Canada and its Trade Deals

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China Card

So now, in the wake of the USMCA, China wants a trade deal with Canada. Prime Minister Justin Trudeau says our country is ready. Improving trade ties with China would go a long way to trade diversification but Canadians should tread carefully.

More engagement with the world’s second biggest economy that is growing at twice the rate of our U.S. and EU partners makes a lot of sense. Economics aside, we have expanding people-to-people ties: the Chinese are our largest group of foreign students; Chinese tourism is up by double digits; and 10 per cent of recent immigrants came from China.

So the question is not about whether to engage, but how best to engage.

Negotiating a full free-trade agreement, says the Public Policy Forum’s useful report, Diversification not Dependence, could take a decade. Last December, Chinese Premier Li Keqiang rejected Prime Minister Trudeau’s overture on a closer economic partnership, dismissing out of hand the gender and aboriginal rights integral to Mr. Trudeau’s progressive trade agenda. The Chinese aren’t open to change, so have we decided to drop the progressive agenda?

The PPF says sectoral agreements are the way to go, starting with agri-food and natural resources, eldercare and pensions coupled with co-operative arrangements on things such as climate. These will build confidence and create momentum for more progress.

This could work although, like the rest of Asia, the Chinese are increasingly skeptical about Canada’s ability to get its goods to market. One new LNG pipeline is not enough.

The Chinese will demand preferred investment access for their state-owned enterprises (SOEs). They feel that the current regime, imposed by the Harper government in 2012, is unfair. Are we prepared to relax our rules?

There is a third option – encourage China to join the Comprehensive and Progressive Trans Pacific Partnership (CPTPP). It already covers things such as SOEs, labour and environmental standards, intellectual property rights, and includes enforceable dispute settlement. The CPTPP should become the benchmark pact for the Indo-Pacific. China’s own model – the Regional Comprehensive Economic Partnership (RCEP) – does not meet the CPTPP standard.

But all of this may come to naught. Like it or not, Canada is now caught in the Sino-U.S. confrontation, of which the USMCA “China clause” is the latest manifestation. While we are nowhere near negotiations with China, consulting with our principal trade partners would seem sensible.

The sense that Chinese behaviour is predatory and posing significant threats to the U.S. that need to be countered is driving current U.S. policy. The Donald Trump approach – threats, bombast and tariffs – is antagonizing China and prompting retaliation. We will need to be careful that we don’t become collateral damage.

China’s leadership wants to reform global governance to reflect China’s superpower stature. But China only pays lip service to the rules-based international order. Its mercantilist behaviour, ranging from subsidized to forced technology transfers, has contributed mightily to the looming Sino-U.S. trade war. Its cyberintrusions – for espionage and commercial gain – are detailed in our intelligence agencies’ annual reporting. While the Trump administration’s method is obnoxious, the EU, Japan and North America need to defend our rules-based system.

China has not developed politically, economically or diplomatically in ways that the West had thought it might. But projecting hopes and wishful thinking on China goes further back than this current moment. In his latest book, Daniel Kurtz-Phelan describes U.S. General George Marshall’s unsuccessful efforts to steer China toward liberal democracy in the aftermath of the Second World War. The China Mission is a must-read for foreign-policy makers practising diplomacy in Asia.

The Prime Minister meets the premiers this fall to talk trade diversification. Thrashing through a China strategy is essential. What is it we really want? What are we prepared to give up?

We need to engage in continued relationship building through ministerial visits and through the kind of Track Two discussions organized by the University of Alberta’s China Institute.

It would help if the federal Conservatives are part of the consensus. No one expects lock-step agreement, but a general alignment on our objectives – as we witnessed during the USMCA negotiations – serves the national interest. It also ensures continuity when governments change.

Beyond the obvious trade benefits, better relations with China make sense for Canada. But decisions on China should only be made after we have done our homework and with our eyes wide open.

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Canada should spend more on defence

Obnoxious he is, but when it comes to NATO burden-sharing, U.S. President Donald Trump has a point. With the United States shouldering almost two-thirds of defence expenditures by the alliance members, the other 28 members, including Canada, can do more.

At this week’s North Atlantic Treaty Organization meeting, Prime Minister Justin Trudeau should commit to meet the NATO defence commitment guideline − 2 per cent of gross domestic product − by 2024. In doing so, he could also commit to increasing Canadian development assistance to 0.7 per cent of GDP, the target first recommended by former Canadian prime minister Lester Pearson. If the United Kingdom can manage these commitments for defence and development, so can Canada.

While these pledges will discombobulate some, it would further validate the Trudeau government’s declaration that “Canada is back” as a constructive internationalist.

In terms of readiness, Canadian Forces already have achieved significant interoperability on land, air and sea with U.S. forces. We do this through NATO as well as NORAD (the North American Aerospace Defense Command), our 60-year-old binational aerospace and maritime surveillance agreement. We also achieve it through joint exercises and active operations in theatres such as Afghanistan and Libya and now in Latvia.

But we should do more.

This means spending more, not because Mr. Trump says so, but because Canadian sovereignty requires it. In their commendable, recently tabled report on NATO, the House of Commons National Defence Committee recommended that Canada meet the NATO target. They also encouraged developing quantitative and qualitative evaluations that better represent national contributions beyond the 2-per-cent metric.

There will be many opportunities for reinvestment. Three initiatives would immediately serve Canadian interests:

1) Increase the reserves: The Canadian Forces face recruitment and retention problems. This would bring in more young people as well as those who want to complement their current employment. They will learn a trade and serve their nation.

2) Assert our sovereignty, especially in the North. We need to pick up the pace for construction of icebreakers by using all of Canada’s shipyards and building more Arctic offshore patrol ships and supply ships for use in all three oceans. We should also invest now in the next generation of submarines – they are the ultimate stealth weapon to deter unwelcome intrusions into our maritime space. And why not build a pair of hospital ships to provide humanitarian relief in the increasing number of climate-related disasters that beset coastal nations?

3) Meet new threats. Canada should join the three NATO Centers for Excellence to address hybrid threats (Helsinki, Finland), cyber threats (Tallinn, Estonia) and strategic communications (Riga, Latvia). Their work would fit right into the government’s innovation agenda, while also bolstering the strategic partnership with the European Union.

The threats we face are real. These include a hostile Russia that has occupied Crimea and invaded eastern Ukraine. Russia also actively undermines democratic institutions using chemical, hybrid and cyberweapons, tools that are also used for subversion, crime and terrorism. Terrorism, fuelled by failed and failing states and perverted ideologies requires constant vigilance. Nuclear proliferation requires ongoing containment.

For the democracies, NATO continues to be the best defence against threats, new and old. While the alliance is trans-Atlantic, its footprint is global, with partner nations including Japan, Australia, New Zealand and South Korea.

But like any institution that turns 70 next year, NATO can be improved.

A useful starting point is the recent report of the GLOBSEC NATO Adaptation initiative. To meet and master the many technology and affordability challenges from “hybrid warfare to hyperwar”, the authors recommend a strategic review for next year’s summit so that NATO is “prepared, fit and able to act across the seven domains of grand conflict: air, sea, land, cyber, space, information and knowledge.”

Canada, like the rest of the Alliance, took the peace dividend after the fall of the Berlin Wall and end of the Cold War. The Chretien government used the savings to pay down debt and put our financial house in order. Alas, the end of history did not arrive and the triumph of democracy was premature.

Now we need to reinvest in our collective security. For only when our arms are sufficient beyond doubt, John F. Kennedy said, can we be certain, beyond doubt, that they will never be employed.

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Canada US Relations after Charlevoix

After the diplomatic disaster of the Group of Seven summit in Charlevoix, Que., it is now clear that for Mr. Trump it is not about leading – the traditional role of the U.S. President – but about winning at any cost. Relationships are not for cultivating, but only for using to Trumpian advantage.

Canada and like-minded countries need to stick together, act in tandem and push back against Trumpist protectionism. It means taking it to him where it hurts and targeting his base: in particular the farm community. At the same time, we need to tell Americans, who will suffer job loss and higher prices, that they have only their president to blame.

For more than 500 days now, Justin Trudeau has made nice to Mr. Trump. The advice from former prime minister Brian Mulroney was correct – that the relationship with the president is the most important relationship for a prime minister and that Canada-U.S. relations, alongside national unity and national security, are the files that require a prime minister’s constant attention.

Among liberal democratic leaders, Mr. Trudeau was seen as the one who had the best relationship with Mr. Trump. He was the Trump whisperer. But Mr. Trump’s behaviour at Charlevoix, Que., was abominable.

The tweets before Charlevoix, Que., took personal shots at both Mr. Trudeau and French President Emmanuel Macron, the other leader who has cultivated Mr. Trump. The tweets afterward, insulting Mr. Trudeau, are beyond the pale. As Mr. Trudeau said, we are a polite people but we are not pushovers.

Canadians are justly outraged, but we have deep interests at stake, so we need to proceed with care and planning.

First, we need to get our act together domestically. Mr. Trudeau needs to consult with the premiers and business to get their advice on our retaliation list. What is their assessment of increased protectionism on their province and industries? What about life after the North American free-trade agreement? We will be hurt. We will need to provide adjustment assistance for the afflicted. But how would Americans like it if Canadians began to spontaneously boycott American goods, especially U.S. farm produce, and stopped travelling south for holidays?

Second, we need to take advantage of the free-trade deals that we already have in place and put real effort into matchmaking; business with business. As a matter of our national security (two can play this game), we should quickly pass the implementing legislation to bring the new Comprehensive and Progressive Trans-Pacific Partnership into effect. With Canada’s implementation, the agreement would immediately come into force.

If this means keeping parliamentarians at work into July so be it. Provincial legislatures may also have to be recalled. While they are at it they should pass their enabling legislation for the Canada-Europe Comprehensive Economic and Trade Agreement. This is a matter of grave national economic urgency. Canadians need to see that their legislators are acting in the national interest.

Third, we need to act in tandem with our G7 partners and like-minded countries, such as Mexico, as we collectively retaliate to the recently imposed steel and aluminium tariffs. Canada and Mexico learned the value of acting collectively when they worked together to persuade the U.S. Congress to rescind its protectionist country-of-origin labelling requirement in 2015.

American legislators respond to local pressure. They need to feel the heat of retaliation. Canada has a lot of allies, especially in the Republican congressional caucus. They don’t like Mr. Trump’s direction and are already moving to curb the trade powers that were ceded to the executive branch during Franklin Roosevelt’s administration. Hopefully, we will see then the beauty of the checks and balances at work. The U.S. founding fathers designed their system to prevent a president from becoming a king.

The more Mr. Trump attacks his fellow G7 and fellow democratically elected leaders the more difficult it makes it for them to go along with him when it counts. That includes, however unlikely, a deal with North Korea.

The road that Mr. Trump is going down makes no economic sense. George W. Bush reluctantly imposed limited steel tariffs in 2002 (Canada was exempt) and lifted them a year later because it was costing American jobs, not creating them.

Canadians are used to compromise and consensus, especially in how we handle the relationship with Uncle Sam. Manage it well and we can tell them when their breath is bad. Mr. Trump has a bad case of halitosis. We need to tell him so and serve him the bitter medicine he has brought on himself.

CPAC Prime Time Politics Monday, June 11, 2018

Colin Robertson and Christopher Sands on Canada–U.S. Relations00:10:34Quick View

PRIMETIME POLITICS

Colin Robertson and Christopher Sands on Canada–U.S. Relations

 The G7 Summit in Charlevoix ended in dramatic fashion on Saturday with U.S. President Donald Trump directing strong criticism at Prime Minister Justin Trudeau over Canada’s response to U.S. tariffs. CPAC’s Martin Stringer is joined by two experts in foreign affairs and diplomacy to assess the current state of the Canada–U.S. relationship. Colin Robertson is vice-president and fellow at the Canadian Global Affairs Institute and a former Canadian diplomat. Christopher Sands is director of the Center for Canadian Studies at the Johns Hopkins University School of Advanced International Studies. (June 11, 2018) (no interpretation)

 

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NAFTA: Canada and Mexico need to stick together

Colin Robertson, The Globe and Mail, May 23, 2018

Another NAFTA “deadline” has passed, but the negotiations carry on. And that is what really matters. Canada and Mexico need to stick together, focus on their shared objectives and bear down for what now appears will be a more reasonable negotiating tempo.

The North American free-trade agreement negotiations seem to have gone on forever but, in fact, we have only been at it for 10 months. There have been eight rounds, a December “intercessional” and, in recent weeks, a series of sessions that saw Foreign Affairs Minister Chrystia Freeland shuttling back and forth for days in Washington.

 All this effort has resulted in considerable progress.

Negotiators have scoped out a framework that would include 30-plus chapters and half a dozen annexes. Mexican chief negotiator Kenneth Smith Ramos tweeted that nine chapters are now “closed”, although nothing is final until the whole deal is done. The negotiated chapters cover regulatory practices, administration, sanitary and phytosanitary measures, competition, small and medium-sized enterprises, anti-corruption, environment, energy, telecommunications and trade barriers. Sectoral annexes include chemicals and proprietary food formulas.

The U.S. side took as their starting point the Trans-Pacific Partnership (TPP) that, ironically, President Donald Trump withdrew the United States from after taking office. The Canadian and Mexican negotiators’ used the original NAFTA, arguing that if the U.S. wanted to achieve their TPP gains, they would have to negotiate it.

In recent weeks, negotiations have centred on auto-content rules. Supply chains have made car assembly the most traded commodity within North America. The U.S. wants 75 per cent North American content (it’s currently 62.5 per cent) with 30 to 40 per cent made with labour that is paid more than US$15 an hour. This would affect Mexican competitivenes; their auto workers’ wages average US$3-$4 an hour. Not surprisingly, they are loath to agree. They want a long phase-in period as well as concessions in other parts of the agreement,.

Some suggest that Canada should dump Mexico and then negotiate a bilateral auto agreement with the United States. This would be a strategic blunder. The 1965 auto pact was our first sectoral free-trade agreement and it guaranteed jobs and production in Canada. But it is just one piece in a much bigger and successful North American trading arrangement.

While trade with the United States under NAFTA has expanded threefold and the U.S. remains our preponderant trading partner, the hidden success story is the Canada-Mexico relationship. Mexico is now our third-largest trading partner. Canadians have made big investments in mining, banking and manufacturing in Mexico. And, after the U.S., Mexico is our favourite tourism destination.

During the long and ultimately successful negotiations to reopen the U.S. market to our beef exports – the country-of-origin labeling dispute – we worked in tandem with Mexico. Together, we utilized NAFTA and World Trade Organization dispute-settlement provisions. We formulated our retaliatory list together. We succeeded because we stuck together.

With the low-hanging fruit now harvested, the NAFTA negotiations are into the difficult issues. The auto-content rules are just the first. Mexican support will be vital to sustain dispute settlement and to preserve access for reciprocity in government procurement. We need to be united in pushing back on the sunset clause and preserving temporary entry provisions. And when the U.S. comes after us on supply marketing, patent protection and the threshold level for border duties, Mexican advice will be useful.

Mexico stood up for Canada when Justin Trudeau pirouetted in discussions with leaders in Da Nang, Vietnam, on what is now the Comprehensive and Progressive Agreement for Trans-Pacific Partnership. Some were ready to toss Canada under the bus. The Mexicans persuaded them to give Canada another chance.

As part of our trade diversification strategy, Canada is reaching into the Americas. We want associate membership in the Pacific Alliance (Mexico, Chile, Peru, Colombia) and Mercosur (Argentina, Brazil, Paraguay, Uruguay). Do we think that leaving Mexico in the lurch would help us in these negotiations? The 33 nations south of the Rio Grande also represent a quarter of the votes we need in our campaign for a United Nations Security Council seat.

The Trump approach is to divide and conquer. Ending our alignment with Mexico would play right into U.S. hands. There is still much more that unites Canada and Mexico and much more to be gained by working together. Let us recall Ben Franklin’s advice to those framing the U.S. Declaration of Independence: “We must, indeed, all hang together, or most assuredly we shall all hang separately.”

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Rohinga Crisis

Helping the Rohingya refugees is a real demonstration of the Trudeau government’s commitment that “Canada is back.” Canada alone cannot solve the Rohingya situation, but by keeping the international spotlight on their plight, as we did at the Commonwealth summit and G7 foreign ministers meeting, we significantly increase chances that they can eventually return home.

We need to maintain this focus at the Charlevoix G7 summit in Quebec. As host, Prime Minister Justin Trudeau should invite Bangladeshi Prime Minister Sheikh Hasina and Myanmar Foreign Minister Aung San Suu Kyi to explain what is going on. Nobel laureate Suu Kyi’s apparent indifference to the Rohingya is disheartening.

Bob Rae’s report, “Tell them we’re Human,“ is the right roadmap for further Canadian action. His recommendations include stepping up our aid and looking at resettlement options. Aid agencies such as Unicef Canada – more than half of the displaced are children – are already on the scene. While the Bangladesh camps have been in place for decades, the current crisis has more than quadrupled the number of refugees. Well over a million, they outnumber the local population. As Mr. Rae underlines, our support must also go to the host community.

The Rohingya exodus is another piece in a growing mass movement of people. According to the UN High Commissioner for Refugees, we are now witnessing the highest levels of displacement on record. Much of the new movement is borne out of civil war – Syria, Afghanistan, Iraq, Yemen – accentuated by flood, famine and pestilence. This is hard to repair and requires generational effort.

The Rohingya exodus recalls the ethnic cleansing that took place in the Balkans with the collapse of Yugoslavia. Yet Myanmar was on the road to success with its economy growing and nascent representative government. Instead, Myanmar’s military, the junta that grudgingly stepped aside in 2015, are still pulling the strings. Emboldened by rearmament, supplied by China and Russia, they appear ready for armed confrontation with Bangladesh.

As with any crisis there are winners and losers. The million-plus Rohingya people, camped in canvas huts spread over red dirt hills around Cox’s Bazar are the biggest losers, as is graphically portrayed in this year’s Pulitzer prize-winning photo. The 600,000 Bengalis in the district are also losers. Their local economy is shattered, straining public confidence in a Bangladesh government that faces an election in December.

Bangladesh has made remarkable progress in poverty reduction. It aspires to reach middle-income status by its 50th anniversary in 2021. The hurdles to get there include its poor infrastructure and climate change. Rising waters threaten to displace a population equivalent to that of Canada.

The “winners,” at least for now, are members of the former Myanmar junta, now operating from key cabinet positions. If they get their way, then democratic reform in Myanmar will be the next loser. Without international pushback, the fraying norms of the liberal international order take another hit. Mr. Rae recommends applying sanctions.

A solution to the Rohingya problem will require neighbouring countries, especially China, to step up and put pressure on the Myanmar military. Chinese President Xi Jinping says that China is retaking its place as a responsible great power, and he points to China’s significant contribution to peacekeeping operations. He needs to act now on the Rohingya crisis.

Islamic nations must also help their co-religionists. Their upcoming May foreign ministers’ summit in Dhaka is a moral test. More than 60 per cent of the displaced come from Muslim-majority countries, and the Gulf states in particular could do more to help.

Having taken on the cause of the displaced Rohingyas, the Trudeau government must keep shining a light on what UN High Commissioner for Human Rights Zeid Ra’ad Al Hussein calls “a textbook example of ethnic cleansing.”

In a world in disarray, Canada can be helpful fixers. It means identifying niches: Hosting the Vancouver meeting on North Korea to help contain nuclear proliferation and working with hemispheric partners on the Venezuelan crisis. It means using special envoys such as Mr. Rae. Following through is vital, as we now need to do with the Rohingya. This is how we demonstrate that “Canada is back.”

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Summit of the Americas

Summit of the Americas presents opportunities for Canada

IPOLITICS by Colin Robertson
April 13, 2018

Success at this week’s Summit of the Americas in Lima, Peru should be measured by a re-commitment to liberal democratic institutions and freer trade. For Justin Trudeau the test will be to advance our trade objectives beyond NAFTA and actively support hemispheric democratization.

‘Democratic Governance against Corruption’ is the theme of this summit. The rule of law is a basic structural challenge across Latin America. Brazil’s Oderbrecht bribery scandal – Operation Car Wash- has toppled several leaders and it has regional scope.

Democratisation is the great achievement within Latin and Central America but is must be sustained. Presidential elections are scheduled this year in nine of the members, including the three biggest Latin America countries – Brazil, Colombia and Mexico, There is already Russian meddling in the Mexican election. President Vladimir Putin wants to discredit liberal democracy and create wedges in the US alliance system.

Working through the Organization of American States (OAS), Justin Trudeau should offer Canadian expertise on conducting and monitoring elections. When it comes to governance, Canada’s Parliamentary Centre, helping legislatures and legislators better serve their citizens should be enlisted. With fifty years experience, it has established its global credentials as a go-to center for governance expertise.

Hemispheric free trade remains elusive. US backing is essential but not with Donald Trump and ‘America First’.

The Lima summit, the eighth in a regular series, will bring together most of the 35 hemispheric leaders. President Bill Clinton hosted the first summit, in Miami (1994) to boost a hemispheric free trade area stretching from Alaska to Terra del Fuego. Negotiations began but the divides proved too big. There were subsequent summits in Santiago, Chile (1998) and Quebec City (2001) and then Mar del Plato, Argentina (2005) but with the discrediting of market fundamentalism – ‘the Washington consensus’ – the appetite for closer economic integration was gone.

Populist leaders led by Venezuela’s Hugo Chavez, Brazil’s Lula da Silva, Bolivia’s Evo Morales and Argentina’s Hector Kirchner derided the FTAA, labelling it Yankee neo-imperialism. Instead, they embraced ‘Bolivarianism’, creating their own regional trade part – Mercosur –  and development bank – Banco del Sur.

But if the Washington consensus was bitter medicine, especially for Argentina and Ecuador, ‘Bolivarianism’ was toxic. Banco del Sur was never capitalised and populist policies resulted in corruption, impeachments and economic catastrophe.

Venezuela, once the richest country in Latin America, is in economic free-fall. According to the IMF, the Venezuelan GDP has shrunk by 50 percent  in the last 5 years.  This economic collapse has caused untold human suffering and massive migration of Venezuelans to neighbouring countries (especially Colombia) in search of food, medicine and a future.

Venezuelan president, Nicolas Maduro is ‘disinvited’ to Lima. He fails the ‘democracy clause’ established by then Canadian prime minister Jean Chretien and other leaders at their Quebec summit. Managing a post-Maduro Venezuela will be on the agenda.  Canada is invested in this effort through the imposition of Magnitsky-style sanctions against Maduro associates and involvement in the Lima Group.

The looming Sino-American trade war will also be discussed. For most of the hemisphere, the US and China are thir biggest trading partners. These protectionist spiral and growing geo-political tensions, spelled out in a recent speech by former US Secretary Rex Tillerson,  risk significant collateral damage for the region.

Justin Trudeau can use the summit to advance Canada’s trade agenda. With its rapidly growing middle class and younger demographics, marketing Canadian schools should be part of every conversation.

Mr. Trudeau should establish a date for our associate membership in the Pacific Alliance with presidents Pena Nieto, Sebastien Pinera (Chile), Juan Manual Santos (Colombia) and Martin Vizcarra (Peru).

Freer trade with Mercosur is also a Trudeau objective. If Canada can help Mercosur put its protectionist past behind it then the recent initiative should include progressive trade provisions. Advancing the environment, labour, gender, and small business is a better way to address populist discontent.

Canada is a country of the Americas. Since NAFTA, especially with its re-negotiation, we have come to appreciate Mexico as our friend and partner.  Mexico and USA aside, there are 32 other nations whose votes we will need in our quest for a UN Security Council seat.

We now also have a growing hemispheric web of trade agreements buttressing our commercial interests – banking and mining but now including manufacturing and infrastructure. Migration has created growing Latin diasporas, especially in our cities. Tourism and student study will bring more. Devoting sustained attention to the Americas makes sense for Canada.

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Pacific Alliance is right for Canada

Colin Robertson Globe and Mail February 4, 2018

Among the spaghetti bowl of trade deals currently on the Canadian menu, associate membership in the Pacific Alliance should be an easy choice.

The government and House of Commons International Trade Committee are currently holding consultations. Here is what they should consider:

The Alliance members – Chile, Colombia, Mexico and Peru – are business-minded. They embrace the rules-based, democratic order. Their economic well-being affects the economic health of Canadian companies, especially in resources, infrastructure and finance.

The “Pacific pumas” have more than 221 million consumers. Their combined GDP is equivalent to the world’s sixth-largest economy. Canadian investment in the alliance is estimated at $50-billion.

The alliance’s goal is to achieve free movement of goods, services, capital and people. The members are integrating their stock markets, and are even sharing embassies in certain countries.

Canada already has free-trade agreements with individual alliance members, so some ask why we should become an associate member.

The first answer is that we must take our opportunities when they come.

We would have first-mover advantage within the best trade agreement in the Americas, just as we will have with trans-Pacific countries through the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), and trans-Atlantic through the Comprehensive Economic and Trade Agreement (CETA). That means a bigger payoff as we establish a customer base ahead of the opposition. The cumulative rules of origin would weave the individual free-trade agreements (FTAs) with alliance nations into a seamless web. That would mean improved competitiveness of Canadian products.

Second, the Pacific Alliance is consolidating itself as a platform for economic integration within the Americas.

Canada would become a leader within the Pacific Alliance by virtue of being the biggest economy in the most liberalized caucus of trade nations in the world.

While the alliance is mostly about trade, it is also about building deeper co-operation through regulatory integration and addressing emerging issues such as the digital economy. What better place to advance the progressive trade-agenda goals in gender, labour, environment and small and medium-sized enterprises, than in this group of progressive democracies. And we have already begun. Last year, the Canada-Chile FTA was revised to include gender rights.

Third, stronger links with the alliance would give us better place and standing in the Americas. History and migration have given us strong links across the Atlantic and the Pacific. Our ties south of the Rio Grande, by comparison, are less so.

The Pacific Alliance commitment to transparency and anti-corruption within Latin America is the better model than its protectionist counterpart, Mercosur – Argentina, Brazil, Paraguay, Uruguay – and a contrast to the periodic illiberal governance in places like Venezuela. Canadian participation in the alliance would reinforce its attraction to the rest of the Americas.

But there are potential challenges to membership. For example, the alliance’s mobility provisions – free movement among the member states – might not work for Canada.

One option could be to negotiate trusted-traveller programs for business. Our guest-worker program with Mexico could serve as a model. Operating for more than 40 years, it now brings more than 22,000 seasonal workers to Canada annually.

The provinces must be active partners in considering the Pacific Alliance, just as they have been in the negotiations of the CETA, CPTPP and the talks to renegotiate the North American free-trade agreement (NAFTA). Trade is increasingly less about tariffs at the border and more about standards and regulations in areas of provincial or shared responsibilities.

Trade liberalization acts as a catalyst to domestic economic restructuring. Most are winners, but there are also losers. We have developed institutions between the levels of government to find and implement solutions, including adjustment assistance and retraining. We must continue and refine this.

Against a backdrop of “America First” protectionism and no foreseeable conclusion to the zombified Doha round of talks at the World Trade Organization, we need alternative markets. Middle power groupings, such as the Pacific Alliance, pick up the slack and help sustain the rules-based trading order.

Other key Pacific partners – Australia, New Zealand, Singapore and South Korea – are actively considering associate membership. It is always better to be a driver setting the course in the front seat, rather than a late passenger along for the ride. Canada should move now on associate membership in the Pacific Alliance.

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Crunch Time for NAFTA: A Test for the USA

The NAFTA negotiations this week in Montreal will give us a good sense of whether a new agreement is possible. Canada and Mexico are coming to the table with ideas on the “poison pills” but is the United States ready to negotiate?

The test will come on three issues:

– Can we preserve dispute settlement as a check against unfair protectionism?

– Can we find an equitable formula around trilateral content rules for cars, our most traded commodity?

– Will government procurement stay open to all three nations?

If we cannot resolve these issues, then we have to look to Plan B, life without the North American free-trade agreement.

Foreign Minister Chrystia Freeland’s “hope for the best, prepare for the worst” is a fair characterization of NAFTA’s prospects. The Trump administration continues to ramp up protectionist actions against foreign competition. In recent months, the United States has hit Canada with punitive tariffs on lumber, jets and now newsprint.

U.S. President Donald Trump’s repeated threats to rescind NAFTA is galvanizing hitherto-silent U.S. support into action. The farm community and business, two vital groups in the Trump coalition, want NAFTA improved, not rescinded. Surveys show a majority of Americans like NAFTA. Senators and members of the House of Representatives, especially those in the Midwest and from Texas, are now pressing the President to do no harm to NAFTA.

Canada and Mexico have launched unprecedented outreach campaigns. Canadian envoys have met with more than 65 governors and lieutenant-governors and more than 265 congressmen. We are finding allies. We will need them if Mr. Trump rescinds the agreement or if any new deal reaches Congress.

Canada and Mexico must stay engaged in what should become a permanent campaign to cultivate the biggest market in the world.

But the future of NAFTA now depends on the outcome of the American internal debate.

Canadians faced their moment of truth on trade in 1988. We fought an election over closer economic relations with the United States. It brought prosperity, not, as the critics warned, a loss of sovereignty. Mexicans faced a similar moment in 1994 when they embraced the NAFTA.

For both Canada and Mexico, freer trade proved that we could compete, not just with the U.S., but internationally.

Freer trade also became a catalyst for domestic economic reform.

For Canada, the restructuring included the introduction of a national value-added tax, the GST. Federal and provincial governments cut their deficits. For Mexico, NAFTA restructuring supported democratic change in 2000 after 71 years of one-party rule. More recently, it helped spur the “Pacto por Mexico” reforms to education, finance, labour and energy.

For Americans, NAFTA is a litmus test of its place in the world. Will they replace the rules-based order, created and sustained by the United States for 70 years, with Mr. Trump’s vision of America First? Will Americans set aside their traditional generosity towards other countries with one based on mercantilism and beggar-thy-neighbour?

For the first time, the most important global economy wants to renegotiate a trade agreement by increasing trade barriers so as to balance its trade. It’s a world of big rolling over small. Middle powers like Canada and Mexico need to push back.

Previous U.S. administrations, both Republican and Democrat, saw U.S. internationalism not as an act of charity, but as reflecting U.S. values and principles. As practised by Roosevelt through Reagan and Obama, the United States used its weight to better the global condition, willing to give more than it received. This is the “indispensable nation” that Ms. Freeland described when she laid out the Trudeau foreign policy last June. She described a United States that sustains the global order, for the greater global good, through a network of alliances, trade agreements and international institutions.

Mr. Trump’s “America First” breaks with this American tradition. Will Congress and the courts go along with Trumpism? While Canada and Mexico prepare for the worst, we must stay engaged with the many Americans who see the world, and America’s place in it, differently than Mr. Trump. Ultimately, Trumpism is a test of how Americans see themselves and their place in the world.

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Canada needs to look at BMD

“Rocket Man” has done it again. Each time North Korea’s Kim Jong-un improves his missile projection capacity, the potential increases that a missile intended for the United States will accidentally land in Canada. The Trudeau government needs to reconsider ballistic missile defence (BMD) as a shield to protect Canadians against this growing threat.

The government dodged consideration of BMD in its defence policy review last June. It got a perfunctory single line: “Canada’s policy with respect to participation in ballistic missile defence has not changed.” It meant that the policy of the Paul Martin government that was continued under Stephen Harper – a polite decline – remains in effect.

There is a reference in the defence review to discussing with the U.S. government the defence of North America against “all perils.” This should be sufficient cover to review its June decision.

When the Martin government considered BMD in 2005, the answers to three critical questions were deemed inadequate:

  • Does BMD work and how would it protect Canada?
  • How much participation would Canada have in what is essentially a U.S.-managed system?
  • How much would BMD cost?

These are still good questions. The current government should get these answers and share them with Canadians. It should begin by looking at the useful work done by the Senate national defence committee. It has twice examined BMD. Its June, 2014, report unanimously recommended that Canada participate in BMD. The witnesses supporting this recommendation included two former Liberal defence ministers, Bill Graham and David Pratt. More recently, retired general Roméo Dallaire added his support for BMD.

This week’s test is further evidence of North Korea’s improved capacity to project a warhead by ballistic missile across continents. As U.S. President George W. Bush reportedly asked Mr. Harper in 2006, what happens if a North Korean missile aimed at Los Angeles or Seattle winds up heading toward Calgary or Vancouver? Reconsideration was on the Harper government’s agenda had it received a fourth term.

In testimony this fall to parliamentarians, NORAD Deputy Commander Pierre St-Amand, current ranking Canadian at Colorado Springs, said that “U.S. policy is not to defend Canada,” although in the “heat of the moment” the U.S. could do so, “but that would be entirely a U.S. decision.”

But that is no guarantee, since the U.S. system is limited in size and the North Korean ICBM force of uncertain number. Unless we are inside the system – and making a contribution – we have no assurances, even if the U.S. command would wish to protect a Canadian target that is remote from a U.S. asset (think Edmonton or Calgary).

Consideration of Canadian engagement on BMD should cover all possible initiatives beyond the simple positioning of anti-missile sites in Canada.

These would range from a government declaration acknowledging the missile threat to Canada; to allocating additional Canadian Forces resources to the North American Aerospace Defence Command; to equipping the Royal Canadian Navy with appropriate gear to detect missiles; to radar arrays in Canada; to writing a cheque to support research. It would also oblige more attention to security in Canada’s North.

If we decide to participate, we do it because it serves Canadian interests and protects Canadians. We do not do it because we are doing the Americans a favour. On the contrary, the U.S. would be doing us a service, having made the initial, and ongoing, investments.

The U.S. is not asking us to join BMD; it did that in 2005, and we said no.

Asking now to be included would probably result in a “yes,” but it would require the U.S. to make changes to a system in which they have invested billions of dollars. Donald Trump being Donald Trump, there would be a cost to Canada.

Canada has participated in NORAD’s missile warning function for decades. Joining BMD would probably result in NORAD and the U.S. Northern Command taking responsibility for continental BMD defence. Bringing BMD into it would strengthen the binational institution that lies at the heart of the Canada-U.S. defence relationship.

Our European allies and Pacific partners employ BMD. It’s time for Canada to reconsider it. Even if the shield is imperfect, we need this additional insurance policy should errant missiles come our way.

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