Friday, June 17, 2005

Our US Allies and Canada - Explaining Canada..

Most Americans do not understand Canada. This is not surprising. Most Canadians have only a hazy understanding of their own country. What Americans think they know is that Canada is a large, predominantly cold place which has significant natural resources and does not always support the US when it most needs them. Canada sometimes seeks to exploit the US - through "dumping" mad cows and cheap lumber - yet relies on them for defence and prosperity. Canada, to most Americans, is a country that takes rather than gives. While Canada has the respect of the people of many countries - which is why some Americans wear the maple leaf emblem of Canada when they travel - they know that this respect was earned in the past and is now in decline. They can't name the Prime Minister of Canada, but they probably know that Michael J Fox, Lorne Green, Leslie Neilson, Jim Carey, K D Lang and Mike Myers were all once proud Canadians.

In contrast, Canadians see Americans as aggressive, unthinking and the schoolyard bully - a country that acts before it thinks and a country that has economic and military power of which Canadians are fearful. Canadians also see the US as exploiting Canada, being unreasonable about border disputes and preoccupied with security. Canadians worry about the way in which the US enters agreements and then ignores them - the fact that Canada does the same as often as does the US is neither here nor there. Canada looks at the world series and points out that the world is a small place - only American teams compete - and sees this as a symbol of the myopia of the United States. Most of all, Canadians watch US television in preference to their own broadcast systems and then complain about the loss of Canadian culture. 90% of Canadians live within 100km of the US border, yet claim that they have difficulty understanding their neighbours.

To Canadians, the US is like a relative who has been missing from most family gatherings - they show up only when they need something. While we are family - we were both once part of the British Empire and have many social, economic and cultural experiences in common, not least a major border - there are very different family histories, experiences and explanations. In this sense, Canada sees the US as moving from being a brother or sister to becoming a cousin and, post Iraq, second cousin once removed.

Canada Needs the US

The US needs Canada but Canada needs the US more. Canada depends on the US for its economic prosperity. In 2003, two-way trade in goods and services surpassed $400 billion, making the U.S.–Canada trading relationship the largest in the world. Daily some $1.2b worth of goods pass between the two countries. The U.S. sold $195.8 billion worth of goods and services to Canada and received $245.8 billion worth of goods and services from Canada. Some 37,000 trucks cross the border between the two countries each and every day - over 8 million in a year. Over 80% of all Canadian exports go to the US. Of this over 40% of U.S. trade with Canada is intra-firm, that is, trade occurring between parts of the same firm operating on both sides of the border. The automotive industry is a prime example of this integration: every vehicle assembled in North America now contains nearly $1,250 of Canadian-made parts.

While Canada is dependent on the US for its economic well being, these data show that there is a growing co-dependency: Canada's well being is in the economic interest of the US, since so many US jobs are now linked to trade with Canada. Thirty-seven states count Canada as their number one foreign customer; Canada is the most important destination of exports for most of the states along the border as well as the northeast and central U.S., and as far south as Missouri and Georgia. Twenty-three states sent more than one-quarter of their exports to Canada in 2003. Since the implementation of the Canada–U.S. Free Trade Agreement in 1989 and the North American Free Trade Agreement in 1994, there has been a dramatic increase in this two-way interdependence between the two economies. U.S. exports bound for Canada more than doubled between 1989 and 2003, from approximately $80 billion to $170 billion. Over the same period, U.S. imports from Canada increased from $90 billion to $227billion.

Now that Canadian productivity is falling - it used to be ranked second in the OECD behind the US and is now ranked 13th - the US provides best practice models and management expertise to restore the effectiveness of Canadian firm performance. Further, as the war for talent rages between the developed countries of the world, the integrated economies of the two countries provide a basis for talent sharing and expertise networking unrivalled in the world.

Canada also needs to partner with the US for defence. Canada has been through a number of lean years in terms of investment in people and equipment for its military. But this is changing. From 2006 Canada will deploy up to four task forces of 1,000 personnel equipped with some of the best equipment in the world. Well trained, focused and resourced, these troops will provide defence, peacekeeping and perform other duties largely in partnership with NATO or other countries. But modern warfare is less about troop deployment and more about intelligence gathering and fighting a different kind of enemy. Here Canada and the US need to co-operate to fight terrorism and to defend ourselves, through NORAD, against rouge states.

The US Needs Canada

What Canada has in abundance are natural resources. In particular, energy and water. If Exxon Mobil's prediction that Hubbert's Peak - the point at which oil resources begin their steady decline - will be reached in 2010, then Canada becomes strategically important to the US as a major sustainable and friendly oil supplier. Canada has both conventional and unconventional (oil sands) resources that will provide energy for many years to come and could replace Saudi Arabia as the major source of oil for North America in the future. Alberta's oil sands deposits contain 174.5 billion barrels of reserves, according to the Alberta Energy and Utilities Board. That total is two-thirds of Saudi Arabia's proven reserves of 262 billion barrels.

By 2030 companies will produce 10.1 million barrels of oil a day from projects in Canada and Qatar, more than Saudi Arabia does today, according to forecasts by the International Energy Agency in Paris. That's 8 percent of the world's total. Canada's oil sands may get $95 billion of investment by 2020, according to Canada's National Energy Board, four times more than the amount spent in the decade ending in 2003. As part of that, Imperial Oil Ltd., controlled by Exxon, said in November 2004 it may pay $6.5 billion to double its capacity to produce oil from tar sands.

Canada is also rich in water. Estimates of Canada's supply of fresh water vary from 5.6 per cent to nine per cent to 20 per cent of the world's supply, depending on how one defines "fresh water" – whether it means "available," "usable," or merely "existing." One study says Canada has 20 per cent of the world's fresh water – ranking it at the top – but only nine per cent of "renewable" fresh water. Whatever the numbers, water is available in Canada and will continue to be available for a considerable time. The question is whether this water is a commodity or a matter of public ownership and trust. The fear is that it will be defined as a commodity, exported to the US and we will become environmentally poorer as a result.

The US needs Canada for more than its natural resources. Canadian scientist and technologists are at least as inventive than their US counterparts or more so, at least according to data from the National Research Council of Canada. Canada patents more inventions per researcher than the US. What Canada is not good at is taking these inventions to market - this is where the US benefits. Canadians invent, US commercializes. While some see this as exploitation, it is in fact an effective way of getting ideas to market.

We Need Each Other

The reality is that Canada and the US are co-dependents in the North American family. During the next fifteen years, the relationship will be tested in a number of ways.

First, when China challenges the US for economic supremacy (with India challenging for third place), what is it that the North American family will do to ameliorate the tension and strengthen free trade ? Canada could be a significant influence here, since the driver of China's economy are natural resources which Canada has in abundance.

Second, when the next terrorist attack on US soil comes and the terrorists are seen to have entered by means of Canada, what will be the response of the US? If it is to aggressively close the border without really trying to understand the facts - exactly what has happened to the border in relation to beef and mad cow disease - Canada will see this as a betrayal. If the security partnership is not strong enough to prevent such an attack, it needs strengthening. Punishment of Canada would not be an appropriate response.

Third, when Hubbert's Peak does arrive and Saudi oil supplies begin to dwindle, what attitude will the US take to the abundance of oil in Canada and how aggressive will it be in securing that oil ? This issue is of grave concern to Canadians (as are the same concerns over water) and the current aggressive strategy of the US does not help to create a climate of trust. When coupled with Canadian concerns over the environment - Canadian's rank this as the second most important issue for their country after the management of health care - the US looks like a tough talking, gun wielding "big brother". The US needs to develop a sustainable energy strategy in partnership with Canada to alleviate these fears.

Building Stronger US:Canada Relationships

Relationships between Canada and the US are currently strained. Disputes over softwood lumber, the border closure for live ruminants (mainly beef), a festering dispute over spring wheat and other irritants all need faster resolution. What irks Canadians is that NAFTA and WTO panels keep ruling in Canada’s favour, but nothing changes. If family feuds fester, then the family suffers.

If faster dispute resolution is one step that needs to be taken, then another is a joint agreement on security. Canada keeps being blind-sided by US decisions on security, the most recent being that no aircraft can fly over US airspace without a complete passenger manifest being fully disclosed to US authorities. This radically affects the way in which Canadian airlines operate and yet the announcement was made without the engagement of those most affected. Similar decisions have been made about border controls and passports. It just looks like one part of the family has given up talking to the other.

Given the importance of environmental issues to Canadians and many US citizens and a general dislike of governmental regulation that is common to both countries, the development of a systematic approach to climate change, pollution, energy and water issues would be a breakthrough for Canada US relations and is worth struggling for. Many Canadians, especially in Alberta, think George Bush was right not to sign on to Kyoto but look now for leadership over the alternative response.

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