All eyes on the border

BY BARBARA YAFFE, CANWEST NEWS SERVICEAPRIL 1, 2010

The all-important Canada-U.S. economic partnership is in serious jeopardy, according to a new economic analysis by the Fraser Institute.

A malaise has developed following an avalanche of post-9-11 border restrictions, writes Simon Fraser University Prof. Alexander Moens, one that "will eventually frustrate the entrepreneurial spirit, and investment and trade will decline."

Moreover, pending U.S. climate change legislation, a stronger Canadian dollar and declining American consumer prosperity all are poised to further aggravate a troubled situation.

Moens, a specialist in American politics and foreign policy, notes that, while bilateral trade in the energy sector has been growing, "the once dynamic integrated supply chain in manufacturing, including automotive, appears to be stagnating (and) trade in manufactured goods ... has been declining since 2005."

Foreign Affairs figures show the U.S. accounted for 73.1 per cent of Canada's trade in 2004, but only 67.8 per cent by 2008. The outlook is bleak, writes Moens, given that financial and housing crises have caused a 20-per-cent drop in U.S. household net worth since 2007, and economists are projecting that Canada's dollar is expected to go slightly over par with the American greenback by next year.

The one trade sector that continues to boom is energy.

In 2008, crude oil exports to the U.S. accounted for half of Canada's total export earnings. Those crude exports, totalling $23.3 billion in 2001, were up to $72 billion by 2008.

This one bright spot, however, is going to be severely challenged as Americans move to enact climate change legislation, predicts Moens.

First, the Waxman-Markey bill, which would implement a cap-and-trade scheme stateside to reduce greenhouse gas emissions, contains a provision prohibiting Washington, D.C., from using fuel extracted from the oilsands.

Second, the bill, approved by the House of Representatives last June and now in the Senate, could result in Congress moving to levy punitive tariffs on energy imports from Canada. It would do so under a pretext of protecting American energy producers from unfair competition from countries with less stringent greenhouse gas emission standards.

Even if Canada matches a U.S. cap-and-trade scheme -- as Environment Minister Jim Prentice is planning -- "small regulatory differences would still expose Canadian industry to American trade action," warns Moens. And, "given the history of Canada-U. S. trade, this is no idle threat."

Western Canada's oilsands industry stands to be particularly hard hit, he says, endorsing Prentice's go-slow approach on a Canadian plan to address climate change.

The last productive period in the Canada-U. S. relationship was under prime minister Brian Mulroney and president Ronald Reagan, when agreements were penned on free trade and acid rain.

While these days, "most American politicians are not focused on this problem," Canada should be pushing to get rid of all non-tariff barriers to trade through harmonization of regulations and product standards. In addition, urges Moens, it also should try to negotiate a full reciprocity accord on government procurement.

It's all well and good to develop strategies for trade diversification that would have Canada capitalize on growing economies in India, Brazil and China, writes Moens.

But "our history shows that diversification is difficult. It is more likely that Canada's long-term prosperity will depend, to a large extent, on renewed American prosperity."

Even so, the Harper government appears less focused on the Canada-U. S. trade dilemma than it did last year when a freshly elected, wildly popular Barack Obama visited Ottawa.

Alas, with the bloom off the Obama rose, Ottawa has appeared less interested in actively engaging the Americans.

byaffe@vancouversun.com

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