Home The Ambassador Canada's chief representatives to the U.S. Michael Kergin Ambassador Kergin's Speeches November 14, 2002

North American Free Trade — A Slam Dunk for the Economy

Remarks by Michael Kergin, Ambassador of Canada to the United States
to the Economic Club of Indianapolis

Indianapolis, Indiana
November 14, 2002

Thank you for your kind welcome, and thank you to the Economic Club of Indiana for inviting me to speak with you today.

I am awed by the personalities preceding me on this podium and the large audience here today.

I am pleased to have the opportunity to visit Indiana. Let me congratulate the success of the Indiana Hoosiers. They showed tremendous perseverance and beat all odds by making it to the championship game of the NCAA tournament last season. Sadly, when truth be told, they were finally beaten by Maryland, obviously the hometown favourite where I live.

But I want you to know, as the good diplomat, I remained completely neutral in the contest. It does not behoove diplomats to interfere in the internal politics of their host country. It behooves them even less to take sides in domestic sporting events!

But I am sure that the Hoosier's will come back to win and their resolve will bear out the words of a great Indiana poet, James Whitcomb Riley, when he wrote: "Continuous, unflagging effort, persistence and determination will win. Let not the man be discouraged who has these."

His words also aptly describe the resourceful attitude of our two countries as we face the challenges of a new era together.

This afternoon, I want to talk about the world's most important and complex trading relationship; that one between Canada and the U.S.

Thanks to NAFTA, it runs largely trouble free.

To use a basketball metaphor: NAFTA has given both our economies a fast break.

But let's make sure that the players (many of whom are in this room) are free to get on with the game.

We need to drive down the court without any more fouls — some of which I will talk about later.

Let me throw diplomatic nuance out the window and declare up front: whether in trade or security, the U.S. has no greater partner than Canada.

We saw this on September 11 last year when 247 international flights bound for the U.S. were diverted to Canada, and Canadian communities took in and cared for over 33,000 stranded American travellers.

And again when, Canadian forces fought shoulder-to-shoulder under U.S. command against the Taliban and Al Qaeda in Afghanistan.

At the United Nations, Canadian Prime Minister Chrétien, from the beginning, clearly and vocally supported President Bush's efforts to get a security council resolution on Iraq. Canada used its extensive network in the United Nations to persuade security council states to agree to a U.S.-sponsored resolution.

While our international efforts are effective, our work at home against terrorism is equally important.

Domestically, Canada froze terrorist assets and introduced legislation to obstruct their fund-raising. We tightened refugee regulations to ensure improved compliance and surveillance. Landmark legislation has given Canada's law enforcement agencies additional tools to shut down terrorist organizations.

Within three months of the terrorist attacks, the Canadian government passed a budget increase of US$5 billion devoted largely to improving border security and intelligence cooperation with the U.S.

In this context, allow me to dispel a pernicious myth: none of the 9/11 terrorists came to the U.S. through Canada. In fact, Canadian and U.S. officials have long been closely cooperating on questions of security.

Since 9/11, this cooperation has become even more extensive to include:

• Mutual recognition of higher aviation security standards;
• Cross-stationing of us and Canadian customs officers in each other's ports to identify and screen higher-risk container cargo before it arrives in either country;
• Increased cooperation on refugee and visa issues, to control more effectively irregular migration to either country; and
• The establishment of integrated border enforcement teams (IBETs for short) which, jointly manned, patrol remote border points to interdict illegal and criminal cross-border activities.

Indeed, in my view, the greatest achievement of our two countries in the past year has been the deft management of our joint border. With $1.3 billion worth of business crossing it every single day, there can be no doubt that the border has been and will continue to be the key to our mutual economic prosperity.

Hoosiers know first hand the importance of border access to their bottom line. Indiana relies on Canada to buy over $6.2 billion in your goods every year, and in turn, you buy about $3.6 billion from Canada. Canada is by far your largest export market, larger than your next twelve largest export destinations combined. On an average day in 2001, $27 million in two-way trade crossed the border between Indiana and Canada.

Immediately following last year's tragic events, more intrusive border inspections caused 20-mile-long line-ups at the border. This threatened to cripple legitimate business. In my opinion, it did not substantially improve security, as far as directly protecting our societies against terrorists.

In fact, we quickly understood that closing doors was precisely what the terrorists would want. By frightening us, they sought to shut down our economies. Well, Canadians and Americans are not so easily intimidated.

In December last year, Canada's Deputy Prime Minister, John Manley, and Homeland Director, Tom Ridge, announced the 30 point Smart Border Action Plan. We are now using information technologies and implementing common-sense procedures to improve security while assuring more efficient passage of goods and individuals across the border.

Two examples of smart border programs relevant to maintaining our unique economic relationship stand out: free and secure trade (or FAST) lanes for regular truckers who, fitted with transponders, can pre-clear customs; and the nexus program, which allows low-risk, frequent border users who have been pre-screened by both countries' security services, to cross the border more rapidly by displaying a digitally imprinted smart card.

This smart border initiative is expanding. When John Manley and Tom Ridge meet in two weeks' time, they will examine new areas for joint security cooperation, like rail container shipping, biosecurity, marine security, and food safety.

Our border initiatives are visionary because they address not only the physical security of our citizens, but also their economic security, by recognizing the interdependence of our economies.

How many Hoosiers know that the game of basketball was actually invented by a Canadian, James Naismith, in 1891? Knowing Indiana's enthusiasm for the game, it could be argued here that this was Canada's greatest ever export to the U.S. but certainly there can be no disputing the explosion of North American trade since the Canada-U.S. free trade agreement in 1989 and NAFTA in 1994.

Since NAFTA's implementation, Canada's exports to the U.S. have increased by 51%; and among all NAFTA partners, trade has risen by 65%.

Coupled with sound fiscal management, trade growth is an important factor to explain why Canada's economy promises to outperform that of every other G-7 country next year. The Canadian economy grew at an annualized rate of over 5 per cent in the first half of 2002, and with private sector forecasters projecting growth of 3.4 per cent for the year as a whole and 3.5 per cent in 2003.

For the purists, the November blue chip consensus forecast has the 2002 growth figures at 3.1 per cent and 2003 figures at 3.4 per cent — virtually the same.

From January to September this year, the Canadian economy created 427,000 new jobs in every region of the country, the majority of which were full-time. Real disposable income climbed by 2.9 per cent, or about $600 per person over the past 12 months.

Canada's economic success has enabled us to develop one of the most competitive business tax regimes in the world. By 2005, the corporate taxation rate is estimated to be five percentage points lower than the U.S. average.

NAFTA, however, has been more than a means to balance our budget. It has also accelerated the rate of our economic interdependence.

In the steel industry for instance, Canada and the U.S. are each other's best, most secure and reliable customers, with two way trade amounting to about $7 billion annually.

Steel producers in both Canada and the U.S. operate in the same commercial and policy contexts, with similar cost structures, common standards, and product specifications. Producers on both sides of the border buy their raw materials from the same suppliers and often share ownership of the same sources of supply. They own facilities in each other's countries and their employees even belong to the same union, the United Steel Workers of America.

Canadian and U.S. steel producers also face the same challenges. Recent safeguard investigations in both the U.S. and Canada call attention to the need to reform current trade remedy practice to reflect the reality of our economic cooperation.

Perhaps Canadians and Americans should apply the same visionary creativity to the steel industry as they did in developing the smart border accord, by establishing a new legal framework to take account of the underlying reality of an integrated North American steel market. Sometimes thinking big is smart thinking. In this connection, I am reminded of Donald Trump's memorable words: "As long as you're going to be thinking anyway, think big."

Speaking of big, our energy trade is also more extensive than many people might think — some US$ 35 billion in Canadian exports.

This makes Canada the largest energy supplier to the U.S., accounting for:

• 94% of natural gas imports;
• Close to 100% of U.S. electricity imports, and
• More crude and refined oil products than any other foreign supplier.

The importance of having a friendly, dependable and secure supply of energy next door cannot be overstated. Canada provides an unfettered, free market source that flows every day without political interference or cartel economics. And we want to keep it that way by ensuring the 108th Congress does not approve large price subsidies at the expense of market economies and consumers' pocket books.

Canada will also continue to keep a close eye on legislation related to agriculture. Both Canada and the U.S. are important producers and exporters of food. Since 1989, two-way trade in agri-food products has tripled to reach nearly $19 billion us annually.

Our farmers are kindred spirits. But measures in the recent farm bill, like subsidies and country-of-origin labelling requirements, can drive us apart. American critics, themselves, are among the first to point out that subsidies can also work against farmers over time by distorting trade and perpetuating inefficiencies. Concerning our bilateral trade, mandatory product-of-origin labelling would interrupt the mutually profitable trade flows of our integrated market.

I am pleased to say that with regard to reforming international agricultural trading practices, Canada and the U.S. are on the same team. We strongly support Bob Zoellick in his recent challenge to the WTO for agricultural producers to eliminate export subsidies. This is a most welcome sign of U.S. leadership.

The Canada-U.S. partnership has been rock solid over the years, particularly in the promotion of open markets and a strong rules-based trading system. Indeed, this shared philosophy has resulted in the tremendously successful Canada-U.S. free trade agreement and its successor, NAFTA.

In ever-widening ambition, Canada and the U.S. are working closely together to liberalize trade and increase prosperity in the Americas through the establishment of the FTAA, Free Trade Area of the Americas.

While the dramatic growth of North American trade is good news, occasionally it can produce bilateral tensions, especially where the U.S. and Canadian institutions are different. Because of our distinct histories, our countries sometimes have developed differing regulatory or management systems.

Not worse, or better, just different.

The forestry industry is a good example. In Canada, most of the forests are on public lands. Companies pay stumpage fees set at competitive market rates in order to harvest the trees. They are obliged to plant two trees for every one cut, and to build their own logging access roads.

In the U.S., the trees harvested are on private lands and the price is set by public auction. The large, forestry-owning conglomerates, of course, can charge top dollar for cutting rights which is passed on, disadvantageously, to the smaller saw mill enterprises attempting to compete for cheaper wood. In the U.S., the state governments, not the forestry companies, pay for logging roads and occasionally for replanting.

These differences are not contrary to trade rules laid down by NAFTA or the world trade organization. Nor are they at the root of the price differentials between Canadian and American lumber. The real reason why Canadian lumber of equal quality is cheaper is simply because we have more it. And having more timber means that we produce it very efficiently.

The recent 27% countervail and dumping tariff imposed on Canadian softwood is not only a blow to Canadian forestry workers, but also to U.S. consumers, since Canadian softwood lumber supplies about one third of the U.S. market.

We hope Canadians and Americans can work out their differences with a long-term solution to the lumber dispute settlement without having to continue the costly, lengthy and frustratingly frequent international legal process.

Considering the breadth and depth of our trading relationship, however, the disputes we have are surprisingly few. Ours is a mutually beneficial relationship.

I would like to conclude by noting that our success as nations and as partners can be attributed not just to hard work, but to determination, innovation and the ability to harness the winds of change.

We have entered an era where increasingly our two economies depend for their prosperity on the unfettered and rapid flow of goods, services, investment, technology and ideas. This 21st century phenomenon, which some call globalization, offers great potential for improving the daily well being of our citizens. But it can also be intimidating, particularly in a post 9/11 world.

Over a hundred years ago, Anatole France, a French critic, wrote that, "To accomplish great things, we must not only act, but we must also dream; not only plan, but also believe."

Years before Anatole France penned those words, our forefathers were overcoming great adversities in settling North America. The pioneers believed in freedom and they dreamed of prosperity.

As today's North Americans cross the threshold of a new era, they must continue to be inspired by their forebearers' visions of freedom and prosperity. These qualities, after all, are mutually reinforcing.

Without prosperity, freedom becomes vulnerable.

Without freedom, there cannot be prosperity.

I am confident that if we continue to show the courage which motivated our forebearers, Canadians and Americans will secure both their freedom and their prosperity for generations to come.

Thank you.