Address by Minister Day to the Canadian American Business Council Forum

No. 2009/51 - Montreal, Quebec - October 21, 2009

Based on a Transcript

It’s always a great pleasure for me to be here in Montreal. I used to live in this marvellous city, and I hope everyone present is enjoying all of its wonderful attributes as much as I am.

It’s tremendous to be here for many reasons, but we put so much stock into the work of this particular group [Canadian American Business Council] that first I want to expand on that. I wanted to use a specific example of an incident or a challenge that you are very familiar with, but I don’t want you to think that our only focus in terms of Canada-U.S. relations right now is on challenges. I want to use that example to expand the discussion into some other areas in order to give you a snapshot of where we are—the view from 30,000 feet so to speak—on this specific issue. This in turn can give us a picture of what the overall relationship looks like.

Picture this: a Canadian company operates a business, the main thrust of which is municipal water treatment facilities. This company is known throughout the world for its capabilities. It bids, as it has many times, on a project with a U.S. municipality that needs water treatment facilities. This company anticipates it will win the bid because it has been told informally that its bid is the lowest and that the paperwork is being processed. It should be a matter of course. Nothing is legally signed yet, of course, but this company has done this many times and so has informed its U.S. suppliers, from which the company gets a certain kind of steel product, that everything looks good. In anticipation of orders, the company begins to move ahead. Their Canadian plant, which has an integrated supply chain operation, is given a bit of a heads-up that another good contract seems to be on its way. And then, everything is suddenly stopped. The company is informed by the person in charge of U.S. procurement for the municipality that in fact the Buy America provisions of the Recovery Act [American Recovery and Reinvestment Act of 2009] prohibit them from giving infrastructure dollars to this particular contract because the company is Canadian. The door on this contract is slammed shut.

Now there is a real life situation, and when we take a step back we say, “How could something like this happen in a relationship between two countries that rightly boast the most positive trade arrangement in modern economic history?” You know the figures as well as I do: $2 billion in trade crosses our borders every day and 35 U.S. states depend directly on Canada for the majority of their economic well-being. As important as China is, the trade between Canada and the United States is more significant: Canada buys from the United States five times as much as it buys from China. I could go on and on with these incredible stats.

The world envies our trading relationship; this I know because I travel internationally, working with other countries on bilateral free trade deals. The fact is, our two countries are linked. I get feedback from representatives of these other countries who tell me, “We wish we were as close geographically to the United States, that very productive, strong market, as you are.”

So how does this type of thing happen, a Canadian company getting shut out of a U.S. contract? I want to reflect on that, and then on the ways out of this cul-de-sac that we seem to be trapped in, which is sort of like being at the mercy of a tide. And first, in light of what the U.S. Congress is talking about, we need to consider President [Barack] Obama and his policies and his outlook, and what role that all plays in this particular scenario.

So let’s look at it from President Obama’s point of view, what he has said, what he has done, since he became president, specifically in terms of the Canada-U.S. relationship. When the provisions of the Buy American Act—which, as you know, is a long-term policy going back to the 1930s—were first made manifest, we saw the outflow of companies. But the Recovery Act is manifesting itself in broader areas, in a wider region, than we have seen before. Our prime minister came out with a very clear statement to the effect that we expect the United States to live up to its international trade obligations. Shortly after that, in just a matter of days, President Obama made a very positive statement to the same effect that the United States would live up to its international obligations, especially related to trade, and would make sure these were protected in the overriding legislation related to Buy America and the Recovery Act.

That is the position to which I believe President Obama is committed. I believe he is sincere about that. I believe he understands the importance of trade and the freedom of trade. We see that reflected in discussions, in meetings and in the agreements that he has signed with our prime minister in other areas, such as energy.

There were talks not that long ago about a need to have close discussions on reducing emissions and on ongoing goals, the challenges we want to deal with, related to the environment and to energy. We know, and he [President Obama] knows, and most Americans know, that Canada is actually the largest provider of energy to the United States—whether it be oil, gas, uranium or hydro. Emissions from these energy sources have a huge impact; therefore, when we get into environmental discussions on areas like emissions there must be a high degree of coordination—and President Obama is absolutely committed to that. We saw a similar confidence between our leaders not that long ago at the Guadalajara Summit, where President Obama met both our prime minister and the president of Mexico [Felipe Calderón], and again there was not just a strong sense of collegiality between Prime Minister Harper and President Obama, but on that occasion his [President Obama’s] statement, a common statement of purpose, related to the NAFTA relationship and how that must continue to forge its way forward.

So in both the light and the shadow of President Obama we see this strong reflection and commitment to trade—and not just bilateral trade but trilateral and international trade too. His commitment to the Doha [Development] round of the WTO makes it very clear that he expects progress from all countries.

So if that’s his overall direction, which of course is synchronous with that of Prime Minister Harper and our government, then where is the problem coming from? Is there a fix? Again, I’m using this one particular case study, but keep in mind the backdrop is the most successful trading relationship in modern economic history. This is a significant issue that has to be dealt with, but we try to keep it in the larger context of this successful trading relationship.

We have a situation where a contract was cancelled, and so what might have happened is this: when the elected officials in that particular area in the U.S. heard about the Canadians not getting that contract, they might have said publicly, “That’s too bad.” But privately they may have been thinking, “Well, that’s okay. My constituents will get the work.” But wait—that’s only part of the story—the particular process that was going to be put in place in the water treatment plant in that U.S. municipality was patented. In other words, that Canadian company bought a certain steel product, which was developed a certain way, and brought it into Canada via its integrated supply chain. It then applied a patented process to the original product, and then used the final product in what I’ll call a sort of distillation process in the water treatment facility in the U.S. municipality. So, because it involved a patented process that required the U.S. product, cancelling the contract meant that the Canadian order never made it to that U.S. plant. Those U.S. workers did not get that contract because everything depended on that integrated link they had in place with the Canadian company.

What did the municipality get? They had to go elsewhere and had to make do with a process that was technologically inferior to the patented Canadian one—at a higher price. The taxpayer in that particular municipality wound up paying more for a less sophisticated product.

And so it wasn’t just a vicious political circle for the elected representatives in that particular jurisdiction, it was a vicious circle for everybody. The politician, the elected person, can end up being the problem if they don’t fully understand the implications of what they are doing; this is where you, as effective communicators on both sides—because it happens on the Canadian side too—must continue tirelessly to get the message out. Don’t get discouraged—continue to remind yourselves that if trade barriers are built up, economies will come down.

We’re against protectionism. History is clear about this: protectionism doesn’t work. And yet we’re seeing it. But if we want jobs, if we want opportunities for workers, we have to open the doors to those opportunities.

Closing a door does not create opportunities; in the long run, it decreases opportunities. In the long run, workers get hurt, investors get hurt, the entrepreneurs get hurt and the recipients of those services get hurt, and this is the message that has to be given clearly, consistently and tirelessly by yourselves and others to us elected people so that we don’t fall victim to thinking that if we do something in the short term as a protectionist activity, our people will be protected. They will not be. In the long term, they will be hurt. Go back to 1930, to the Smoot-Hawley Tariff Act. We are well aware of how a protectionist piece of legislation can result in retaliatory action by other jurisdictions; and how everybody gets hurt and how relationships can become toxic. Politicians can be the source of the problem.

But, sometimes we blame the regulators. Remember, though, that regulators are simply given the rules that are developed at the legislative level. And as legislators, sometimes we naively put a rule forward and say it is going to have minimal effect. But remember, a regulation developed by an elected person anticipating minimal effect is going to be put in the hands of somebody who is going to operate it to maximum effect, and so they should. If you want to do a good job as a regulator, you ought to be conscientious. You are given some regulations that you are told to enforce. And then you have the additional influence of some business people telling you, “Hey, this other competitor of mine is going in for rules.” So you have a very conscientious, highly motivated regulator. As we say, “Give a regulator a hammer, everything starts to look like a nail.” We have to be careful about this. You can’t blame the regulators because they are just doing their job.

And so, when elected people are preparing to take suggestions with respect to regulations, they have to keep that in mind. What is intended as a minimal intervention will have maximum impact. As legislators, we do realize some level of taxation is needed; some level of regulation is needed. But elements in both of these areas can be unleashed on hard-working, entrepreneurial, creative, innovative people in such a way that it creates a disincentive, and so we have to exercise extreme caution.

Analysts from outside Canada, for example, the OECD [Organisation for Economic Co-operation and Development] have evaluated our corporate tax structure and say it is the most competitive among the G8, and will continue to be until at least 2012. The World Economic Forum looks at our banking laws and says the Canadian banking system is the most stable in the world. We are kind of excited about that.

We used to be accused of having a boring banking system, but we are very pleased that “boring” is now the new “exciting.” Our banking rules are attracting investment. The IMF [International Monetary Fund] is looking at our stimulus package, and has said, because of that stimulus package, and because these are the rules we used to play by, ours was the best-equipped industrialized country going into the downturn and is now in the best position coming out of it. So we gain comfort from these statements from outside observers; this isn’t government propaganda—because of course our government doesn’t use propaganda! And it comes back to our basic philosophy: it’s not government that is going to create the jobs, the investment; it’s government that creates the climate to allow those things to flourish. We need to keep that in mind, and remind ourselves, because as a government we think we’ve got the answers. We need to work together to put the things in play that will unleash our economy, that will create a climate for economic ventures to flourish.

I’ll use the example of Google. When we travel, my wife and I like to rent a car and use Google to help us navigate. When we were driving around the Dallas area last weekend, we reached every destination perfectly, just as we did when we took a holiday in Europe. We went to cities that I had never seen before, but only got lost once—and that was when I didn’t listen to Google and my wife!

All to say, sometimes we are so accustomed to what technology can do that we don’t stop and think about it. What has Google done? Google has mapped the world! And I don’t mean just the main borders—even when you are in the parking lot of a shopping mall in Lyon, France, this technology will help you find your way out.

That for me is a major accomplishment. Now how many years—how many decades—would that have taken if it was government regulated? And Google’s out there doing it, and they are updating it, right down to the new curbs on my street.

Well you know, like Google, the entrepreneurs, the investors, the workers in our countries have great potential; they can do amazing things too. We have to make sure we don’t curb (pun intended!) their enthusiasm with too many regulations.

So we on the political side have got to keep this in mind when we work with our regulators. Going back to that U.S. municipality I spoke about, yes, some elected officials were perhaps slightly misguided about what they thought was going to solve problems and protect their workers. They came up with legislation that didn’t seem that bad and gave it to the regulators. And now regulators in charge of procurement in these cities are nervous; they think that if they allow a Canadian company to get a particular bid, they will lose all their infrastructure funding.

We’re looking at solutions, so we went to our provinces since the problem is related to procurement, and who signed on in NAFTA and who didn’t—the provinces and states did not sign on to the federal procurement level. And we came back with an unprecedented level of agreement; our provinces have basically signed on to provisions of procurement that will solve not only the short-term problems but we also have a proposal that’s now in front of the U.S. negotiators for ways to deal with the longer-term irritants. So the proposal is there, and we have each appointed chief negotiators who are working on those particular issues. We’ve made counter-proposals which our negotiators are working on. We are making progress, but we are not done; this particular negotiation is not a sprint, it’s a marathon and it’s going to take some work. And with goodwill and proper understanding we can carry forward the spirit of the messages we get from Prime Minister Harper and President Obama. Our leaders understand the proper role for politicians, that they need to keep clearly in mind that their jobs—everyone’s jobs—depend on open borders. And I believe that giving the right instructions to regulators can solve this problem and enable this great historic relationship of ours to continue.

You people are key to this. You have given us the right advice in the past and I invite you to continue to do that. And with your sense of optimism, which I think is the prevailing mood, we can move past these irritants. There may be others but the broader picture shows a great historic relationship which has resulted in higher levels of prosperity for the people of our two great nations—arguably than anywhere else in the world.

Thank you.