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Proximity, reality, strategy, destiny Add to ...

South of the border, Barack Obama is bringing a strategic focus to American foreign policy. An emphasis on multilateralism, a determined effort to refurbish the image of the United States, the pursuit of dialogue with Iran, a reaching out to the Islamic world, reinvigorating negotiations in the Middle East, a renewal of nuclear disarmament with Russia, leadership on climate change - these are all part of the President's new global agenda.

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One item that seems to be missing is any strategic focus in Washington on its northern neighbour. Aside from Mr. Obama's campaign proposal to renegotiate NAFTA (since abandoned), the new initiatives coming out of Washington seem directed to the hardening of our common border, the unleashing of a flood of Buy American laws and the badmouthing of our oil sands. Unlike Ronald Reagan, who had a vision of a deep trilateral relationship in North America and free trade throughout the Western Hemisphere, Mr. Obama and his advisers, notwithstanding his choice of Ottawa for his first official visit, show little interest in the relationship with Canada.

If there is no sign in the U.S. government of a strategic vision toward Canada, our own government has reciprocated by showing no sign of interest in a strategic review of our relations with the United States.

But now the forces of history and economic change are challenging the dominant characteristic of our foreign policy for more than half a century: our privileged relationship with the United States.

For much of our modern history, Canada built its prosperity on our greatest asset, our proximity to the world's largest and richest market. Our physical adjacency was our comparative advantage. Fuelled by the stripping away of most tariffs through four decades of postwar multilateral negotiations, the overwhelming majority of our exports went south, goods came to be manufactured jointly on both sides of the border, and trade was largely between companies and their affiliates. The Canada-U.S. auto pact and NAFTA were quintessential examples of the new North American reality: Geography was our destiny.

From the standpoint of commerce, the march of history was toward continentalism and an irrelevant border.

But as the new century began, there was little realization in the country that, thanks to 9/11, the era of our comparative advantage was about to be undermined by the juggernaut of U.S. national security. For more than a decade and a half, no effort was made by any Canadian government to deepen NAFTA, to strengthen its legal foundations, extend it to new areas (procurement, agriculture, rules of origin), achieve a common external tariff, strengthen its dispute-settlement provisions or move toward a common security perimeter with the United States. This was the era of the road not taken.

At first, there was the belief that, through "smart borders," border security could be prevented from trumping the economy. But the U.S. political system gave birth to a gigantic new bureaucratic leviathan, the Department of Homeland Security, which has been determined to turn our relatively open border, the legal basis of our prosperity, into a "real border," in the words of its new czar, Janet Napolitano. Almost on a daily basis, we read of new American measures to police our common boundary, as if our countries were adversaries instead of historic partners in the defence of North America and the free world. Now, in bad economic times, we are seeing the cost of cross-border trade rising and our exports to the U.S. declining.

THE SECURITY LEVIATHAN

The hardening of our border poses a very difficult question. If a Canadian manufactured product must, as a result of economic integration, cross our common boundary half a dozen times in order to be constructed, who has the comparative advantage, the country without a common border, such as South Korea or China, whose goods need entry only once, or Canada and Mexico, whose goods must cross a number of times?

The security leviathan is now part of a triad of forces creating restrictions on access. To border security must be added the rise of protectionism and environmentalism. As a result, the question must be asked: Is proximity becoming our comparative disadvantage?

In the deep recession of the early 1980s, almost everything that moved or came out of the ground was under attack in Congress. Buy American provisions, dumping and countervail actions proliferated. The Canadian response was visionary: It proposed the negotiation of the Canada-U.S. free-trade agreement, with the result that - aside from forest products - protectionist forces were successfully held at bay.

But today, the threat of Buy American is much greater than in earlier times. The Great Recession has given rise to a new era of big government in the United States and to the largest stimulus bill in history. About $300-billion is being directed toward states and municipalities, which, in turn, have adopted or proposed hundreds of Buy American provisions. Thanks to the Democratic hold on Congress, which could continue for decades (the previous era of Democratic control lasted 40 years), and the powerful influence of protectionist unions on the Obama White House and Congress, we are at the threshold of an extended period of surging protectionist moves, such as the recent country-of-origin labelling of imported meats that Congress has imposed.

The third force in the new triad is environmentalism. Powerful environmental lobbyists and legislators are targeting "dirty oil" from Canada. Congressional initiatives in the name of the environment with a potential impact on trade are already part of U.S. law. The Energy and Security Act of 2007, initiated by Representative Henry Waxman of California, would forbid contracts by U.S. federal agencies to procure unconventional oil with higher life-cycle carbon emissions than conventional oil. The implications for imports from our oil sands are of great concern.

Whether or not the cap-and-trade bill of Mr. Waxman and Representative Ed Markey is adopted in its current form, it is likely that the U.S. will put a price on carbon and that this will give rise to the imposition of tariffs, or other restrictions, on imports from jurisdictions whose laws are not deemed "commensurate" with those of the United States. Given that all or most goods have a carbon imprint, the opportunities for protectionist mischief are immense. Canada, as America's largest source of energy imports, could, in the absence of a highly integrated regime, see our energy exports entangled in a giant web of legal restrictions that could amount to "green protectionism."

If the Energy and Security Act, in which Canada had no input, is taken as the norm, then the Canada-U.S. Clean Energy Dialogue, announced by the President and our Prime Minister, is likely to take place among American staffers in the corridors of Congress in the middle of the night, assisted by the lobbyists who make the Hill their home.

In the face of this triad of forces, what should be Canada's response? The challenge for our government is to think strategically and long term in its relations with the United States. For the Obama administration, national security (including energy supply) is paramount, and Canada must recognize this in our strategies. As for Congress, there must be a broad negotiating field to play off opposing interests and make sure that winners outnumber losers. "Incrementalism" is an illusion.

THE ROAD NOT TAKEN

If we are to seek to preserve our comparative advantage, we should now be aiming to deepen NAFTA, at least between Canada and the United States. Our aim should be to achieve a single economic space and a common security perimeter. Given today's realities, we are unlikely to achieve one without the other. The challenge of achieving such an accord at this time is enormous and would require vision, leadership and deep conviction on the part of the leaders of both governments. In other words, Canada needs to go down the road not taken, even though the chances of reaching our destination are not high.

This is why Canada's strategic thinking must go beyond the bounds of North America. The decision of the Harper government to negotiate a free-trade agreement with the European Union is a welcome one. But as the economic centre of gravity moves inexorably toward the Far East, particularly China and India, Canada should be laying the groundwork for deepening our trade with these countries, where demand for our resources, unlike in the sclerotic economies of Europe, is likely to grow exponentially.

In stimulating our economy, what better time to lay down pipelines to the West Coast and build the port facilities that will enable Canada to be a major partner of the giant economies of the Far East? Failure to diversify can only weaken our bargaining strength and make us more vulnerable to protectionist and other restrictive measures from the south.

Difficult as it might be to pursue such strategies, the Canadian government, if it does nothing, may be left with an even tougher task. "The greatest challenge in public policy," economist Lester Thurow wrote, "is dealing with incremental decline." Let us hope that, through making the right strategic choices, we will not have to face that challenge.

Allan Gotlieb was Canada's ambassador to the U.S. from 1981 to 1989 and is a senior adviser to the law firm Bennett Jones LLP.

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