Canada’s biggest problem? America - Macleans.ca

Canada’s biggest problem? America

From protectionist policy to border security to environmental laws, our best friend is making our lives miserable

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Canada’s biggest problem? AmericaIt has been almost two years since Stephen Harper disclosed that his cabinet was having serious discussions about what to do to “restore the special Canadian and American relationship” that he said had become “lost” in the Bush years. “What has happened is that Canada lost that special relationship with the United States. We increasingly became viewed as just another foreign country, albeit an ally, a good friend, but nevertheless a foreign country. You know, the northern equivalent of Mexico in terms of the border,” the Prime Minister told Maclean’s in an interview back in December 2007. “That isn’t just a shift in the view of the administration, that’s somewhat a shift in American public opinion as well, which concerns me.”

At the time, Harper was preoccupied with a new passport requirement that threatened tourism and trade, adding a new scale to the ongoing red-tape “thickening” of the world’s longest undefended border. “I’m certain this trend will not be reversed in the lifetime of the current American administration,” Harper said at the time. “I’m more optimistic it will be deferred later by a new administration.” But, he added, “I’m far from sure.”

He was right to be wary. If the special relationship was lost under George W. Bush, nine months into the new administration it remains missing. At his Sept. 16 meeting with Obama at the White House, Harper boasted that it was his seventh session with the new President. But the passport requirement remains, as do agricultural inspection fees on commercial cross-border traffic and air travellers. Instead of “un-thickening” the border, the new administration has kept the Bush policies in place and even piled more on: in February, the U.S. sent unmanned aerial surveillance drones to patrol parts of the border with Canada. The drones, which can detect human movement 10 km away, are supposed to help catch smugglers. But they have raised concerns about privacy in border communities, and although they are unarmed, give the 49th parallel something in common with the tribal lands between Afghanistan and Pakistan.

Since Obama’s February trip to Ottawa, where he was greeted with a rapturous welcome on his first official foreign visit, the state of the world’s largest trading relationship has become even more fraught. Given that fully one quarter of the Canadian economy depends on exports to the U.S., growing American protectionism has proven to be a growing threat. Problems began with a Buy American provision in the US$787-billion stimulus bill. While there have been reports that an exemption for Canada may be imminent, in return for Canadian municipal and provincial governments allowing procurement contracts for U.S. companies, rules similar to the Buy American provision are now being repeated in other legislation. Protectionism has also surfaced in proposed climate change legislation that would impose border tariffs on imports from countries whose carbon policies Washington deems insufficient. And there are other issues galore that affect Canada, from complicated and costly trucking rules and the treatment of Canadian hydroelectricity under U.S. environmental laws to “country of origin” labelling that imposes costs on Canadian agricultural producers and reduces the appeal of their goods in the U.S. marketplace.

Oh—there’s Canada’s national sport as well. In August, Canadian NHL teams faced the prospect of having their seasons thrown into limbo by a sudden Obama administration crackdown on Canadian charter flights operating between U.S. cities. That issue arose when a U.S. charter airline and an American pilots’ union complained that the Air Canada charter company was beginning to take U.S. business, and the Department of Transportation stepped in. When Harper sat down with Obama at his Sept. 16 Oval Office meeting, he took precious minutes away from discussions of Afghanistan and Iran to address the war over hockey players.

That problem was eventually resolved, with Air Canada agreeing to “an unprecedented level of monitoring and enforcement” of who boards the flights. But it was just one more high-profile imbroglio between the two countries that may have left many Canadians asking the question: is America Canada’s biggest problem?

Jason Myers, the president of the Canadian Manufacturers and Exporters, calls growing American protectionism “the hottest issue for us.” He is not only concerned about new rules that affect us directly, but also those aimed at other countries that lead to problems for Canada. For example, when Obama announced in September that the U.S. would impose tariffs on tires from China, Myers worried that any Chinese retaliation against the U.S. auto industry would hurt Canadian businesses, too, because that sector is so integrated in North America. “We just see a whole lot of areas where the U.S. is becoming more closed, protectionist and isolated in terms of trade,” Myers says. “It’s not just that it’s our biggest market, but we make things together. We are part of an integrated supply chain. It has far-reaching impacts throughout industries.”

The impact of the Buy American provisions has been not only to exclude Canadian suppliers from government contracts at the state and local level, but also to encourage American distributors to stop carrying Canadian products. “The impact of this goes well beyond the procurement markets at state and local levels and beyond the federal restrictions,” Myers says. The economic impact is hard to estimate, in part because only a small portion of the stimulus money has been disbursed, but at least 250 Canadian companies have lost business, he adds.

Washington, Ottawa and the provinces have worked toward a solution to the problem. But even if Canada gains an exemption from the Buy American provision, Canadian businesses are worried that initiative may have been just the tip of the iceberg. Similar protectionist rules have been included in several bills pending in Congress, including the Water Quality Investment Act, which Myers notes could affect $4 billion worth of Canadian exports.

Of course, U.S. protectionism is rising precisely because the American economy is struggling, with the country’s global trade deficit now a domestic political football. To American ears, this drumbeat of Canadian complaints is beginning to look predatory. The Canadian Embassy arms itself with fancy maps detailing just how many jobs in each congressional district depend on the annual US$742 billion in trade with Canada. But congressmen know a trade deficit when they see one: the Canada-U.S. imbalance happens to amount to several billion dollars each month—in Canada’s favour (it was US$2.2 billion in July).

“I think we need a whole new vocabulary in the relationship,” says Scotty Greenwood, executive director of the Washington-based Canadian-American Business Council. The two countries are often tone-deaf to each other’s politics, she observes. “Canadians like to talk about NAFTA and say, ‘We’re your biggest trading relationship.’ Well, here NAFTA is a dirty word and everyone knows that Canada has a trade surplus. That is not what Americans want to hear. Basically, Canada is saying, you guys are an awesome market. We know that. We want you to be an awesome market for us, too.”

Likewise, in an America where national security concerns are top of mind, Canadian complaints about “thickening” at the border fall on deaf ears, Greenwood says, including those of the new secretary of homeland security. “Janet Napolitano leaned over to me at a dinner,” she recalls, “and said, ‘They talk about this like it’s a bad thing.’ ” Greenwood suggests new language for discussing border issues. “The Canadian vocabulary should be something like, ‘smart, breathable armour.’ If Canadians would talk about it as smart, breathable armour it would automatically reassure Americans that you understand the concerns.” Canadian governments should adapt to the fact that U.S. attitudes changed permanently after 9/11, she says. “It’s like the passport thing. If you want Canadians to be advantaged and have privileged access to the U.S., then get a secure card instead of arguing that we should accept 5,000 different documents.”

David Wilkins, the former U.S. ambassador to Canada, says Canadians should recognize the immense power of Congress when trying to press their case. That is what Wilkins himself is doing in his new role as a lobbyist for Saskatchewan, which wants to develop and export production from its oil sands at a time when some members of Congress want to penalize “dirty oil” in upcoming climate change legislation. He recently flew several influential U.S. senators to the province to see a joint Canadian-American carbon capture and sequestration project aimed at reducing greenhouse gas emissions. He also praised Harper for calling on congressional leaders on Capitol Hill during his last visit to Washington. “He obviously gets it because he did that visit to the Hill,” says Wilkins.

Better late than never, says Colin Robertson, a former Canadian diplomat in Washington. “It’s been five years since a Canadian prime minister has been out there in a formal sense,” says Robertson, a senior fellow at the Norman Paterson School of International Affairs at Carleton University. “It is entirely appropriate for the Prime Minister to go to Congress—he is our legislator-in-chief. If we started doing that on a consistent basis, that will give us more credibility. It opens the conversation on future engagement,” he adds.

To address concerns about border security, Robertson says the heads of Canadian security agencies such as CSIS and the RCMP, and their U.S. counterparts, should jointly educate members of Congress about the deep bilateral co-operation in law enforcement and intelligence. “If you send that information to Congress, it will make it easier on border issues,” he says. Likewise, Robertson says Canadian labour should take an aggressive role in pressing top U.S. labour leaders on protectionism that hurts Canadian unions. “A third of Canadian unions are affiliates of U.S. unions. It’s brother hurting brother,” he says. “Canadians need to work the American system the way the Americans themselves use it. You have to play by American rules.” Myers agrees. “It’s clear Canada won’t go far just by trying to encourage the U.S. to do us favours,” he says. “We have a lot of work to do to build a stronger voice among stake-holder groups like business associations and labour associations across Canada and the U.S. to say that we are in this together.”

But when it comes to direct dealings with the Obama administration, Canada has to walk a fine line between raising bilateral issues and trivializing the relationship. “Because of the U.S.’s position in the world, the President is dealing with international issues, whether it’s Afghanistan, Iran or North Korea,” Wilkins says. “Those are the primary focus. It behooves any country dealing with the U.S. to talk about the international issues before you turn your attention to wait times at the Peace Bridge.”

Robertson has much the same message. “With the Americans we tend to focus on just the little neighborhood stuff,” he complains, noting that the Canadian emphasis on bilateral irritants came to irritate Bush’s secretary of state, Condoleezza Rice. “She would say, ‘Here come the Canadians with their condominium issues.’ ” Robertson, for one, regrets that Harper raised the issue of hockey flights at his tête-à-tête with Obama, rather than leaving it to ministers and ambassadors. “It makes them wonder: are we dealing with a border state governor or a serious G8 nation? We tend to ratchet stuff up because we think this is what the public wants. But the public wants results. A lot of stuff the President can’t resolve.”

Meanwhile, Robertson says, the U.S. is strongly interested in the Canadian perspective and Canadian contacts on issues from Afghanistan to Pakistan to the western hemisphere. Indeed, the outgoing Canadian ambassador to Washington, Michael Wilson, has called Canada’s military role in Afghanistan the “best calling card I had” in Washington. When that military commitment winds down, it will not make the Canada-U.S. relationship any easier. “That’s going to be front and centre for the government, for Parliament, for some time, as to how we handle this in a way that doesn’t undermine the terrific goodwill that we have,” he told Maclean’s in a recent interview.

Despite the tensions, there have been notable examples of smooth co-operation between the two countries on urgent matters. Facing a possible swine flu pandemic, labs in Canada, the U.S. and Mexico worked together to identify the new virus. There were also the neatly dovetailed government bailouts for the auto industry. “It was definitely a team effort,” says Ann-Marie McGaughty, a partner at the law firm McKenna Long and Aldridge, who was counsel for the Canadian government in the negotiations. “The word at the top was ‘get it done,’ and everybody tried to find a way to make it happen.” Despite the Canadian government’s much smaller stake in Chrysler and General Motors, McGaughty says that “from the beginning the mantra was, ‘U.S. and Canada side by side.’ Which meant if it was a right or a privilege that the U.S. was getting, then Canada would get it too.”

Lawrence Cannon, Canada’s foreign minister, says that while border-thickening and Buy American issues draw disproportionate attention, the underlying relationship is solid. “They aren’t issues that prevent us from continuing on a good relationship,” he says. Evidence that the Conservative government is working on the bilateral bonds can be found in the 36 trips by Canadian cabinet ministers to Washington since Obama took office, as well as the eight meetings between the Prime Minister and the President (the last one was at the G20 in Pittsburgh). Obama, too, has tried to put a happy face on relations. At his meeting with Harper on Sept. 16, he said protectionism is a “legitimate issue” but encouraged Canadians “to keep things in perspective.” “Canada continues to be a huge trading partner to the United States,” the President added. “Businesses in the United States and Canada both benefit from that trade, as do consumers. On the scale of our overall trading relationship, [irritants] shouldn’t be considered the dominant element of our economic relationship.”

But Liberal MP Scott Brison, his party’s trade critic, says the Tories started out with a serious disadvantage when Obama came into power, since Harper had been seen as ideologically close to Bush. “Their focus was very much partisan and ideological,” Brison charges. He slams the Harper government for failing to adequately push back against new border rules that have decreased casual travel between the two countries, which he says has been “devastating” for Canadian small businesses that rely on U.S. travellers. Brison also says Ottawa should have fought back harder against new U.S. country-of-origin labelling rules that hurt Canadian food producers.

And there is a growing recognition in Ottawa that Canada can’t count on things getting better quickly. In the halls of the Foreign Affairs and International Trade Department there’s growing talk of diversifying to other countries as a hedge against not-so-reliable U.S. markets. Trade Minister Stockwell Day alluded to that during a recent two-day mission to Brazil to promote trade and investment. “We do have a relationship with the U.S. that is in many ways the envy of the world,” Day said. “But as we have experienced, when they hit a downturn in the economy, their demand drops and that hits us hard.” Brazil, which has emerged as the clear focal point of Ottawa’s beyond-the-U.S.A. strategy in the western hemisphere, is a huge prize—an economy just slightly smaller than Canada’s and a notch bigger than Mexico’s. Day, in fact, has been to Brazil twice since being named trade minister after last fall’s election. In 2008, Canadian exports to Brazil—everything from fertilizer to paper—totalled $2.6 billion, a 70 per cent leap over the previous year. “We see our engagement with Brazil kicking up to a new strategic level as a partner in the post-economic-crisis global marketplace,” said one Canadian trade official.

That may be so. But America will remain Canada’s biggest opportunity, and greatest challenge, for years to come. After all, Brazil remains small potatoes compared to the U.S. market. And there is nowhere else for those NHL charter flights to go.

With John Geddes