US embassy cable - 05OTTAWA1104

UNCLAS SECTION 01 OF 03 OTTAWA 001104 
 
SIPDIS 
 
SENSITIVE 
 
STATE FOR WHA, E, WHA/CA, EB/TPP/BTA/EWH, L/LEI 
 
DHS OFFICE OF INTERNATIONAL AFFAIRS (MARMAUD) 
 
STATE PASS USTR (CHANDLER, SHIGETOMI) 
 
USDOC FOR 4320/ITA/MAC/WH/ONIA/BASTIAN/WORD/FOX 
 
E.O. 12958: N/A 
TAGS: ECON, ETRD, ECIN, PREL, CA, Security and Prosperity Partnership 
SUBJECT: SCENESETTER: CANADA AND THE SPP 
 
REFS: (A) Ottawa 268; (B) 2004 Ottawa 3431 (C) Ottawa 940; 
 
(D) Ottawa 1029 (E) Ottawa 999 
 
1. (U) This is the first in a series of cables offering 
Mission views and background information on elements of the 
Security and Prosperity Partnership.  This cable outlines 
some political and economic factors in Canada that may 
affect progress toward SPP goals. 
 
2. (SBU) Summary:  The Security and Prosperity Partnership 
has met with applause from major groups within Canada, 
although some interest groups are critical.  On the security 
side, we are building on the solid foundation of the Smart 
Border process, and Canadian policy will continue to be 
driven by the desire to meet U.S. security needs to keep the 
border open and moving. 
 
On the prosperity side, the government's course is less well- 
charted.  A growing anxiety about Canada's continued access 
to U.S. markets has fueled a lively debate over the last few 
years on how to build on NAFTA, and business groups have 
welcomed SPP as the first step on that road.    Regulatory 
cooperation enjoys broad support from business but will 
continue to raise sovereignty concerns among traditional 
opponents of freer trade. 
 
Despite GOC commitment to SPP, there are management and 
political obstacles on the Canadian side to early major 
results.  They include potential resistance from the 
agencies responsible for making the regulatory changes; 
weaknesses in the Canadian regulatory process, and growing 
threats to survival of the Martin government.  Finally, the 
SPP prosperity agenda does not address the elephants outside 
the tent:  Canadian frustration with NAFTA dispute 
settlement and the continuing ban on live cattle imports. 
SPP will therefore not necessarily be seen as a major win 
for Canada, and the Martin government has not attempted to 
sell it as a "big bang" breakthrough.  However, a set of 
pragmatic and balanced deliverables could create momentum 
for continuing and perhaps tackling bigger challenges 
through the SPP process. 
 
The Security Agenda: Broad Support, Hard Problems 
--------------------------------------------- ---- 
3.  (SBU) A broad consensus, and developed bilateral 
framework, supports the objectives outlined in the security 
agenda.  The Smart Border Action Plan, initiated in 2001, 
created a successful framework for systematically addressing 
border issues.  The Smart Border concept enjoys broad 
support among business and local governments on both sides 
of the border as well as in Ottawa, and has been an 
important element in rebuilding public confidence that 
security and trade can go hand in hand.  The current 
government has aggressively reorganized Canadian security 
and border agencies and has backed up its commitment to 
border security with CAD 1 billion in new funding for border 
security in the 2005 budget. 
 
5.  (SBU) For the GOC, the hardest part of the border 
equation will be addressing infrastructure bottlenecks, 
which result as much from trade growth as from new security 
requirements, while balancing the interests of a multitude 
of provincial, municipal and private stakeholders.  The 
difficulty of finding popular and affordable solutions to 
infrastructure problems makes it likely that the GOC will 
continue to look for procedural fixes, such as reverse 
clearance and other proposals to move processing away from 
the border, some of which may be problematic for us. 
Canadian entry procedures for goods also continue to 
concentrate processing on the border, making entry more 
cumbersome than under the U.S. system. 
 
6.  (SBU) While ministers have repeatedly expressed their 
determination to prevent terrorist attacks on the U.S. from 
within Canada, and have allocated considerable resources to 
maritime and aviation security, so far they seem to be less 
concerned about potential dangers coming north by land. DPM 
McLellan is resisting calls from Canadian customs and law 
enforcement unions to beef up or streamline its balkanized 
border apparatus, divided between unarmed customs officers 
and thinly spread RCMP detachments responsible for 
enforcement (Ref C). 
 
Prosperity Agenda: A Path Less Clear 
--------------------------------------------- -- 
7.  (SBU) For the past few years, Canadian officials, 
academics and private sector representatives have been 
conducting a lively debate on the future of Canada's trade 
policy.  After ten years of NAFTA, which have shifted 
Canada's economy onto an even more pronounced North-South 
axis, few people here doubt that relations with the U.S. are 
central to Canada's future as a trading nation.  The GOC's 
efforts to expand markets elsewhere, which include 
negotiating initiatives with various Asian and Latin 
countries as well as a nebulous framework agreement with the 
EU, cannot substantially alter that reality.  At the same 
time, early, rapid trade gains under NAFTA have moderated; 
Canadian exports to the U.S. began to stagnate in the new 
millennium and have only recently returned to 2000 levels, 
and the rising Canadian dollar has generated anxiety about 
future export trends.  Having absorbed the early benefits of 
NAFTA, many Canadians have begun to focus on its 
shortcomings, notably its failure to restrain U.S. 
antidumping and countervailing duty actions (despite the 
fact that this was never an element of the agreement). 
Concern about the "border effect", which predated but was 
vastly heightened by 9/11, has shaken Canadian confidence in 
the security of its access to its prime export market, and 
the BSE crisis and softwood lumber dispute have strengthened 
doubts about the ability of NAFTA institutions to protect 
Canadian interests. 
 
8. (SBU) Arguments about the best course to pursue with the 
U.S. have fallen into two major categories: the "big bang" 
and the "incrementalist" approach.  In the first category, 
groups such as the Canadian Council of Chief Executives have 
offered a range of ambitious options, including a "North 
American security perimeter" in which border and defense 
policies would be harmonized in order to allow trade to flow 
freely, and a customs union.  The incrementalists, who 
include the Canadian Chamber of Commerce, have argued that 
no political will exists on either side for grand projects, 
and that pragmatically addressing individual barriers one by 
one would be more feasible and cost-effective.  In that 
context, the "prosperity" side of the SPP may be seen as an 
endorsement of the incrementalist approach. 
 
9. (SBU) Regardless of their previous positions, major 
business groups have applauded SPP and are eager to support 
implementation, particularly since they do not want this 
initiative to lose momentum.  On the regulatory side, the 
private sector is solidly in favor of harmonizing North 
American standards to the extent possible.  The private- 
sector Executive Advisory Committee on Smart Regulation (Ref 
B.) told GOC policymakers frankly that the norm should be 
development of North American standards, even if that meant, 
in many cases, adopting U.S. standards. 
 
10.  (SBU) This view, however, is not universal.  Despite 
occasional admissions that some U.S. regulatory mechanisms, 
for example in the environmental arena, may well outperform 
Canada's, many Canadians tend to assume that Canada is 
generally cleaner, healthier and safer than the U.S.  (Even 
U.S. policies and programs, such as Energy Star, that are 
adopted by Canada are often assumed to be of Canadian 
origin.  In the same vein, Canadian opposition to oil 
exploration in ANWR allows many Canadians to feel morally 
superior, while ignoring the impact of energy development in 
the Canadian wilderness.)  The "Smart Regulation" initiative 
has already aroused the ire of traditional anti-trade groups 
and those concerned about Canadian sovereignty.  Sounding a 
familiar note, Maude Barlow of the (economic nationalist) 
Council of Canadians predicted that SPP would have dire 
effects on Canadian sovereignty and the privacy of 
individual Canadians.  Among other things, she charged that 
SPP would "strip Canada of its ability to set safe standards 
for its citizens".  Mixed press response to SPP also 
reflected, along with support for closer engagement, 
traditional concerns about sovereignty and distrust of the 
U.S. 
 
11.  (SBU) Aside from lingering pockets of opposition to 
economic integration per se, the GOC may also face a 
struggle in moving change quickly through its regulatory 
apparatus.  While Canadian regulatory processes follow a 
process similar to that of the U.S., with PCO retaining the 
oversight and coordination role of OMB, central coordination 
appears to be considerably weaker.  Private sector critics, 
among them Smart Regulation advisors, charge that current 
regulatory processes are too stovepiped and do not generate 
adequate outside input, even from other GOC agencies.  The 
Smart Regulation program envisions various institutional 
changes to address this problem, including a stronger 
mandate for PCO, but it remains a work in (early) progress. 
 
12.  (SBU) The domestic political atmosphere may also make 
it difficult for the GOC to achieve quick progress on 
regulatory issues.  Martin's minority government has faced 
repeated challenges in recent months, with a no-confidence 
measure seemingly always around the corner.  In the current 
round, explosive revelations from an ongoing public inquiry, 
pointing to a pattern of government kickbacks to the Liberal 
Party, have already distracted the government and could well 
result in a vote of no confidence by the end of the year. 
The opposition has already flexed its muscles in other 
areas.  In a major rebuff, Parliament vetoed a government 
order separating International Trade Canada from Foreign 
Affairs, leaving Canada's trade negotiators in legal limbo 
after almost a year of frantic administrative revamping and 
personnel shifts.  Growing conflict with provinces over 
fiscal issues (ref D) will also affect progress on any 
broader regulatory reform program.  Provinces, which play a 
major role in regulation, may resist Ottawa's attempts to 
press them into international commitments. 
 
Conclusion 
-------------- 
 
13.  (SBU) Despite these complicating factors, SPP clearly 
offers a framework to move forward pragmatically on trade 
barriers and irritants and to promote our existing border 
agenda.  There is potential synergy between SPP goals and 
Canada's Smart Regulation initiative.  Moreover, SPP can 
help fold in and raise the profile of productive bilateral 
discussions already underway in areas such as energy, 
agriculture and the environment, providing a welcome balance 
to endless coverage of trade disputes.  We believe it will 
remain a priority for the GOC; PCO officials have already 
made it clear that they will continue to coordinate and 
press Canadian departments for results.  (Details on PCO's 
plans for organizing the Canadian end of SPP will follow 
septel.) 
 
14. (SBU) In the long term, an established process, and the 
pressure to produce results in advance of high-level 
meetings, can help us attack regulatory issues more 
systematically.  However, in the meantime the inherent value 
of stronger regulatory cooperation is likely to continue to 
be overshadowed by the elephants outside the tent:  the long- 
running dispute over U.S. antidumping and countervailing 
duties on softwood and the continued closure of the border 
to live cattle imports, which are sapping enthusiasm for 
free trade in some of its strongest former constituencies. 
The risk remains that voters affected by major trade 
problems will resent a bilateral initiative that appears to 
require Canadian concessions but does not deliver on their 
big concerns, a point we need to take into account as we 
develop the SPP agenda.