CANADA S ACCESS TO US MARKETS: REMARKS TO THE PROGRESSIVE CONSERVATIVE NATIONAL CAUCUS ST. JOHNS, NEWFOUNDLAND SEPTEMBER 9, 2003 GILBERT R.

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1 CANADA S ACCESS TO US MARKETS: REMARKS TO THE PROGRESSIVE CONSERVATIVE NATIONAL CAUCUS ST. JOHNS, NEWFOUNDLAND SEPTEMBER 9, 2003 GILBERT R. WINHAM CANADA-US FREE TRADE, WHICH WAS A SUCCESSFUL POLICY OF THE MULRONEY P.C. GOVERNMENT OF THE 1980s, WAS A RESPONSE TO THE RECESSION OF THAT DECADE BROUGHT ON BY OVER-REGULATED AND INEFFICIENT ECONOMIES. THE POLICY OF THE MULRONEY GOVERNMENT WAS TO REVITALIZE THE CANADIAN ECONOMY THROUGH A FREE TRADE AGREEMENT WITH ITS PRINCIPAL TRADING PARTNER, AND TO THAT END IT HAD THREE OBJECTIVES: INCREASE THE ACCESS TO THE UNITED STATES; SECURE THAT ACCESS; AND INCREASE THE COMPETITIVENESS OF THE CANADIAN ECONOMY. HOW WELL WERE THESE OBJECTIVES MET WITH THE FREE TRADE AGREEMENT (NOW THE NAFTA)? THE FIRST WAS SUBSTANTIALLY MET THROUGH THE REMOVAL OF TARIFFS. THE THIRD WAS LARGELY DEMONSTRATED BY INCREASING CANADIAN EXPORTS, ALTHOUGH THESE EXPORTS WERE POWERFULLY ASSISTED BY A DECLINING CANADIAN DOLLAR. BUT THE SECOND, SECURITY OF ACCESS, HAS REMAINED UNCERTAIN. THE DISPUTE SETTLEMENT SYSTEM OF NAFTA CHAPTER 19 HAS NOT MANAGED TO PREVENT U.S. CONTINGENCY PROTECTION, AND CANADIAN EXPORTS CONTINUE TO BE HIT BY ANTIDUMPING, COUNTERVAILING AND VARIOUS OTHER MEASURES CONTAINED IN U.S. TRADE PRACTICES.

2 BUT THIS IS NOT ALL. THE CRISIS THAT BEGAN ON 9/11VIOLATED THE SECURITY OF U.S. BORDERS, AND IN SO DOING IT JEOPARDIZED THE SECURE ACCESS OF CANADA S TRUCK-BOUND EXPORTS TO THAT COUNTRY. FOR CANADA, 9/11 THUS BECAME A TRADE ISSUE AS WELL AS A SECURITY ISSUE. SURELY ANY FURTHER TERRORIST ACTIONS IN THE UNITED STATES WOULD WORSEN THE RISK TO CANADIAN TRADE WITH THAT COUNTRY. EVEN MORE IMPORTANT, HOWEVER, WAS THE RESPONSE BY THE U.S. ADMINISTRATION TO THE SECURITY CRISIS, WHICH WAS TO DEMAND POLITICAL SUPPORT FOR ITS POLICIES FROM ALL COUNTRIES, ESPECIALLY ITS FRIENDS AND ALLIES. THAT THIS DEMAND WOULD BE EXTENDED TO THE TRADE ARENA WAS MADE CLEAR IN A SPEECH IN MAY BY USTR ROBERT ZOELLICK, WHO ANNOUNCED THAT WASHINGTON WOULD SEEK COOPERATION OR BETTER ON FOREIGN POLICY AND SECURITY ISSUES AS A CRITERION FOR REACHING FREE TRADE AGREEMENTS WITH THE UNITED STATES. THIS ACTION CROSSES A BRIDGE. IT OVERTLY POLITICIZES TRADE POLICY IN A WAY THAT COUNTRIES HAVE TRIED TO AVOID EVER SINCE THE CREATION OF THE GATT IN IT ADDS YET ANOTHER (POLITICAL) LEVEL OF UNCERTAINTY TO CANADA S SECURITY OF ACCESS TO THE U.S. MARKET. CANADA S TRADE POSITION IS NOW A CONCERN TO MANY ANALYSTS ACROSS THE COUNTRY, AS EVIDENCED BY THE JUNE REPORT ENTITLED UNCERTAIN ACCESS, PRODUCED BY THE STANDING SENATE COMMITTEE ON FOREIGN AFFAIRS. BRIEFLY, CANADA EXPORTS MORE THAN 85 PERCENT OF ITS 2

3 TOTAL EXPORTS TO THE UNITED STATES, WHICH CREATES THE SAME SENSE OF VULNERABILITY AS A COMPANY THAT HAS MOST OF ITS SALES TO A SINGLE BUYER. GIVEN THIS VULNERABILITY, VARIOUS PROPOSALS HAVE BEEN ADVANCED TO IMPROVE AND SOLIDIFY CANADA S ACCESS TO THE U.S. MARKET. ONE PROPOSAL WOULD IMPROVE PHYSICAL COMMUNICATION LINKS WITH THE UNITED STATES THROUGH THE SHARED CONSTRUCTION OF BRIDGES AND TUNNELS. A SECOND PROPOSAL WOULD BE TO RE-NEGOTIATE TRADE REMEDY MEASURES (SUCH AS ANTIDUMP) WITH AN EYE TO THEIR ELIMINATION, AND CONCURRENTLY TO IMPROVE DISPUTE SETTLEMENT PROCEDURES ESPECIALLY THROUGH AN EMPHASIS ON NAFTA MECHANISMS AT THE EXPENSE OF THOSE OF THE WTO. A THIRD PROPOSAL WOULD ATTEMPT TO STRENGTHEN CANADIAN-US COOPERATION ON ANTI-TERRORISM, TO REDUCE REMAINING BORDER RESTRICTIONS BETWEEN CANADA AND THE UNITED STATES, AND TO INITIATE A NEW AGREEMENT WITH THE UNITED STATES THAT WOULD FACILITATE CROSS- BORDER INTEGRATION. SUCH A POLICY WOULD RECOGNIZE THE OVERWHELMING IMPORTANCE OF CANADA S RELATIONSHIP WITH THE UNITED STATES, AND WOULD BE CONGRUENT WITH THE NATURAL FORCES OF INTEGRATION THAT ARGUABLY ARE AT WORK IN THE NORTH AMERICAN ECONOMY AND SOCIETY. TAKEN IN SUM, THIS POLICY WOULD SEEK TO REMOVE THE BORDER TO THE FULLEST EXTENT POSSIBLE. 3

4 THE THRUST OF THESE PROPOSALS IS CONSISTENT WITH THE DIRECTION CANADA TOOK IN THE FREE TRADE NEGOTIATION; NAMELY, TO ADDRESS THE PROBLEM OF SECURITY OF ACCESS TO THE UNITED STATES THROUGH A DEEPENING OF THE RELATIONSHIP WITH THAT COUNTRY. THERE CONTINUES TO BE MERIT IN THESE SUGGESTIONS, PARTICULARLY IN AREAS OF REGULATORY COOPERATION, FOR THE UNITED STATES UNQUESTIONABLY IS AND WILL CONTINUE TO BE CANADA S BEST CUSTOMER IN INTERNATIONAL TRADE. HOWEVER, THE COMMON DENOMINATOR OF ALL THESE PLANS IS THAT THEY REQUIRE NEGOTIATION WITH THE UNITED STATES, AND IT IS SIMPLY DIFFICULT TO SEE HOW LOOKING AT THE ISSUE FROM A U.S. PERSPECTIVE THESE CANADIAN PROPOSALS WOULD ATTRACT ANY DEFINABLE U.S. INTERESTS IN THE UNITED STATES. TO THE CONTRARY, THE UNITED STATES APPEARS TO BE GOING IN THE OPPOSITE DIRECTION. FIRST, IT IS WELL-KNOWN THAT CONGRESS AND POWERFUL INTEREST GROUPS ARE AS WEDDED TO THE PRACTICE OF UNFAIR TRADE REMEDIES NOW AS THEY WERE WHEN THE FREE TRADE AGREEMENT WAS NEGOTIATED. SECOND, AND MORE IMPORTANT, WASHINGTON S INTEREST IN THE BORDER WITH CANADA IS MAINLY SECURITY. FROM THIS PERSPECTIVE, CANADA S PROPOSALS TO FACILITATE TRADE RISK BEING VIEWED BY INFLUENTIAL INTERESTS IN AMERICA MORE AS AN ATTEMPT TO LOOSEN RATHER THAN TO TIGHTEN THE BORDER. 4

5 AT THE PRESENT TIME, WASHINGTON HAS SEVERAL PROPOSALS UNDERWAY WHICH COULD, FIRST, REQUIRE THE TRACKING OF INDIVIDUALS ENTERING AND LEAVING THE UNITED STATES, SECOND, ENFORCE THE ADVANCE NOTIFICATION OF COMMERCIAL SHIPMENTS, AND THIRD, MANDATE THE REGISTRATION OF FOREIGN FACILITIES THAT PROCESS FOOD. THESE PROPOSALS DO NOT SEEM CONSISTENT WITH CANADIAN EFFORTS TO BUILD A CLOSER RELATIONSHIP OVER BORDER MANAGEMENT. CANADA SHOULD NOW CONSIDER A NEW DIRECTION IN ITS TRADE POLICY, ONE THAT WOULD ATTEMPT TO PROMOTE CANADIAN EXPORTS TO THIRD COUNTRIES IN ORDER TO LESSEN THE US EXPORT DEPENDENCY THAT IS AT THE ROOT OF THE PRESENT UNCERTAINTIES. IN THE PAST DECADE, EXPORTS FROM CANADA AND OTHER COUNTRIES WERE DRAWN INTO THE UNITED STATES DUE TO THE EXTRAORDINARY VITALITY OF THE U.S. ECONOMY. THE CURRENT RISE IN THE CANADIAN DOLLAR AND SLOWDOWN IN THE U.S.ECONOMY MAY PROVIDE SOME OPPORTUNITY TO DIVERSIFY EXPORT TRADE BY CREATING NEW TRADE RELATIONSHIPS TO OFFSET THOSE THAT MIGHT BE LOST IN NORTH AMERICA. EXPORT DIVERSIFICATION IS NOT AN EASY POLICY TO ACCOMPLISH. CANADA HAS ATTEMPTED TO DIVERSIFY ITS TRADE IN THE PAST WITH THE THIRD OPTION OF THE TRUDEAU GOVERNMENT, BUT THE POLICY MEASURES (SUCH AS THE CONTRACTUAL LINK WITH THE EEC) WERE PRIMITIVE AND INEFFECTUAL. WHAT IS NEEDED NOW IS A MAJOR ANALYTICAL EFFORT TO 5

6 DETERMINE WHAT SCOPE EXISTS IN THE CANADIAN ECONOMY, WITH PERMISSIBLE GOVERNMENT LEADERSHIP AND SUPPORT, TO EXPAND TRADE WITH REGIONS OUTSIDE NORTH AMERICA, AND ESPECIALLY TO SOUTH AMERICA AND ASIA. CANADIAN TRADE POLICY IS MAINLY CONDUCTED BETWEEN GOVERNMENTS, AND IT WORKS TO IMPROVE MARKET ACCESS IN FOREIGN COUNTRIES THROUGH THE REMOVAL OF IMPORT RESTRICTIONS. AS VALUABLE AS THIS FOCUS IS, THE EFFORT TO DEVELOP AND DIVERSIFY CANADIAN EXPORTS WOULD HAVE TO BE DIRECTED TOWARD THE PRIVATE SECTOR, WITH AN EMPHASIS ON PROMOTING COMMUNICATION AND LINKAGES BETWEEN CANADIAN AND FOREIGN BUSINESSPEOPLE. SOME GREATER EFFORT SHOULD BE MADE TO COORDINATE THE FOREIGN ASSISTANCE ACTIVITIES OF THE CANADIAN GOVERNMENT AND THOSE OF EXPORT DEVELOPMENT CANADA, ESPECIALLY THOSE ACTIVITIES THAT COULD OPEN UP OPPORTUNITIES FOR TRADE. FOR EXAMPLE, IN THE POSTWAR MARSHALL PLAN OF RECONSTRUCTION AND DEVELOPMENT, THE UNITED STATES ESTABLISHED TECHNICAL ASSISTANCE PROGRAMS THAT BROUGHT BUSINESSPEOPLE FROM EUROPEAN COUNTRIES TO THE UNITED STATES TO TRAIN AND INTERACT WITH MEMBERS OF THE U.S. PRIVATE SECTOR. THESE PROGRAMS PROVIDED TRAINING AND KNOWLEDGE TRANSFER FOR THE EUROPEANS, BUT THE INTERACTION ALSO 6

7 PROVIDED BUSINESS INTELLIGENCE AND NETWORKING THAT THE AMERICANS WERE ABLE TO EXPLOIT. IN SUM, THE CANADIAN GOVERNMENT SHOULD TAKE A BROADER AND MORE PROACTIVE ROLE IN ANALYZING CANADA S STRENGTHS AND WEAKNESSES IN EXPORT TRADE, AND SHOULD EXPLORE MORE FULLY THE PROSPECTS FOR ASSISTING THE PRIVATE SECTOR TO DEVELOP NEW OVERSEAS MARKETS. 7