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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NAFTA: Fish or Cut Bait

It’s time for Trudeau to fish or cut bait in the NAFTA talks

NAFTA negotiators are meeting again in Washington this week with their sights on the “elephants in the room”: the U.S. demands around dispute settlement, rules of origin, “Buy American” on procurement and a sunset clause.

The Americans, who initiated the renegotiation of the North American free-trade agreement to reduce the U.S. trade deficit, are expected to lay out their positions on the various “elephants.” There are also U.S. demands specific to Canada – supply management of our dairy markets – and specific to Mexico – wages, trucking and agricultural exports.

For Prime Minister Justin Trudeau, who is also meeting with President Donald Trump at the White House and then with President Enrique Pena Nieto in Mexico City, this week will be a test of his personal diplomacy. Can he convince his counterparts that a renewal of the North American idea of three sovereign nations, united in managing their common space to mutual advantage, requires taking a bigger view?

Mr. Trump promised to put “America First.” He is delivering and not just in his tweets.

Trade-remedy action by the U.S. Commerce Department is at a 16-year peak. Canada’s Bombardier joins Canada’s softwood industry as the latest victim of punitive penalties. Commerce Secretary Wilbur Ross claimed “NAFTA rules are killing our jobs.” In an unfortunate turn of phrase, U.S. Agriculture Secretary Sonny Perdue said agricultural trade is “like policy toward North Korea – all options are on the table.”

Rescinding NAFTA would be disruptive and hurt all three economies.

In the absence of a free-trade deal with the United States, Most Favoured Nation tariff rates, as negotiated under the World Trade Organization, would apply. The Peterson Institute for International Economics estimates that tariffs on all products would rise to an average of 3.5 per cent for the United States, 4.2 per cent for Canada and 7.5 per cent for Mexico – a terrible deal for all.

This will also result in trade diversion – the markup on Heinz ketchup, for example, could have Canadians switching to Salisbury or Tesco, now that the Canada-Europe trade deal is in place. Continuing trade diversification – a resurrected Trans-Pacific Partnership, potential deals with India and China – need to be part of Mr. Trudeau’s message to Mr. Trump.

A rescinded NAFTA would have an attitudinal effect on border administration. With the Canada-US FTA (1989), border agents took a “pass, friend, pass” attitude, further facilitating the passage of goods, people and services. After the attacks on Sept. 11, 2001, “security and enforcement” replaced “facilitation.” The border thickened.

If NAFTA is to be renovated and not rescinded, Canada and Mexico must redouble their advocacy efforts in the United States. With a focus on the state and local level, the message is simple: Jobs and investment depend on preferred access to Canada and Mexican markets.

Normally, the U.S. president is our shield against congressional protectionism. This time, the protectionist push is coming from the Trump administration. We need to push back with help from allies in the American Farm Bureau Federation, U.S. Chamber of Commerce and auto manufacturers.

In his meetings on Capitol Hill, Mr. Trudeau will repeat to legislators our message about the jobs and investment in their state depending on Canadian trade and investment. The Canadian Business Council recently complemented this with a map that identified 7,705 Canadian-owned businesses across 434 of the 435 congressional districts.

The Trudeau government sees the NAFTA talks as an opportunity to advance its progressive trade agenda. In putting forward Canada’s NAFTA objectives, Foreign Affairs Minister Chrystia Freeland said that “too many working people feel abandoned by the 21st Century global economy.” Mr. Trump and his supporters understand this message. Trade is blamed, even if most change is created by technological innovation and automation.

Trade works – on this, the economic evidence is clear. But if the gains of trade are seen to advantage only the rich and business, then populism will curb and roll back trade liberalization.

What if we put a tiny levy on all North American commerce and then distributed it for training and income-support to sectors and regions adversely affected by trade? It would lift some of the burden from local and state governments. This should be part of Mr. Trudeau’s discussion with Mr. Trump and Mr. Pena Nieto.

If the leaders buy in, then there is no reason that the NAFTA renegotiations cannot gain new life, meet their deadlines and set the model for future progressive trade agreements.

NAFTA Renegotiations: Fish or Cut Bait

NAFTA_Renegotiations_Montage.JPG

Image credit: Canadian Press

POLICY UPDATE

by Colin Robertson
CGAI Vice President and Fellow
October, 2017

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Table of Contents


NAFTA Renegotiations: Fish or Cut Bait

It’s fish-or-cut-bait time for the NAFTA renegotiations.

Negotiators reassemble in Washington this week (Oct. 11-15) with their sights on the elephants in the room – the U.S. demands around dispute settlement, rules of origin, “Buy American” on procurement and a sunset clause.

The Americans, who initiated these renegotiations to reduce the U.S. trade deficit, are expected to lay out their positions on the various “elephants”. There are also U.S. demands specific to Canada – supply management  – and specific to Mexico – wages, trucking and agriculture exports.

For Prime Minister Justin Trudeau, who this week will see first President Donald Trump in Washington and then President Enrique Peña Nieto in Mexico City, it will be a test of personal diplomacy. Can Trudeau persuade his counterparts to compromise on the “elephants” and keep the negotiations moving forward?

At the midway point in the scheduled seven rounds, the low-hanging fruit – chapters on small and medium-sized enterprises, competition, transparency and anti-corruption – are ready for harvest. They will likely resemble what had been previously negotiated in the stillborn Trans-Pacific Partnership (TPP) agreement. Trump withdrew the U.S. from the TPP shortly after his inauguration.

The auspices going into this round are not good.

Trump promised to put “America First” and he is delivering. From Jan. 20 through Sept. 20, 2017, the Commerce Department has initiated 65 Anti-dumping (AD) and Countervail (CVD) investigations – a 48 per cent increase from the previous year and a 16-year peak in the number of initiated investigations.

The U.S. Commerce Department has sided with Boeing in making protectionist decisions against Bombardier’s sale of its C-series jets. Inspired leaks that the U.S. side will seek to impose 50 per cent Made-in-America content on the North American manufacture of autos  follow on the heels of Commerce Secretary Wilbur Ross’s Washington Post piece: “NAFTA Rules are Killing our Jobs”. In an unfortunate turn of phrase, Agriculture Secretary Sonny Perdue said agricultural trade policy is “like policy toward North Korea – all options are on the table”.  Perdue promised to press Canada’s supply management policy and consider seasonal limits on Mexican produce.

President Trump’s continued  musings –“bring me some tariffs”, “I happen to think that NAFTA will have to be terminated if we’re going to make it good.”and tweets about rescinding NAFTA only aggravate the situation. Mexican Foreign Minister Luis Videgaray has said that Mexico would leave the negotiations if the U.S. gave notice that it was invoking NAFTA article 2205 rescinding the agreement.

After Washington, another round is scheduled weeks later in Mexico City. If there is deadlock on the “elephants”, negotiations could take a long pause, or be suspended. Finishing the negotiations by Christmas is doubtful especially given the kind of detail work, for example, that would have to go into the tracing formulas for rules of origin. Passage through Congress will also require real effort from the administration and its track record so far (repeal of Obamacare, tax reform, infrastructure spending) is not encouraging. The Trump administration continues to be understaffed, politically inexperienced and chaotic.

The biggest unknown is Trump himself.

Trudeau meets Trump this week in the White House and then goes to Mexico City to see Peña Nieto. Trump came close to rescinding NAFTA on day 100 of his administration. He continues to make threats about scrapping NAFTA. Is it another example from Trump’s playbook, The Art of the Deal? Is he serious about renegotiation or is he simply dangling increasingly unacceptable offers that would oblige a suspension or breakdown in negotiations? Mr. Trudeau should politely tell Mr. Trump to fish or cut bait.

Foreign Minister Chrystia Freeland has suggested that Mr. Trudeau will “explain really clearly to the President … that Canada is not America’s problem.” Some have suggested that this is a gentle poke at Mexico. This would be a strategic mistake and it would play directly into the divide-and-conquer tactics that Mr. Trump describes in the Art of the Deal. Mexico is a good neighbour, fellow middle power and our third largest trading partner. We need to build on this relationship.

For now, Canada and Mexico must redouble their advocacy efforts in the U.S., especially at the state and local level, to put pressure on the Trump administration if NAFTA is to be revised and not rescinded.

Elephants in the Room I: Rules of Origin

The U.S. wants to revise the current rules of origin to ensure a higher percentage of this U.S.-only content.  Secretary Ross claimed in a recent Washington Post column that, “these NAFTA rules are killing our jobs”. The numbers he used are suspect, argues former Mexican trade negotiator Luis de la Calle. The Peterson Institute’s Caroline Freund writes that U.S. content requirement in NAFTA could hurt U.S. manufacturing.

Rules of origin were first introduced in the Autopact (1965) to ensure most of the production took place in Canada and the U.S. and then the Canada-U.S. Free Trade Agreement (CUSFTA) and NAFTA extended this principle. To qualify as made in North America, autos must have 62.5 per cent content, i.e., parts, made in Mexico, the U.S. or Canada. Cars now contain an average of 30,000 parts (when we did NAFTA it was closer to 20,000 parts). Before a car is assembled, it crosses the Canada-U.S. border an average of seven times.

During the TPP negotiations, U.S. Trade Representative Mike Froman was prepared to lower the current threshold to less than 50 per cent in order to do a U.S. deal with Japan. Canada and Mexico protested but the decider was the U.S. congressional auto caucus, which forced Froman to back down.

Recent leaks in Inside US Trade suggest that USTR Robert Lighthizer wants a 50 per cent U.S. domestic content requirement. The suggested U.S. proposal would increase the NAFTA regional value content requirement from 62.5 per cent to 85 per cent and include an expanded tracing list that includes all components of a car. Supply chains are carefully designed to ensure quality, timely delivery and best price, so disrupting current processes is not something the manufacturers, parts-makers or tertiary suppliers want to see. UNIFOR and the UAW want more made in Canada and the U.S., arguing that Mexican wages are kept artificially low.

Elephants in the Room 2: Dispute Settlement

Dispute settlement covers two dimensions: investor state and trade remedies. The U.S. wants to remove both chapters from the agreement and have disputes settled solely through the U.S. trade remedy system. This is a red line for Canada and Mexico. The Trump administration sees dispute settlement as an infringement on U.S. sovereignty; it is taking a hard line not just in NAFTA renegotiations, but also at the World Trade Organization (WTO), blocking appointments of new appellate judges to the Dispute Settlement Body (DSB).

Investor-state dispute settlement (ISDS) currently contained in NAFTA’s Chapter XI, was included at the Americans’ behest to prevent appropriation of investments in Mexico. However, it has been applied mostly against Canada, usually over initiatives taken by a provincial government for which the federal government must pay the price.

As trade scholar Larry Herman observes, “the successful Chapter 11 claims against Canada would be in the order of $320 million versus $5.0 billion claimed or approximately 6.4% of total damages claimed over 23 years. While this is still substantial, it does put these amounts in perspective.” TransCanada had filed a $15 billion suit under Chapter XI over former president Barack Obama’s rejection of the Keystone pipeline permit but it was suspended after Trump issued the permit.

We are not sure yet what the Americans want to do on ISDS. Given our experience, we are promoting institutionalization of permanent courts to provide more certainty in case law and more transparency in deliberation. We took this approach in the Canada-European Union Comprehensive Economic and Trade Agreement (CETA) and TPP.

Trade Remedy, or Chapter XIX, deals with disputes related to countervail (products with prices lower than the cost of production) or anti-dump (products produced with subsidies). Examples include the softwood lumber dispute and now Boeing’s complaint about Bombardier.

U.S. trade remedy afflicted Canadian products – raspberries, lumber, fish – during the lead-up to the original CUSFTA negotiations in 1985. Dispute settlement was essential to Canada in its negotiation of CUSFTA and NAFTA. Canada would have walked if we had not secured tribunals independent of the U.S. trade remedy system. The Mexican congress passed a non-binding resolution shortly before the negotiations began, insisting that we maintain Chapter XIX.

Herman notes that, softwood lumber excepted, Chapter XIX has not been used as much in recent years – some argue its very presence keeps the system honest.

Could improvements be made to Chapter XIX? Yes, but what form they will take must be negotiated. As with tracing rules of origin, the devil is always in the detail.

Elephants in the Room 3: Five-Year Sunset Clause and Government Procurement

The proposed five-year sunset clause is a non-starter for Canada and Mexico, and business in all three countries opposes it because it removes certainty around investments.  As Canadian Ambassador David MacNaughton wryly observed: “If every marriage had a five-year sunset clause on it, I think our divorce rate would be a heck of a lot higher than it is…One of reasons you do (a trade agreement) is to create an environment within which business can make investments. (In) many of those investments people will look to 20 years’, 25 years’ payback. If you have to do it every five years, the pricing of political risk is very high.”

U.S. negotiators are proposing a “dollar for dollar” opening of North American procurement markets that would greatly reduce Canadian and Mexican access to the U.S. market. Canada and Mexico want to curb, if not exclude, ‘Buy American’ provisions at the federal and state level but the U.S. wants to roll back its NAFTA commitments.

Ongoing Disputes: Softwood Lumber and Bombardier-Boeing

Softwood lumber negotiations continue outside of NAFTA. The relevant provinces – British Columbia, Alberta, Ontario, Quebec and New Brunswick – have all appointed special envoys.  It is hard to see an early resolution. If history is any guide, resolution won’t happen until the pot is sweetened with Canadian cash. Even then, we will likely wind up with another managed trade deal of five years’ duration. Not a great solution.

The Boeing-Bombardier dispute is potentially more dangerous and could affect the negotiations in the same fashion that shakes and shingles nearly scuttled the CUSFTA negotiations in 1985-1986. The Boeing suit against Bombardier over subsidies may have a basis but given the subsidies (state, local and federal) that Boeing enjoys, is there injury?

The Commerce Department announcement on the last day of the Ottawa round of negotiations made a statement, but embarrassed the Canadian hosts. As Trudeau repeated, Canada “will not do business with a company that is busy trying to sue us and put aerospace workers out of business”.

The Boeing suit strikes at Quebec pride in its aerospace champion. The Couillard government has framed it as an affront to Quebec. Bombardier workers live in Trudeau’s riding and the Boeing officials, likely encouraged by senior Trump officials, would appear to have behaved with a surprising lack of sensitivity. BHP made the same mistake during its Potash Corp. bid and it was a major contributing factor to the deal’s collapse.

The Negotiators and the Negotiations

There is good personal chemistry at the chief negotiator level. U.S. negotiator John Melle is a long-time USTR official responsible for North America. Mexican chief negotiator Kenneth Smith is another long-time negotiator and was a member of the Mexican NAFTA team in 1993 before heading Mexico’s NAFTA office in Washington.  Canada’s chief negotiator, Steve Verheul, was chief negotiator for CETA and prior to that chief negotiator for Agriculture Canada.

Canadian Foreign Affairs Minister Chrystia Freeland and Mexican Economic Secretary Ildefonso Guajardo work together well as trade ministers. They like each other and they are in regular contact. USTR Lighthizer is a seasoned trade lawyer who served in the Reagan administration. To get a sense of the trio’s dynamic, watch the body language when the three minsters are together.

Negotiations are taking place at 28 tables. Chapters covering telecoms, small and medium-sized enterprises, competition and food safety are essentially done and they are close to closing those on digital trade and anti-corruption. To get a sense of what these chapters might look like as well as the format of the new North American accord, look to the 30 chapters in the Trans-Pacific Partnership Agreement that was signed a year ago February in New Zealand but which Trump rejected. Ironically, the U.S. negotiating team is using the TPP language for much of their suggested draft language for the NAFTA 2.0 text.

Canada and Mexico want to expand the list of business travellers eligible for the NAFTA fast-pass into the digital age. There may or may not be an energy chapter (the U.S. leans against it). If there is, it would include Mexico. Regardless, there is continuing trilateral co-operation on energy with regular ministerial meetings and efforts to consolidate and ease the flow of oil, gas and electricity through the 150 Canada-U.S. crossings and the 81 refineries that import Canadian oil or gas.

No surprise – the U.S. is pushing Canada on supply management around dairy. The likely give here (in return for something from the U.S.) would be more quota for U.S. producers similar to that given to the Europeans in CETA. We should reform our dairy industry, given the growing demand for protein in Asia. We should look to the examples of New Zealand and Australia, who shed supply management to become world-beaters in dairy products.

The U.S. wants Canada to raise the customs threshold (de minimus) for packaged goods (currently $20 and for Mexico $50 USD) to something approaching their $800, but retailers fear that they will be put out of business.

The Trudeau Visit

Prime Minister Trudeau will travel to Washington (Oct. 10-11) for meetings with President Trump and members of Congress, then to Mexico City (Oct. 12-13) to see President Peña Nieto.

The Canada-U.S. and NAFTA file have a permanent place on Trudeau’s desk. His January cabinet shuffle named Chrystia Freeland as Foreign Affairs minister, leaving her with the North American trade file. Get this wrong and it will certainly not help the Trudeau government’s re-election prospects in 2019. A special unit within the PMO focuses on Canada-U.S. relations and there is a cabinet committee headed by Transport Minister Marc Garneau. The Clerk has also made the Canada-U.S. relationship priority for deputy ministers.

Since January there has been a very public advocacy and outreach into the U.S. including Mr. Trudeau speaking on energy in Houston and on trade to the governors in Rhode Island. Ministers and MPs, premiers and legislators from all provinces have also been working their counterparts both in D.C. and throughout the states.

With all the balls in play, Mr. Trudeau must demonstrate the skills of a conjurer during this week’s visits. He must persuade Mr. Trump that a renegotiated NAFTA serves U.S. interests while at the same time holding firm on those interests we share with Mexico – rules of origin and dispute settlement – and those specific to Canada – supply management, softwood lumber and Bombardier. Normally, the U.S. president is our shield against congressional protectionism. This time, the push is coming from the Trump administration.

In his meetings with Congress, Mr. Trudeau can point out to each congressman the trade of their state and district with Canada and the jobs that depend on Canadian trade and investment. The Canadian embassy has parsed this information in its state fact sheets and it is now complemented with an interactive map by the Canadian Business Council that identifies 7,705 Canadian-owned businesses across 434 congressional districts.  The Canadian message is to remind Americans that Canada is their No. 1 export market and that we are a reliable neighbour and ally, pointing to, for example, Canada’s commitment to increased defence spending in the recent Defence Policy Review.

Work with our U.S. Allies

In the coming weeks, Canada and Mexico will need to redouble their outreach to Capitol Hill and into each state, pointing out the benefits of trade and underlining the cost should NAFTA be rescinded. We have allies – notably the Farm Bureau, U.S. Chamber of Commerce and auto manufacturers and their suppliers for whom supply chain disruption will be costly.

Warning of an “existential threat” to North American economic security, U.S. Chamber CEO Tom Donohue recently described the Administration’s proposals on sunset clause, dispute settlement and rule of origin as “poison pills”. Donohue observes “U.S. exports to Canada and Mexico generate nearly $37,000 in annual export revenue for every American factory worker. And in the first eight months of 2017, exports from the United States to our NAFTA partners were worth four times as much as those to China.” Rescind NAFTA warned Donohue and “The United States could then reasonably expect trade retaliation … higher tariffs … broken supply chains … and potentially less cooperation on other priorities like anti-terrorism and anti-narcotics efforts. And who would be hurt the most as a result? The very Americans that this administration seeks to put first.”

What Canada Wants

In a speech at the University of Ottawa and remarks before the Standing Committee on International Trade (Aug. 14) Foreign Minister Freeland compared the negotiations to “renovating a house” and laid out her main objectives:

  • Modernize the 23-year-old NAFTA to recognize the technological and digital revolution;
  • Make it a progressive “fair trade” agreement, using CETA as a model, through inclusion of chapters on the environment, labour, gender equality and Indigenous peoples;
  • Reforming dispute settlement to ensure governments have the right to legislate in the public interest with fair dispute settlement (Chapter XIX);
  • Easing business travel (Chapter XVI), cutting red tape and focusing more on harmonized regulatory co-operation;
  • Preserving supply management and cultural exception.

The progressive trade agenda is still taking definition. Environment and labour, side letters in the original NAFTA, are key elements in the progressive trade agenda along with provisions relating to the rights of Indigenous peoples and gender equality.

For a sense of what it might look like, the Canada-Chile FTA has been amended to add new chapters on sanitary and phytosanitary measures, technical barriers to trade, and trade and gender, making technical amendments to the existing government procurement chapter, and adding new, progressive elements to the investment chapter.  These amendments will enter into force once both Canada and Chile have completed their respective domestic implementation processes.

What If the Negotiations Break Down?

NAFTA would remain in effect between Canada and Mexico although if the TPP-11 negotiations are successful, the new TPP would effectively replace the Canada-Mexico NAFTA. If the U.S. rescinded NAFTA, Canada and the U.S. would revert to CUSFTA. This may prove a weak shield because CUSFTA contains Chapter XIX.

Rescinding NAFTA would be disruptive and hurt all three economies. At that point, most-favoured-nation tariff rates, as negotiated under the WTO, would apply, After withdrawing from the deal, the Peterson Institute’s Chad Bown says that tariffs on all products would rise to an average of 3.5 per cent for the U.S., 4.2 per cent for Canada and 7.5 per cent for Mexico – a terrible deal for all.

The consumer would be the biggest loser. As we have seen with softwood lumber tariffs, it would divert trade. Instead of buying Heinz ketchup, which would be subject to a seven per cent tariff, we may switch to Salisbury or Tesco.

A rescinded NAFTA would likely have an attitudinal effect especially at the border on trade.

After CUSTFA was implemented (1989), border agents took a “pass, friend, pass” attitude. This further facilitated trade in goods, people and services. After 9/11 this facilitation attitude changed to that of security and enforcement. The border thickened. Mitigated by the Smart Border accord (2001), and the current Beyond-the-Border (BTB) and Regulatory Co-operation Council (RCC) initiatives, the ongoing NAFTA consultations have underlined that border frustrations remain the number one complaint of business.

For Canada, plan B is continuing to ease passage of goods, people and services at the border through the RTB and RCC discussions. These take place on a separate track to the NAFTA negotiations. They are making progress to reduce redundancies and duplication and on establishing a paperless, cashless and single-portal access for business.

We are likely months, rather than years, from submitting customs papers in electronic form through a single portal to Canadian and American authorities that will address all the needs of the respective departments. Originally promised under Smart Border – the accord that John Manley and Tom Ridge negotiated after 9/11, it will make the passage of goods much easier. It would avoid the problem of having to show up at the border with pages of forms and cash.

We are also making big border infrastructure investments, most notably the construction of the Gordie Howe Bridge between Windsor and Detroit, that is scheduled to open in 2022. There are also plans to improve the existing Ambassador Bridge.

There are also other instruments facilitating trade that would remain in place, most notably the Defence Production Sharing Agreement (DPSA) between Canada and the U.S. Dating back to the Second World War, DPSA is the overarching agreement from which much of the favourable defence trade treatment of Canadian companies interested in doing business with the U.S. Department of Defense (DOD) has arisen.  This includes specific language in the U.S. Defense Federal Acquisition Regulation Supplement (DFARS) regarding the special DOD access for Canadian companies.

Through DPSA, the Defense Development Sharing Agreement (DDSA), and NAFTA, the U.S. and Canada each enjoy unique defence trade status with the other.  With limited exception, DPSA allows Canadian suppliers to compete for U.S. government defence contracts under the same terms applied to U.S. suppliers.

Additionally, there are the Canadian exemptions to the U.S. International Traffic in Arms Regulations (ITAR). While recent tightening of the exemptions is aggravating, it works for Canadian companies.

Canada needs to take full advantage of our current bilateral and regional agreements, most notably the recently implemented (Sept. 21) CETA. We need to put effort into creating a TPP of 11. The government has announced it is working on an FTA with ASEAN. Then there are the Canada-China discussions and ongoing Canada-India negotiations. Our trade commissioner service, working with the provinces and Canadian business, needs reinvigorating to expedite commerce.

Pre-Clearance Pending…

The U.S. passed pre-clearance legislation last December and Canadian legislation is in the Senate. When it is done, then we can proceed with pre-clearance at Billy Bishop Airport in Toronto and in Quebec City, for cross-border train travel from Montreal and Vancouver and some marine ports, and pilots for rail cargo and intermodal traffic. About 12 million passengers now pass through airport pre-clearances on Canadian soil, and there are only about five to 15 strip searches per airport per year. What will happen when we pass our marijuana legislation is anyone’s guess.

The Trade Deficit Question

In July, USTR Lighthizer provided Congress with a list of U.S. objectives with the underlying goal of reducing U.S. trade deficits. NAFTA negotiations began in mid-August, after the USTR secured trade promotion authority from Congress. Foreign Minister Freeland has argued that Canada-U.S. trade is virtually in balance. Even Secretary Ross puts Canada in the “blameless deficit” category because the U.S. is “not self-sufficient in energy.”

But the administration seems consumed with goods, especially manufactured goods being made in America. A series of executive orders are aimed at “Buy American and Hire American” with a focus on steel and aluminum. That penny is still to drop. It could mean tariffs that will affect supply chains.

China, as we heard during the campaign, is the main target for trade action but Trump’s enthusiasm is tempered by the realities of geo-politics, namely North Korea, and the recognition that China must play a key role in containing or curbing the rogue state.

Canadian Attitudes to Trade

When the Mulroney government negotiated CUSFTA in 1988, the country was divided: about 25 percent in favour, 25 per cent dead against and about half in the middle. It was the main issue in the 1988 election. While Brian Mulroney and his Progressive Conservatives won with a majority (with 43 per cent of the vote), they only carried three provinces: Alberta, Quebec and Manitoba.

This time around the Liberals and Conservatives are united behind NAFTA. Surveys say Canadians like NAFTA. Canadians trust Prime Minister Trudeau to negotiate a good deal and they are also prepared to let him walk if it is not. And surveys also say that Canadians don’t think much of President Trump. He is the most unpopular U.S. president in our life-time and this sentiment is shared in much of the globe.

NAFTA Worked But…

By all economic analysis – Canadian, American, Mexican, OECD, World Bank and IMF – NAFTA has worked for all three nations with trade tripling since 1994. But there continues to be a lot of misinformation and myth about its shortcomings as we witnessed during the 2016 U.S. presidential election.

NAFTA broke new ground in its day but it was drafted before the digital age. The Trudeau government sees NAFTA as an opportunity to advance its progressive trade agenda because, as Freeland told the House International Trade Committee when she put forward Canada’s NAFTA objectives, “too many working people feel abandoned by the 21st century global economy.” But if the gains of trade are seen to advantage only the rich and business, then populism will curb and roll back trade liberalization.

Even if most change is created by technological innovation and automation, trade is held accountable and this has led to the demonization of NAFTA since its implementation (1994) especially by U.S. Democratic politicians (including Hillary Clinton and Barack Obama) and now Trump. While congressional Democrats, with few exceptions, have traditionally opposed freer trade, Republicans until recently supported it.

Today, public opinion polls show Trump supporters to be the most vociferous anti-free traders. Ironically, the U.S. public supports freer trade.

Time is an Issue.

The Mexicans have a presidential election in July and the ruling PRI party and centre-right PAN party don’t want NAFTA to intrude into the presidential campaign lest it give an advantage to the leftist candidate, Andres Manuel Lopez Obrador (AMLO), The Americans don’t want it to intrude into November’s mid-term elections. The timetable set by the Trade Promotion Act under which the USTR is proceeding has a fixed congressional schedule for approval that potentially takes up to a year before the congressional up or down votes.

Further Reading

The NAFTA negotiations receive daily coverage by Canadian media. The US publications Politico and Inside US Trade have daily insights into the negotiations. CSIS Andrea Durkin edits the excellent Trade Vistas – its graphics are superb. The Wilson Center’s Canada Institute is closely following the negotiations and Director Laura Dawson publishes a regular insightful newsletter. The Canadian American Business Council CEO Scotty Greenwood’s weekly looks at the broader Canada-US relationship. NASCO’s Rachel Connell edits the useful North American Now. My go-to for NAFTA trade policy commentary is the Peterson Institute for International Economics. I wrote a CGAI NAFTA Primer that includes a list for further reading.

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About the Author

A former Canadian diplomat and a member of the teams that negotiated the Canada-U.S. FTA and NAFTA, Colin Robertson is Vice-President and Fellow at the Canadian Global Affairs Institute and Executive Fellow at the University of Calgary’s School of Public Policy. He is Senior Advisor to Dentons LLP. He is a member of the NAFTA Advisory Council to the Deputy Minister of International Trade. A Distinguished Senior Fellow at the Norman Paterson School of International Affairs at Carleton University, he is a member of the advisory councils of the Conference of Defence Associations Institute and the North American Research Partnership and participant in the North American Forum. He is a past president of the National Capital Branch of the Canadian International Council. He is an honorary Captain (Royal Canadian Navy) assigned to the Strategic Communications Directorate. He writes a regular column on international affairs for the Globe and Mail and he is a regular contributor to other media.

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Remembering Allan J MacEachen

Remembering Allan J. MacEachen: Parliament’s unmatched Celtic sphinx

Canny, shrewd, and wily, Allan J. MacEachen knew how to get things done.

Veteran Liberal cabinet minister Allan MacEachen, pictured centre, with then-prime minister Jean Chrétien and his chief of staff Jean Pelletier en route to the funeral of Pierre Elliott Trudeau in 2000, died earlier this month. Photograph courtesy of Jean-Marc Carisse

PUBLISHED : Wednesday, Sept. 27, 2017 12:00 AM

Justin Trudeau called him a “peerless” Parliamentarian. Allan J. MacEachen was certainly that. MacEachen venerated Parliament as an MP and then a Senator; he mastered its procedures with effect. He used his skills to help shepherd through a remarkable package of social reforms including medicare, a labour code for Canadians, and insurance for Canadians out of work.

He taught me and the many who worked with him over his 38 years in Parliament that politics is much more than a competitive sport, that ideas do matter, and that it is your duty to influence, shape, and make public policy in support of the common good.

Our job, he told us, was “to help those who need our help to put bread on their table.” His liberalism drew from the Moses Coady school of a hand-up, self-help, and hard work.

Justin Trudeau described the relationship between Allan MacEachen and his father, Pierre Trudeau, as a “match made in heaven.” MacEachen served Pierre Trudeau as House leader and Canada’s first deputy prime minister as well as minister for Manpower and Immigration, External Affairs, and Finance. Pierre Trudeau would later write in his memoirs that MacEachen was “the kind of man I respected, because he had no ulterior motives. He said what he thought, and the reasons he would give were always his real reasons.”

Elected from Cape Breton, N.S., in 1953, MacEachen served as a private member during the St. Laurent years. He chastised me for describing an MP as a “backbencher.” He thought it unfairly diminished the independent role of the private member.

He worked for then-opposition leader Lester Pearson after losing his seat (by 16 votes) in the 1958 election. MacEachen, Maurice Lamontagne, and Tom Kent were a powerful brain trust to Pearson. MacEachen always described himself as a “Pearson Liberal.” A photograph of a smiling young MacEachen riding with Pearson in a convertible with the top down during a campaign tour in the early ‘60s occupied a place of honour in MacEachen’s parliamentary offices.

MacEachen profoundly believed in the redemptive power of government and the moral duty of the state to look after the sick, the poor, and the elderly. These were themes of his campaign for the Liberal leadership in 1968.

In his chronicle of the period, Distemper of our Times, Peter Newman described MacEachen during the campaign as an “authentic voice of the Liberal left.” As the Laird of Lake Ainslie, he left as his legacy new roads, airports, and harbours; improvements to the steel and coal industry; a heavy water processing plant; and a national citizenship office.

MacEachen deserved the sobriquet the “Celtic sphinx.”

I served as his legislative assistant (1982-4), having won the assignment probably because I wore my clan’s tartan tie to the interview (MacEachen was very proud of Canada’s Scottish heritage).

Shortly before Question Period, I would enter his cavernous office, across from the House of Commons, to brief him while he finished the plate of cream cheese and fruit prepared by his indispensable assistant and gatekeeper Pearl Hunter. MacEachen would listen, nod, and then slowly walk over to the House. Three months had gone by and he had not said a word to me.

I had asked Sean Riley, who later become president of St. Francis Xavier University, if I should do anything. “Three months…it was at least that for me…just wait,” he replied.

Finally, one day when I had given him a particularly obtuse response on a Middle East issue, the Sphinx stirred.

The deep, rumbling baritone asked: “Would you really say that? Would you really say that in the House of Commons?” Pondering my loyalty to the foreign ministry (my department) against my service to its minister, I blurted “No minister.”

There was a pause. “What would you say?”

I burbled something. He nodded and went into the House. A variation on the question was asked but his answer bore no resemblance to what the department or I had offered. It was erudite and informed, earning him admiring laughter but leaving nothing for the opposition to chew on.

MacEachen also knew how to manage the mandarins. He would keep a piece of paper with two columns: what they wanted and what he wanted. Their list was always much longer and they would constantly push to get things done. He had some projects he wanted done–for the constituency and for Atlantic Canada–as well as policy initiatives around North/South relations or trade. He would take out the piece of paper and remind them the score was very much in their favour but his asks were still outstanding. It got results.

Canny, shrewd, and wily, Allan J. MacEachen knew how to get things done. Canada is a better place to live and work thanks to Allan J.

Colin Robertson is a former diplomat who worked as a departmental legislative assistant to Allan MacEachen from 1982 to 1984 while he was foreign affairs minister and deputy prime minister. Mr. Robertson is now vice-president and a fellow with the Canadian Global Affairs Institute and a senior adviser with Dentons, LLP.

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Ballistic Missile Defence

Canada should join ballistic missile defence system, but it will cost us: experts

WATCH: Ballistic Missile Defence has suffered from negative coverage: Macdonals

The Canadian government must consider paying up to join the U.S. ballistic missile defence program, say a former diplomat and a former NORAD commander.

In a panel discussion on The West Block with Vassy Kapelos, former Canadian diplomat Colin Robertson and retired Lt-Gen. George Macdonald agreed that the time has come to take steps to actively protect Canada in the event of a ballistic missile strike like the ones being threatened by North Korea.Related

At the moment, Canada has no means to defend itself against such a strike should a missile be aimed at us, or veer off course after being aimed at a U.S. city.

READ MORE: U.S. won’t defend Canada during North Korean missile attack, official says

“I think that the NORAD mission, which has been aerospace warning and defence for almost 60 years now, always included ballistic missile warning, but a natural extension of (missile) defence was not agreed to by the Canadian government in 2005,” said Macdonald, a former deputy commander-in-chief at NORAD.

That decision came as a surprise to many within the joint defence organization, he noted.

WATCH: U.S. won’t defend Canada from North Korea attack

But the U.S. ballistic missile defence program (BMD) suffered from a great deal of bad press a decade ago, Macdonald said.

At the time, there were concerns that it was destabilizing from a global military perspective, that the costs were too high and that it simply it didn’t work (the complexity of stopping a nuclear-armed missile mid-flight has been compared to hitting a bullet with another bullet).

“In the 10 or 12 years that have passed since then, the system has evolved,” Macdonald told Kapelos. “There is more confidence in the ability to defend against a ballistic missile attack … I think it’s topical now to revisit the situation.”

Robertson said Canada will need to go in with “eyes open,” however, especially as the Americans have no real motivation to bring us into the fold. Ottawa will need to commit resources, and money, to the endeavour. So far, there have not been any signals that the government is preparing to change its position.

“I think if we want in now we’re going to have to pay for it,” Robertson said.

“There is a piece in the (Canadian Armed Forces) defence policy review which says that we will be looking with the Americans at all threats to North America, so this would give the government the political cover they need to take a look at this.”

Prepared Remarks before House of Commons Standing Committee on National Defence on ‘Canada’s Abilities to Defend Itself and our Allies in the Event of an Attack by North Korea on the North American Continent’, Thursday, September 14, 2017

My remarks draw on 33 years of experience in the Canadian Foreign Service and, since then, my work as a fellow with the Canadian Global Affairs Institute. I spent a week earlier this year in Seoul, as the guest of the Korea Foundation, meeting with Korean scholars and senior Korean defence and security officials.

 

Let me address three questions:

  • Canadian participation in Ballistic Missile Defence (BMD)?
  • Our policy towards North Korea?
  • How can Canada contribute to nuclear non-proliferation?

 

Ballistic Missile Defence

 

It is time for Canada to participate in BMD as an insurance policy to shield Canadians should missiles come our way. Our European allies and Pacific partners employ it. So should we.

The Government dodged consideration of BMD in the recent Defence Policy Review (DPR). When I asked at the technical briefing at the launch of the DPR last May, I was told that the Government was staying with the policy adopted by the Martin and then Harper governments that we will not participate in BMD, but that the government is discussing defending North America against ‘all threats’ with the American government.  That would have to include BMD.

 

From discussions around the 2005 decision I understand that at that time the Government could not get adequate answers to three questions:

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

 

These are still good questions and the current Government should get these answers and share them with Canadians.

 

That said, based on the evidence presented to it, the Senate National Defence Committee unanimously recommended in June 2014 that Canada participate in BMD.

 

Since then there is abundant evidence of North Korea’s improved capacity to both miniaturize a nuclear warhead and then project it by ballistic missile across continents. As then President George W Bush reportedly asked then Prime Minister Stephen Harper in 2006: ‘but what happens if a North Korean missile aimed at Los Angeles or Seattle winds up heading towards Calgary or Vancouver…don’t you want protection?’

While the US may protect a Canadian target near to a US city, there can be no guarantee since the US 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 US commander would wish to protect a Canadian target that is remote from a US asset – think Edmonton or Calgary.

Consideration of Canadian engagement on BMD should cover all possible initiatives beyond the simply positioning of anti-missiles in Canada. These would range from a Government declaration that we acknowledge the missile threat to North America, to allocating additional Canadian Forces resources to NORAD, to equipping our naval assets with appropriate gear to detect missiles, to radar arrays in Canada, to writing a cheque to support research. In each case it will require more attention to security in Canada’s North.

 

The US is not asking us to join BMD. They did in 2005 and we said no. My sense is that if we were to ask now to included they would probably agree but it will oblige them to make changes to a system in which they have invested billions. There would be a cost to Canada. So if we decide to join, we do it because it serves Canadian interests and protects Canadians, not because, as some suggest, we are doing the Americans a favour. On the contrary, they would be doing us a service having made the initial and ongoing investment.

Joining BMD would likely bring the continental BMD defence function under NORAD and NORTHCOM. Canada has participated in NORAD’s missile warning function for many years, and bringing BMD into it would strengthen the bi-national institution at the heart of Canada-US relations and the defence relationship in particular.

North Korea

 

I believe that the Government, as part of its commitment to active internationalism, needs to reconsider its current policy approach to North Korea. Diplomatic relations are not a seal of good housekeeping but rather the means by which advance Canadian interests and protect Canadians. Relations also allow us to bring insight, intelligence and a Canadian perspective to the diplomatic table.

 

The current policy of controlled engagement was adopted by the Harper Government in 2010 after a North Korean submarine torpedoed a South Korean warship in blatant disregard of its international obligations.

 

This policy limits engagement to discussion of (1) regional security concerns; (2) the human rights and humanitarian situation in North Korea; (3) inter-Korean relations; and (4) consular issues and this latter provision was how National Security Advisor Daniel Jean negotiated the recent exit from North Korea of Pastor Lim.

 

The Lim episode aside, it has meant we have virtually no contact with the Kim regime. There has not been an Ambassadorial visit to North Korea since 2010. In fact, no Canadian Ambassador has been accredited to North Korea since 2011. This contrasts with like-minded embassies in Seoul whose Ambassadors have regularly travelled to North Korea in the last 7 years. Seven EU countries also have resident Embassies in North Korea.  Our current policy helps no one, hinders communication, particularly at times when we most need it, and puts us at an information disadvantage with, and lessens our value to our closest allies.

 

The authoritarian regime of Kim Jong-Un, continues to break international nuclear non-proliferation norms, despite repeated Security Council resolutions.

 

My view is that while any role for Canada would likely be limited, it would serve our interests to engage the North Koreans, thus enabling us to bring some intelligence or niche capacity to the table. My former foreign service colleague James Trottier who made 4 official visits to North Korea in 2015 and 2016 recently wrote an informed and useful piece in the Ottawa Citizen arguing for a combination of negotiations, incentives, sanctions and strengthened missile defence.

 

Some observations:

 

First, South Korea is our friend, fellow middle-power and the only nation in Asia with which we have a free trade agreement. It’s a country that we should cultivate, keeping in mind that they respect understand and respect toughness in trade negotiations.

 

South Korea has lived under the threat of bombardment by North Korea since the Armistice in 1953. Seoul, a city of ten million people, is 60 kilometers from the border and within easy range of conventional bombardment. After meeting with a very senior official in March he walked me to the elevator where I saw what I thought were a bunch of goggles. He looked at me and said “That’s for a chemical or biological gas attack. I don’t fear a nuclear bomb because what we have created in South Korea is just too valuable for Kim Jong-Un to destroy. He’d rather eliminate us so he can put his own people here.”

 

Second observation, Kim Jong-Un is ruthless, acting like something out of Game of Thrones, but his behaviour is rational and based on self-preservation.

 

For him and the 200,000 or so senior officials who benefit from his autocracy, a nuclear bomb is their insurance policy against the fate of Muammar Gaddafi or Saddam Hussein. Kim will not give up his weapons.

 

Third, we will have to live with a nuclear North Korea. We need to establish a new equilibrium and accept the least offensive outcome if we are to realize objectives under the failed ‘strategic patience’ policy.

 

The time for a military intervention, if it ever existed, has probably passed, short of some sort of extraordinary intervention by the Chinese, the only power with real leverage in this situation. But, for now, China does not want a failed regime and the migrants it would bring.

 

So we must live with the situation. An engaged Canada could perhaps be helpful. We used our convening capacity in the lead-up to President Obama’s opening to Cuba. President Trump has said he would consider meeting Kim Jong-Un. Throw in Dennis Rodman and a Raptors game and Niagara Falls and who knows what would happen.  The point is that to contain North Korea we have to think outside-of-the-box.

 

Nuclear Non-Proliferation

 

The fundamental issue with North Korea is nuclear proliferation. As part of our commitment to active internationalism, Canada should re-dedicate itself to the cause of nuclear non-proliferation.

 

For Canada, one of the world’s biggest producers of uranium, there is an important role to play in helping to secure the materials needed to make a nuclear bomb.

Canada, Australia and Kazakhstan account for more than two-thirds of global production. What if the three agreed to become permanent stewards of used uranium products?

We would permanently “own” our uranium and ensure that its waste, including radioactive and fissible material, was properly disposed of, perhaps in mines no longer in production. While this doesn’t solve the problem of existing nuclear waste, it would control most new supply.

The International Atomic Energy Agency would provide on-site accounting oversight and supervise the transportation of all uranium. Rates would reflect risks to make it commercially and politically viable.

Given their secure geography, Canada and Australia would have to take the lead in long-term global disposal. This will require leadership and explanation to persuade Canadians to take on this responsibility.

Saskatchewan is home to Canada’s uranium mines and the industry is one of the largest employers of indigenous people. People in Saskatchewan strongly support their industry. They recognize the value of nuclear medicine research, but they oppose nuclear waste storage. They will need to be convinced aboåut the safety, security and economic returns of long-term stewardship.

Nuclear energy, which emits no carbon, is also a key piece of the solution to climate-change mitigation. China is betting heavily on nuclear energy in its migration from coal. France derives about 75 per cent of its electricity from nuclear energy. Nuclear power supplies half of Ontario’s electricity.

The nuclear genie is out of the bottle. We must do a better job of handling its waste and curbing nuclear proliferation. As both a producer and user, Canada can take the lead in the control and containment of our own uranium.

Conclusion

We live in a world in disarray but we are not without assets and opportunities. I recommend that we look hard at ballistic missile defence as an insurance shield for Canadians, engage with North Korea to see if we can be helpful, and take a leadership role in controlling nuclear materials.

 

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NAFTA

What was behind Trump’s comment on NAFTA and energy?

There is wide-ranging speculation on the implications of US President Donald Trump’s recent comments about Canadian energy exports and the upcoming renegotiation of the North American Free Trade Agreement (NAFTA).

On Thursday (April 20), Trump said, “I was in Wisconsin the other day, and I want to end, and add, by saying that Canada, what they’ve done to our dairy farm workers is a disgrace. It’s a disgrace. We can’t let Canada or anybody else take advantage and do what they did to our workers and to our farmers. And again I want to also just mention: included in there is lumber, timber and energy.”

The Globe and Mail now reports, “Neither Canada’s government nor oil industry have any idea what U.S. President Donald Trump was talking about when he warned that the U.S. will target Canada’s energy sector in renegotiations of the North American free-trade agreement. Finance Minister Bill Morneau, in Washington at the International Monetary Fund and World Bank spring meetings, said he could not think of any energy-related trade disputes between the two countries.”

A border adjustment tax?
That article adds, “Mr. Trump did not specify what he was aiming to do. He has previously presented himself as a friend to Canada’s oil and gas sector, restarting the Keystone XL pipeline project blocked by Barack Obama. The President is planning to unveil his tax plan next week [on April 26], which some economists have speculated could include a tax on foreign oil imports.”

According to the US Energy Information Administration, the US imported 3.76 million barrels of oil a day from Canada in 2015. Last month, the US Department of Energy said the United States posted a $39 billion energy-trade deficit with Canada due to imports of oil, natural gas and electricity.

An American border adjustment tax on energy exports from Canada would be a clear violation of NAFTA.

Proportional sharing clause for Mexico?
The article further speculates, “The United States is heavily dependent on Canada for oil and gas because it does not produce enough to meet demand. A more likely target for NAFTA negotiations is Mexico’s energy sector, which has historically been the subject of government monopolies but has been opened up to private investment since 2013. One Canadian official, speaking on condition of anonymity, said bringing Mexican oil and gas under NAFTA would be an attractive prospect in trade talks.”

This could suggest that Trump may seek to have NAFTA’s proportional sharing provision apply to Mexico as well. That provision basically says that Canada must maintain at least the same level of oil and gas exports to the United States as it had supplied for the past thirty-six months. Author-activist Gordon Laxer has commented, “Proportionality, the de facto, mandatory-exporting clause applies only to Canada, since Mexico refused it.”

In December 2013, Mexico ended 75 years of government control of its oil reserves when it passed an energy reform law that allows transnational corporations to explore and extract oil and gas. That reform is expected to attract as much as $15 billion of foreign investment annually and increase oil production to as much as 4 million barrels per day by 2025 and double natural gas production.

Timelines
Speculation has suggested that NAFTA negotiations could begin this summer or fall.

Former diplomat Colin Robertson has stated, “At the earliest I think the renegotiation – with or without Mexico – will take at least a year, probably 19 months. After that we have to go for ratification, which adds on another year plus. My guess is that NAFTA, or whatever we call it, doesn’t get wrapped up until spring or summer 2019, meaning it will be front and centre in our October 2019 election.”

Mexico’s economy minister Ildefonso Guajardo sees a shorter time frame. He believes talks could start in late July and be concluded in April 2018. That may be because a general election will take place in Mexico in July 2018 and the early front-runner to be the next president of Mexico is Andres Manuel Lopez Obrador, a vocal opponent of Trump. He has stated, “[NAFTA] didn’t hurt, but it wasn’t the panacea”, suggesting he would be willing to walk away from the deal during the negotiation process.

To demand public consultations on NAFTA — and the removal of the proportional sharing clause from NAFTA — please click here.

North American Free Trade Agreement (NAFTA)

Primary tabs

Not For SaleThe clock is ticking on the North America Free Trade Agreement (NAFTA). Both the U.S. and Canada have opened up public consultations on the tri-country deal between Canada, the U.S. and Mexico. NAFTA renegotiations could start as early as August.

President Trump has made it clear he wants
NAFTA renegotiation to put “America first.”

Prime Minister Justin Trudeau has unsuccessfully tried to placate Trump. Prime Minister Trudeau has also tried to defend the deal, despite the evidence. For years we have seen the ravages of NAFTA – the Chapter 11 corporate lawsuits that have cost Canada millions of dollars and eroded our environmental and public policy, hollowed out manufacturing towns and hundreds of thousands of people put out of work, and greater inequality in Canada, the U.S. and Mexico.

We must stand up for an alternate vision – NAFTA renegotiations present an opportunity for a better, fairer NAFTA that will improve things for people and the planet.

Give the Canadian government a strong negotiating mandate by calling on it to:

Eliminate Chapter 11, the investor-state dispute settlement (ISDS) process, from NAFTA. ISDS provisions allow corporations to sue governments for policies or regulations that restrict corporate profits. Corporations have used these provisions to challenge laws that protect people’s health and the environment.

Remove all references from NAFTA to water as a good, service or investment. Canada is vulnerable to bulk water exports and increased privatization under the deal. President Trump could see Canadian water as a way to hydrate drought-ridden U.S. states.

Eliminate NAFTA’s energy proportionality rule. This rule requires Canada to export a locked-in percentage of our energy production to the U.S. This forces continued production in the tar sands, which will stop Canada from meeting its climate commitments.

We must stand up to Trump’s dangerous agenda on trade. We can make NAFTA fairer by protecting and expanding Canadians jobs, safeguarding water and the environment, and strengthening our economy.

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Canada has Edge in NAFTA Negotiations

Experience, outreach give Canada an edge in achieving NAFTA renovation goals

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Bulk Drug Sales to the USA

Canada must resist the lure of bulk U.S. drug purchases

 

‘Beware of Greeks bearing gifts” is advice that Canadians should heed on U.S. legislation permitting the bulk purchase of pharmaceutical drugs from Canada for the U.S. market.

At a time when we are about to renegotiate our preferred access for people, goods and services, it makes no sense for Canada to involve itself in this very American controversy.

Vermont Senator Bernie Sanders is the driving force behind a bill in the U.S. Senate aimed to give Americans “Canadian” prices for their prescription drugs. A similar bill was defeated in January (52-46) but not on the usual Democrat versus Republican partisan lines. A dozen Republicans, including senators Ted Cruz, Chuck Grassley and John McCain, voted for the measure.

Americans spend more per capita on health care than anyone else in the world – $9,451 (U.S.), according to the OECD (the comparable figure for Canada is $4,727). Donald Trump and the Republicans were elected, in part, on their promise to abolish Obamacare, and their recent spectacular failure in the House of Representatives only underlines the challenges around U.S. health care.

Groups of American seniors crossing the border to buy drugs or having prescriptions filled in Canada and then sent to them in the United States – this also accommodates Canadian snowbirds – has long been a feature of cross-border “trade.” This will continue. But Canada is not the solution to the United States’ drug-pricing controversy.

Our pharmaceutical industry – innovators and the generics – is stretched providing for the Canadian market. Last year, Health Canada introduced regulations requiring drug manufacturers to report on anticipated and actual drug shortages. There is even a website – Drug Shortages Canada.

Involving ourselves in this American problem would not serve Canadian interests. Given that many of the prescription drugs that Canadians consume are manufactured elsewhere, Canada would simply be a trans-shipment point.

The failure of Canadian authorities to inspect for counterfeits in goods trans-shipped through Canadian ports is a continuing irritant to the United States. With the opioid epidemic in the United States (a problem also in Canada), there is also concern that Canada would become a back door for international drug smugglers. The bulk transfer of pharmaceutical drugs makes no sense. As with the prohibition on the bulk transfer of our water, Parliament and provincial legislatures should act now to prevent wholesalers from exporting drugs in bulk from Canada.

With aging populations in both Canada and the United States, there is only going to be more demand for drugs and biologics that improve and sustain life. This is where Canada and the United States should be co-operating.

It is estimated that, with research, clinical trials and licensing by governments, it takes eight to 11 years and costs almost $3-billion to bring a drug to market. The creators, mostly private companies, deserve a fair return on their investment but pricing must be fair as consumers and their legislators will intervene, as illustrated by the EpiPen controversy.

Innovation is a Trudeau government priority. Innovative Medicines Canada says that there are more than 500 new products in development supported by more than $1-billion in annual research and development. Genome Canada and its provincial partners are making a difference employing using new approaches, such as Open Science, involving the sharing of data and samples.

If health care in the United States is the most expensive in the world, Canada’s is also costly – about 11 per cent of our GDP. Every provincial government is engaged in efforts to bring down health care, which absorbs about 40 per cent of their budgets. More attention needs to be devoted to outcomes. This will require hospitals and health-care professionals to share data and then crunch them so we can see what is working and what can be improved. This is another area where co-operation with the United States makes sense.

In the meantime, let’s not risk our reputation and our own supply to address a “Made in America” problem that must be fixed in America. Mr. Sanders’s “Trojan horse” should be emphatically rejected and the sooner the better. Canada has much bigger stakes in play with our American neighbours.

A former diplomat, Colin Robertson is vice-president and fellow at the Canadian Global Affairs Institute.

 

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Canada and Mexico

If Canadians are wary about the incoming Donald Trump administration, think about the Mexicans. For them, Mr. Trump presents a clear and present danger.

His threats have moved beyond promises to deport “two … it could even be three million” and to build a “Great Wall” across the entire land border that “will be paid back by Mexico.”

Threatening to impose a 35-per-cent border tax, president-elect Trump has cajoled American, Japanese and German companies to abandon their investment plans in Mexico. The peso has plummeted to its lowest levels ever against the U.S. dollar.

To prepare for a President Trump, President Enrique Pena Nieto recently appointed a new Foreign Minister, Luis Videgaray, and yet another new ambassador to the U.S. (the third in nine months). In speeches to Mexico’s diplomatic corps last week, both Mr. Nieto and Mr. Videgary said that in any negotiations with the U.S., the entire bilateral relationship would be on the table, and that Mexico will not pay for the wall.

For Canadians to feel smug or secure would be a mistake. We may not yet be a direct target, but we are within Mr. Trump’s range of vision.

Inevitably, we would become collateral damage, especially when it comes to protectionist border measures. A survey last month of Trump supporters revealed that 73 per cent expect either a better deal or withdrawal from NAFTA within the first 100 days of the Trump presidency.

Mr. Trump promises more enforcement capacity to secure U.S. borders and, at last week’s Senate Homeland Security confirmation hearing for secretary-designate Gen. John Kelly, both Democrats and Republicans told him not to ignore the northern border and pressed for more security. Eight of its 15 members come from northern border states.

Nor would Canada be exempt from any new border tax, said Mr. Trump’s press secretary last week. The National Bank of Canada has estimated a 10-per-cent border levy would cause Canadian exports to slump 9 per cent within a year.

Canada and Mexico need to make common cause in the face of Trumpian excess. A visit to Mexico, before the summer, by Prime Minister Justin Trudeau would visibly underline our enduring partnership at a time when Mexicans are feeling vulnerable and alone.

While our borders are different and our responses will reflect our particular circumstances, we need to stay close, especially in any NAFTA discussion with Washington.

An active advocacy campaign – a joint effort led by our consuls, suppliers and their customers – needs to inform Americans, especially those living in the 31 states won by Mr. Trump, that their first or second markets are either Canada or Mexico.

Studies conducted for the Canadian Embassy and by the Wilson Center estimate that our commerce accounts for over 14 million American jobs. Underlining our integrated continental market is the fact that 40 per cent of the finished goods that Americans buy from Mexico, and 20 per cent of what they buy from Canada, is “made in the U.S.A.”

Linda Hasenfratz, CEO of Linamar, got it right when she warned there is “too much emotion and not enough fact” out there. Ms. Hasenfratz, who also chairs the Business Council of Canada, argues that adding cost and inefficiency would undercut our global competitiveness. The ultimate cost will be borne by the consumer.

We should look at expanding Canada-Mexico trade in produce – their tomatoes and vegetables for our beef and pork. There are major Canadian investments in Mexico – producing trains, planes and automobiles – as well as banking and mining operations. We need an active investment outreach to encourage Mexican firms to follow the lead of Grupo Bimbo, the world’s leading baker, that owns Canada Bread.

Then there are the people-to-people ties. With the visa lifted we can and need to encourage more Mexican tourism and study in Canada.

Any renegotiation of NAFTA should begin with including the improvements already negotiated through the Trans Pacific Partnership (TPP): preclearance of goods; increasing the number of professionals eligible for fast-track passage and temporary employment; and a trilateral approach to new infrastructure to enhance North American competitiveness.

If Mr. Trump repudiates NAFTA then we should keep it (U.S. withdrawal does not kill NAFTA like it does the TPP) and look for prospective new partners, including Britain, the Pacific Alliance (that includes Chile, Colombia and Peru) and to new partners across the Pacific.

Canada may not be in the crosshairs in the same fashion as Mexico but we have no immunity from Trumpian threats. Canada and Mexico need to hang together or, surely, we will hang separately.

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