Developments and Priorities in the Canada-United States Relationship

March 31, 2009

Thank you for the opportunity to appear once again before this Committee, this time to discuss recent developments and current priorities within the Canada-United States relationship.  Your invitation was especially timely given that the Canadian Council of Chief Executives (CCCE) just last week held a two-day meeting of our member CEOs in Washington, D.C.

Our agenda included sessions with a wide range of key actors in politics, business, and academia.  This included a candid discussion with the architect of President Barack Obama’s economic strategy, Larry Summers, Director of the National Economic Council and Assistant to the President for Economic Policy, and another with Paul Volcker, Chairman of the President’s Economic Recovery Advisory Board.  We also were privileged to be the first foreign group to meet with newly confirmed United States Trade Representative Ron Kirk.  

On the Canadian side, we were joined by Environment Minister Jim Prentice and by Bank of Canada Governor Mark Carney, who discussed developments in monetary policy along with Governor Kevin Warsh of the Federal Reserve System.  We heard perspectives from both sides of the political spectrum, from Republican Senator Lindsey Graham of South Carolina and from former Vermont Governor Howard Dean, Chairman Emeritus of the Democratic National Committee.  And we met with our business counterparts, including Tom Donohue of the United States Chamber of Commerce, John Castellani of the Business Roundtable and John Engler of the National Association of Manufacturers.
We covered a great deal of ground over the course of our meetings, and I would be happy to share whatever insights we may have gained on specific topics of interest to members of this Committee.  However, let me begin by offering some initial reflections on three key topics: the fiscal and monetary response to the economic crisis; trade and protectionism; and defence and security.

The past week has seen two major developments in the United States, one dealing with the purchase of so-called toxic assets to help stabilize bank balance sheets, the other proposing a sweeping new approach to regulation of the financial system.  The Americans who met with us — in government, business and academia — made it clear that they see Canada’s financial sector as a shining example of both good management and sound regulation.  Financial regulatory standards and practices in the United States therefore will be moving in Canada’s direction.

The critical challenge for Canada is to ensure that fiscal policy aimed at stimulating the economy is mutually reinforcing.  Both governments have passed major stimulus packages that are beginning to have an impact on our respective economies.  However, the broad range of additional measures included in the budget recently proposed by President Obama is generating extensive controversy. 

The fundamental argument in the United States is not about the short-term measures that are being taken.  Rather, it is over whether the need for short-term stimulus can justify extensive new spending that will expand permanently the reach and cost of government, and will do so entirely with borrowed money. 

The huge deficits being created by the short-term stimulus alone will have painful longer-term consequences for United States taxpayers and future economic growth in that country.  Canadians know from bitter experience that large and recurring deficits require a growing share of the tax pie just to pay interest on the public debt, and lead inevitably to higher taxes and harsh cuts in public services.  And because our economy is so closely linked to that of the United States, Canadians will share in the future economic pain that will flow from our neighbour’s huge deficits. 

In the short term, of course, the more immediate danger to Canada’s export-oriented economy is that of rising protectionism.  Beginning tonight, the Leaders of the G20 countries will meet in London to assess their collective progress in dealing with the economic crisis.  Last November, they pledged “to refrain from raising new barriers to investment or to trade in goods and services.  This week, they will be faced with evidence that since November, at least 78 trade-restricting measures have been proposed or enacted by countries around the world — including 17 of the G20 countries.

Canada already has been forced to deal with protectionism in the form of the Buy American provision included in the United States stimulus legislation.  Canada’s government and business leaders worked hard to weaken that provision, and we had no shortage of allies in the United States.  Indeed, the American business leaders who spoke to us in Washington were unanimous in denouncing the Buy American policy as shortsighted and counterproductive.  The Obama Administration also clearly understands the importance of maintaining open flows of trade, but cannot entirely contain protectionist sentiments within the United States Congress.

However, protectionism can and does trigger retaliation.  The same legislation that included the Buy American provision of concern to Canada cancelled a program that allowed Mexican truckers access to the United States.  This access was originally guaranteed as part of the North American Free Trade Agreement and was delayed or restricted for years.  The cancellation of the pilot program was incendiary for Mexicans, and their government immediately countered with large tariff increases on a wide range of imports from key American states.  This in turn has touched off a political backlash within the affected states, and the Obama Administration has promised to take action within the next month to reverse the decision.

The pressure for protectionism will not go away, in the United States, in Canada or anywhere in the world.  In hard times, people tend to turn inward.  But the lessons of the Great Depression of the 1930s are clear.  Putting up walls between countries simply guarantees that the economic downturn around the world will get deeper and last longer.  When the G20 Leaders gather in London, they must renew their November pledge and take additional practical action to prevent, to expose and to roll back new barriers to trade in goods and services alike.

On the bilateral front, the barriers to the movement of goods and people between Canada and the United States do not always flow from commercial concerns.  Since the terrorist attacks of September 11, 2001, the resulting expansion of security measures has led to a significant increase in the time and money required to move goods to and from the United States.  The result of the 2008 presidential election creates an important opportunity to reshape our bilateral relationship, but Canadians should not expect any sudden unwinding of the American security apparatus.

As new Homeland Security Secretary Janet Napolitano made clear in a speech last week, the very real threats that pre-occupy the United States have not disappeared and will not go away.  Our neighbour’s attitude toward border security has changed permanently, and Canadians will have to live with that.  The most immediate consequence is that the Western Hemisphere Travel Initiative will proceed on schedule, requiring the use of passports even for land crossings starting this June.

That said, our two countries continue to share a vital interest in seeing our border work as efficiently as possible.  This is why provinces and states have been able to work together in developing enhanced drivers licences as a secure alternative to a passport.  This is why both countries are making major investments in border infrastructure as part of their fiscal stimulus plans, such as the recently announced upgrade to the Blue Water Bridge in Sarnia.  And it is why Secretary Napolitano had such a productive first meeting earlier this month with Canadian Minister of Public Safety Peter Van Loan. 

The most encouraging development at that meeting was the agreement to take a new look at the concept of preclearance for land borders.  Putting customs posts at the inbound side of choke points like bridges and tunnels can make a huge difference in reducing congestion and delays.  Negotiations to launch the first pilot project for preclearance at the Buffalo-Fort Erie Peace Bridge fell apart last year, but the idea is back on the table.

In the longer term, progress in dealing with border management depends on the extent to which our countries trust each other’s will and ability to secure our own borders.  Prime Minister Stephen Harper made this point very clearly during President Obama’s visit to Ottawa, when he said:  “There is no such thing as a threat to the national security of the United States which does not represent a direct threat to this country.”

President Obama replied just as plainly: “We have no doubt about Canada’s commitment to security.”  And in this context, it is important for Canadians to understand just how much value Americans put on our broader military alliance.  During our Washington meeting, we heard repeatedly and consistently a heartfelt appreciation of Canada’s contribution in Afghanistan and of the sacrifices being made by our young men and women in uniform. 

We are fighting the Taliban side-by-side with Americans to defend values such as respect for human rights and the rule of law.  This shared sacrifice in defence of fundamental principles strengthens our foundation of mutual trust and respect, which in turn helps us resolve the kind of border irritants that tend to preoccupy us in our day-to-day lives back home.  It also paves the way for deeper cooperation in ensuring our mutual security, as Secretary Napolitano recognized last week in inviting thoughts on a vision of what we want our shared border to look like a generation from now.

In conclusion, the global economic crisis has made it vital for Canada to work more closely with all of our partners around the world.  In particular, it has created an important need and opportunity to strengthen our bilateral relationship with the United States.  In assessing this opportunity, we need to recognize that the new President has his hands full.  It is up to Canadians, as friends, neighbours and allies, to take the lead in proposing how we might take our relationship to the next level.