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NORTH AMERICACANADA AND THE UNITED STATESOur economic relationship with the United States is a vital driver of our economy, but this uniquely complex and sophisticated relationship goes much deeper than dollars. We share strong elements of our heritage, culture and values such as freedom, democracy and the rule of law; we share a continent, and therefore its environment and its security; and we share in the opportunities and challenges of globalization. This relationship belongs to every Canadian, not just to governments or corporations. It is a partnership that we have tended carefully over the years, through formal and informal agreements, diplomatic ties, military and environmental cooperation, and thousands of daily contacts between political leaders and officials and their U.S. counterparts. Cultivating this relationship takes sustained effort and political will: the situation is not static. The U.S. market is constantly changing. Manufactured goods from China and other low-cost producers create formidable competition. The competitive bilateralism of the U.S. in pursuing a host of new trade agreements means our preferred access under North American Free Trade Agreement (NAFTA) is being, to some extent, eroded. And we see a major shift of population, wealth and political power to the American South and Southwest. These are all changes to which we must respond and adjust. The Government continues to develop new tools and practical approaches for managing the commercial relationship through all these changes, and weathering the disagreements and crises that arise. Building on the innumerable ties that have evolved over centuries, we have developed institutions and agreements to respond to changing circumstances and demands. The Free Trade Agreement of 1989 led in turn to the NAFTA of 1994 as Mexico embraced a North American strategy. This set in train a work program to continuously update and improve the agreement to the benefit of the continental economy. The terrorist attacks of September 11, 2001, introduced a new and menacing element into the equation, to which we responded with the December 2001 Smart Border Declaration. The ongoing challenges to the effective application of NAFTA in sectors such as softwood lumber, along with the emergence of shared interests not fully addressed in that agreement, have led the Government in the past six months to develop new mechanisms for handling relations with the United States and Mexico: bilateral partnership agreements with each, built around such issues as regulatory cooperation and (with the U.S.) political-level attention to resolving our differences, and the March 2005 Security and Prosperity Partnership of North America. This is the latest in a series of deliberate steps to adapt and update our approach to managing our shared geographic and economic space to emerging needs.
THE NORTH AMERICAN FREE TRADE AGREEMENTThe rationalization of cross-border operations between Canadian and American firms was pursued first sectorally, in defence and automotive trade, and then more broadly after the Free Trade Agreement of 1989. This was succeeded by the North American Free Trade Agreement of 1994 as the fundamental rules-based framework for our commercial relationship with the United States and Mexico. It gives us preferential access to both Mexico and the United States, and establishes rules to govern the settlement of disputes between the three NAFTA partners. NAFTA has drawn the three North American economies more closely together. Since the signing of NAFTA, Canada-U.S. trade has grown substantially. One of NAFTA's most significant effects has been the change in our relationship with Mexico: it is now our sixth-largest export market and we are Mexico's second largest. (In 1990, Mexico was Canada's sixteenth most important export market and Canada was Mexico's seventh largest.) The NAFTA Commission, the 32 formal working groups, various informal groups, and regular three-way meetings of leaders and ministers are aimed at ensuring the long-term effectiveness of NAFTA as an instrument to manage North American commerce and improve continental competitiveness. These have been and continue to be highly successful, but in certain areas more focused efforts are required to bring necessary reforms, and to ensure that problems are remedied quickly. KEEPING THE BORDER OPEN TO COMMERCEThe most dramatic example of a new need was created by the terrorist attacks of September 11, 2001. Within three months of the attacks on New York and Washington, Canada and the United States signed a joint Smart Border Declaration, with a regularly updated 30-point action plan. Keeping the border open to commercial activity is the first concern of Canadian business and of foreign businesses using Canada as a gateway to North America. Border uncertainty can affect trade flows and deter investment in Canada since investors will naturally seek the most secure location for their business, while minimizing risk and inefficiencies. The Smart Border Declaration is our joint effort with the United States to enhance the security of our shared border, keeping it open to legitimate flows of goods, people and ideas, but closed to terrorism. We will continue to work closely with the United States to ensure that border processes are effective in protecting our two countries. The federal government's $600 million Border Infrastructure Fund demonstrates our commitment to keeping border traffic moving efficiently and effectively. THE NEW PARTNERSHIP AND INTERNATIONAL COMMERCEThe new security situation slowed the momentum toward building a closer and more efficient continental economy through the NAFTA work program. However, the evolution of the world economy has made it clear that the pursuit of security and prosperity is a complementary imperative. On November 30, 2004, the Prime Minister and President Bush therefore announced a New Partnership agenda devoted to our joint security, prosperity and quality of life, and to working together on issues of mutual interest beyond North America.
A major aim of the New Partnership agenda is to expand economic opportunity by making businesses more competitive in the global marketplace and to respond to the new global economy. This is underpinned by the growing integration of many North American sectors, e.g. automobiles, steel and energy. North American value chains are expanding. As commercial networks spread around the world, the global competitiveness of Canadian, U.S. and Mexican firms is increasingly dependent on the competitiveness and efficiency of the North American economy as a whole. This has drawn renewed attention to making our economies work well together. Regulatory dissonance can significantly detract from our overall goal of making the NAFTA area more competitive, particularly where we share common regulatory objectives. For instance, the closing of the border to Canadian beef products due to isolated incidents of Bovine Spongiform Encephalopathy (BSE) or "mad cow" disease in Canada demonstrates the negative consequences of unintended "regulatory protectionism" in integrated sectors. Greater regulatory collaboration helps our countries deal in a coordinated way with challenges such as BSE, where variances in our regulatory systems can give rise to market access impediments, cause hardship, and possibly permanently disrupt integrated sectors. In this context, the Prime Minister and the President agreed to accelerate efforts to liberalize rules of origin-customs formalities that restrict duty-free benefits and impose paperwork burdens that can add measurably to business costs-and to pursue joint approaches to partnerships, consensus standards and smarter regulations as ways of promoting greater efficiency and competitiveness while maintaining the highest standards of health and safety. RESOLVING DISPUTESUnderlying the launch of the Canada-U.S. New Partnership was the need to find more effective ways of resolving disputes. NAFTA's working groups provide a transparent, non-political arena for discussing contentious issues and avoiding disputes. The dispute settlement provisions of NAFTA itself have generally worked well. Over 95% of Canada-U.S. trade is dispute-free. But any relationship as complex as ours with the U.S. is bound to see disagreements from time to time, and the institutional frameworks for managing them-the WTO and NAFTA-have not been sufficient in all cases. In fact, we currently face certain major problems. Important Canadian sectors such as softwood lumber, wheat and live swine, for instance, have faced repeated challenges under U.S. trade law. NAFTA has failed to protect them adequately from this type of action. But NAFTA cannot lead to North American solutions to trade problems if settlements under its provisions can be overturned by special interests. We continue to remind our trading partners that it is in the interest of all three NAFTA countries to ensure that panel decisions are respected and implemented properly. Persistent litigation is destructive to our sectors and damaging to the United States too: U.S. duties on softwood lumber exports, for instance, drive up significantly the cost of American homes. We also remain very concerned that the United States has not met its obligations to repeal the so-called Byrd Amendment, which allows anti-dumping and countervailing duties to be distributed to U.S. producers in affected sectors, thereby subsidizing our competitors and discouraging the settlement of disputes. It was found inconsistent with WTO rules in 2003, and the WTO has authorized Canada and seven other members to retaliate. On March 31, 2005, the Government announced that it would be exercising Canada's retaliatory rights beginning May 1, 2005, through the imposition of a 15% surtax on certain imports from the United States. The Prime Minister and President Bush have committed to exploring ways of improving the functioning of NAFTA trade dispute mechanisms and thereby resolving disputes more effectively. At the institutional level, we are seeking to strengthen NAFTA's capacity to help governments manage disputes. Canada is concerned that the joint NAFTA Secretariat, which is responsible for administering the dispute settlement provisions, among other things, has been neglected by the U.S. government.
HELPING CANADIAN BUSINESS SUCCEEDThe institutional framework for managing trade-from NAFTA through Smart Borders-provides an enabling and secure environment: but more can be done to encourage Canadian business to fully profit from these possibilities. We must therefore be more focused on providing direct assistance to our exporters through business development and advocacy. The United States is where first-time exporters often start; if they are competitive in the United States and do well, they should do well elsewhere. We will work to introduce small and medium-sized enterprises (SMEs)-including Aboriginal firms and those run by women and young entrepreneurs-to the market. We will also encourage more Canadian exporters who have succeeded in the United States to expand to other international markets.
PROMOTING CANADA IN THE UNITED STATESInstitutions and partnerships work best when each partner's voice and interests are heard. Ongoing difficulties in getting a fair hearing have led the Government to respond in two ways in the recent past. First, working with the provinces, territories and parliamentarians, we have established a secretariat at the Canadian Embassy in Washington to make sure that American opinion leaders and decision makers understand the integrated nature of the North American economy, and take a broader perspective on specific regional and sectoral concerns. Second, we have increased our commercial and consular presence through the Enhanced Representation Initiative to take our message to the regions. Canada now has 23 offices in the United States, up from 16. These are vital for obtaining front-line business intelligence and market information, and a valuable complement to our efforts to attract and expand investment from the United States and to encourage Canadian technology partnerships with U.S. companies. We plan to promote investment with a more sector-focused approach, based on cooperation across federal departments and agencies. COMMERCIAL RELATIONS WITH MEXICONAFTA has helped propel Mexico's importance to Canada to a new level. Canadians and Mexicans no longer see one another as the neighbour of our U.S. neighbour, but as two countries enjoying ever deeper people-to-people and commercial ties. Through NAFTA, Mexico has become a full and vibrant participant in the North American economy. Mexico and Canada are among each other's largest trade partners, and Canadians are the fourth-largest investors in Mexico. Dealings with Mexican business are a logical next step for Canadian companies already dealing with the U.S. southern states, as Mexico is rapidly integrating into supply chains that run through these states. At the same time, Mexico has been signing free trade agreements with others at a rapid pace; by the time it concludes its negotiations with Japan, it will be the only country in the world with free trade with Canada, the United States, the EU and Japan. It has also been responding to internal needs and external opportunities through rapid economic development in its physical, energy, financial and communications infrastructure.
These developments have caused the Government to lay the groundwork to further develop the bilateral relationship, complementing three-way efforts based on NAFTA. On October 25, 2004, the Prime Minister and President Vicente Fox launched the Canada-Mexico Partnership. This high-level public-private forum will strengthen bilateral economic and policy cooperation, and promote discussion among the private and public sectors at senior levels. The Canada-Mexico Partnership will establish strategic networks enabling our business communities and governments to be more agile in their responses to the challenge of sustaining our prosperity and improving our mutual competitiveness, security and prosperity. THE SECURITY AND PROSPERITY PARTNERSHIP OF NORTH AMERICAThe third and most recent step in this strategy to renew the framework for Canada's continental relationships was endorsed by the NAFTA leaders at their March 2005 meeting, where they established the Security and Prosperity Partnership of North America. The security pillar will rest on a common approach to protecting North America from external threats, preventing and responding to threats within North America, and further streamlining the secure and efficient movement of legitimate, low-risk traffic across our shared borders. The prosperity pillar is grounded in a number of concrete actions that flow from the earlier Canada-U.S. New Partnership and the Canada-Mexico Partnership. The Partnership aims to enhance North American competitiveness and improve the quality of life of our people through actions that:
The Government will:
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