Resources are Canada’s trump card in U.S. trade talks – by Derek H. Burney (October 14, 2011)

Derek H. Burney, Senior Strategic Advisor, Norton Rose OR LLP was Ambassador of Canada to the United States from 1989 to 1993. 

A few months after the United States and Canada announced the launch of Free Trade negotiations in 1986, the U.S. Administration imposed, without warning, a 35% duty on cedar shakes and shingles imported from Canada.  The U.S. lumber lobby simultaneously filed a countervailing duty petition seeking a billion dollars in penalties on annual sales of $4 billion of softwood lumber, perpetuating what has since become the longest running trade dispute between the two North American “partners”.  At the time, Prime Minister Mulroney decried the U.S. actions saying bluntly that “actions like this make it extremely difficult for anyone, including Canadians, to be friends with Americans.”

Recent actions by the U.S. against Canada evoke a similar sentiment: the reinstatement of “Buy America” in the President’s Job legislation and calls by the U.S. Maritime Commissioner for a special tax on cargo shipments from Canada to offset the geographic proximity to Asia of some Canadian ports.  On top of these protectionist propositions, there is also the uproar over a Canadian pipeline intended to bring oil to Texas refineries. 

The protracted permitting process is giving vent to emotional protests and threatens to sideswipe pragmatic policy considerations.  Taken together these actions directed against Canada are, most certainly, unwelcome distractions from the fundamental objective espoused by the President and the Prime Minister in launching the Perimeter initiative.

At times like this managing relations with the U.S. can be like attempting to shake hands with an octopus.  It is not easy to discern who is in charge nor to know the direction in which the ink will splash.  Everyone knows that these are difficult times for America.  The economy is sputtering and policy consensus on anything in Washington is rarely evident.  The mood is sour and the raw impulse to protect and lash out at anything “foreign” can overwhelm the logic of practical initiatives that would actually enhance economic growth. 

Given the power imbalance, Canada does not have scope for ‘tit for tat’ retaliation despite its instinctive, emotional appeal.  But there are things we can and should do.   First of all,  it would be a mistake to abandon the Perimeter and Regulatory negotiations in a fit of pique over ham-handed measures that would impair the potential for mutual benefit. Instead we need to forge ahead with tangible results from these negotiations that would enhance our economic partnership.  Shrill public outbursts are not much good in these circumstances. Stern messages delivered in private actually carry more weight.   Better still are actions that would demonstrate, in concrete terms, that these bilateral negotiations are not the exclusive priority for our government. 

Canada should move expeditiously to streamline the permitting process for West Coast pipelines, for oil and for natural gas, enabling exports of both commodities to Asia.  Having additional markets at our disposal is the most effective leverage we can exercise vis-à-vis the U.S.  Relying on a single market poses unnecessary risks.  We also need to act in a concerted fashion, and with more than press releases, to enhance trade and investment relations with major emerging markets like China, India and Brazil.  We should kick start the Free Trade negotiations with Korea – an agreement that has been hamstrung for too long by myopic pressures from the auto sector.  

The time squandered on these negotiations allowed the U.S. to move out front and conclude its own deal.  That puts at risk not only the opportunity for Canada to improve its access to the Korean market but also some portion of our current market, notably for agricultural exports.  The Koreans, among other Asian growth economies, are actively investing in the resource base of western Canada. Elementary reciprocity suggests that we try to turn that interest to our advantage.   Access to our natural resources should be a trump card for Canada in any negotiation. 

The best antidote to confusion and protectionism from Washington is not retaliation but smart moves that would safeguard access to our most vital market and, at the same time, provide greater access to markets where what we produce is in strong demand.