The Canadian discourse on our place in North America had been slow to emerge in the post-NAFTA decade. Stimulated by the concerns raised by the events of September 11, 2001, it has started to assume a clearer outline sometimes, apposing the views of business and academic thinkers. The latter have more often taken a theoretical point of departure focused on concerns about Canadian sovereignty lost or retained. Much of the discourse has focused on NAFTA and how to change it.

A persistent theme of this theoretically based dis- course, and the one on which those living most immedi- ately in the real economy differ most profoundly, is that the ”œbest management” of the North American relationship is ”œleast management.”

Some holding this view argue that Canada should stick with case-by-case problem management of Canada-US relations because:

• Case-by-case management has worked well enough in the past and that any other deeper, more structured engagement with the US would likely work to Canada’s disadvantage.

• NAFTA, the main institutional arrangement now in place, has failed to protect Canada against congressional trade remedies, and that no other likely agree- ment would be more effective in doing so.

• Lastly, and somewhat at cross purposes, because the United States would not be interested in closer, more disciplined, institutional arrangements with Canada. Trying to advance one would be a costly waste of time and effort.

It might be useful to think inde- pendently of this grand debate, by focusing on the real problems in the relationship, and to consider how to deal realistically with them. Let me point to some areas where this sort of discourse could usefully focus: regula- tion, trade in resources, labour markets and national security.

NAFTA, a trade agreement with a few adornments, is not the right tool for building subsidiarity or managing regulatory obsolescence. We have to find new mechanisms, domestic and multinational, to do so.

A few examples of questionable regulatory dissonance illustrate the point.

Canada, with relatively small local capital markets, has different provincial systems of securities regula- tion than those that regulate the large pools of capital in the US. The effect of this archaic structure is to handicap Canadian corporations seeking capital and individual Canadians looking for investment opportunities, not to men- tion the shareholders looking for best practices in protecting their savings. Significant effort is being made to structure a national level of regulation, thus far without success. But even if this were to succeed, that system would have to be demonstrably superi- or in the protection it provides to investors if it was to justify restricting Canadians to draw on a smaller pool of capital than that available in the US. It might be more productive now to think not just of establishing a nation- al securities regulator for Canada, but one that operated seamlessly (e.g. through mutual recognition of stan- dards) across the border.

The existence of different (also balkanized) systems of food and ani- mal health inspection within what is an integrated North American live- stock industry has proven to be disas- trous to Canadian producers in the BSE crisis. Our decentralized system of inspections may have been effective, though there is no way to be certain. But its separateness from the US sys- tem has in any event had the effect of crippling our beef export industry by making it easy for competitors in the United States to cut us off from our most important market. Yet both Canadian and American exporters suf- fered a catastrophic loss of interna- tional confidence partly as a result of apparent incoherence in North American inspection systems.

Pharmaceutical appro- val processes in the United States and Canada operate separately but with virtually identical levels of sophisti- cation and purpose. The dif- ferences in procedure are marginal. Joint effort and mutual recognition would benefit consumers and industry in both countries. Indeed there is no reason why some more intense form of regula- tory cooperation (mutual recognition, shared effort, approved in one, accept- ed in all) should be restricted to the two countries once it is established. EU stan- dards are of an equally high level: a transatlantic regime would be both effi- cient and effective.

Ownership and other exclusionary rules (such as continuing restric- tions on cross-border service) relating to air transport restrict opportunities and can lead to perversions of policy intent. The forced sale of Canadian Airlines and Air Canada’s restructuring from bankruptcy protection are cases in point. The rules barring cabotage might actually harm, rather than protect, competition and service to the public.

The regime of ownership require- ments for regulated sectors, such as those relating to air transport, media and telecommunications might useful- ly be re-examined in Canada and the United States. Ownership rules intend- ed to ensure that owners were obliged to be ”œpatriots” seem almost quaintly archaic at a time when multiple citi- zenship is so available, including to global investors. Perhaps more subtle forms of regulation would be a better way to ensure that pillar institutions respected the national interest.

Rules relating to the mutation in the financial services industry, which have taken radically different direc- tions in the United States and Canada, also fall into this category.

We think of the energy sector as already being uniquely North American. This is far from the case. The lack of effective (and seamless) regulation for electricity generation and transmission makes all of North America vulnerable to disruptions in vital power systems. If we cannot negotiate a shared approach, it is almost inevitable that Canadian utilities will have to align themselves with whatever rules are formulated for a national grid in the United States.

Regulatory interoperability will also be necessary in non-economic areas, given the challenges presented by globalization.

The safety of public health, for instance, is impossible to guarantee behind national borders in a globalized world. There is no way to ensure a Canadian or a North American immu- nity against global pandemics such as SARS, nor against threats to public health that might be posed by interna- tional terrorism. The only thing that our governments can do is to cooperate among themselves and globally to con- tain the threats and to ameliorate the consequences. North American govern- ments should ignore the internal bor- ders of North America and establish shared institutional approaches to the challenge. The success of North Ameri- can cooperation should also help them to provide leadership in the strength- ening of multilateral approaches.

The key is to find where mutual interest can best be served by height- ened interoperability in our national systems of economic regulation.

North America’s supply of natural resources is unmatched in any other region. This reality should be much more present in the way we think of managing our natural resource base. Global demand for natural resources is set to intensify dramatically (China’s growing demands by themselves will change the supply-demand balance radically in the near future). Security should also enter into this discourse. Geographic proximi- ty of natural resources to markets for them gives the North American econo- my an important advantage in cost and supply chain management. That privi- lege is all the more important as uncer- tainties about the physical security of global supply lines (as of much else) are now a permanent feature of the econom- ic landscape. There is already security in the movement of oil between Canada and the United States. Similar arrange- ments of mutual security would benefit both countries in managing trade in gas, electricity and minerals, and possibly, if properly structured, in agro-food and building materials, as well.

Economic security of supply is one concern. Physical security, particularly with regard to global maritime com- merce, is another. A terrorist attack on global shipping is at least highly probable in the com- ing years. Its consequences are not yet fully understood outside shipping circles, but it is clear that one container being used for the planting of one WMD any- where will oblige authorities to freeze global flows everywhere.

One problem in turning the existing resource trade paradigm around is that natural resource trade is, in effect, regulated by the US Congress. It is subject to the same protectionist pressure from special interest as every other sector. But natural resources clearly should be seen in a broader context today. Resources trade should be the subject of mutually beneficial and politically respectful agreement to enhance the economic and physical security of North America.

Rather than just seeking restric- tions on the ability of Congress to impose trade remedies against Canadian resource exports, which is likely to be futile, we should seek a mutually satisfactory agreement guar- anteeing the free movement of natural resources between us as a matter of eco- nomic security for both countries.

One last note on the advantages of protected north/south flows within North America: Though it may seem odd to think of people in the same context as natural resources, the paradigm is similar in the two areas. Demographics will soon make it obvious that North America enjoys a unique privilege in being the only industrialized region that can draw on a young (Mexican) labour force to supplement an aging one (in Canada and the United States). Neither Europe nor Japan will have this demo- graphic cushion to help their inevitable adjustment. We should seek the maxi- mum flexibility in the mobility of peo- ple and flexibility in labour markets that go with them to profit from the com- parative advantage that this enormous human resource base will increasingly give us. The Mexican government has staked much on gaining access to US labour markets for migrant Mexican labour. The problem is more complica- ted, however, in that it is the highly trained labour that is the most welcome north of the border, but it is that which Mexico can least afford to lose. While Canada is not yet an important partner with Mexico in this area, a basis for use- ful cooperation is beginning to emerge. There is clearly opportunity here for Canada as well as for the other North American partners.

If the border is seen as America’s last line of defence (as many Americans see it to be), the US will reinforce it even beyond reason. The US is engaged in fighting threats to its national homeland for the foreseeable future. There is no end game to the war on ter- ror, no matter who is in the White House. The protagonists are not states, nor even identifiable. Amorphous threats from global sources will require eternal vigilance on America’s borders even by the most liberal and interna- tionalist administration.

Since flows across our border account for over 40 percent of Canadian GDP, and only 2 to 3 percent of what the United States produces, border brittleness is going to impact infinitely more on Canada than on the US. Not only would breakdown of nor- mal border process put short- term trade flows at risk, the shift of expectations about the char- acter of the border will shape investment decisions and other aspects of business strategy in a way that will disadvantage the Canadian economy.

Business has operated for well over a decade on the assumption that the border would gradually be lowered, as in Europe. The decisions they make about the future will be different if they are to work on the assumption that the border will be subject to unilateral decisions, catastrophic events and political mood in the United States.

Canadian decision makers are compelled to continue to engage sys- tematically and institutionally with the US authorities. Otherwise, the latter’s determination to protect the North American ”œhomeland” will be exercised unilaterally. That is why any- thing short of strategic activism on border security amounts to a cession of sovereignty, rather than its defence.

Canada has the choice of being a ”œdeep border” for the United States or to be outside of America’s security zone. The only question is how to be that on our own terms.

The obligation to be a ”œdeep border” for the United States is not a new one. We assumed it in 1940 when Mackenzie King and FDR agreed at Ogdensburg that Canada would do its best not to be a (Axis) base for infiltration or invasion of the United States. The United States promised, in return, to defend Canada against external attack. Put less delicate- ly, the deal was that Canada would do its best to defend itself, and if it could not, the US would defend it. The Ogdensburg commitment was renewed in the Cold War when Canada participated in the defence of the continent against Soviet Bear bombers and ICBM’s.

The obligation to defend the North American landmass has become far more complicated now but defending ourselves and defending space that we share in North America still constitutes one inseparable set of obligations for both our countries. So we had better face up to the need not only to defend our territory but also to do it in a way that also consti- tutes a satisfactory contri- bution to the defence of the United States.

Given the nature of the threats against our security in the current environment, the first task is to reinvent ”œborders.” We must exercise the responsi- bility for protecting our society against external threats where we can do so most effectively, not where infrastructure hap- pens to be in place. That means less of patrolling the land border within North America and more of patrolling the glob- al flows that traverse North America. We need to be as sure as it is possible to be that the containers that transit Canadian ports contain no threat to the health and safety of our cities and that the flows of people who touch down in our country pose no risk to our security. We must also work with the United States to ensure that the ”œglobal border function” is exer- cised at the global level.

Multilateral cooperation is going to be essential among governments. But governments cannot do the job alone; effective global borders will also have to involve the private sector that actually manages global flows of goods, people, technology and capital. Doing this is going to be tough; not doing it will be irresponsibly dangerous.

We also need to reorient our defense capacity to focus more on defending our sovereign territory. We should, in particular, reinforce the capacity of the navy and the air force to patrol our coastlines as well as the approaches to North America on the high seas, of our army to protect our communities from man made disasters and, more realistically, to help them to cope with the effects after the fact.

We must ensure that the critical infrastructure that serves us and which we share with the United States is protected against threats from terrorism or criminality. North American security is a joint need; it should be supplied as a common enterprise.

We must do our share; if we do not defend ourselves effectively, rely- ing on a framework of values that we define, we cannot well complain if others who are called on to defend us do not do so.

I have set out four items for a Canadian agenda to ensure that we benefit from North American integration, rather than be its pas- sive object.

Regulatory interoperabil- ity, natural resource security, integrated labour markets, and a continental approach to security are each going to be difficult to accomplish. Yet each is inevitable in the long term. The way that we get there is what matters. It’s either our way or the interstate. Reflecting on how to approach such an agenda, it is hard to disagree with those who consider that NAFTA is not up to the task. It is equally hard, however, to agree with those who would therefore conclude that NAFTA is a cause of our insecurity and that we should therefore exert ourselves to roll it back somehow. It is even harder to accept the argument that the best course of action for Canada is to desist from seeking more adequate instruments to protect our mutual inter- ests within North America. It is clear, to me at least, that we must, on the con- trary, move beyond NAFTA and do so with a purposeful determination.

 

This article in no way reflects the opinions of Bombardier, Inc.