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Trump’s 50% tariff threat: why now?
00:29:16
<p>On Monday night, US President Donald Trump signed orders to impose a 50 per cent tariff on a wide swath of Canadian goods ranging from hockey sticks to envelopes to Christmas decorations. The tariffs are scheduled to take effect on August 19th. Prime Minister Mark Carney says he spoke with Trump on Tuesday morning and that they have agreed to intensify negotiations in the coming weeks. </p><p><br></p><p>Jayme Poisson speaks to trade expert Eric Miller about the significance of these tariffs and why they’re happening now. Miller is the president of Rideau Potomac Strategy Group where his clients include critical mineral and potash companies. He’s also a fellow at the Canadian Global Affairs Institute.</p><p><br></p><p>For transcripts of Front Burner, please visit: <a href="https://www.cbc.ca/radio/frontburner/transcripts" rel="noopener noreferrer" target="_blank">https://www.cbc.ca/radio/frontburner/transcripts</a></p>
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- [00:00]
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CBC Announcer
This is a CBC podcast.
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Jamie Poisson
Hey, everybody, it's Jamie. On Monday night, a new escalation in the trade war between the United states and Canada. US President Donald Trump signed orders to slap a 50% tariff on a whole swath of Canadian exports ranging from hockey sticks to plywood.
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CBC Announcer
I spoke with President Trump earlier this morning. We agreed to intensify negotiations in the
- [00:56]
Jamie Poisson
coming weeks and the tariffs aren't scheduled to take effect until August 19th. So there's still time for the negotiations. Prime Minister Mark Carney's promising here, but it's still a really significant development. And so to help us understand what's happening and why now we've got US Canada trade expert Eric Miller with us. He is the president of the Redo Potomac Strategy Group, where his clients include critical minerals and potash companies. He's also a fellow at the Canadian Global Affairs Institute. Eric, hey, it's great to have you back on the show.
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Eric Miller
Thanks for having me, Jamie.
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Jamie Poisson
So let's start by breaking down what we know right now about what these new 50% tariffs are intended to cover. Because they came down in these three presidential proclamations. The White House said that they were, quote, leveling the playing field for three American exports, cars, alcohol and and dairy. Let's start with the dairy and the alcohol. What's Trump doing here? What is getting targeted?
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Eric Miller
So what you have here is a focus on a number of irritants that the United States has had vis a vis Canada for a while. It has been no secret that the United States, both Ambassador Hofstra and people in Washington have been deeply frustrated with Canada's prohibitions, albeit at the provincial level of U.S. wine and spirits. Hoekstra ended his July 4 comments with a goal of sorts, but next year, hopefully we can all take a toast of American bourbon legally in the province of Ontario. There's also the long standing concerns about dairy and Canada's response to U.S. actions on the automotive front that it sees as discriminating effectively against US Parts companies is something that there has been frustration with as well.
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Jamie Poisson
And just what are they doing in the proclamations around alcohol and dairy? What are they slapping the tariffs on?
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Eric Miller
So each of these three proclamations has its own set of tariffs that are associated with it. On the dairy product front, you have a lot of dairy products that are listed in the annex. So Canada doesn't export a lot of dairy products to the United States. That's really part of the foundation of the supply management system. And so these are tariffs very much in name only, although there'll be some within that universe that are impacted. On the alcohol front, you have certainly Canadian wine and spirits, but you also have a number of things such as lumber products. And on the automotive front, that's where the big list really is, where you have everything from agricultural products to textiles and apparel to chemicals to all sorts of industrial goods, and then lots and lots of pulp and paper products under those as well. And so each one has their own list associated. And ironically, the automotive tariff list includes very little in the way of actual automotive products.
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Jamie Poisson
Right. I mean, they're essentially saying, because you're discriminating against us in the automotive sector, we're going to just go tariff a bunch of other stuff.
- [04:23]
Eric Miller
Yes, correct. And within trade law world, there is the concept of equivalence, that if there's a barrier in one, that I can put an equivalent level of barriers in my country that would essentially be a dollar equivalent. And so it's not unusual that you could have an automotive tariff that impacts some agricultural products, but it is certainly notable.
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Jamie Poisson
Okay. Are you surprised by any of the goods targeted here? There are nearly 500 categories impacted. You talked about milk, ducks, whiskey, but also wigs, hammers, Christmas decorations.
- [04:59]
Eric Miller
Yes. And antiques that are over 100 years old, but less than 250 years old, which is actually specifically in there. I think two of the most significant things that we see from this announcement are, number one, the mechanism that the Trump administration used to impose them. That is section 338 of the Trade act of 1930, more famously known as the Smoot Hawley tariffs. This is the first time that the United States has moved to impose tariffs under this authority. There have been investigations in the past, but the fact that they are using section 338 is significant. Why? Because you can impose up to a 50% tariff with no time limit and no congressional approval of those tariffs required. And it focuses on countering, quote, unquote, discrimination against the commerce of the United States. And so very significant that President Trump has reached for this instrument which provides him maximum flexibility just on this idea
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Jamie Poisson
that 338 can be used when the United States feels like it has been discriminated against. I mean, provinces pulled American alcohol off the shelves in response to Trump's tariffs
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Ontario Premier Doug Ford
and have sent a direction to the LCBO. These tariffs come to clear off every bit of US alcohol off the shelves. That's 3,600 doll products from 35 US states no longer available. Signs reading it's for the good of Ontario.
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Eric Miller
I'm here to announce today that we are removing the rest of the American liquor products from the shelves of the BC liquor stores. The BC Liquor Distribution Board will also no longer import US product meaning it'll run dry at private stores once current stock is sold.
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Jamie Poisson
Does this sound as absurd to you as it does to I would imagine most people listening right now? I think a lot of people in Canada will feel that Canada was discriminated against first tier.
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Eric Miller
Yes, but the United States is not going to have the self reflection that one would need to say well we started this so we actually shouldn't do this. This is a game of bare knuckle rail politic. If you listen to recent interviews with Jameson Greer, he's made clear that he wants to reset the balance of trade between the United States and other countries. And this is a way that he is looking at doing that regardless of what Canada thinks.
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US Trade Representative Jamison Greer
And so we are just using whatever tools we need to to try to resolve these, these unfair trading practices that have led to this enormous trade deficit of $1.4 billion. It's absolutely unbalanced. It's unlike anything we've seen in US history, that we've seen in world history. And so the President's going to fix it.
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Jamie Poisson
I have heard and seen experts talk about how these tariffs will probably be subject to a legal challenge. I mean where, where are you on that right now?
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Eric Miller
So if you go and look at the act, the actual section 338 of the Trade act of 1930, what makes this very different from the so called IEEPA tariffs that were struck down by the Supreme Court. The International Economic Emergency Powers act is a big part of the litigation on the IEEPA case turned on the fact that the word tariffs was not used in the statute. This is very directly a statute which says if there is discrimination you may impose tariffs. And here's how much, up to 50%. And here's the time limit that you need to wait before they can go into effect. That is 30 days. And you will decide as President when that situation has been resolved. And so it is very explicitly a measure which is designed to authorize the use of tariffs. Now there'll be those who say it's been superseded by other legislation or the fact that nobody has thought about Section 338 since the 1940s that really it's not something that should be applied, but I think the fact that it is explicitly tariff authority given to the President by Congress for a specific purpose makes it potentially a heavier lift to overturn legally.
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Jamie Poisson
Okay. And you mentioned these IIPA tariffs. Just for people listening. These were those blanket tariffs that Trump imposed, imposed on us and just about every other country in the world. Right. For us, it was because of, according to him, fentanyl coming across the border. And those were struck down by the Supreme Court. If these do come into effect in 30 days, how substantial are they? Like, what kind of damage could they do?
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Eric Miller
Well, certainly if you're in an affected sector, there will be a significant amount of damage. When you look, for example, at the list under the Dairy Proclamation, not a lot of impact because Canada has maintained the supply management system. And a key part of that is that Canada is not a major exporter of dairy products to the world. And so limited impact there. You'll certainly have some impact on Canadian wine and spirits that are sold to the United States. But my understanding is that, for example, in wine, the US Has a very significant trade surplus, or did before these measures went into effect, relative to Canada's trade surplus. I think pulp and paper is going to be an area where there is significant impact. There's a lot of provisions in there about plywood and about veneer and about paper products. And so that's something that you will see a lot of impact on. And certainly having already endured tariffs of up to 45% on softwood lumber, so the classic two by fours, for example, you will see tariffs that are significant on other swaths of the industry that are not currently covered. And so there'll be a lot of different pieces here and there. But I think this is very much in some respects a shot across the bow of what could happen if Kuzma is not renegotiated. Because of course, the other significant piece of this besides the instrument is the fact that there is no Kuzma exemption. So it means even if the goods qualify under the Kuzma agreement, they will not receive duty free status. And so if you are exporting veneer to the United States, regardless of whether that is originating in Canada, you will pay.
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Jamie Poisson
I think that's a good segue to us. Talking about why you think this is happening now. I mean, are you essentially making the argument that we're seeing this now because the deadline to formally renew Cuzma was missed a few weeks back, and this is a way to try and leverage or squeeze concessions out of us as we try to renegotiate.
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Eric Miller
Yeah. So there are a variety of reasons why this is happening now. Number one, President Trump wants to remind everyone that he does have significant tariff authority. Number two, he is trying to set the table for a Kuzma renegotiation where the US Is deemed to hold most, if not all of the major cards. And that's not something, of course, that Prime Minister Carney is going to accept or to hand over to him. But this is about going into the fall, the process of examining what a renegotiation of Kuzma would look like. Because at the same time as this is happening with Canada, you also have Jameson Greer, the US Trade representative and chief negotiator on trade is in Mexico City having the third round of bilateral discussions on Kuzma renegotiation with Mexico. And so the Mexico process is proceeding perhaps more smoothly than the Canadian process, although that's not to imply that it's easy. What the US has been pushing Canada on is to provide certain pre concessions, so putting US Wine and spirits back on store shelves as a way of paying to begin the process. And what Canada responds is that, well, we gave up the digital services tax as a concession in order to restart the negotiations, and we didn't get anything for it, so why would we do that again? And this refusal on Canada's part to put U.S. wine and spirits back on store shelves has been particularly frustrating. And you've seen the US Administration get more and more pointed about its criticisms of Canada. And so the administration is trying to squeeze Canada as a prelude to really beginning a more fulsome discussion on Cuzma and its future.
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Jamie Poisson
Yeah, just on the digital services text, I was listening to Jamison Greer last week talk about how they had.
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US Trade Representative Jamison Greer
There are a couple things that Canadians have done. You know, they had a digital services tax they proposed and rolled back. They had an online streaming act where they wanted to force American companies to fund Canadian companies that they rolled back. I'm glad they did that. But they don't really get credit for doing something bad and then undoing it. Right. That's just, that's just, you know, good practice on their part.
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Jamie Poisson
What did you make of those comments?
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Eric Miller
Well, certainly that reflects very much the, the U. S view. They saw the digital services tax bad policy. But, you know, as, as the, the famed American political strategist Frank Lunt said, it's. It's not what you say, it's what other people hear. And what Canada heard was that we could give you all the concessions in the world and we would still get no benefit or no credit from it. So why would we give you any?
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Jamie Poisson
In the White House statement about the new tariffs, they were complaining essentially that over the past year and a half, only two countries have chosen to retaliate against Trump's tariffs, China and Canada. And I just, I want to parse this idea with you a little bit more that what the administration is actually saying here or what they're suggesting is that Canada has been too obstinate that we haven't negotiated a deal. But I think there are lots of people here who would argue that Canada has already capitulated a lot. We just talked about the digital services tax rollback. The federal government has quietly backed down on a number of counter tariffs on American goods. U.S. secretary of Commerce Howard Lutnick has been bragging on social media about how the US Is going to get revenues from the Gordie how bridge opening, he called it the art of the deal in action. So, you know, does the US Administration really think that Canada's been fighting back too hard here? That we haven't done enough to negotiate a mutually agreeable trade agreement?
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Eric Miller
Yes, they do. They mean what they say, that, that they're frustrated that Canada and China are the only countries that have retaliated and the US Would expect China to retaliate. But what's been very frustrating for them with Canada is that Canada, which on paper is and in fact is actually very dependent for its economic prosperity on trade with the United States, has actually been the least willing to cut deals with the United States.
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US Trade Representative Jamison Greer
And most countries have. You know, I know grudgingly but they've said, we understand your policy, we understand. So we're going to negotiate with you. You were going to remove some of these tariffs and non tariff barriers, et cetera. You know, Canada's approach has been different. They, like China, retaliated against the United States. So they're just in a different spot. And it's hard to see necessarily where that ends.
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Canadian Political Analyst
Their leadership, from Trudeau to the current leadership, I mean, in all fairness to them, and they need us to survive. Without us, there's no way they can survive. But they've been very, very tough over a period of the last 50 years, actually.
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Eric Miller
And so all of the history and the nuance of why Canadian trade policy is the way it is and why we have the integrated North American market has gone by the wayside. The way the US Looks at it is the Europeans agreed to an unequal deal, the Japanese did, the Koreans and many of the other big traders where in their cases, Japanese goods going to the U.S. pay 15% tariff and U.S. goods going to Japan pay nothing. Now, in a Canadian context, where there's all of this trade in intermediate inputs and parts for automobiles going back and forth, that kind of radically unequal tariff is not something that can really be accepted from a Canadian perspective. And so you have this situation where Canada also has faced the US Threats around annexation, which has colored the willingness and ability to give concessions. But from the US Perspective, I'm kind of reminded of that great movie gladiator from about 20 years ago, where in the opening battle scene, one of the generals says, after they've defeated the goths, people should know when they're conquered. And you sort of have a sense that some within the Trump administration see that about Canada and can't believe that Canada wants to keep fighting. And there is a determination now that goes beyond specifically rational trade and commercial policy that wants to see Canada in essence, brought to heel a little bit more. Because you also have, of course, Prime Minister Carney being cast as the leader of the middle power repositioning.
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Jamie Poisson
Of course. I think what you're referencing there is, well, a lots of reporting, but some specific reporting out of the Wall Street Journal recently about how Carney's been kind of pushing Europe's leaders to reduce their dependence on the US we covered it on our show last week how there are reports that he's been kind of spearheading this middle power alliance. When Trump hit Canada with tariffs in the past, we did see Canada announce some counter tariffs, even if they were dropped later. We saw, as we've Talked about provinces pull US Booze off their shelves. There was this attempt to hit back. Ontario Premier Doug Ford is calling for the same thing. Now he's saying that we can't keep rolling over for Trump. We have to stand up to this bully, even though they apparently don't think that we have been rolling over.
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Ontario Premier Doug Ford
I'm tired of the bully trying to take our lunch money all the time. We always seem to be on our back heels. We need to be on the offense, not constantly on the defense. With President Trump, we need to stand up to the bully and we need to hit him tariff to tariff all the way across the board. And that's my message to the Prime Minister. We need a plan moving forward.
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Jamie Poisson
Should Canada hit back? And if yes, should they hit back with something heavier than booze?
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Eric Miller
So I think the first thing that's important is for the premiers and the Prime Minister to meet. I understand that Prime Minister Carney is going to meet the premiers later in the week that we are recording. And so there'll be some discussions around strategy. I don't think that Canada should commit a priori to a dollar for dollar retaliation. The question that really should be asked is what is the most effective path to get to a negotiation and a conclusion that really delivers zero to low tariffs for Canada. Because if you hit back directly, then the US Will hit Canada back and we will see the ratchet. That's how in 2025, for example, China got to 145% tariffs with the U.S. and so I think before deciding where and how to hit back, Canada needs to carefully analyze what the pathway looks like. And maybe that pathway looks like not putting tariffs in, but announcing that you're buying the Swedish fighter and not the F35 or something else that the US really would like Canada to do. But I think we cannot see a situation where leaders are shooting from the hip. This is one where you do need at least a couple of weeks to analyze what the response will be. We do need to see what pressures will also be put on the Trump administration about whether it will actually carry through with these tariffs 30 days hence. And so the first thing to do is to not panic, but, but very much to plan.
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Jamie Poisson
You mentioned China there and how it ratcheted up. I think, you know, a lot, a lot of people, I've seen them argue that China kind of won there, right? That they came back super hard and then eventually the United States backed down and that China's in a much better position right now. And just like, what about hitting them with something that they really need. Energy, lumber, Potash, critical minerals like these are the real trump cards that we have.
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Canadian Political Analyst
Right.
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Eric Miller
And so you certainly could see that as a scenario. But here are your challenges. Number one, resources, as you know, are provincial responsibility in Canada. And so any decision to use energy as a lever is something that would need the consent of Premier Daniel Smith and others. And I'm not particularly thinking that it's likely that that would come to effect. Similarly on Potash, you'd need Premier Scott Mo in order to, to be able to carry that forward. The thing to remember though about China is that China is a massive economy and what the US regards as a peer competitor, they do not regard Canada as a peer competitor. They view Canada as a country that should be in its sphere of influence and orbit. And so the question is, how does a mid sized country with better strategy than their counterparts and a willingness to act boldly, how do they find a way to a solution on tariffs which is more agreeable? So we've seen, for example, Prime Minister Carney has hinted that there is a willingness not to cut off energy flows, but to double oil exports to the US as a way of helping to bring prices down. That's not something that was accepted by the US But I think we need to look carefully at an array of options and what are the carrots and what are the sticks. But fundamentally we know that the situation is only going to worsen. We also will have to begin preparing Canadian firms that have benefited from the Kuzma exemption much more directly for a world where they have to pay tariffs. And so a lot of that will, will require, for example, work on calculating what is your break even point on tariffs. So can you survive a 10% tariff, a 20% tariff, whatever it would begin to look like. So this is about resilience building as much as anything else. So I think the Prime Minister should do much of what he's doing, which is say as little as possible, meet the Premiers, meet advisors and craft a careful counter measure rather than kind of coming back immediately. Because what will matter ultimately is the effectiveness of the strategy when deployed, not the timing.
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Jamie Poisson
Let me flip this for you a little bit. These guys in the Trump administration, they also seem to like to take some wins, right? Like why not just give them something that they want here, Open up dairy, put the booze back on the shelves.
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Eric Miller
So I think dairy is a more complicated one because if you were to open the dairy market, you would see very likely large scale bankruptcies in the dairy sector across Ontario. And Quebec, which would be politically tricky. You also have billions of dollars of credit extended from Canadian banks to Canadian dairy farms to buy equipment and inputs and other things of that nature which are underpinned by the value of the quota. So the value of the quota is reduced to zero or near zero. There's no collateral to back those loans. And so you would need very much a sectoral restructuring as well as a financial restructuring. Now, this could be the time when Canada looks carefully, for example, at the New Zealand model, which when New Zealand went through its financial Crisis in the 1980s, their dairy farms put together into a, into a cooperative that exports now products around the world. It's called Fonterra. But opening dairy willy nilly is something that would lead to a lot of damage in the sector on alcohol. The US has made such a big deal on it that Canadians know that this is a point of frustration. So if you want to have some leverage, this could be something that the US May be willing to pay for. Despite Ambassador Greer's statements that the US shouldn't give credit for what he sees as bad policies. It's something they would want to see resolved and that President Trump would accept. But to what end? You don't want to do that necessarily delinked from a broader trade negotiation, because then you just give something away that the US wants that you get nothing for it. And so this is now about how do we get into the bigger negotiation process where trade offs can be made and where we can get to something that looks like a workable end state for both parties.
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Jamie Poisson
What do you think the likelihood is that they find an off ramp in the next 29 days is I'd say
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Eric Miller
we're probably in a world that's 50, 50 on that point. What you could think is, yes, the tariffs could go into effect on August 19, but on August 21, you could find a situation where the countries announced that they're launching formal negotiations and that these will be put in abeyance pending the results of those negotiations. But it's also perfectly possible that the bilateral relationship worsens significantly and that you are in a situation where the US Imposes tariffs and Canada takes some other measures and the US decides to raise those tariffs or, or somehow amp up pressure. And so we are in a potentially very challenging situation where these tariffs could be expanded beyond what they are applied to at present. But the ideal scenario would be that they don't go into effect and that this can be a foundation for a bigger negotiation, which from the Canadian government's perspective, they would dearly love to have without preconditions, such as on us, alcohol.
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Jamie Poisson
Okay, Eric, thank you so much as always. Really appreciate it.
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Eric Miller
My pleasure.
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Jamie Poisson
All right, that is all for today. I'm Jamie Poisson. Thanks so much for listening.
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CBC Announcer
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