Canada-U.S. Relations: A Midterm Report (Lessons My Poli Sci Prof Never Taught Me)

Ambassador of Canada to the United States

CANADA-U.S. RELATIONS:

A MIDTERM REPORT (LESSONS MY POLI SCI PROF NEVER TAUGHT ME)

Chairman: Ann Curran

President, The Empire Club of Canada

Head Table Guests

Margaret M. Samuel, MBA LLB CFA, Portfolio Manager, Integrated Investment Management Inc. and Director, The Empire Club of Canada; Nora Draper, OAC Student, North Toronto Collegiate Institute; Rabbi Perry Cohen, Facilitator, Teacher and Author; George J. Edyt, Attorney-at-Law, Hodgson Ross LLP; Gareth S. Seltzer, President and CEO, TWS Petroleum Limited, Managing Director, TWS Private Wealth Management and Past President, The Empire Club of Canada; Senator Jerry S. Grafstein, Partner, Minden Gross Grafstein & Greenstein; Robert J. Dechert, Partner, Gowling LaFleur & Henderson LLP and Past President, The Empire Club of Canada; Edward Greenspon, Editor-in-Chief, The Globe and Mail; Allan E. Gotheb, Chairman, Sotheby's Canada and Former Canadian Ambassador to the United States; and Kevyn Nightingale, CA, CPA, Partner, International Tax Services Group and Secretary, The Empire Club of Canada.

Introduction by Ann Cuff"

The United States is our largest trading partner and the world's sole remaining superpower. Being a Canadian ambassador is a demanding job, but being the Canadian Ambassador to the United States during this last year must have been overwhelming. 9/11 has dramatically changed our political, immigration, trade and security issues with the U.S. Here today to talk about some of those issues is Michael Kergin, Canada's "Man in Washington." This is Mr. Kergin's first visit to The Empire Club of Canada since assuming his role as Canada's Ambassador to the United States in October 2002. He will be giving a mid-term report, or as he likes to refer to it, "Lessons My Poli-Sci Prof. Never Taught Me." It will include a stocktaking of where the range of issues in the Canada-U.S. relationship stands.

Michael Kergin presented his Letters of Credence to President Clinton on October 19, 2000, becoming the nineteenth representative of Canada to the United States. Ambassador Kergin's career fn the public service began when he joined the Department of External Affairs (now the Department of Foreign Affairs and International Trade) in 1967 as a Foreign Service Officer. His postings abroad included New York (the Canadian Mission to the United Nations), Cameroon and Chile. He served as Ambassador to Cuba from 1986 to 1989 and was posted in Washington twice prior to his appointment as ambassador.

During his years in Ottawa, Mr. Kergin held various positions at the Foreign Affairs Department. From 1984 to 1986, he was the Senior Departmental Assistant to then Secretary of State for External Affairs, Joe Clark. In 1994, he became Assistant Deputy Minister responsible for Political and International Security Affairs. After two years, Mr. Kergin became the Assistant Deputy Minister with responsibility for the Americas and Security/Intelligence Affairs. He held that position until 1998, when the Prime Minister asked him to serve as his Foreign Policy Advisor as well as Assistant Secretary to the Cabinet for Foreign and Defence Policy (the Canadian equivalent to the National Security Adviser in the U.S. government).

Mr. Kergin graduated from the University of Toronto in 1965 with an Honours Bachelor of Arts degree in History and Languages and in 1967, received a Masters in Arts (Economics) from Magdalen College at Oxford University.

Michael Kergin

it is a distinct honour to be invited to speak at the Empire Club, which for nearly 100 years has brought thoughtful Canadians together to discuss the issues of our clay.

There have been many before me who spoke about Canada's relationship with the United States, as there will be many who follow to speak on the same issue. It is something about which Canadians always have a strong opinion. And so they should. The U.S. is central to our economic well-being; it integrally influences our culture; and it is our security blanket-whether we like it or not.

Among the 2,500 or so esteemed personalities who have graced this podium before me was the celebrated economist John Kenneth Galbraith. In his speech here in 1972, he said that: "The only way to get away from the influence of the American economy would be to float our half of the continent away somewhere else."

What is remarkable about that statement is that Galbraith could, a mere 30 years ago, get away with it. Today, it seems absurd. No matter how far one is geo-graphically, U.S. economic influence cannot be escaped.

The global economy is dominated by the United States-from advanced technologies to business prac-tices; from monetary prevalence to investment destination. Canada's proximity to this powerhouse brings particular challenges and remarkable opportuni-ties.

I would argue that the advantages are overwhelming. But to reduce certain of the inconveniences of life with Uncle, it is wise to apply some basic lessons.

Because these lessons are based on practice, they may not fit political theory-at least not the political theory purveyed by my University of Toronto professor some 40 years ago.

Let me begin my report with the horrible events of September 11. They have had a dramatic impact on our

relationship: from how our cross-border transactions are managed to how both countries will view international peace and security.

In the war on terrorism, Canada has been a steadfast ally. Despite complaints about a "weak, underfunded" mil-itary, the Canadian Forces are among the few in the world which are interoperable with the U.S. army. Canadians are their partners of choice.

Our Naval Task Group in the Persian Gulf has hailed more than 5,000 ships and conducted more than 130 boardings, about half of those made by the entire coali-tion. And we still have special forces in and around Kandahar.

Canada was the fourth-largest contributor to the inter-national coalition in Afghanistan. Pretty good for a country located half a globe away from the scene of the action.

At 9 a.m. on September 11, it was a Canadian team in charge of operations at North American Aerospace Defence Headquarters in Colorado Springs. And it was the Canadian commander who directed the initial response to the terrorist attacks on the U.S. by clearing airspace and scrambling fighters. This provides an interesting glimpse into the high degree of trust Americans have in their con-tinental partner and their willingness to "share sovereignty" during a time of crisis.

It sometimes puzzles me why some Canadians feel uncomfortable with current proposals to engage in con-tingency planning for joint military maritime and land operations to counter terrorist threats to North America. Trust really does have to be a two-way street.

It is difficult to overstate the impact that September 11 has had on the American psyche. While others view the U.S. as omnipotent, Americans themselves feel highly vul-nerable. It was New York and Washington, not Paris or London, which were massively attacked.

Accordingly, September 11 accelerated the Bush Administration's predilection of "America first"-a ten-dency which runs counter to Canada's primary multilateral instincts.

Yet, this divergence is not unprecedented in U.S. his-tory. In the case of Iraq, it is also not yet proven. Following a strong appeal by Prime Minister Chretien, President Bush has engaged the UN on the Iraqi question.

September 11 has also brought other challenges in our relations with the United States. It had an immediate impact on our shared border.

Over 300,000 people and $1.9 billion in trade cross our border every day. Eighty-three per cent of our exports go to the United States, mostly by truck. Immediately follow-ing the terrorist attacks, border movement was suddenly stalled.

Twelve-hour delays were common; 18-hour delays were not unheard of. By September 13, the line-up from Sarnia into Port Huron stretched 25 kilometres.

How we have since dealt with this border imbroglio can be viewed as a tutorial on the successful management of Canada-U.S. relations.

Working the U.S. system is a bit like undergoing that endurance race you see on TV You know, the one called the eco-challenge. To succeed, you have to know the land-scape, you need a winning strategy, an engaged leader, exceptional teamwork, and, above all, perseverance.

September 11 reversed conventional U.S. priorities: profitable and familiar commerce ceded to a predominant preoccupation, even obsession, with security. Canadian users of the border had to establish their bona fides rather than benefiting from the earlier practice of facili-tated passage unless evidence pointed to the contrary.

In the face of such a reversal of border management, Canada, as the smaller and more affected party, initiated and presented its own plan for addressing joint security concerns at the border.

This provides an important practical lesson in Canadian-U.S relations: by taking the initiative we ensured that it was the Canadian approach which formed the basis for future discussions.

Our plan is based on the principle that trade facilita-tion and improved security are not mutually exclusive, but rather, complementary. We proposed coupling sophisticated technologies with common-sense risk man-agement. Concentrating resources where they are needed most, that is, on the high-risk users, is the only realistic way to protect a border some 9,000 kilometres long, 3,500 kilometres of which is water.

In Canada, the Prime Minister tasked his Foreign Minister, John Manley, with heading the Cabinet ad-hoc Committee on Public Safety and Terrorism. A short time later, the U.S. Administration established an Office for Homeland Security with Governor Tom Ridge as its direc-tor. The close rapport between Manley and Ridge, their similar responsibilities and their leadership galvanized the myriad agencies, stakeholders, municipal and regional entities into action.

This is another lesson: only by securing political direc-tion from the most senior level of government and coordinating the diverse agencies from a central point could trade-offs be effected to achieve an improved com-prehensive result.

But in Washington, convincing the Administration is only part of the battle. Other players viewed Canada as a threat. On September 13, the Boston Globe published an erroneous story alleging that several of the terrorists came into the United States from Canada. Within a day, it became an urban myth, and the "porous" northern bor-der became a hot topic in the corridors of Congress, in think tanks across Washington, and in the media nation-wide.

During debates, one senator delighted in dramatically displaying an orange cone, declaring that this was all that

stood between the United States and invading terrorists from Canada.

And here is a third lesson: with a strategy, coordina-tion, persistence and patience, initial misperceptions, no matter how widely spread, can be modified. In the eyes of more and more Americans, the border has now changed from "porous" to "smart."

It is no coincidence that Prime Minister Chretien and President Bush met at our busiest border crossing, the Detroit-Windsor corridor, on September 9. Their meeting initiated a week-long series of memorial services by call-ing attention to the remarkable progress achieved at the U.S.-Canada border.

They announced two new Smart Border programs:

1. The Free and Secure Trade (FAST) program for pre-authorized carriers of goods; and

2. NEXUS for individuals who cross the border regu-larly to get to work or school and are pre-approved as low risk.

A NEXUSAir program will begin testing in airports in early 2003.

We will also begin work in new areas of cooperation such as bio-security and marine security.

The same kind of political commitment we brought to the border now needs to be directed toward modernizing our trade structures, like NAFTA, to reduce frictions cre-ated by a growing economic interdependence. For example, working to review rules of origin requirements, more efficient dispute settlement rules, reduced recourse to trade remedy measures such as dumping and counter-vail duties, and improved investor-state regulations.

Our economic partnership is more than a story of imports and exports. Increasingly, our trade is about adding value to an international production chain. It is not only true of our automotive industry. It is also the reality for U.S. and Canadian ranchers and farmers who move their livestock across the border at different stages of the production cycle and for U.S. pasta-makers and home-builders, who rely upon high-quality Canadian Durham wheat and Canadian lumber respectively.

Our most longstanding dispute is softwood lumber. It affects thousands of Canadians and Americans-mill-work-ers, lumber dealers, homebuilders, and consumers-and is illustrative of the powers of special interests.

We should be able to show the world that the two-largest trading partners can resolve this important disagreement. It is therefore essential that barriers to improving this highly profitable and productive economic relationship be reduced and eventually removed. For both our sakes.

But we must remain very clear eyed. And here is the fourth lesson in U.S. politics: Credibility as a secure part-ner, either in trade as an energy supplier or stalwart partner against terrorism, does not always carry us as far as we might hope in Washington. To borrow an aphorism coined by Tip O'Neil, former Speaker of the U.S. House of Representatives: "All politics is local."

And, in trade matters, a foreign power must work as much with Congress as it does with the Executive Branch of Government.

While one of the President's greatest successes during the 107th session of Congress was undoubtedly the pas-sage of fast-track authority, known as Trade Promotion Authority, it may have come at a substantial price. It authorizes the establishment of a Congressional Oversight Group (known appropriately as COG) to moni-tor U.S. trade negotiations. There is a real chance that under this Congress, and probably under the next, COG will engage and (unusually for a cog) likely block any attempts by the Administration to weaken current U.S. trade remedy law.

The recent passage in Congress of the Farm Bill, giving agricultural subsidies to farmers, is another clear exam-ple of raw political power.

The Farm Bill was roundly criticized by urban media. Agricultural subsidies distort world markets and put Canadian farmers at a disadvantage. The Farm Bill also complicates U.S. (and Canadian) chances of extending the free-trade agenda at the WTO and within the hemisphere through the FTAA.

We should not be surprised when developing countries resist market-access initiatives, promoted as part of a free-trade agenda, as long as the E.U. and the U.S. have recourse to their huge agricultural subsidies. For exam-ple, subsidies by OECD countries represent two-thirds of Africa's total GDP. They greatly contribute to the disparity between the developed and the developing world. This is a theme that Prime Minister Chretien emphasized when Canada hosted the G-8 meeting at Kananaskis last June.

Accordingly, Canada welcomes the recent position advanced by U.S. Trade Representative, Bob Zoellick, in his ambitious proposal to the World Trade Organization to eliminate all agricultural export subsidies and dramati-cally reduce government support for agriculture.

Indeed, as the 1990s was characterized by world arms control conferences, perhaps we now need the equivalent of an international disarmament conference to dismantle the costly, counterproductive and pernicious use of agri-cultural subsidies.

Living in such close proximity to the United States has, over the years, inspired a unique network of bilateral mechanisms for facilitating communication, promoting co-operation, averting disputes and resolving disagree-ments. Past challenges have often bred innovative solutions, which in turn help overcome future hurdles.

And this leads to my final lesson and a very positive one: What Canadians and Americans achieve together can often serve a wider constituency beyond our shores.

The Canada-U.S. Free Trade Agreement and its succes-sor, NAFTA, have proven to be enormously successful in facilitating trade. Trade has far exceeded economic growth, acting as an engine to pull our economies ahead. It could not have done so if the tracks had not been laid, first by the FTA, and then extended to Mexico through the NAFTA.

This trade agreement is a benchmark against which other trade pacts are being measured--serving as a working model not just for other nations' agreements, but also for regional and multilateral trade negotiations, like the FTAA.

Our environmental co-operation is another dynamic example of how yesterday's experiences can help answer tomorrow's questions. Both countries are victims of the other's environmental shortcomings--and both are beneficiaries when either takes action to do the right thing.

The visionary 1909 Boundary Waters Treaty established the International Joint Commission (IJC) to regulate water levels and flows, monitor water and air pollution, and help prevent and resolve disputes. Almost a century later, that approach is still ahead of its time.

With the Great Lakes on Toronto's doorstep, this audience especially will appreciate the progress made in enhancing the lakes' water quality. Beaches are cleaner, fishing stocks have improved and once-vanished species such as the bald eagle and the peregrine falcon have returned to the Great Lakes basin.

On air issues as well, the degree of co-operation between Canada and the U.S. is truly remarkable. Through the 1991 Air Quality Agreement, Canada and the United States have made great strides in reducing emissions of major pollutants that cause acid rain.

The many Canada-U.S. agreements and accords can be considered blueprints for the international community--the Free Trade Agreement and NAFTA, the Boundary Waters Treaty and the Air Quality Agreement and, most recently, the Smart Border Declaration encompassing co-operation on migration, refugees, customs, security, policing and intelligence.

These all deal with global issues. And I would strongly argue that we have reached honourable and effective agreements with the U.S. without sacrificing our sovereignty.

Sovereignty, after all, is the freedom to enter into (or terminate) arrangements which improve national well-being. It not only requires the wit to acknowledge that the world has changed, but the courage to change ourselves.

Gabriel Garcia MArquez, the Colombian author and winner of the Nobel Prize for Literature wrote recently: "Do not expect anything from the 21st century; it is the 21st century that expects everything from you. It is a century that does not come ready-made, but rather ready to be forged by you, and it will only be as glorious as the limits of your imagination."

Canadians should never limit their imagination. The creativity with which Canadians have conducted their relations with their nearest neighbour can indeed serve as an inspiration to others in turning challenges into opportunities.

And this might be the most important lesson of all. Thank you.

The appreciation of the meeting was expressed by Robert J. Dechert, Partner, Gowling LaFleur & Henderson LLP and Past President, The Empire Club of Canada