Proceedings of the Standing Senate Committee on
Banking, Trade and Commerce

Issue 7 - Evidence - Meeting of October 18, 2006

OTTAWA, Wednesday, October 18, 2006

The Standing Senate Committee on Banking, Trade and Commerce met this day at 4 p.m. to examine and report on issues dealing with interprovincial barriers to trade.

Senator Jerahmiel S. Grafstein (Chairman) in the chair.


The Chairman: Welcome to the Standing Senate Committee on Banking, Trade and Commerce as it continues its study on interprovincial trade barriers. We are delighted to have two outstanding witnesses today from two of the great coasts of Canada, the East Coast and the West Coast.

We are delighted you are here, gentlemen.

This hearing will be seen from coast to coast to coast on television and also on the Internet, and we want to welcome our viewers to this hearing.

Today, the Standing Senate Committee on Banking, Trade and Commerce continues its examination of the interprovincial trade barriers that exist in Canada and, more particularly, the extent to which those interprovincial trade barriers are limiting the growth, profitability and prosperity of affected sectors as well as the ability of businesses in the affected provinces and regions, jointly and with the relevant U.S. states, to form economic regions that could become, and we hope will become, new regional engines of growth.

Our previous study was on productivity. This committee was very concerned that there was a productivity lag in Canada compared to the United States, and the committee agreed that we must develop new ideas to improve our national productivity. We on this committee believe that the topic of internal barriers to trade is critically important to a prosperous future.

In our view, the barriers often increase costs for businesses and, ultimately, costs for our consumers, and lead to deep inefficiencies and reduced competitiveness and productivity. Certainly we need to focus on precise actions that will enhance, in a cost-effective way, competitiveness and productivity and will help to remove those internal barriers to trade that are harmful to this goal.

We are delighted to have before us today two important witnesses. Mr. Steven Kymlicka is Senior Policy Analyst with the Atlantic Institute for Market Studies, based in Halifax, and Mr. Matt Morrison, an old friend, is Executive Director of Pacific Northwest Economic Region, located in Seattle, Washington.

Gentlemen, perhaps you could tell us a little about yourselves and your work, with which some of us are very familiar. Please tell the committee and our viewers how we can improve productivity, prosperity and profitability for all Canadians.

Stephen Kymlicka, Senior Policy Analyst, Atlantic Institute for Market Studies: Thank you and good afternoon. It is a privilege to be here and to share the work of the Atlantic Institute for Market Studies, specifically our research on interprovincial trade barriers and the relationship to an effective Atlantica, our cross-border region.

I would like to extend the best wishes of our president, Dr. Crowley, and his regrets for not being here.

First I would like to introduce you to Atlantica. We define "Atlantica'' as the Maritime provinces, Newfoundland, the south shore of Quebec, and upstate New England all the way through to upstate New York. At first glance this may seem like an ad hoc definition. Why not Boston; why not Toronto? Clearly Atlantica has strong historic connections with these areas. The answer lies in finding common interests in public policy. Boston is now part of the New Atlantic Triangle, a region that extends from New York City up to Boston, over to Albany and back down to New York.

Boston has found its policy synergies with New York, a larger market. They plan their traffic and transportation policies this way and, in fact, they are part of the "Port Inland Distribution Network'' out of the Port of New York- New Jersey. Equally, Toronto is part of the Windsor-Quebec corridor, which potentially could be extended through Detroit and all the way down to Chicago.

The fact that we are a region of common interest is no accident. The people of Atlantica have a shared cultural and economic history, a common ancestry through cross-border migrations and a shared geography. One of the key features is that most of the internal corridors run north-south along various rivers. Unfortunately, east-west transportation has been limited by natural rugged barriers and the political border, which until recently has been guarded by high tariffs. Thus, although much of 20th century North American history has been seen in terms of a push west, a colonization of the west, if you like, in many cases the drive west started in Montreal or New York, leaving Atlantica behind.

The economic health of Atlantica should be a happy story. We are blessed with many resources, including oil and gas, pulp and paper, gypsum, many forms of agriculture, aquaculture, clean air, a temperate climate and the most beautiful shorelines in the world. Furthermore, we are adjacent to or en route to the major markets of the world and we have a world-class port. The policy research initiative found Atlantica second only to the Pacific NorthWest Economic Region in terms of the overall strength of its connections.

There is also a pressing opportunity for Atlantica to house a gateway for increased trade between the continental interior of North America and the world, especially South Asia through the Suez Canal.

This opportunity has been made possible by four factors. The first is the natural gift of an ice-free, deepwater port on the great circle route between Europe and New York. The second is the clogging of the West Coast ports and their associated rail corridors into the interior under rapidly growing trade with Asia.

The next two slides are courtesy of Drewery Shipping Consultants. They show that the traffic from Asia to North America is growing at an astounding two million containers per year. Even with all of the increases in capacity on the West Coast, such as the opening of the port of Prince Rupert, it is simply not enough. A certain percentage of this traffic will need to come to the East Coast. While we are on Prince Rupert, the initial capacity of Prince Rupert is supposed to be half a million TEUs a year, and that will grow to two million. That takes up one of the years of growth. Eventually, though, all of these enhancements will have diminishing returns, and the traffic has to go somewhere. The Panama Canal is choked full, almost at capacity, and cannot handle the bigger ships that are coming.

Our third point is that ships are getting bigger. Right now, we are in the post-Panamax world, and the ships on the drawing board are even bigger. They simply cannot get through the Panama Canal; even with the expansions, the largest ones that are on the drawing board will not go through the Panama Canal. This is important because there are certain economies of scale in shipping. If you can find an all-water route from, say, Colombo through to North America, the biggest ships possible will be used. That means they will come to the East Coast rather than the West Coast.

As you can see, the larger ships are dominating the order book. The shipping companies these days are looking for the most capacity, the most economies of scale they can get.

My last point is that we have a great opportunity because our corridor is serviced by CN, the world's most efficient railway. All these points mean that the interests of the GDP growth in the continental interior, in Ontario and through to the American Southwest, need gateways to get their products in and out, and Halifax can be a major piece for that traffic.

Certainly the U.S. understands the need for cross-border cooperation. That fact is most clearly seen in the high priority corridor designation by Congress of an east-west highway through Northern New England, a project expected to cost approximately $900 million. Furthermore, the involvement of the Atlantic provincial governments and Transport Canada in the $1 million Northeast CanAm Connections project has been requested. This project seeks to detail the economic benefit that can be derived from the regional synergies. These initiatives are tremendously important for Atlantica because they improve access to the major markets of Boston, New York, Montreal and Toronto. Equally important is the historic fact that economic growth happens most dramatically at the intersection of corridors, in this case our traditional north-south highways with the new east-west corridor.

We envisage the future to look something like what is pictured in this slide. As you can see, the dotted line is the new route that will connect us. You can see where all of the crossroads are between these new east-west routes and our traditional north-south arteries.

So where are the problems? Transportation is a major issue; the benefits of free trade are severely limited if the transaction costs become overwhelming. The success of the gateway initiative depends in part on establishing the region as transportation friendly. As such, harmonizing vehicle regulations and standards throughout the cross-border region, upgrading some of the physical barriers — for example, the twinning of the Trans-Canada at Rivière-du-Loup — and updating both the Transportation Act and the Marine Act would all be useful.

We give a short example here of the different load limits in Canada and the United States. Although I might be able to take a container off a ship in Halifax and truck it all the way to Montreal, I cannot do that to Boston. The load limits on the highways are such that I just cannot do that.

I would like to make a special point of recommending the staged removal of the 25 per cent tariff on imported ships, which would allow a renewal for the Canadian merchant fleet and would go a long way to making interprovincial trade through short sea shipping viable. Tariffs are there to try to protect an industry, and although we have a shipbuilding industry that is very good at making tugboats and the like, we have not made a significant cargo vessel in a long time. Really, we are protecting nothing. We are just increasing the costs of our Canadian shippers.

This is our idea of how a short sea network might work at the top. As you know, cabotage restrictions are such that at the moment I cannot pick up cargo in Boston and take it to New York and come back to Halifax. If we could, for example, find a NAFTA flag, and if we had the short sea shipping kinds of ships, this could be an extremely profitable route for us.

A further example can be seen in the status of long combination vehicles or road trains. These vehicles have been used successfully in Quebec, the western provinces and many states for many years, resulting in higher productivity and economic viability over a larger distance. However, the adoption in Atlantic Canada has been restricted to a pilot project between Moncton and Saint John. The consequence is that trucks from Montreal to Halifax, for example, travel at the common regulatory configuration and not the most efficient configuration.

Just to give you an idea of the magnitude of this problem, in Alberta they figure the total productivity enhancement available to the trucking company is about 5 per cent, which is no small amount. Moreover, in this era of driver shortages, you have to realize that trucking companies are already picking their best clients. If we are to make these transportation options available, often to local companies, we need increased capacity in the trucking industry.

To change this regulatory environment to allow these road trains, advocates must go from jurisdiction to jurisdiction making their case and risking varied responses, a long and arduous process that may bring no benefit.

Administrative requirements such as head office or residency requirements and multiple filings provide a strong disincentive to setting up a local branch office in Atlantic Canada. In fact, it is structurally more efficient to leverage the mutual recognition of professional certification guaranteed under the NAFTA and service Atlantic Canada from, say, Maine, than it would be by setting up an Atlantic Canadian office. This is most dramatically seen in our acute labour shortage, which is complicated by this recertification issue. The usual examples cited are architects and accountants; however, problems are widespread. In my own personal life, my family moved to Halifax from Regina for health reasons. However, my wife's credentials in early childhood education were not accepted in Nova Scotia, and she was required to take an additional course, delaying her workforce participation.

Barriers in the energy sector, especially in power transmission, restrict growth potential. The key issue here is in clarifying the underlying economics. Several years ago, the New England states negotiated a common transmission rate around which retail and distribution policy can be developed as appropriate. This standard allows for realistic evaluation of alternatives in generation and transmission. Alas, Atlantic Canada does not have a common rate. This lack obscures the true cost of power generation and, arguably, allows inefficient plants to continue at a cost to the consumer. More to the point of this presentation, it undermines cross-border cooperation on the development of a more robust regional power grid.

Last, I realize this committee is tasked with examining interprovincial barriers; however, I would take the opportunity to point out that there are a few remaining barriers to trade with the U.S. Of particular interest are, first, a reiteration of the need for harmonization of technical vehicle standards — a need which remains outstanding from the NAFTA and which was reinforced in the Partnership for Prosperity; second, the need to implement comprehensive, intelligent transportation system (ITS) solutions at border crossings and in the ports; and, third, the need for the development of a NAFTA flag to enhance short sea shipping opportunities.

In one sense, transportation is a success story. The international registration plan and the international fuel tax agreement have allowed some jurisdictional differences in cost structure while presenting a unified simple interface for commercial vehicle registration through multiple jurisdictions. It is very difficult to understand why the same principle cannot be applied to a variety of other barriers.

In summary, Atlantica has a great future with an opportunity to help fuel the continental economy by functioning as a gateway to the world. To fully capitalize on this opportunity, we need to be more competitive; nothing less than "best in class'' is good enough anymore. The more obstacles that can be removed, the better.

That being said, transportation, administrative barriers, especially with regard to labour mobility, and energy are the key areas for harmonization. In many cases, unilateral action will suffice. There already is a working, single- interface model for multiple jurisdiction agreements. We should leverage our successes.

Thank you once again for the opportunity to speak, and for your time and your attention.

The Chairman: Thank you very much. We will hear now from Mr. Morrison from the West Coast. Perhaps he might spend a few moments sketching out the governance structure of PNWER, and then the senators can proceed to ask you both questions. We have another 50 minutes, so feel free to take time presenting the structural issues as best you can and then we will move to general questions.

Matt Morrison, Executive Director, Pacific NorthWest Economic Region: Mr. Chairman and distinguished members of the committee, I am very grateful to be here as an American — and probably as close to a Canadian as you could get.

I am the Executive Director of Pacific NorthWest Economic Region. PNWER has a long history; it began a three- year process of developing in 1989. It started out with the state and provincial legislatures meeting together and finding such value that they wanted to formalize a structure. In 1991, each jurisdiction passed identical legislation forming PNWER. It is a statutory organization, a public-private partnership that exists to focus on barriers to trade and to highlight the economy of the region.

If we were a nation, we would be about the 15th largest economy in the world, with a population of 20 million and a GDP of $840 billion. It is significant to note that in the last 10 years, or since NAFTA, the PNWER region has outdistanced either Canada or the U.S. in terms of GDP growth. I think it is worth highlighting that fact here — 123 per cent compared to lower percentages in the various states and provinces and the national averages.

There are many reasons for that, of course. We are an engine of economic growth, and dealing with the exact things that your committee is dealing with is essential for our long-term competitiveness in this global marketplace. I applaud you for addressing this issue. We did have something to do with the B.C.-Alberta agreement, which I think is a great model that needs to be expanded.

Structure is always complicated. On the U.S. side it is bipartisan and on the Canadian side it is also bipartisan. It is actually extraordinary that governments appoint opposition members to our board. We had a lot of trouble with that in the beginning, but it has worked out well in the long run.

We have a private sector council that mirrors the public sector council, and the governors and premiers usually assign a Department of Commerce director or an appropriate minister to represent them on our board. We have focused on the basic sectors that are the critical sectors in our region's economy, and we have working groups in each of these, which have a public and a private sector co-chair, and that has served us well.

We have about a $1-million budget. A lot of it is coming now from the private sector, along with state and provincial support and U.S. federal support. We are still working on that Canadian federal aspect.

The trend is good, in that the private sector sees value in what we are doing. We made it a conscious decision from the beginning that, if the private sector was not committed and at the table, perhaps we were not addressing the right issues. I think that the private sector really brings issues to the table in most of the working groups. However, there are working groups dealing with matters like invasive species and certain agriculture issues that are largely driven by the public policy.

We are focused on action. We do not want to be a talking shop. Every working group has an action plan and they are moving it forward over time.

The private sector council meets regularly in each jurisdiction. The officers travel around the region and meet with the governors and the legislative leadership. Over time, this has been a great opportunity for building relationships that have all kinds of spin-offs that were not originally intended but have proved very effective.

In our secretariat, we have a very small staff. Because all of the committees are statutory committees, that allows for a minister, a provincial minister or a Senate chairman in a state to task staff to do things. Along with project teams, we have conference calls regularly in moving these agenda items forward.

Some of the projects we are working on here include binational energy, which is a major area for us. The U.S. has been involved in setting up energy corridors over the past year. The Department of Energy has funded Pacific NorthWest Economic Region to work on energy corridors to make sure we are talking to the major source of energy, which is Canada. Without us, I do not think it would have happened, but I am happy it has. It is amazing.

Looking forward to the year 2010, the Winter Olympics year, we have a whole lot going on with the states and provinces. Critical infrastructure security has been very important. It has enabled us to have more voice in the Western Hemisphere Travel Initiative, for example, because we have close ties with the Department of Homeland Security and the State Department, working on security and border issues in the context of our economy and making sure the economy is moving forward. There are many issues around 2010. We know that a large number of participants and ticket buyers are coming from the northwest rubber tire market area and we are looking at building relationships to make the Games a total success for everyone.

We have worked closely with PSEPC and the Department of Homeland Security. We have had a series of tabletop exercises looking at the interdependencies of our critical infrastructures, which cross the border back and forth.

The mission of Pacific NorthWest Economic Region is really to ensure that major disruptions to our economy do not happen. We are working on a host of issues right now to ensure that, regionally, we can build the necessary relationships to solve issues before they become international incidents. We want to defuse potentially explosive issues like BSE and softwood lumber before they become major problems.

We did have Secretary Chertoff and Minister Day at our summit this past July. We had a very successful round table with private sector businesses talking about the issues of the border. I was pleased with the way that went and with the fact that Secretary Chertoff and Minister Day stayed for a whole day and a half to listen to the stakeholders. That is really what we want to have happen.

As a structure, because there is an accountability structure, we have been able to increase the bilateral relationships between our various members and we are now having joint legislative committee meetings in the other country, and a lot of important things are happening because we are building friendships across all the boundaries.

We have been able to head off many tough, thorny issues. We have held cattle summits and we have had a tire issue, but I will not go into those now. However, because there is a structure, we are able to facilitate the things that increase productivity in the region by looking at competitiveness issues.

We just received a grant from the U.S. federal government to build an R&D exchange, by which we are linking the institutions of research and development throughout the region and building a way of having our best and brightest people in touch with each other so that they can understand what they are working on in order to collaborate better.

We had a nanotechnology forum at which we brought together leaders of nanotech institutes throughout the binational region. It was clear from the private sector that building the labs is very costly, but each lab can specialize in a unique area, which makes the whole region more competitive, and that can enhance our collaborative abilities to compete in the global marketplace.

We have done a lot with biotech collaboration and are trying to leverage the investment that is going on in British Columbia, Washington State and Alberta in biotechnology. We have started a series of "smart energy investor'' forums that we have with our annual summits. We have worked a lot with environmental technologies as well as aerospace. Even though it is not a working group we have facilitated the coming together of industry associations and the sharing of best practices.

Just because the organization exists and we have two regular meetings every year, as well as all these other meetings, it is a place where a lot of other cross-border groups are able to meet as well. They have side-bar meetings during our summits.

We formed a linkage with Council of State Governments, the Western Governors' Association and the Border Policy Research Institute. I think you are all quite aware of the WHTI issue, but we are spear-heading a model in Washington and B.C. with Premier Campbell and Governor Gregoire. Now that we have had the date extended to June 2009 we are pushing forward, and we have knocked a lot of heads in Washington, D.C., but we are at the final stages of a pilot driver's licence that could be a secure travel document. It has been quite a process, but when you have private and public leaders working together, that is what it takes. I am hopeful about that.

We see the Pacific gateway project as a major opportunity. Minister Emerson has been a visionary in looking at the Pacific gateway and knowing that it will not work if it is just a gateway for Canada. If the border is not functioning then we do not have a North American gateway. We are pulling together the ports up and down the West Coast to talk about 20 years into the future and how to deal with the TEUs, the doubling of Asia-Pacific trade in the next 20 years and the congestion on intermodal systems. It is a vitally important thing. The ports are generally so competitive with each other that it is hard to get them together. I think we are making progress with rail and trucking organizations, but we must in order to deal with this.

Worker mobility is now one of our major focuses; there is workforce development, as you are well aware, between Alberta and B.C. Just considering the Alaska natural gas pipeline, there will be $100 billion to $150 billion in investments in the next 10 years just on four major projects. So the workforce is now stretched to the limit. The question is: how do we deal with that?

We had a meeting with Minister Solberg a few months ago; he has charged PNWER to form a task force with public and private stakeholders to begin to address the barriers that can be solved on a provincial, federal and international basis. This is front and centre at every meeting as our number one issue.

We have done some significant things with the professional engineer licensing issues; we have been able to get three states to develop reciprocity agreements for Canadian engineers who have been in practice more than eight years. That was a big break-through. Those may seem like small things, but they are not. We have state legislators and governors in our organization who can get these licensing boards to the table and then deal with the legislative barriers and get them changed.

We have been working on a whole host of issues on the northern corridor. Just last year we instituted a "Loaned Executive'' program, and we are very encouraged by the response. We are now looking at an ongoing fellow program with the private sector.

In conclusion, within the Security and Prosperity Partnership they have identified all the issues we need to be working with. I was dismayed a month ago that APHIS came down with a decision that, starting November 24, they will stop every truck that has produce and the operator must produce a special licence. They withdrew Canada's waiver for shipping fruit and produce into the U.S. starting November 24. It should have gone to the SPP to be worked through and a solution could be worked out. I am sure that we will not allow that to happen, but it is slated to happen. It is one of those things that drop out of the sky, making you wonder what they were thinking of.

The Chairman: We are waiting for the mid-terms, and maybe that can make a difference.

Mr. Morrison: I think that cross-border regions are a great way to be dealing with these things because we have stakeholders that are committed. It has been really fun dealing with the misunderstandings between our political systems. Next year I am hoping that we will be able to launch a legislative cross-border academy to take the best and brightest upcoming leadership in the states and provinces, bring them together for three or four days and let them understand each other's systems and the way they work. In that context, we will see what the emerging issues on the border are that we need to understand more deeply. I have great hope that that will make a big difference over time as well.

Take advantage of what we are doing out there; we are a test bed. I follow very closely the SPP. I spent the morning over at the PSEPC office and they were saying that the Prime Minister has identified pandemic planning as one of the top five things we will do with the U.S.; but where is it? What are we doing? We have a group and we are ready to go. We are doing pandemic planning.

We have an annual roundtable. Mr. Jim Phillips is helping us to collaborate with other cross-border regions; we have a meeting next month. I am hoping to do an academy, and I think it is great that you can talk to any province or state in PNWER and they will all give you the same answer. It has been well worth anything we have ever spent on it. I am very proud that that is the case. I know that you will get that answer. You can take that to the provinces. It is not rocket science. This could be done across the border.

When you get down to the irritants and the problems at the border, a cross-border organization like PNWER can make a real dent in the congressional process of the U.S. All politics is local. That is how it works.

The Chairman: Thank you. You have both given us a lot of information. I have been at this with you for about a decade and I learn new things all the time. I have learned that we are not cooperating enough or focusing on the issues that can enhance prosperity on both sides of the border. You have done a great leadership job at PNWER, and we hope that we can replicate that right across the country.

Senator Angus: Welcome, gentlemen. Your presentations were very interesting. The scheme of things seems to be quite different on each coast. It is a wonderful initiative, because we spent a great deal of time and effort developing the free trade agreement between Canada and the United States and the North American Free Trade Agreement.

Mr. Morrison, softwood lumber applies to three main regions: your region, eastern Quebec and Ontario. I am prompted to ask you what went wrong with softwood lumber, because it seems to me that many of the problems occurred in that north-south area.

Has the expansion in freer and smoother trading internationally between Canada and various trading partners occurred at the expense of trade within our own country?

Mr. Morrison: On the second part of the question, I was looking for a slide that I often use that illustrates the number of truck crossings north-south and east-west. I believe that the economic watersheds in the regions are north- south. I would not say that that trade is limiting opportunities east-west, because I see it as an economic engine that is growing and it is not a zero-sum game. However, we are currently working with Perrin Beatty of the Canadian Manufacturers' Association and Pierre Alvarez of CAPP to study the modularization of manufacturing that is needed in northern Alberta, because they do not have the required workforce and transportation system to achieve their goal of doubling capacity. For that they will need people to build things and to ship them. There is a huge opportunity, and I do not think that enhanced collaboration limits any one partner.

Mr. Kymlicka: I agree that historically economic connections have run north-south. In fact, it was the loss of reciprocity coming with Confederation that started the east-west orientation, and this is really just a restoration of those connections.

Because those connections are so natural, that is where the emphasis has been as well as the greatest gains, because the largest barriers have come down with the free trade agreement and NAFTA.

Finally, there has been some interesting research done by Serge Coulombe at the University of Ottawa that has suggested that you get productivity gains from lowering barriers both internationally and interprovincially, but you get the greatest growth from lowering barriers internationally. The companies that have growth aspirations are focusing on lower tariffs now rather than the opportunities here in Canada.

Senator Angus: We all know that international free trade agreements have had positive results, but they are not perfect and there are many exceptions. It seems that the exception is the rule. In any event, it was the first step.

We have seen the B.C.-Alberta model, and I saw in the newspaper today that Ontario wants to join in on the B.C.- Alberta agreement. I thought that must be terrific news. It appears to be the trend. Can either of you confirm or deny that?

Mr. Kymlicka: There have been a number of initiatives to lower barriers, and generally speaking that is happening, although slowly. For example, the Council of the Federation has renewed its commitment to remove residency restrictions on worker mobility by 2009, although their original target date was July 2001.

The Chairman: This committee is impatient with provincial premiers and the Council of the Federation. We have asked them to appear here and we are receiving their information.

What is your understanding of why that cannot happen by the end of this year? What is causing the delay of labour mobility in Canada?

Mr. Kymlicka: I wish I had inside information to give you. The view of the OECD in a report they released last year was that the provinces have basically abrogated responsibility to the professional associations. Accountants, for example, are not interested in competing with accountants from other provinces so they will create residency restrictions to safeguard their rents. That argument makes a lot of sense to me. I do not know why the provinces do not step in.

We have such labour shortages. It is incredible to me that a province like Nova Scotia does not unilaterally mandate that residency restrictions go away. No one in their right mind would suggest that New Brunswick or some other province is allowing certification or registration of people in an unsafe way. Why not leverage those benefits and allow people to work there? I have no idea why that has not happened.

Senator Goldstein: You speak in your written material of the need for harmonization of technical vehicle standards. I take it that that is for purpose of allowing transportation from province to province or from the United States to Canada and using the same standards for vehicles.

Mr. Kymlicka: Exactly, in both cases.

Senator Goldstein: You emphasize that as a function of Canada-U.S., and I understand that we have the same problems as a function of province to province and east to west.

Mr. Kymlicka: That is true, and we have an obligation under NAFTA to remove the barriers. The transportation ministers have a council that meets regularly to review these issues, but their pace of progress against the outstanding barriers is quite slow.

Senator Goldstein: I know that that existed initially in the NAFTA agreement. Why has it taken so many years for nothing to happen?

Mr. Kymlicka: The NAFTA agreement had some due dates associated with it, and those have passed. The original mandate for really driving this has lapsed, and there is a certain lack of drive.

As well, I think we have to own up to the effects of 9/11. The American government has switched priorities to security, quite understandably so, and, unless there is a security component to harmonizing things, it is not on the priority list for the government. That does not mean that we, on an interprovincial basis, cannot solve our problems, but working within the land transportation subcommittee structure is harder now.

Senator Goldstein: What would be a driver to force provinces — your expertise is in the Maritimes, but I am referring to the Maritime provinces or the provinces across Canada — to adopt uniform standards for technical vehicle specifications?

Mr. Kymlicka: That is a good question. Although I have moved to Halifax, I spent a long time in Regina and did a lot of work with the Saskatchewan government insurance, which did licensing for commercial vehicles. There did not seem to be any feeling of urgency in trying to address these issues. There did not seem to be an economic cost within the policy group associated with non-harmonization.

Senator Goldstein: Would the trucking industry not be highly motivated to create that kind of momentum, because it is otherwise losing transportation availabilities to trains?

Mr. Kymlicka: That is not so much of an issue. Really, the notion that train and truck are in competition probably has not been true for 10 years. The economics of the two modes are radically different.

Certainly there is a certain squeeze because of the driver shortage and increasing driver salaries. There are some squeezes associated with the cost of fuel and all of the regulatory requirements for upgrading emissions standards, for example. There are many reasons the trucking industry should be looking for efficiencies and, in all honesty, I think they are. Some jurisdictions are more motivated than others. That is the best way of putting it.

The Chairman: Mr. Morrison, could you go back to your chart dealing with the various cooperative areas? There is a whole circle of issues that you have developed partnership relationships with across the border. I am talking about the one that has the dots. There it is. This committee is trying as best we can to energize our own thinking and the thinking within the federal bureaucracy, and beyond, to how we can energize and accelerate movement towards value- added economy, a productive economy, the knowledge economy, the heart of which is research. Do you have that map about the nanotechnology today?

Mr. Morrison: The one we did with Nanotech Forum?

The Chairman: Yes.

Mr. Morrison: No. we do not have the one that has all the facilities throughout the region.

The Chairman: Would you describe to the committee what you discovered and what happened when you came to the question of nanotechnology research and the various universities on both sides of the border, and how you accelerated the process of research on a cost effective basis?

Mr. Morrison: The labs are expensive to build.

The Chairman: Where are they?

Mr. Morrison: They are in Alberta. The NINT is the brand new one they just opened in Edmonton. One is in British Columbia, and there is one in Oregon and one at the Washington Technology Centre in Seattle. Those are the main ones.

In analyzing what capabilities they had, they realized they all wanted to have more capabilities, but it is tremendously expensive to build these labs; however, they could collaborate and each could decide to specialize in a different area. The businesses that were there said, "Great, that two-hour plane flight is no problem for us. We will go to Alberta to test one thing and go to Oregon to test another thing.'' Together, they ended up with a much greater capability to address nanotech, which is not one sector, and is not one science, but affects all manufacturing. It is a way of moving our entire high-tech competitiveness forward in a multi-sector approach.

The Chairman: When we talked about this several years ago, the universities were all making a lot of investment at very high cost to develop nanotechnology research centres, but they were not talking to one another. All of a sudden, you came along and got them talking to each other, and they decided on who would do the different parts of the research and they started working as a common whole. All of a sudden, the knowledge edge moved forward on a cost- effective basis.

Mr. Morrison: Big time.

The Chairman: Look at those other circles on your slide. Where else did that happen? Did it happen in agriculture in terms of best practices?

Mr. Morrison: Somewhat, yes. There are many issues with agriculture. I think clearly we are on the verge with the smart energy technologies and clean energy technologies. At our last summit, we had the head of the Chinese energy ministry over, and we were looking at a clean energy technology exchange centre in Beijing in partnership with Alberta's already-existing centre. They need smart-grid technology. This is a $40-billion industry, or more, and we excel with start-up companies that are doing these things.

The Chairman: Could you go through all the circles and give us a page or so about how the partnerships have accelerated the cooperation, the efficiency and the productivity of these sectors? I know you have done some miraculous work in forestry, about accelerating research there, and you have done terrific work on tourism and transportation, obviously; you have been great on trade and great on infrastructure, great on environment, and certainly on nanotechnology and medical research. You have helped pull together a raft of things so that those states and provinces and institutions within them are working more effectively together and reducing the costs to the taxpayer and increasing productivity. Could you give us some aide memoirs on that?

Mr. Morrison: On the environment and sustainable development, with B.C.'s Minister of Environment, we feel that the 2010 Olympics is a big deal, and we will have a sustainable technology show case during 2010.

The Chairman: We are pressed for time. If you give us a page on each, that would be helpful to us. We are trying to educate ourselves and the public and our governments that they have to work more effectively together in the common good. To show you how bad it is, we cannot even get provincial economic ministers to show up here and defend why they still have interprovincial trade barriers. We will get after them as best we can, but we need you as a success model to show how the public and private groups, working together, can be more effective than governments that are not talking to one another.

Mr. Morrison: I will do that.

Senator Moore: Mr. Kymlicka, I see you went to St. Francis Xavier. Are you from Nova Scotia?

Mr. Kymlicka: No, I was originally born in New York and grew up in Ontario.

Senator Moore: I am a Nova Scotian. I heard Brian Lee Crowley's presentation with regard to Atlantica in Connecticut in August 2005. He gave a wonderful presentation that was well received, and I put him in touch with some other people to keep advancing the scheme. I have not heard anything else with regard to it in my province or from anyone else in Atlantic Canada to try to adopt this model. Could we think of it in terms of Pacific NorthWest Economic Region and move it ahead?

What would be the first thing you would do if you could to get things moving with regard to implementing Atlantica and thereby enhancing our productivity and all the rest that goes with that?

Mr. Kymlicka: Quite a bit has been done and there is a fair amount of traction. The provincial government in Nova Scotia, for example, has allocated a fair amount of money toward the gateway initiative and a lot of it has been done within the context of Atlantica.

We have ACOA spending some money working on that. They sponsored an Atlantica conference in Saint John over this last summer. We have Transport Canada spending some money on this. There have been quite a few initiatives to support it.

The Chairman: There is not a statutory partnership, a public-private partnership, is there?

Mr. Kymlicka: Not a private-public one. There are the Atlantic Canadian premiers and the New England governors who meet on a regular basis.

The Chairman: That is not statutory.

Mr. Kymlicka: No.

Senator Moore: That is not advancing any of this. I do not see any traction there.

Mr. Kymlicka: Frankly, what I would like to see — and we have spent a lot of time talking about this, not just within AIMS but within the region — is recognition outside the region of the importance of the region. It would be most important to us to have the larger businesses in Ontario and the Midwest, which use our services and understand the importance of that corridor, put up their hands and start supporting that notion. Then you would start to see more of the public-private partnerships.

As things stand right now, the big voice has not come forward, the big champion that PNWER got, both in terms of PNWER itself and in terms of the gateway. There were strong champions within government to stand up for them, and we need that.

Senator Moore: Should we be looking to establish a PNWER-type organization first, and then have it be the umbrella under which Atlantica can move forward? Or does Atlantica and an Atlantic-type PNWER merge?

Mr. Kymlicka: Certainly, that would be the goal.

Senator Moore: To have an Atlantic-based PNWER?

Mr. Kymlicka: One of my tasks in being here is to convince Mr. Morrison to come back to Halifax and help us set that up. Having said that, however, I think there have to be strong champions and critical mass for this sort of organization to have traction.

We are very close. If you compare the kind of support we have in the region today as opposed to a year ago, it is like night and day. Atlantica is a term that is used on the street every day, which was not true a year ago. We are close, but whether or not today is the day we need PNWER in Atlantica or whether that is 12 months off, I do not know.

The Chairman: As I recall, PNWER started in a humble way. It was a deputy premier of the Province of Alberta who met together with a senator from the State of Washington. They decided they would push this agreement through and they got an agreement from the provinces — which are Alberta and British Columbia, not exactly the same types of provinces — and a territory like the Yukon, and then I think it was Washington, Montana and others in the United States; they joined together. It was not a grandiose start but it was an important start by two visionaries — one a state senator in Washington and someone who was a deputy prime minister of the Alberta government — who got it through within a year.

All of a sudden, that was the basis for Mr. Morrison as the coordinator to put together his organization. He is working on a very cost-effective basis. For a couple of million bucks a year, these are huge spin-offs for these economies.

I am saying, with Senator Moore, we have been to those meetings with governors and premiers. They are lovely chats, the socialization is fantastic and we appreciate the hospitality, but after a decade of chatting, they have not come closer to a statutory agreement, a public-private agreement to start moving these interests together. Central Canada will not save you.

Mr. Kymlicka: I am completely in agreement that this needs to be done. If anything, I would argue the need is more urgent in Atlantic Canada. Simply because we have too many stakeholders, getting anything done takes too long.

It is possible for a couple of provinces and a couple of states to get together. We have five Atlantic provinces alone, so we need a lot of strength and leadership. Maybe we can find a couple of champions; maybe they do not have to be at the top, but you are right, we need to have this moved forward.

We are in a global economy where supply chains compete against each other.

The Chairman: We are convinced. The issue is, where do we go and how do we move it?

Senator Eyton: Thank you for two interesting presentations; I was struck by how different they were. I heard from Mr. Kymlicka about Atlantica and about some great ideas that should be pursued. What I heard from Mr. Morrison — and I can happily be corrected — was that you had great ideas in action. There was a significant difference between the East and the West. That is not to say that Ontario is perfect or Central Canada has it right or anything, but there was a marked difference between the two.

The things that jumped at me were the public-private partnership and the regional. It seems to me those things are essential. When you get a compact group that can work together harmoniously, perhaps as neighbours, you will get a more effective fighting force.

This chart reminded me of an organization I chaired for a number of years, called the International Trade Advisory Committee, here in Canada. It was a very important element of the free trade and NAFTA discussions between Canada and the U.S., and later with Mexico. We had very much the same kind of structure.

It was my sense, and I hope I am right, that these were all businesses and they were focused so that there were two or three senior people. It was senior business that was committed to the process. Whether it was energy or agriculture or environment, the hub looked very much like that. The gathering place was the International Trade Advisory Committee that worked with the government officials to make it happen.

That effort was successful, but it was focused on one target — that was the free trade agreement. After that, there was another manifestation of the same organization but it kind of went to sleep; it disappeared.

The lovely thing about Pacific NorthWest Economic Region is that, whether you know it or not, you replicated the model we had at one time, although it was nationwide. It achieved some great success because senior business people committed to it. You have the magic as well in your regional effort.

I think it is worthy. I have been knocking around in trade and investment questions for a long time, but I did not know much about PNWER and I am very pleased about it today. I think where you are now is inspirational.

I do not think we have time now, but I would like to know how you started. I know it was not a deputy premier or a bureaucrat. It involved much more than that, because you have an entire neighbourhood of senior people working together in a harmonious way. I need to know more about how you started that process, and then we can learn from that and try to transport it to other parts of the country.

The Chairman: I think we have it on the record, and certainly we will brief all senators on that. Some of us have been following this for some period of time. It is not new information. We will make it general knowledge to all the members of the committee. The information is quite simple. It is not complicated. It has become a nucleus, as Mr. Morrison said, of economic growth. It is a new engine of growth.

Senator Eyton: It is exciting.

The Chairman: It is. Let me tell you what the pressing issue is from my perspective. We have learned this from your testimony. We have these mega ships that cannot dock in either Boston or New York to service the American marketplace. To bring down the cost of goods, we have the new container ships that cannot fit Boston and cannot fit New York, but, guess what, you know and we know, Mr. Kymlicka, and we have heard this before, that they can fit comfortably in Halifax. That is the good news. The bad news is getting the goods off and into the marketplace, looking at the tangle of the infrastructure. We do not have a good north-south road or railway track, or a good east-west road or railway track. How do we deal with the infrastructure problem as it relates to both sides of the border in order to get those new goods, those cost efficient goods, into the heartland of Canada and the United States? How do we do that? What is the tipping point?

Mr. Kymlicka: In terms of rail into the continental interior, I would argue in fact that we have a very effective corridor with CN.

Senator Meighen: Right.

Mr. Kymlicka: In terms of the east-west trucking corridor, I think that the Americans are committed to building that, and there is strong support. I should emphasize that there is probably stronger support for the Atlantica concept in northern New England than perhaps in the Maritimes. There are some very strong proponents of it.

The Chairman: The American transportation policy has money dedicated for this grid that would cover roadways in Canada, provided they connect with roadways in the United States. Is that true?

Mr. Morrison: Only up to 60 kilometres.

The Chairman: But there are millions of dollars sitting there waiting for provincial agreements to plug into that American money. Is that so?

Mr. Morrison: There is some available, but it is probably spoken for about a hundred times.

Mr. Kymlicka: I am quite confident that the east-west corridor will be built, and there is also strong lobby pressure for increasing the capacity of the north-south corridor, the interstates to service Boston and New York. The I-95 will be a challenge. It would be nice to be able to ship more directly into Boston. I am not sure of the future of that.

I hold out great hope for short sea shipping from Halifax into the continental interior through Montreal and the Seaway. We have a couple of problems, one I mentioned in the paper being the 25 per cent tariff. There are a few other differences. In Europe, short sea shipping is supported by differential lift rates between ocean-going vessels and short- sea vessels. I have heard several people comment that that is one of the key economic drivers for short sea shipping. We can make it work for us here.

In terms of rail going north-south, I am not optimistic. There does not seem to be very much appetite in the United States for trying to change the current situation. In terms of upgrading tier two rail, there are huge capital problems. The weight of railcars has increased, and the short track operators just do not have the money to increase the road beds. They do not have the ability to increase the size of tunnels to deal with double stacked containers. There is a variety of problems, which means that secondary routes from Moncton through to Montreal probably are not feasible in at least the medium term.

I wish I had better news on that one, but I would argue that we do have an effective rail system.

The Chairman: What about the double containers?

Mr. Kymlicka: CN track from Halifax through Montreal and down is double stacked all the way. It is an excellent route, all the way to Chicago.

Senator Moore: Can you explain, Mr. Kymlicka, with regard to the I-95, why you are not hopeful? This enters Canada where, Mr. Morrison?

Mr. Morrison: It is Maine. I was going to say that the way in which the U.S. funds all transportation is through the gas tax, but the gas tax fund is diminishing with higher gas prices, and the costs are sky-rocketing. To maintain current congestion, in the next five years, they predict the U.S. will be $1 trillion in the hole through the highway trust fund. Our system in the U.S. is broken, and it will be very difficult to fix and to add major roadways, which we must do.

Senator Moore: The I-95 is there; so is the problem one of connecting to it from the Canadian side?

Mr. Kymlicka: No, we are doing that okay. There are a couple of problems. First of all, Maine in and of itself is a problem. There is a strong lobby within Maine against raising load limits and expanding the interstate, so we have a political problem.

The Chairman: That is just in Maine. It is not the same in Connecticut.

Mr. Kymlicka: Then as you go further into New England, there are other priorities. If you look at the survey of the conditions of roads and bridges in the United States, southern New England is one of the worst spots in the United States. They are more fixated on fixing what is there rather than extending the capacity up north. As Mr. Morrison says, there is diminishing money to do that.

The Chairman: We are drawing to a close. May I ask the two of you to give your dream list of two or three things you think this committee should recommend to accelerate the process of greater cooperation and to develop what we do not have in Canada? We do not have free trade in Canada. We do not have a free trade zone in Canada. We fight about free trade with the United States but, quite frankly, when we look at all the barriers, we do not have free trade in Canada.

The question is, if you had three wishes, Mr. Morrison, the American side, and Mr. Kymlicka, from the Canadian side, what are the three things you would tell us that we should promote?

Mr. Morrison: You have a great opportunity with Alberta and B.C. booming, and the fact that they have already started and made this agreement. You should really push that as a model.

The Chairman: You are referring to the labour mobility agreement.

Mr. Morrison: Developing that was a great process. There is no end in sight for the prosperity of Western Canada. There are huge issues. Just to begin to realize that the trend is to have regional economies is important. You cannot just think in terms of a nation state. It is happening all over the world. We cannot be too parochial. We have to get the bigger picture. Both of our examples are moving in that direction. Anything we can do to help put pressure on provinces, at least in our region, will be a help.

The Chairman: Hang around. Give us a hand. Get some provincial premiers here, or their economic counterparts. Mr. Kymlicka, may we have your wish list?

Mr. Kymlicka: I would applaud the committee and urge them to strongly continue the focus on productivity. Numerous studies show that these barriers reduce productivity and growth, and they emphasize that it is in the national interest, in fact in the continental interest, that we resolve these things.

I agree completely with Mr. Morrison that we should find, and try to propagate, successes like the Alberta-B.C. agreement and the organizational and governance structure that the Pacific NorthWest Economic Region has.

We have only scratched the surface on this with the names. If one could make a tie between these barriers and some regional redistribution schemes — for example, the regional EI and equalization, are we in essence propagating these barriers by bailing them out? I have a strong suspicion that we are.

Senator Moore: Why?

Mr. Kymlicka: There is some good data to support that. We need to flesh it out a bit, but I think there is. I guess those would be my three wishes.

Senator Meighen: You made reference to the fact that the committee has not been successful in attracting provincial premiers or others, Mr. Chairman.

The Chairman: We have invited the provincial premiers and the federation of premiers to come. We are receiving written texts, but we really want to get at the "political will'' question, as to why things have not happened.

Senator Meighen: Have we given up?

The Chairman: No, we will keep urging them by television and by public opinion. We will use our political wiles to try to convince them to come. We hope to get the two federal ministers responsible. Maybe they can give us some insight as to why there has not been the political will — in previous governments as well as in this government — to move this agenda forward. We will try to find that out in a bipartisan way.

I thank you both. I can only say to you, keep tuned, keep doing your job. We will help you all we can.

The committee adjourned.