When Paul Martin asked Jim Peterson to be his trade minister and separated the trade portfolio from foreign affairs, Peterson no doubt thought about the offer carefully, not long, but carefully. On more sober reflection, or as Horace Rumpole would say, upon fur- ther and better particulars, he might have wondered about the agenda he had been handed.

Since the double-hinged trade and foreign affairs port- folio was created in the 1980s, the principal job of the trade minister has been to lead Canadian trade negotiations. When there are no trade negotiations, the incumbent becomes the minister of trade disputes and trade promo- tion. The former is usually a lose-lose game in Canadian pol- itics because Canadians are embarrassed about winning and insulted when they lose. The latter role was effectively eclipsed during the Chrétien years, when the trade minister played second fiddle to the prime minister on Team Canada missions. In any case, neither the management of trade disputes nor the care and feeding of Canadian exporters are very satisfying for any politician of ambition anxious to play a role in the governance of the country.

Not so long ago, the trade negotiation agenda provided a rich and exciting complex of challenges. Canada was an enthusiastic participant in talks among the countries of the Asia-Pacific region (APEC) aiming for a free trade agreement to enter into effect by the end of this decade for the devel- oped country members and by the end of the next for devel- oping countries. In the Americas, Canada made a major commitment to the negotiations for a hemispheric free trade agreement with an agreed implementation date of 2005. Globally, the World Trade Organization (WTO) agreed at its ministerial meeting in Doha, Qatar, in 2001 to launch a new round of comprehensive trade negotiations, also to be concluded in 2005.

All of these negotiations have stumbled badly. Within APEC, the Asian financial crisis of the late 1990s effectively terminated the free trade negotiations, proving once again that the ambitions of statesmen can- not overcome hard realities. APEC leaders annually endorse the goal of free trade, but the goal of a regional free trade agreement has been sent into the solitary confinement of solemn declaration.

In the Americas, the ambition of hemispheric free trade has fallen before the obduracy of Brazil and the decision of the United States to seek its goals through bilateral and mini- regional deals rather than expend scarce political capital on a project wholly disproportionate to the poten- tial for economic gain. Taking a leaf out of the APEC book, the Monterrey summit in January reaffirmed the goal of free trade, but like those in APEC, these negotiations have been reduced to ritual, trotted out for endorsement when leaders meet, but not to be taken seriously.

The multilateral news is scarcely more positive. At the WTO ministerial meeting in Cancún, Mexico, last September, it quickly became apparent that the Doha success had only papered over the severe problems with multilat- eral trade negotiations that have become increasingly apparent. To be sure, multi- lateral trade negotiations in the past have recorded their share of failures, and it may be that following the US elections later this year, a basis for progress might be found. However, the goal of conclud- ing the negotiations in 2005 was always a pipe dream and to successfully re- launch the negotiations we will need to find a formula for resolving deep con- flicts over their object and purpose.

In the immediate future, the minis- ter will have a range of bilateral free trade negotiations to manage with four coun- tries of Central America, with Singapore, and with the rump of the European Free Trade Association (Norway, Switzerland, Iceland). There are more in prospect, for example, with the Caribbean countries, the Andean group (Venezuela, Colombia, Peru, and Ecuador), and per- haps even Brazil. However, none of these is of commercial significance to Canada. They may serve broad foreign policy goals and keep negotiators in practice, but they do not respond to any pressing Canadian problems or create exciting new opportunities.

In sum, the Canadian negotiating agenda inherited by Peterson is pretty thin gruel. Of course, Canada, on its own, cannot move regional or multilat- eral negotiations to places they are not prepared to go. At the same time, the minister can hardly be excited by spend- ing his time in office waiting for the negotiating agenda to become more promising, while busying himself with small trade deals that command the interest of tiny constituencies in Canada.

Help for Peterson is at hand, at least potentially, in the form of a review of foreign policy promised by the prime minister in the series of initiatives that he announced upon taking office. That review is to include foreign trade, defence, and development polices and has been assigned to Foreign Minister Bill Graham, to be completed by the end of this year.

The last comprehensive review of Canadian trade policy occurred more than 20 years ago. Issued by the Trudeau government in its last year in office, Canadian Trade Policy for the 1980s con- stituted a confident look at past glories, arguing that Canadian trade policy pur- sued over three and one-half decades had served Canada well and concluding that effective alternatives were difficult to envisage. While the review proposed looking at sectoral free trade deals with the United States, it concluded that the option of a comprehensive free trade agreement suffered from insuperable practical and political difficulties. Within two years, as we all know, a new govern- ment dispensed with sectoral negotia- tions and launched the negotiations that produced the Canada-US Free Trade Agreement. The multilateral trade system that had served Canada so well became Canada’s trade agreement with the rest of the world, governing at that time about 15 percent, at best, of Canadian trade.

The foreign policy review of the first Chrétien government, Foreign Policy for Canadians, was a valiant attempt to come to grips with the end of the Cold War as the organizing principle of foreign and security policy and the emergence of the global economy. Its conclusions, howev- er, were equally firmly rooted in the past. It foresaw the emergence of new centres of influence in Europe, Asia, and Latin America to replace the bipolar, superpow- er-centred world and provide the basis for the construction of a new order. On trade policy, it stated that the multilateral trade system and a new round of (multilateral) trade and investment negotiations were critical to Canadian prosperity.

It is perhaps inevitable that a govern- ment policy review will find little to fault with previous policies and everything to recommend their continuation in the future. We know. We were involved in both earlier reviews. Bill Graham will no doubt be sorely tempt- ed, and strongly advised, to cling to the orthodoxies of the past. This would be a serious error. However well or ill the policies of the past have served Canadian interests, it will do the coun- try little good to hark back to a ”œGolden Age” of trade or foreign policy and hope that either may return and carry us for- ward. Rather than celebrating past glo- ries, Mr. Graham’s review should look hard at the reasons why the current trade policy agenda seems so shopworn.

The first is the continuing allure of multilateralism as the central organizing principle of Canadian trade and foreign policy. As we have argued elsewhere (Canada and the Global Challenge, CD Howe, 2003), Canadian foreign policy generally has been driven by strong mul- tilateral impulses as a means of equaliz- ing the power asymmetries between Canada and powerful countries with which we transact most of our interna- tional business, notably the United States. For the last 50 plus years, multi- lateralism has been the watchword of Canadian foreign policy and Canada has been in the forefront of supporting rules and institutions of global governance, whether they serve Canadian interests or not. Although recent Canadian foreign policy makers have preached multilater- alism more frequently than they have practiced it when vital Canadian inter- ests have been stake, it remains a strong force, as the Chrétien government’s posi- tion on the Iraq war demonstrated.

The multilateral impulse in Canadian trade policy found its expression in Canada’s strong commitment to the forerunner of the WTO, the General Agreement on Tariffs and Trade. Even after the FTA and its successor, the NAFTA, together with other free trade agreements, effectively removed almost 90 percent of Canadian exports from GATT/WTO rules, old instincts linger. While acknowledging the obvious, the importance of trade with the United States, the government continues to insist that the WTO is the cornerstone of Canadian trade policy. Canada’s ambas- sador to the WTO and former trade min- ister, Sergio Marchi, cites Canada’s dependence on trade as the reason why the WTO and the new round of multi- lateral trade negotiations are so impor- tant to Canada. For the Cancún meeting, the Canadian delegation com- prised no fewer than three ministers, 74 federal officials, 6 provincial ministers, 10 provincial officials, and 1 municipal representative. In the recent past, the failure of a multilateral trade meeting was a matter of grave concern for Canada. These days, it may be regret- table, but it is hardly critical to the per- formance of the Canadian economy.

The second impulse is the strongly held view among some Canadian elites, not including the business commu- nity, that Canada’s economic dependence upon the United States is a serious weak- ness and that trade diversification should be a high priority of Canadian trade poli- cy. The need for diversified partnerships finds its echoes in Canadian foreign poli- cy. Successive Canadian governments over the last three decades have sought to build privileged relationships with Europe and Japan and a host of other countries. Where other countries have proved will- ing, as in the case of the European Union, elaborate structures of summit and minis- terial meetings, committees of bureau- crats, chambers of commerce, and institutions for science and technological co-operation have been created to convey the impression of complex relationships. The consequence has been a growing gap between Canadian priorities and interests and Canadian foreign policy. In the 1990s, for example, Canada reduced diplomatic representation in the United States, as relations grew more intense, while steadily increasing it in Europe and other parts of the world.

Bilateral free trade agreements have become the principal policy instrument of trade diversification. Shortly after coming to office in 1993, the Chrétien government promptly embarked upon an ambitious policy of proposing such agreements, and enjoyed success with Chile, Israel, and Costa Rica and disap- pointment with the EU. As noted, the new minister has a growing list of bilat- eral negotiations on his plate. The com- mercial objective, in the words of a House of Commons Committee making the case for a deal with Europe, appears to be to alter the psychology of Canadian firms by getting them to look for new business opportunities beyond North America. The reality is that the vast majority of Canadian businesses choose to do business in the United States and have proven impervious to any and all government initiatives to alter their psy- chology. Hence Minister Peterson may well have affirmed in his first speech (in Frankfurt in January) Canada’s continu- ing interest in an agreement with the EU, but he has few committed followers.

The third impulse is steady encroachment of the foreign policy ”œvalues” agenda on the practice of trade pol- icy. While Canadians have always expected that the country’s foreign poli- cy would contain healthy doses of humanitarianism and philanthropy, the Foreign Policy Review joined Canadian values (and culture) to prosperity and security as the triad of Canadian foreign policy objectives of the Chrétien govern- ment. With the notable exception of John Manley, the foreign ministers of the last decade have replaced interest- driven policy with a values-driven poli- cy, relying upon the proposition that Canadian values are or should be uni- versal, as reflected in Bill Graham’s asser- tion that ”œa better world might look like a better Canada.”

This ”œvapid preachiness,” to use histo- rian Jack Granatstein’s colourful phrase, is increasingly also finding a place in Canadian trade policy. The Canadian interest in incorporating labour and envi- ronment clauses into trade agreements, stoutly resisted in the NAFTA, is explained as a reflection of Canadian values. Former trade minister Pierre Pettigrew was fond of stating that trade negotiations are a way of promoting ”œvalues which we hold dear,” and that Canada should share and export its values. At the Cancún WTO meeting, Pettigrew argued for the elimi- nation of subsides to cotton producers, although Canada produces no cotton, in order to benefit poor African cotton farm- ers, while almost in the same breath con- demning the rhetoric and grandstanding that poisoned the atmosphere of that meeting. Not surprisingly, the minister did not extend his new-found fervour for values-based policy to the need to elimi- nate Canada’s obscene tariffs on dairy products for the benefit of consumers and competitive producers alike. Trade and trade agreements may expand human freedom, but to make such a value the guiding principle for negotiations is to render much of trade policy incoherent. No Canadian is against reducing child labour, improving the environment, or increasing global equity, but heaping all these goals on trade negotiations risks los- ing sight of their fundamental goal.

A new government, empowered with a new mandate following the expected spring election, creates an opportunity to break out of the dogma of Canadian trade policy. This dogma holds that international trade occurs between autonomous firms engaged in arms- length transactions across national bor- ders. Canada engages in multilateral and bilateral trade agreements to generate trading opportunities for Canadian firms and expand the choices for Canadian consumers. If problems arise in the trad- ing relationship between Canada and other countries, they can be solved through the negotiation of new trade agreements. Canadian dogma further argues that trade agreements can be insu- lated from other areas of international relations and negotiated and managed according to their own dynamics. The menu of WTO and bilateral negotiations in Trade Minister Peterson’s briefing book corresponds to this traditional dogma, as do the proposals advanced from various quarters for Canada to negotiate a NAFTA-plus deal with the United States or, more ambitiously, a Canada-US customs union.

Canadian skill at such trade-agreement making in the GATT, and subsequently in the FTA and NAFTA, has made a major contribu- tion to Canadian prosperity. Through the first forty years of the GATT, Canada achieved reductions in US trade barriers and largely embedded GATT dis- ciplines into domestic policy. The result was a better-structured and more prosper- ous Canadian economy. The FTA and the NAFTA accelerated the transformation of the Canadian economy from an east-west to a north-south axis, created the basis for an increasingly integrated North Ameri- can economy, and realized the final major benefits to the Canadian economy of classic trade liberalization. In the case of Canada-US trade, it is only in a few old-economy sectors, for example, lum- ber, that cross-border trade barriers sus- ceptible to negotiation remain relevant to influencing the flows of trade and invest- ment. For the flows of trade and invest- ment in the integrated sectors ”” for example, automobiles, aerospace, infor- mation, and telecommunications ”” the classic trade liberalization agenda is irrel- evant. It is finished with the United States and further efforts with other countries will bring at best marginal benefits.

The need to dispense with the old dogma is thrown into sharp relief by the trade agenda pressed upon the government by the business communi- ty. In a brief to the government last year, the Canadian Council of Chief Executives proposed a new arrangement with the United States to create a seamless border, effectively proposing the removal of border impediments  to the flows of trade and invest- ment. The council argued ”œthe need for a comprehensive North American strategy integrating economic and security issues” and requiring ”œa strategy with five major elements:

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• Reinventing borders

• Maximizing economic efficiencies

• Negotiation of a comprehensive resource security pact

• Reinvigorating the North American defence alliance

• Creating a new institutional framework”

If the government were to embrace this brief, it is immediately apparent that the traditional trade-agreement approach would prove woefully inadequate. A trade agreement, like any other intergov- ernmental agreement, constitutes a snap- shot of the problems at a moment in time and devises solutions to deal with them. If new problems arise, a new round of negotiations is required. The capacity for rapid adjustment and expeditious prob- lem solving does not exist in trade agree- ments. Moreover, multilateral trade agreements are taking longer and longer to negotiate. The Uruguay Round, for example, took eight years to complete. The current round, while scheduled to conclude in 2005, is almost certain to continue for many years to come. It is not an exaggeration to suggest that the busi- ness environment and business organiza- tion that the new round is intended to influence will have changed beyond all recognition by the time these negotia- tions conclude. While bilateral negotia- tions can often be completed more quickly, the basic problem is that rule making embedded in trade agreements no longer provides an efficient vehicle for solving today’s most pressing problems.

Against this background, as the government embarks upon a comprehensive foreign policy review, here are some factors which ought to bear heavily on the trade dimension.

First, the growth of the Canadian economy depends critically upon fur- ther North American economic integra- tion. The US economy surpasses all its rivals to the point that it is approaching the dominance it held 50 years ago as the engine of global growth. Growth in Europe and Japan can no longer com- pensate for a poor US performance. While developing countries like China, Brazil and India may have immense potential, the prospect of their becom- ing alternative centres of growth inde- pendent from the United States any time in the near or medium terms is remote. Whatever the merits of having our commercial eggs in one basket, there they are and there they will remain for the foreseeable future.

Second, the probable re-election of the Bush administration may produce one of those rare moments in relations between the two countries when creative policy making becomes possible. The cre- ativity will have to come from the Canadian side. In the history of Canada- US relations, ideas originate north of the border, not because our American cousins have no ideas but because Americans have big ideas and Canadians, or at least their politicians, prefer small ideas. The art of Canadian-American negotiations is to package a proposal in a small enough way to reassure Canadians and at the same time in a big enough way to capture American imagination and attention.

Third, the Canada-US agen- da is essentially bilateral rather than trilateral in nature. The successful conclusion of a trilateral North American Free Trade Agreement created expectations about the evolu- tion of a North American com- munity. This has not happened. Trying to address Canada-US issues on a trilater- al basis is likely to prove count- er productive. The Mexican factor is important but not crit- ical. The challenge for Canada is to decide upon the architecture of the relationship with the United States that it wishes to have in the 21st century and, on this basis, to seek a new accommodation with the United States, irrespective of Mexican desires and objectives. If Mexico reaches compatible conclusions, a par- allel initiative would become possible. If Mexico is not so disposed, Canada needs, nevertheless, to press forward. The relationship with the United States is too important to be made hostage to the policies and preferences of another country.

Fourth, although there is a compelling argument that increasing North American integration already exhibits the principal characteristics of a common market, the negotiation of a customs union on the European model would be an immense task. It would involve noth- ing less than a constitutional convention for economic integration in North America. Following the European model would require the creation of a suprana- tional institutional infrastructure with authority over national governments. It is hard to envisage either Canadian or American enthusiasm for such a prospect. The European Union grew out of the lessons of history; from its origins through to its current evolution, it has been driven primarily by geopolitical imperatives employing the forces of economic inte- gration to achieve larger goals. Such historical antecedents do not exist in North America.

Fifth, there is a broad measure of comfort among Canadians with arranging for the security and pros- perity of the country within the North American framework and with seeking new arrangements with the United States to capture and manage the forces of silent integration. Concurrent with this com- fort is a new confidence among Canadians in their identity, evident in the absence of a sense of apology and the need to assert difference or defensive self- assertiveness. Recent polling shows both high levels of support for the current trade agreements and growing differences in values, preferences, and life styles of Canadians vis-à-vis Americans. Apart from the geriatric Left, there is a refresh- ing absence of pressures emanating from the public for initiatives to re-establish artificial distinctions and differences from the United States or from any other coun- try. The public debate about the relation- ship with the United States is spreading beyond academic and political circles and beginning to resonate in the broader pub- lic. It will be a different debate than the free trade era, calmer, more mature, and better informed. It is, nonetheless, essen- tial that the government lead this debate.

Overwhelmingly, Canada’s leading trade and foreign policy partner is the United States, surpassing all other partnerships combined in the breadth, depth, and intensity of the relationship. Cross-border trade and investment drive our economy. US innovation and entrepreneurship pro- vide both opportunities and competi- tion. US popular culture dominates, not because it is forced on Canadians but because Canadians choose it. The US military provides a blanket of secu- rity. US warm weather cossets millions of Canadians each winter. The US pres- ence pervades every aspect of Canadian life, including, as Foreign Minister Bill Graham recognizes, for- eign policy. Virtually every aspect of Canada’s political, economic, cultural, and social life is measured by Canadians in terms of the US yard- stick. The first and virtually only prior- ity for Canadian diplomacy over the next few years is to reach a new accommodation with the United States. Canada and the United States need to take deliberate steps to bring the architecture of their relationship into line with the challenge and fact of deepening integration as well as with the political and security realities ush- ered in by the events of September 11.

Jim Peterson has a key role to play in devising a new accommodation with the United States. Both the US preoccupation with homeland security and the dynam- ics of the integrated economy require the government to devise a comprehensive approach that will necessarily have to be led by the prime minister and engage a wide range of ministers, including the trade and foreign ministers, but also their more domestically oriented colleagues. The days when Canada-US issues could be treated in separate, self-contained compartments are long gone.

Peterson should insist that his offi- cials explore three key aspects of a new accommodation with the United States: 

• How can the Canada-US border be removed as a barrier to the movement of goods and people by eliminating some regulations and moving most, if not all of the others, behind the border (e.g., pre-clearance of commer- cial shipments)?

• How much of current regulatory divergence between Canada and the United States can be removed through equivalence and harmo- nization (e.g., health and safety regulations in sectors such as con- sumer goods, drugs, transporta- tion and immigration)?

• What is the best institutional framework for managing the rela- tionship without requiring a trade agreement negotiation to solve every problem? For example, does the model of the International Joint Commission provide a use- ful point of departure?

The foreign policy review provides a convenient platform to consider how best to reach this new accommodation. And for Trade Minister Jim Peterson, the foreign policy review could prove a critical vehicle for carving out a useful and important role for his new depart- ment as one of the principal executors of this new accommodation.