UNCERTAIN
ACCESS:
THE CONSEQUENCES OF U.S. SECURITY AND
TRADE
ACTIONS FOR CANADIAN TRADE POLICY
(Volume 1)
Report of the Standing Senate Committee on Foreign Affairs
Chairman : The Honourable Peter Stollery
Deputy Chair : The Honourable Consiglio Di NinoFourth Report
June 2003
MEMBERS
The
Honourable Peter Stollery, Chair
The Honourable
Consiglio Di Nino, Deputy Chair
and
The Honourable Senators:
Raynell
Andreychuk
Jack Austin, P.C.
Roch Bolduc
Pat Carney, P.C.
*Sharon Carstairs, P.C. (or Fernand Robichaud, P.C.)
Eymard
G. Corbin
Pierre De Bané, P.C.
Jerahmiel Grafstein
Alasdair Graham, P.C.
Rose-Marie Losier-Cool
*John Lynch-Staunton
(or Noël Kinsella)
Raymond Setlakwe
* Ex
officio members
In addition to the Senators indicated above, the Honourable
Senators Maria Chaput, Joseph Day, Edward M. Lawson, Frank W. Mahovlich, Pana
Merchant, Gerard A. Phalen, David P. Smith and Terry Stratton were members of
the Committee at different times during this study or participated therein
during the Second Session of the Thirty-Seventh Parliament.
Staff from the
Parliamentary Research Branch of the Library of Parliament:
Peter Berg,
Analyst
Michael Holden, Analyst
Janna Jessee, Intern from the Norman Paterson School of International Affairs
François
Michaud
Clerk of the
Committee
ORDER
OF REFERENCE
Extract from the Journals of the Senate of Thursday, November 21,
2002:
The
Honourable Senator Stollery moved, seconded by the Honourable Senator Adams:
THAT
the Standing Senate Committee on Foreign Affairs be authorized to examine and
report on the Canada – United States of America trade relationship and on the
Canada – Mexico trade relationship, with special attention to: a) the Free
Trade Agreement of 1988; b) the North American Free Trade Agreement of 1992; c)
secure access for Canadian goods and services to the United States and to
Mexico, and d) the development of effective dispute settlement mechanisms, all
in the context of Canada’s economic links with the countries of the Americas
and the Doha Round of World Trade Organisation trade negotiations;
THAT
the Committee have power to engage such counsel and technical, clerical and
other personnel as may be necessary for the performance of this order of
reference;
THAT
the Committee have power to adjourn from place to place inside and outside
Canada for the purpose of this reference; and
THAT
the Committee shall present its final report no later than December 19, 2003,
and that the Committee shall retain all powers necessary to publicize the
findings of the Committee as set forth in its final report until January 31,
2004.
After debate,
With
leave of the Senate and pursuant to Rule 30, the motion was modified to read as
follows:
THAT
the Standing Senate Committee on Foreign Affairs be authorized to examine and
report on the Canada – United States of America trade relationship and on the
Canada – Mexico trade relationship, with special attention to: a) the Free
Trade Agreement of 1988; b) the North American Free Trade Agreement of 1992; c)
secure access for Canadian goods and services to the United States and to
Mexico, and d) the development of effective dispute settlement mechanisms, all
in the context of Canada’s economic links with the countries of the Americas
and the Doha Round of World Trade Organisation trade negotiations; and
THAT
the Committee shall present its final report no later than December 19, 2003,
and that the Committee shall retain all powers necessary to publicize the
findings of the Committee as set forth in its final report until January 31,
2004.
The
question being put on the motion, as modified, it was adopted.
Paul
Bélisle
Clerk
of the Senate
Recommendation 1 That
the Government of Canada ensure that U.S. decision-makers recognize how
seriously Canada takes security concerns.
The government should immediately launch an active campaign to
inform such decision-makers of the unprecedented cooperation between
Canada and the U.S. on border security issues and the reality that
Canada is a secure trading partner. |
Recommendation 2 That,
since a trade-efficient border is the lifeline of Canada’s economic
prosperity and since the current infrastructure at key border crossings
is woefully inadequate to handle the tremendous growth that has occurred
in bilateral trade, the Government of Canada accelerate the
implementation of the 30-point Border Action Plan by: a)
Encouraging Canadian and U.S. authorities to accelerate the
construction of new bridge and tunnel crossings into the United States; b)
Injecting considerably greater financial resources into the
construction of additional border infrastructure other than bridges and
tunnels; and c)
Accelerating efforts to establish a pre-clearance system for the
shipment of goods across land border crossings, thereby “moving the
border away from the border” to reduce border impediments to trade,
investment and business development. |
Recommendation 3 That
the Governments of Canada and the United States intensify efforts to
ensure that any implementation of Canadian and American security
measures adequately take into account any effects on bilateral trade and
investment. |
Recommendation 4 That
Canada and the United States initiate negotiations to achieve
substantial trade remedy (e.g., anti-dumping, countervail, safeguards)
relief in economic sectors (e.g., steel) in which producers would favour
such action. |
Recommendation 5 That
in the Doha Round of WTO trade negotiations, the Government of Canada
give top priority to obtaining a WTO agreement to: a)
clarify and improve upon existing provisions on subsidy and
dumping definitions; b)
tighten existing WTO provisions governing the use of trade
remedies (e.g., anti-dumping, countervail, safeguards) so as to restrain
protectionist abuses; and c)
avoid continental trade conflicts. |
Recommendation 6 That
during FTAA negotiations on the introduction of an effective hemispheric
dispute resolution system, the federal government seek to retain, as a
minimum, the NAFTA Chapter 19 dispute settlement process as an option
for NAFTA trade. |
Recommendation 7 That
Canada, Mexico and the United States implement NAFTA Article 2002
calling for the establishment of a permanent NAFTA Secretariat and
provide this Secretariat with the following mandate: a)
To examine means by which trade disputes and irritants can be resolved
within the NAFTA rather than at the WTO, and to help expedite the
resolution of these trade conflicts; b)
To examine medium- and long-term trade policy issues and to
generate reports including recommendations for action by NAFTA partners;
and c)
To review developments within the multilateral trade system and their
relationship to the NAFTA trade framework. |
Recommendation 8 That
the Government of Canada, in association with affected provinces,
maintain as its objective a permanent arrangement with the United States
that provides for an unrestricted market for softwood lumber.
In the interim, any short-term agreement to allow time to
complete this permanent arrangement should not surrender Canada's right
to obtain the judgements of the WTO and NAFTA panels or the processes
under NAFTA Chapter 11 and should require that: a)
anti-dumping duties against Canadian softwood lumber producers be
dropped; and b)
all countervailing and anti-dumping duties already collected be
returned to Canada. |
Recommendation 9 That
the Government of Canada: a)
Work with like-minded countries to remove from the WTO’s draft
agriculture negotiation document any proposal to phase out state trading
enterprises or such farmer-controlled enterprises as the Canadian Wheat
Board; and b)
Direct its efforts at tightening the WTO’s anti-dumping rules to give
the agricultural sector special consideration, in view of the frequency
of externally driven commodity price movements that cause prices to
decline below costs (a trigger for anti-dumping action). |
Recommendation 10 That
the federal government: a)
Substantially increase the number of consulates in the United
States from its current planned level.
The new consular offices should be designated as trade and
investment offices and staffed with appropriate and experienced
professional personnel; b)
Immediately initiate a focused campaign to inform U.S.
decision-makers of the importance of the bilateral trade relationship; c)
Increase its funding of efforts to promote Canadian trade and
investment interests in the U.S., and make its advocacy strategies in
that country more effective; and d)
Strengthen bilateral relationships at the executive and legislative
levels of government. Strategies
should be formulated to more effectively engage and regularly interact
with the U.S. Senate and House of Representatives on issues and concerns
of importance to both countries, and appropriate budgetary resources
should be provided. To this
end, the government should establish a Parliamentary Office in
Washington to assist Canadian Parliamentarians in their interaction with
U.S. legislators and other key U.S. decision-makers. |
Recommendation 11 That
the Government of Canada refrain from entering into any discussions on
the establishment of a customs union with the United States. |
Recommendation 12 That
the Government of Canada carefully investigate the impact that
regulatory differences with the United States have on the Canadian
economy, and release its findings to the public.
The government should seriously examine the concept of mutual
recognition of each country’s regulatory standards and procedures,
under which standards would be tested and inspection and certification
would be carried out only once within the Canada-U.S. market.
Moreover, the government should identify those sectors in which
the U.S. and Canadian regulatory systems are similar and the mutual
recognition approach could be applied.
|
Recommendation 13 That,
noting the valid objective of engaging in regulatory cooperation with
the European Union within the proposed Canada-EU Trade and Investment
Enhancement Initiative, the federal government retain as a goal the
successful negotiation of a comprehensive Transatlantic Free Trade
Agreement. |
Recommendation 14 That
the Government of Canada make free trade with Asia a priority and
initiate trade-liberalization negotiations with China, Japan, South
Korea, India and members of the Association of Southeast Asian Nations
(ASEAN). The federal
government should also develop new strategies to increase the interest
of Canadian businesses in Asian markets, help Canadian firms construct
durable partnerships with Asian companies and establish a better image
for Canadian products in Asia. |
Recommendation 15 That
the Government of Canada establish a Trade and Investment Council to
conduct comprehensive analytical research on external trade and
investment issues. |
PART 1: INTRODUCTION
PART 2: SECURING CANADA-U.S. TRADE
ENSURING THE FREE FLOW OF GOODS AND SERVICES ACROSS THE BORDER
A. The Effects of September 11
B. The 30-Point Border Action Plan and Its Implementation
C. New Border Restrictions on the Horizon and How to Deal With Them
CURBING THE USE OF TRADE REMEDIES
A. The FTA: Objective Not Met
B. Exploring Made-In-North America Solutions
C. Seeking Progress at the WTO
IMPROVING DISPUTE SETTLEMENT MECHANISMS
A. NAFTA Chapter 19 Dispute Resolution
B. Chapter 20 Dispute Settlement
C. Achieving Progress at the WTO
D. NAFTA's Chapter
11
ARE NEW INSTITUTIONS REQUIRED TO MANAGE NORTH AMERICAN TRADE?
RESOLVING EXISTING TRADE DISPUTES AND IRRITANTS
A. The Canada-U.S. Softwood Lumber Dispute
1. The Essential Nature of the Dispute
2. The Federal Government's Two-Track Strategy to Resolve the Dispute
a. Legal
b. Negotiated Settlement
3. Where to Go From Here?
B. Agricultural Issues
1. The Dispute Over the Canadian Wheat Board
a. Legal Challenges
b. Evidence Heard
2. The U.S. Farm Bill
a. The Farm Bill and the WTO
b. The Impact of the Farm Bill in Canada and Elsewhere
c. Country-of-Origin Labelling
C. U.S. Subsidies for the Proposed Alaska Natural Gas Pipeline
IMPROVING CANADIAN OFFICIAL PRESENCE, INFORMATION FLOWS AND ADVOCACY IN THE U.S.
PART 3: CANADIAN TRADE POLICY IN THE LONG TERM:
CLOSER INTEGRATION OR TRADE DIVERSIFICATION?
THE DIMINISHING RETURNS FROM TRADE LIBERALIZATION
A. The FTA and Trade Growth
B. Other Factors Influencing the Canada-US Trade Relationship
C. The Diminishing Gains From Trade Liberalization Under the NAFTA
ASSESSING THE MERITS OF CLOSER INTEGRATION
A. The Customs Union Option
B. A Common Market
C. A Common Currency
D. Lessening Regulatory Duplication
THE NEED TO DIVERSIFY CANADA'S TRADE
A. Achieving a Comprehensive Free Trade Agreement with Europe
B. Strengthening Trade Ties with Asia-Pacific
C. The FTAA and Hemispheric Trade Ties
STRENGTHENING FEDERAL AND LONG-TERM ANALYTICAL CAPACITY
APPENDICES:
APPENDIX 1: RECENT HISTORY OF THE CANADA/U.S. SOFTWOOD LUMBER DISPUTE
APPENDIX 2: CANADA/U.S. SOFTWOOD LUMBER DISPUTE - CHALLENGES AT THE WTO AND NAFTA
APPENDIX 3: PREVIOUS U.S. INVESTIGATIONS INTO THE CANADIAN WHEAT BOARD:
APPENDIX 4: SMART BORDER ACTION PLAN
APPENDIX 5: LIST OF WITNESSES
This
report is not intended to be a rerun of the old arguments about the Canada-U.S.
Free Trade Agreement. Members of the Foreign Affairs Committee, which also deals
with Foreign Trade, reviewed the Free Trade Agreement – it has been in effect
for about fifteen years – and took a look at what actually happened.
What we learned certainly surprised me and I was an active member of the
committee fifteen years ago when the Free Trade debate took place.
Over
the course of the Committee’s hearings, we met with 95 witnesses in Canada
during 25 sets of hearings in Vancouver, Calgary, Winnipeg and Ottawa. We went
west partly because of the softwood lumber dispute, so important to the British
Columbia economy.
The
Committee also heard from 72 individuals in Washington. We did not complete the
Mexican part of what has become NAFTA because of scheduling conflicts brought
about by the Mexican electoral calendar. We will complete that part of our
investigations later. To put our Canada - US - Mexico trade in perspective,
roughly 75% of our 2-way trade is with the U.S. and 2.6% with Mexico.
Apart
from security issues, which we address in our report, three themes seem to me to
have been at the centre of our conversations. The first theme to consider is
tariff reduction. When most people
think of freer trade they think of lowering tariffs. That certainly was an
element of the Free Trade Agreement. In
1985, the MacDonald Royal Commission noted that because of the Auto Pact and,
‘the high level of duty-free resource imports’, average US tariffs against
Canadian goods were about 1% and average tariffs on dutiable goods were in the 5
to 7 per cent range. In contrast,
Canadian average tariffs on dutiable imports were at 9 to 10 per cent. I doubt
if many consumers noticed when under the agreement all tariffs ended 5 years ago
in 1998. That part of the life of
the FTA ended at that point.
In
the 1980s, US protectionism was thought to be on the rise.
When the MacDonald Royal Commission made its report on the Canadian
economy in 1985, the Commissioners noted, “…many
Canadians are deeply concerned that because trade with Canada is quantitatively
less important to Americans than is their trade with us, the United States might
implement protective trade measures harmful to Canadians and be relatively
unaware of, or unconcerned by, the consequences”.
They
went on to say, “It is imperative that Canada reduce both the uncertainty of
our access to U.S. markets and the adverse effects that might result from any
trade-restrictive measures”.
The second theme
of our hearings was whether or not the system for settling trade disputes
adopted in the agreement between Canada and the United States has worked.
Ninety-five per cent of Canada’s exports to the US are trouble free.
5% of our trade is disputed. That 5% is quite a lot when you realize
that, of our total exports to the US, 13% goes through either a pipeline or
along transmission lines and 25% is accounted for by the Auto Pact.
Anyone
who has followed softwood lumber, the problems of the Canadian Wheat Board or
the difficulties of the Canadian beef industry would have to say that the NAFTA
dispute-settling system has not worked at all. I was certainly taken aback when
we were given an estimate of $800 million dollars in legal fees on softwood
lumber since the 1980s. Mike Moore, former Director General of the WTO, has said
that just the case before the WTO on softwood lumber cost $US 200 million and
that was before the most recent decision on stumpage which ruled in Canada’s
favour.
The
reason the system has not worked is pretty straightforward.
The arrangement agreed to, known as Chapter 19 of the agreement, is
well-described in a document produced by the Trade Remedies Division of DFAIT:
“Bi-national panels determine whether a final determination is in accordance
with anti-dumping laws of the NAFTA country in which the decision is made. If a
panel finds that the determination was in accordance with domestic law, the
determination is affirmed”. It is the fatal flaw. If you want to export lumber
to the United States and US lumber producers want to stop you they appeal to US
law, which is written by their representatives. The dispute is judged on that US
law and if for some reason they lose they will change the law and bring the case
forward again.
There
was no WTO in 1988. The FTA dispute-settling system, with its fatal flaw seemed
an improvement over the weak GATT fifteen years ago. The WTO system, more
expensive but much improved, with panels made up of members from neutral
countries, came into being in 1995. It could be argued that that part of the FTA
ended its useful life when the WTO dispute-settling system was put in place in
1995.
The
third issue relates to the changes in the value of the Canadian dollar over the
past fifteen years. About 86% of our exports go to the United States. In 1988
that figure was about 75%. In 1988,
the Canadian dollar was worth about 85 cents U.S. and in 1992 it rose to nearly
89 cents. Then the Canadian dollar declined to almost 63 cents U.S. You would
expect our exports to rise. Interestingly, last year our exports to the U.S.
actually declined from the year before. Certainly, almost every witness we heard
from said that the value of the dollar was crucial to our exports and that the
value of the dollar was responsible for our increase in exports to the U.S.
Over
the same period, exports from the U.S. to Canada did not increase very much.
Just about
everyone that we heard from agreed that the Canada - U.S. part of the NAFTA had
run its course. It is in the past. The important question that Canadians should
be asking their government is where do we go now. The Committee has provided
guidance in this area, with substantial sections of our report devoted to what
our long-term trade policy ought to be. Now is the time, however, for a national
debate on this very important issue.
On
behalf of the members of the Foreign Affairs Committee, I would like to express
my appreciation to the Clerk of the Committee, Mr. François Michaud; Mr. Peter
Berg, Mr. Michael Holden and Ms. Janna Jessee from the Research Branch of the
Library of Parliament; Mr. Ian Parker, our communication consultant, as well as
all the reporters, interpreters, translators, editors and other support staff
for their important work on this study.
Peter
Stollery
Chair
A truck
crosses the Canada-U.S. border every 2.5 seconds.
What would happen if that time interval were to double to 5 seconds?
For Canadians, this question is a highly pertinent one, as we have become
highly vulnerable to any U.S. security-related actions that have the effect of
blocking or restricting trade across that border.
It is
unlikely that the current American preoccupation with national security will
diminish. In Washington, the
Committee was informed that security is a long-term (perhaps twenty years)
concern, that seemingly all issues are being viewed in the U.S. through a
security prism, and that Canada cannot afford to turn a blind eye to American
security needs. In essence, U.S.
security concerns have become our concerns, and we must take them seriously if
we want to continue to take advantage of what is by far our most important
bilateral trade relationship.
All in
all, Canada sends an overwhelming 87% ($346.5 billion) of its merchandise
exports south of the border, generating 35% of this country’s GDP, with the
greater part of those exports (70%) transported by truck.
Our exports to the U.S. market exceed those of all 15 EU members and are
three times those of Japan, giving Canada a full 19% share of the U.S. import
market. Trade between Canada and
the U.S. is of critical importance, and continued access to the U.S. market is
vital. Moreover, a full 76% ($218.2
billion) of our merchandise imports are sourced in the U.S., and bilateral goods
and services trade with the U.S. is approaching US$700 billion per year.
It is useful to note that although a 5,000 km border separates the two
nations, by far the largest number of vehicle crossings occur on the
Ontario-Michigan[1]
and Ontario-New York[2]
borders. The movement of goods across the Detroit/Windsor border alone exceeds
total U.S. trade with Japan. Over
half a million individuals and 45,000 trucks cross the border there daily.
The British Columbia-Washington land crossing at Blaine, B.C., and the
Quebec-New York crossing at Lacolle, Quebec, are two other important border
points.
As
Thomas d’Aquino (President and Chief Executive Officer, Canadian Council of
Chief Executive Officers) informed the Committee, most of the world would envy
our position as the top foreign supplier of the U.S. market.
However, it was also pointed out to us by Richard Harris (Professor,
Economics Department, Simon Fraser University), quite correctly, that Canada
faces a key problem: not only have
emerging countries such as China and India seen their access to the U.S. market
improve relative to ours, thereby eroding our free-trade advantage in a large
number of manufactured goods, but any increased land border costs will hamper
our access to the U.S. market significantly.
According
to Harris, roughly one half of Canada’s trade, typically intra-industry trade
occurring in important industries such as automobile manufacturing, is sensitive
to border problems. The integrated nature of the North American economy, together
with Canada’s enormous trade dependence on the U.S., has made us extremely
vulnerable to border disruptions. The
U.S. decision to close the border to Canadian beef exports, owing to “mad
cow” disease in Western Canada is the most recent example of this
vulnerability.
Another
terrorist attack on U.S. soil will always remain a possibility.
Moreover, U.S. authorities are contemplating three specific measures with
potentially adverse impacts on trade: the
imposition of entry/exit controls at the border; the creation of onerous advance
notification requirements for cargo manifests; and the registration of all
foreign facilities that manufacture, process, pack or hold food for human or
animal consumption, with advance notification to be provided to the U.S. Food
and Drug Administration for foreign food shipments into the United States.[3] Fortunately,
some relief may be forthcoming regarding the proposed entry/exit requirement, as
Canadian citizens may receive an exemption from the planned controls.
Donald
Barry (Professor, International Relations, University of Calgary) told us that
the most important challenge for Canadian decision-makers is how to respond to
the post-September 11 (2001) security environment while ensuring the free flow
of goods across the border. Fortunately,
quick action by Canadian officials led to the December 2001 “Smart Border
Action Plan” to create a secure and trade-efficient border, and steps are
being taken to flesh out the principles contained in the Plan.
However, there are still allegations in the U.S. media and by U.S.
legislators that the Canada-U.S. border is porous and that Canada is not taking
American security concerns seriously enough.
Trade
measures taken by the U.S. have also proven to be problematic for Canada.
Examples of actions that are, in the view of many of the Committee’s
witnesses, unjustified include the continued use of U.S. trade remedies (e.g.,
American trade action on softwood lumber, the Canadian Wheat Board and a range
of other agricultural commodities, most recently blueberries); the imposition by
the U.S. of non-tariff barriers to our products; the adoption of the U.S. Farm
Bill and the deleterious effects it has on our farmers; and the American
position on state trading enterprises and supply management at the World Trade
Organization (WTO).
There is
no doubt that the original Canada-U.S. Free Trade Agreement stimulated bilateral
trade and investment and had a positive effect on the Canadian economy.
However, Canadian and American negotiators of the original Canada-U.S.
Free Trade Agreement (FTA) did not secure exemption from each other’s trade
remedies (e.g., anti-dumping and countervailing duties).
Nor were the negotiators successful in devising a made-in-North America
set of definitions and rules on subsidies to limit the use of countervailing
duties as well as competition legislation designed to replace anti-dumping
duties. The reality is that without
subsidy rules and anti-dumping codes in place to govern trade in North America,
Canada will continue to face U.S. trade remedy action in key industries, and
U.S. consumers of Canadian products (e.g., softwood lumber, wheat) will continue
to pay additional costs imposed on them by a trade remedy system that is
strictly geared to meet the needs of U.S. producers.
What the
FTA negotiators did achieve was a system of binational panel review to deal with
cases in which the two sides are unable to resolve their trade differences
through consultation.[4]
However, the system in place is not a true dispute resolution system, in
which offending trade actions would be measured against some common codes of
conduct. Rather, the dispute
settlement process simply checks to ensure that national trade remedy laws are
applied properly. It should come as no surprise, therefore, that the Committee
heard conclusive evidence that bilateral disputes are increasingly being
referred to the WTO for resolution (as opposed to NAFTA), since it offers a
considerably more effective dispute settlement mechanism.
The Committee seeks means whereby these trade rules and dispute
settlement systems can be improved, and is disappointed that made-in-North
America solutions have not materialized.
Why are
the above-mentioned actions being taken against Canada or, in the case of
additional security measures, being contemplated?
On the security side, Canada does not pose the risk to U.S. homeland
security that so many Americans perceive. Most
importantly, the perpetrators of the events of September 11, 2001, did not enter
the U.S. through Canadian checkpoints. In
addition, an April 2003 analysis of ten years’ worth of data from the U.S.
Immigration and Naturalization Services by the Association for Canadian Studies
reveals that Canada does not deserve its poor reputation as a gateway for
illegal entry to the United States.[5]
The study showed that Canada ranked 15th in terms of the point of origin
of “illegal aliens” living in the U.S. in 2000, well below Mexico and
Central and South American countries.[6] As
several witnesses reminded the Committee, the Mexico-U.S. land crossing is far
more porous than the Canada-U.S. border in terms of the entry of unauthorized
individuals. A third point to make is that, as several witnesses indicated
to the Committee, the number of unaccounted-for Canadian refugee claimants
facing removal orders – a point of contention with certain Americans – is
proportionally no higher than the number of such individuals in the United
States.
The
problem here is that there appears to be a mismatch between reality and
Americans’
continuing impression that the Canadian border is porous and that Canada
represents a threat to U.S. security. In
reality, cooperation between the two countries on border security is
unprecedented. and Canada is fully committed to maintaining a safe and secure
border. The misguided perceptions
that linger south of the border will need to be reversed.
Regarding
trade, Canada is the United States’ largest trading partner and the leading
merchandise export market for 39 of the 50 states (2002).
It is unclear to the Committee how many Americans are aware of this
reality; more needs to be done to promote this fact.
In the aggregate, over $1.5 billion in merchandise trade now crosses the
Canada-U.S. border every single day, of which American exports to Canada total
US$165 billion, roughly one quarter of the U.S. international market.
We are anxious to preserve this mutually beneficial flow of goods and
services, and wish to rid ourselves of U.S. trade disputes.
Also of
great importance is the fact that Canada plays a key role as a supplier of oil,
natural gas and hydroelectricity to the American market.
Indeed, Canada is the United States’ largest supplier of energy,
exporting more crude and refined oil products to the U.S. than Saudi Arabia
does, and shipping large quantities of hydroelectricity south of the border.[7]
Pierre Alvarez reminded us that Canada’s oil and gas reserves are so
vast that they cannot be consumed in any realistic time frame.
In terms of national security, those exports contribute significantly to
U.S. national energy needs. The
importance of obtaining one’s largest supply of imported energy from a
reliable source next door cannot be overstated.
Once again, is this reality known south of the border?
Turning
to the Canada-Mexico trade relationship, it is worth noting that total bilateral
trade with Mexico is greater than our bilateral trade with any European country
and is exceeded only by our trade with the U.S. and with each of our top two
Asian trading partners (Japan and China). In
other words, it is our fourth largest trading relationship in the world.
Moreover, Canada is Mexico’s second largest export destination and
trading partner, and our investment in Mexico has more than tripled since the
start of NAFTA.
Even
though the bilateral relationship remains by far the least developed side of the
NAFTA triangle – trade with the U.S. is 37 times greater than trade with
Mexico – it has undergone
tremendous growth. Two-way trade
rose from $5.6 billion in 1994 to $15.1 billion in 2002, and there is
considerable potential for trade growth and increased bilateral economic
cooperation.
Indeed,
witnesses informed the Committee that Mexico was an emerging economic force
within NAFTA and that the Canada-Mexico trade and investment relationship was
generally an important and positive one. Opportunities
for expanding the relationship remain untapped.
Luis Ernesto Derbez (Mexico’s Secretary of Foreign Affairs) told the
Committee that one of the key issues in Mexican foreign policy was how best to
strengthen bilateral ties, given that the trade relationship could still be
improved. In addition, the two
countries face similar challenges in dealing with the U.S., and can thus learn
from each other’s experiences and develop joint positions in discussions with
U.S. authorities.
To learn
more about the state of the two bilateral relationships that Canada has in North
America, the Committee undertook an extensive set of hearings in Ottawa, with
focused panels on the key issues affecting our trade ties with these countries.
We travelled to Western Canada to gauge the views of individuals and
groups directly affected by Canada-U.S. trade disputes and irritants, especially
in the softwood lumber and agricultural products areas, and to obtain testimony
on the general state of Canada-U.S. economic relations. The Committee also went to Washington to obtain further
information on key bilateral issues and to initiate an important dialogue with
important decision-makers there.
Regrettably,
the onset of Congressional elections in Mexico kept us from continuing our
southern visit to that country and obtaining the important Mexican perspective
on the North American trade situation, although the Committee did participate in
an important panel session on Canada-Mexico relations in Ottawa and received
valuable testimony from Luis Ernesto Derbez, Mexico’s Secretary of Foreign
Affairs. We intend to supplement
the testimony on Mexico that we have already received with information to be
obtained during a planned fact-finding mission to that country in the fall, and
subsequently issue a stand-alone report on the state of this vital bilateral
relationship. Mexico is becoming a
vital economic partner of Canada, and the Committee would be remiss if it did
not devote additional attention to the relationship.
The
Committee’s report consists of three parts, beginning with this introduction
(Part 1). In Part 2 of the report,
the various challenges to securing trade between Canada and the U.S. are
described. They include ensuring a
free-flowing border; limiting the use of American trade remedy action; enhancing
the dispute settlement mechanisms that we have available to us; assessing the
need for stronger North American institutions to manage trade; resolving current
trade disputes; examining ways to spend our official resources in the U.S. more
wisely; and promoting Canada’s reliability as a secure trading partner.
The
report also focuses on the longer-term issue of how close the relationship
between Canada and the U.S. ought to be (Part 3).
In essence, is closer formal economic integration warranted, or should a
strategy of aggressive trade diversification be entertained in concert with
safeguarding existing bilateral trade? Drawing
on important testimony received by the Committee, the argument will be made that
past steps to formally integrate the two economies have faced diminishing
returns, and that the benefits of even closer formal integration do not appear
to be substantial. Since Canada’s
vulnerability is now being exposed on both the security and trade side, a
prudent policy choice is to lessen our dependence on the U.S. market and to
diversify our trade. That does not
mean that we should neglect trade relations with our most important economic
partner; it just implies that we should not continue to “put all our eggs in
one basket.”
[1]
The two Ontario-Michigan border crossings are Windsor-Detroit and
Sarnia-Port Huron.
[2]
The Fort Erie-Buffalo connection is by far the most active of the
Ontario-New York border points, although the Lansdowne-Alexandria Bay
crossing also attracts significant vehicular movement.
[3]
There are also indications that the quantity of U.S. border
inspections would increase should the Government of Canada proceed with the
decriminalization of marijuana.
[4]
Softwood lumber (see Appendix 2) and steel are two examples of
bilateral trade disputes that have been dealt with through the FTA/NAFTA
dispute settlement mechanism.
[5]
Jack Jedwab, “Canadian Aliens:
The Numbers and Status of Our “Illegals” South of the Border,” Paper
prepared for the Canadian-American Research Symposium on Immigration,
Association for Canadian Studies, 26 April 2003.
[6]
Ibid., p. 1.
[7]
Indeed, Canada supplies the U.S. with 94% of its natural gas imports,
close to 100% of its electricity imports, 35% of its uranium imports used to
generate nuclear power, and 17% of its crude and refined oil imports.
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