be required. Furthermore, once Boeing releases the redesigned flight control system, it will undergo a thorough re-certification process from regulators across the world. The aircraft’s re-certification is likely to be gradual across the world, with agencies such as the European Union Aviation Safety Agency (EASA) conducting its own assessment on the software, separate to the FAA. Passengers may also wish to avoid the aircraft; United and Southwest have said they will accommodate passengers who do not want to fly on the plane.

The global grounding of the 737 MAX will be promptly lifted once the plane is re-certified; this is likely in the six-month outlook, although more technical or regulatory problems would delay this further. The fatal crashes and protracted grounding, however, will continue to impact Boeing’s reputation among airlines, passengers, and regulators for months and years to come.


UNITED STATES: California prohibits private prisons and detention facilities

California became the fourth state to ban private prisons when state Governor Gavin Newsom signed a bill outlawing their use on 11 October. California, whose population of 39 million is the largest in the country, joins New York, Illinois, and Iowa, all of which have similar laws. The law bans the use of private prisons and immigration detention facilities in California from 2028; no new contracts can be signed with private firms after 1 January 2020. There are currently four private prisons and four civil detention centres across the state.

The state government’s decision to ban private prisons stems from several considerations. Most significantly, many among the Democratic Party, which dominates California’s politics, are ideologically opposed to entities profiting from the detention of criminals or migrants. Opponents of private prisons claim they lead to higher rates of reoffending amid reduced focus on rehabilitation. Within California’s existing private prisons, inspectors have noted a range of failings. In the privately-operated Adelanto ICE Processing Center in San Bernardino County, for example, a 2018 Department of Homeland Security (DHS) assessment identified a series of improper practices, including nooses hanging from cells, delays to medical care, and misuse of solitary confinement. In 2016, a Department of Justice (DOJ) report found that in a majority of categories examined, privately-run federal prisons incurred more safety and security incidents per capita than institutions operated by the Federal Bureau of Prisons (BOP).

US Immigration and Customs Enforcement (ICE), the federal agency responsible for immigration enforcement, opposes the law and has said that its legal staff are reviewing the bill. ICE said that if the bill takes effect, it would be forced to transfer migrant detainees out of the state, thereby making visits from family and friends more difficult. While proponents of private prisons claim these are a cost-effective alternative to state-run facilities, this conclusion has not been reflected in several studies on the costs of private prisons.

Across the country, around 130,000 people, or 8.5 per cent of total inmates nationwide, are held in privately-operated federal and state facilities, the first of which was established in 1984. While the US incarceration rate reached a two-decade low in 2016, the US continues to jail more of its citizens than any other country in the world, with approximately 700 inmates per 100,000 people. This, in turn, makes the private prison industry highly lucrative; the industry is estimates to be worth an annual USD4 billion. The states with the largest private prison populations are Arizona, Florida, Georgia, Oklahoma, Tennessee and Texas.

Private prisons are likely to become an increasingly salient topic in political debate in the one-year outlook. Massachusetts Senator Elizabeth Warren, a leading contender for the Democratic Party’s presidential nomination, has proposed banning privately-run prisons, while other major contenders in the primary race, including Bernie Sanders, Kamala Harris and Corey Booker have previously supported similar proposals. While the topic of private incarceration and detention facilities is unlikely to be a major issue of debate in the 2020 presidential election due to the primacy of other issues, such as the economy and foreign policy, the two major parties are likely to advocate very different approaches, which may have a significant impact on their medium- and long-term future.


Open Source Intelligence Review



26 September 2019

Ericsson sets aside USD1.2 billion in preparation for corruption fine

Since 2013, Ericsson has been the focus of two investigations concerning the Swedish vendor’s compliance with the US Foreign Corrupt Practices Act (FCPA), and now it is preparing for the fine.


A2 Global comments: The Swedish telecommunications giant was found to be non-compliant with the FCPA in six jurisdictions: China, Djibouti, Indonesia, Kuwait, Saudi Arabia, and Vietnam. In particular, bribes were found to have been paid to foreign officials. Companies which operate in the US and elsewhere should ensure overseas operations are in compliance with the FCPA and similar pieces of legislation elsewhere, such as France’s Sapin II and the UK’s Bribery Act.



18 October 2019

Drug companies may pay USD50 billion for their role in the opioid crisis

Five of the many companies accused in thousands of federal and state lawsuits over the nation's opioid epidemic may settle for over USD50 billion, according to a source familiar with the negotiations.

Source: CNN

A2 Global comments: Across the US, pharmaceutical companies have been sued over their alleged role in the country’s opioid addiction crisis. In early October, Johnson & Johnson reached a USD20.4 million settlement with two counties in Ohio to avoid a trial over the allegations. In a statement, the company said the settlement was not an admission of liability. The out-of-court settlement is likely to prompt other pharmaceutical companies to seek to resolve legal claims away from court; these are currently facing over 2,000 claims by state, local, and Native American tribal authorities.


18 October 2019

Vape pens, chocolates, candy and drinks: what will be on sale when Canada approves a new wave of cannabis products

Canadians will soon be able to take a puff from a cannabis vape pen, sip a drink whose intoxicating kick comes from THC or nibble a pot-infused chocolate.

Source: Ottawa Citizen

A2 Global comments: The new products, which retailers have announced approximately one year after marijuana was legalised nationwide, will likely become available in mid-December. The marijuana industry in Canada is estimated to be worth between CAD5-8 billion by 2021. Despite the drug’s legalisation, the industry remains subjugated to the unregulated drugs market; major problems include a shortage of retail outlets and black-market prices being almost half those in the legal market.



18 October 2019

Health Canada considers allowing e-cigarette companies to promote harm-reduction benefits

The federal government is considering letting e-cigarette companies promote the health benefits of their products to the public, despite the growing number of young Canadians who vape and mounting questions about the long-term risks.

Source: The Globe and Mail

A2 Global comments: Ottawa’s reported decision is in stark contrast to the US federal government’s restrictive policy, following 18 deaths linked to vaping this year. US President Donald Trump has said that non-tobacco e-cigarettes are to be taken off the market, particularly over concerns regarding their use among young people. Canada’s approach is seemingly in line with that of the UK, where national health authorities recommend vaping as a healthier alternative to traditional cigarettes.




16 October 2019

Jailed British tourists entered US 'deliberately'

A British family detained in the US after crossing the border from Canada intentionally entered the country illegally, officials have said. They said the vehicle was captured on video "slowly and deliberately" driving through a ditch to enter the US.

Source: BBC News

A2 Global comment: Individuals crossing the near 9,000km border between the US and Canada must do so at official border crossings; failure to do so is likely to lead to arrest and could result in repatriation. UK citizens, most of whom are eligible for visa-free travel under the US Visa Waiver Program (VWP), must register for the VWP and receive approval before attempting to entry the country.


27 October 2019

U.S. Travel launches awareness campaign for new airport ID requirement

Millions of Americans could be turned away from their flights when the Real ID laws are enforced in October 2020, according to the U.S. Travel Association.

Source: Travel Weekly

A2 Global comment: More than two-thirds of US citizens do not have a Real ID-compliant drivers’ licence, or are unsure if they do. The Real ID laws require travellers to present state-issued Real ID documents, and seeks to strengthen security standards for identity documents. US citizens who regularly fly domestically should ensure they have a Real ID-compliant licence, or use an alternative form of identification, such as a passport.



17 October 2019

Canadians remain worried about data security: Digital ID survey

While governments and companies say they are paying more attention to cybersecurity, a new survey suggests the overwhelming majority of Canadians remain worried about the security of their personal information online.

The survey done for the Digital Identity and Authentication Council of Canada (DIACC) shows that 39 per cent of respondents are extremely concerned and an equal number are somewhat concerned that their personal information is being compromised online.

Source: IT World Canada

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