Globalist Perspective

Canada’s North America Strategy

Why is Canada so confident about betting on the United States and Mexico?

Betting on North America — and sticking with it.

Takeaways


Canada’s trade and economic interests span the globe, so the cornerstone of our trade policy continues to be the multilateral trading system.

However, North America — and in particular the United States — is by far our most important market and increasingly critical to our prosperity and security.

And I would argue the inverse as well — Canada increasingly matters to American prosperity and security.

The North American Free Trade Agreement has been a tremendous success. From 1993 to 2001, Canada’s merchandise exports to its NAFTA partners increased almost 95%. Mexican exports increased by 221%. And U.S. exports increased by 86%.

But NAFTA has been more than a scorecard for trade. NAFTA has fundamentally changed the North American economic area. It has accelerated the pace of economic integration.

The new opportunities and competitive pressures created by NAFTA have contributed significantly to the reorientation of Canada’s industrial structure — and of those of our U.S. and Mexican partners.

NAFTA has made all three partners more competitive. By strengthening the rules and procedures governing trade and investment on this continent, it has allowed trade and investment flows to skyrocket.

Magna, a Canadian auto supply company, has factories in Mexico. Bombardier has plants in Vermont and New York. And Hewlett Packard has major investments in Toronto.

More and more, we have a North American economy. Canadians realize that our bread is primarily buttered in the North American economic area — the world’s toughest marketplace.

But we had to bulk up to compete in this marketplace. We put ourselves through a period of extreme fiscal restraint in the mid-1990s, with a goal of vigorously eliminating the budget deficit and reducing our national debt.

The crucial steps we took during those years are the reason that the Government of Canada has been able to balance budgets over the past six years and slash our debt-to-GDP ratio from 71% to 49%. In 2003, we were the only G7 country to have a balanced budget.

We have brought in fair and competitive taxes. We are delivering on a $100-billion tax reduction package. Canada now has one of the most competitive business tax regimes in the world.

In fact, by 2005, the corporate taxation rate in Canada will be five percentage points lower than the U.S. average. Canada now leads the OECD in job creation. The IMF predicts our growth rate will be the highest of all Western countries.

And in May and August 2002, we received investment upgrades from Moody’s and Standard & Poor’s to "Triple A" status. These are all indicators of a dynamic, growing economy.

So it is clear that Canada has cast its lot in with North American prosperity — and this strategy is paying off. We are a pivotal player in many sectors of the new economy — biotechnology, multimedia and fuel cell technologies, to name only a few.

Canada attracted $42.8 billion of new foreign direct investment in 2001, a new record high. That number is even more impressive in view of the marked decline in mergers and acquisitions worldwide from the year before.

So, Canada has done well in North America, but so has the United States. We share the largest trading relationship in the world.

We buy as many goods from the United States as do all the EU countries combined, almost 19% of U.S. exports.

Thirty-seven U.S. states have Canada as their largest market. We are leading investors in each other’s economies. Better yet, Canadians invest as much in the United States as Americans invest in Canada.

In addition, Canada is a critical security partner of the United States. We share the defense of North American airspace through NORAD (North American Aerospace Defense Command).

Canada had the fourth-largest military contingent in the coalition against terrorism in the aftermath of the September 11 attacks. Canadian military forces fought in Afghanistan and our naval task force is still patrolling the Arabian Sea. All told, we committed more than 3,500 men and women.

At home, Canada took immediate action to secure the safety of our continent. We provided $5 billion in new security spending. That is more, on a per capita basis, than in the United States.

We tightened our legislation on refugee determination, immigration and terrorism financing. We moved aggressively to guarantee the security of the border by a Smart Border Accord with the United States.

It includes measures to fast-track pre-screened goods and travelers, the assignment of customs personnel to each other’s key ports and the sharing of information on high-risk travelers.

In the energy area, few realize that Canada is the largest supplier of petroleum products to the United States, providing more than Saudi Arabia and Venezuela.

Canada supplies 17% of the imported crude and refined oil products imported by the United States. We also provide 100% of its electricity imports, 94% of its natural gas imports and 35% of its uranium.

In addition, the oil sands of Alberta contain 2.5 trillion barrels of oil, of which 315 billion barrels are recoverable with current technology. This surpasses the oil reserves of Saudi Arabia.

Some less confident people in Canada see our success in the U.S. market as a terrible predicament. I like it. In fact, I love it. I want more predicaments like this. In fact, I would be happy to double our market share in the United States. It would mean more jobs and prosperity for Canadians.

What more can we do to make that happen? One key area is regulation. We need to look at how our regulatory approaches fit the North American economic area.

Regulatory cooperation will facilitate intra-industry trade, reduce transaction costs for shippers and disincentives for cross-border investors — and restrict the scope for disputes over time.

Great strides have been made in NAFTA, but there is scope for broadening and deepening regulatory cooperation between our two countries. We must further cut red tape and the regulatory hurdles to doing business with each other.

Why not acknowledge the similarity of our systems — and agree that, once products are tested in either country, they are acceptable in the other? Can we not move toward the principles of mutual recognition and the elimination of duplication?

While our focus is understandably on North America, Canada is not ignoring the rest of the world. Our hemispheric agenda reaches beyond the United States.

We are working multilaterally at the WTO to achieve greater trade liberalization — and better rules governing global trade. For Canada, a key objective in the Doha Round will be discipline in the area of agricultural subsidies.

In fact, without real progress in this area, the new trade round cannot succeed. Failure would deny enhanced market access to both U.S. and Canadian exporters. But, even more importantly, it would risk leaving the developing world even further behind.

There are many aspects to the Doha Development Agenda — as it is called — that are designed to help developing countries grow. It is imperative that we succeed.

The Free Trade Area of the Americas (FTAA) negotiations are another example of Canada’s broader agenda. These negotiations hold the potential to create the world’s largest free trade area in the world.

The area covered by the FTAA will encompass more than one third of the world’s economic activity, with a GDP greater than that of the European Union.

In this time of international global security problems, it is worthwhile to focus on one of the most positive examples of managed change. That is the story of North America. It is a story of how Canada and the United States are continuing their efforts to build a partnership for economic prosperity and security.

This Globalist Perspective is adapted from a speech that Mr. Pettigrew gave at the U.S. Chamber of Commerce and Canadian American Business Council in Washington on February 5, 2003. For the full text of Mr. Pettigrew’s speech, click here.

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