A New Accommodation with the United States

The Trade and Economic Dimension

Michael Hart 17 mars 2004

The Canadian and US economies have become more intertwined over the past 20 years. Trade agreements pursued by governments have facilitated this trend, but Michael Hart reminds us in this paper that the key drivers have been individuals and businesses on both sides of the border seeking mutual economic benefits from what each country has to offer.

Nevertheless, says the author, the ability of both firms and individuals to take full advantage of the relationship remains seriously impeded by a heavily administered border and regulatory differences in areas where the objectives are in fact very similar. The latter suggests that there is a class of regulatory obstacles between the two countries that are costly while serving very little substantive purpose. In addition, says Hart, border delays and disruptions threaten the integrity of cross-border supply chains. This suggests that the development of a less intrusive border built on enhanced trust and mutual confidence will allow real economic progress to be made.

With deepening integration and the opportunities for further mutual gains, says Hart, the existing and well-established informal cross-border channels of co-operation need to be reinforced and upgraded through more formal arrangements involving the full spectrum of issues of common interest. The challenge on that front will be to establish flexible, co-operative bilateral institutions capable of addressing the dynamic nature of modern markets and regulatory regimes. The author argues that given the differences in the depth and nature of the Canada-US and US-Mexico relationships, this challenge should be addressed bilaterally by Canada and the United States, but without prejudice to inclusion of Mexico at a later stage, in a trilateral accommodation. A reasonable agenda for such negotiations, says Hart, would include:

  • Attaining a common external tariff in as many items as possible, which would be made easier if both countries also simplify their tariff regimes and lower tariffs toward other trade partners
  • Overcoming the small but costly differences in non-tariff treatment of imported goods, including prohibited and restricted goods
  • A serious effort, based on the successful historical precedent of alcoholic beverages in Canada-US trade, to address areas of contention in agriculture
  • An agreed-upon way to deal with politically motivated trade sanctions against third parties
  • Gradually reducing the importance of antidumping and countervailing duties by a combination of exempting certain sectors from bilateral action and applying joint remedies against third-country imports in these sectors, and by directly addressing resource pricing issues that create frictions in other sectors
  • Opening government procurement markets to cross-border competition on a sector-by-sector basis
  • Working through various well-established strategies, such as mutual recognition, toward regulatory convergence where existing differences are more a matter of detail and implementation than of fundamental design
  • Building on the NAFTA provisions for temporary entry of business travellers, while addressing any additional security question that this may raise
  • Accelerating the adoption of technologies and ways of co-operating that reduce or eliminate the need for controls at the physical border itself
  • Creating institutional arrangements like joint commissions or requiring better co-ordination of existing regulatory agencies to enable joint decision-making and problem-solving in areas where high levels of trust and co-operation already exist, while maintaining overall political oversight

Hart stresses that without such co-operative institutions, Canada would be faced with a choice of either drifting by default toward a US position on most matters of economic regulation, or living a costly illusion of regulatory independence by artificially differentiating itself from the United States. In discussing a new accommodation with the United States, worries will surface about sovereignty, policy autonomy, a lowering of standards, or Canada’s place in the world. But experience has shown that such worries are misplaced, confuse ends and means, or can be addressed in the proper institutional framework.

Hart also reviews the Canadian political and public and expert opinion landscape on issues pertaining to Canada’s relations with the United States, and concludes that Canadians might be much more ready to engage in a broad-based initiative than elite opinion suggests. He argues that the United States has a vital interest in its relationship with Canada, and that these US interests would carry the day if a Canadian initiative with sufficiently wide implications were put forward.