Why Good Fences make Bad Neighbors

The United States and Canada are moving Beyond the Border, but not for neighborly reasons.

An 1876 drawing of the burning White House , now stored at the Library of Congress in the United States.

The prospect of an enemy invading the United States and setting fire to the White House seems impossible, but some may be surprised to learn that it has already happened. The enemy was not fundamentalist terrorists or a rogue state masquerading as a terrorist organization or even one of the formidable opponents of the two World Wars.The enemy was those unaccountably polite Canadians who marched into Washington with muskets and brought the U.S. to its knees long before it became the most powerful nation on Earth.

This year marks the 200th anniversary of the War of 1812, the oft-forgotten conflict in which the U.S. invaded the North American British territories and lost. The war actually took place before Canada was even a country. It grew out of the tensions that existed then between the United Kingdom and the newly independent United States.

When considering modern world problems such as 9/11 and the armed conflicts that have followed in Iraq and Afghanistan, the War of 1812 may seem ancient and irrelevant. But at its crux, the dispute 200 years ago was about a powerful nation, the British Empire, imposing its will on a less-powerful nation, the United States.

Today, there is no question that the United States has become the more powerful nation. There is now little risk of American troops invading Canada with muskets, but the American economy has permeated its Canadian neighbour so thoroughly that the long-standing, successful trade relationship could almost be viewed as a form of neo-colonial dependence.

The Canadian reliance on their neighbours South of the border has created a unique love/hate relationship between them and the Americans. At just one-tenth the population of the United States, smooth relations are an economic necessity for Canada, but the two countries have had to work through some major differences. They have had the longest-running trade dispute in history; they’ve disagreed on the rights to the Northwest Passage in the Arctic; they’ve butted heads on their environmental commitments under the Kyoto Protocol; and a series of increasingly restrictive U.S. regulations over the past few years has greatly limited the ability of Canadians to move people and products across the border.

In the last decade, the Western Hemisphere Travel Initiative (WHTI), a piece of American anti-terrorism legislation, has placed more restrictions on border traffic than at any time since the two countries were at war 200 years ago.

Only in December of 2011 with the announcement of the Beyond the Border Initiative do Canada and the United States seem to be once again working together to remove some of the barriers created in the decade since the 9/11 attacks. But, as with most of the major disputes between the two countries over the years, Washington moved from its position only when doing so would be in the best interest of its nation and not out of a commitment to neighbourly relations.

 

Because Canada and the United States have the world’s largest trading partnership, perhaps it should be no surprise they also have one of the largest and longest-standing trade disputes.

In many ways, the softwood lumber dispute highlights the difference in economic philosophies between the two countries. In Canada, it is generally acceptable for the government to play a role in the economy, whereas the U.S. has historically preferred a freer market. The softwood lumber dispute, which has been rearing its head for over 30 years, highlights this friction of philosophies.

In Canada, most timber is found on land owned by the provincial government. Loggers pay the government a stumpage fee to enter the land and harvest the wood. The dollar value of the stumpage fee is set by government regulation and is not subject to a competitive bidding process as it is in the United States. As a result, the Americans see the lower Canadian stumpage fee as a way of subsidizing the lumber industry and creating an unfair competitive advantage between their industries.

The U.S. lumber industry petitioned the U.S. Department of Commerce in 1982 to impose a countervailing duty on Canadian softwood lumber to offset what they perceived as the unfair advantage Canadian loggers were afforded through regulated stumpage fees. However, under U.S. trade law, a countervailing duty can only be imposed if the subsidy is being given to a specific industry. The Department of Commerce accepted the Canadian view that lumber is used in so many different industries, there could be no easy basis on which to impose a countervailing duty.

The U.S. lumber industry brought forward another petition on the same issue in 1986, and this time the Department of Commerce decided to impose a 15 percent countervailing duty. This prompted negotiations between the two countries who eventually entered into an agreement for a tariff.

The following year, the countries entered into the Canada-U.S. Free Trade Agreement. Four years later, the Canadians notified the Americans they were withdrawing from their earlier agreement on the softwood lumber tariff and challenged the issue before a new trade panel constituted under the free trade agreement. The panel ruled the U.S. Department of Commerce had no grounds for imposing the 15 percent tariff in 1986.

The decision was met with significant controversy however. Not only did the panel’s three Canadians and two Americans vote along national lines, the Americans also alleged two of the Canadian panelists had conflicts of interest. An appeal of the panel’s decision again ruled in favour of the Canadians, but the ruling highlighted the many problems with the dispute resolution processes under the new free trade agreement.

In 1996, the countries reached a five-year agreement under which Canadian lumber exports to the U.S. were limited to 14.7 billion board feet per year. When the agreement expired in 2001, however, the dispute flared up again and the countries could not agree on terms to extend the deal.

In the absence of an agreement, the U.S. lumber industry in 2001 again petitioned the Department of Commerce to impose a countervailing duty on Canadian softwood lumber. The Department imposed a host of new charges and applied a range of duties to specific Canadian lumber companies exporting to the U.S.

This ruling set off a decade of appeals to the World Trade Organization, North American Free Trade Agreement panels, and the International Trade Commission. While many internal U.S. trade authorities ruled in favor of the U.S. position, most decisions by international trade bodies favored the Canadian position. When a NAFTA Chapter 19 commission ultimately decided in favor of the Canadians, then-Prime Minister Paul Martin called on the Americans to honor the free trade agreement between friendly nations by respecting the decision.

Further exacerbating the philosophical divide on subsidies, the Canadian government announced it would give $20 million to the Canadian lumber industry to help pay the legal fees associated with these many challenges.

Rather than accept the NAFTA decision, the U.S. filed a court case, challenging the constitutional validity of the dispute resolution provisions of the North America Free Trade Agreement.

After further negotiations, and after a further NAFTA ruling held that the perceived Canadian government subsidy had little value to the Canadian lumber industry, Canada and the U.S. finally reached a new softwood lumber agreement in September 2006. Canada would receive $4 billion of the $5.3 billion it had lost in American penalties to that point, with no tariffs in the future.

Canada was slow to implement new export regulations, however, and under the agreement’s dispute resolution provisions, the U.S. applied to the London Court of International Arbitration (LCIA) for a resolution of the outstanding issues. The private arbitration panel ruled in favor of the U.S. and imposed fines on particular Canadian sawmills who had not satisfied reporting requirements.

The softwood lumber dispute is representative of the relationship between these two neighbors of vastly different GDP in two important ways. First, as was noted above, government involvement in the economy in Canada is not seen as an attack on the free market the way it often is in the United States.

Secondly, it illustrates each country’s approach to international relations. Canada appeals for an internationally-sanctioned resolution while the Americans often just argue their own position. Aside from the decision of the LCIA in the final implementation of the agreed upon regulations, various NAFTA panels, International Trade Commission, and international arbitration all ruled in Canada’s favor throughout the dispute. But when you’re dealing with the most powerful nation in the world, an international decision in your favour merely earns you the right to negotiate.

 

In environmental matters, the issues surrounding the Kyoto Protocol illustrate the American influence on Canada’s international relationships and commitments.

The United Nations Framework Convention on Climate Change established the Kyoto Protocol as a strategy to fight global warming through commitments to lower greenhouse gas emissions. Annex I countries, which included Canada, agreed to lower their greenhouse gas emissions by 5.2 percent from the baseline 1990 levels by the expiry of the international agreement in 2012.

Canada ratified the Kyoto Protocol in 2002 before it came into force in 2005. Though polls estimated 70 percent of Canadians supported the government’s commitment to the Kyoto objectives, the initiative was met with great resistance from the opposition conservative party, from the provincial government of oil-rich Alberta, and from some segments of the Canadian economy.

Canadian business owners were concerned that the cost of compliance with the reduction in emissions would put them at a severe disadvantage to their American counterparts.

Why? Because, of the 191 countries who signed onto the treaty in December 1997 in Kyoto, the United States became the only country not to ratify the protocol in its own domestic law. By the time the agreement came into force in 2005, the United States had made it clear it had no intention of living up to the commitments called for in the Kyoto Protocol.

This meant American manufacturers did not face the financial and technological burden of finding ways to produce their products to meet greenhouse gas emission reduction standards. When it became clear to Canadians that the Americans were not going to live up to the Protocol’s commitments, their government decided not to develop the legislative and regulatory framework required to enforce its greenhouse gas reduction commitments domestically.

By 2006, Canadian greenhouse gas emissions had actually increased 27 percent over the 1990 baseline levels. The same year, the ruling Liberals, who had signed onto the agreement, were ousted from power by the Conservatives, who had always opposed it.

In February 2009, shortly after taking office, U.S. President Barack Obama met with Canadian Prime Minister Stephen Harper in Ottawa and the two reached an agreement to work bilaterally on environmental issues, touching on everything from carbon-capture technology to the Alberta tar sands.

By this time, it seemed implicit that Canada was choosing to work with the U.S. on environmental issues instead of enforcing the Kyoto standards. The inaction on Kyoto continued until finally, in December 2011, the Canadian government officially announced it would not be part of the second Kyoto Protocol, which will seek commitments beyond 2012.

Again, the explanation by Canadian officials is steeped in polite diplomacy, but the point is, if the U.S. is not going to participate in Kyoto, then Kyoto is also not the answer for reducing greenhouse gas emissions for Canadians.

Canadian Environment Minister Peter Kent said at a climate conference in December in Durban, South Africa, “We believe that ultimately a new agreement that includes all of the world’s major emitters (of greenhouse gases) in both the developing and the developed world is the only way to materially reduce annual mega-tonnage to the point we can work to prevent global warming hitting or exceeding two degrees.”

Working with the Americans, the Canadians have instead developed a new domestic greenhouse gas reduction strategy. New mandatory emissions targets for Canadian industry will come into effect this year, using 2006 emissions as a baseline—emission levels much higher than the 1990 baseline of the Kyoto Protocol.

Canada’s failure to live up to its commitments under the Kyoto Protocol is a direct result of the U.S. decision not to ratify the agreement. The relationship between the Canadian and American economy is a complex dependency. It’s not merely a situation where the more powerful Americans hold leverage in trade between the two countries. Canadian industry must present itself to the world as indistinguishable from its American counterpart because if the Canadians put themselves at a slight disadvantage—even if it is for as noble a goal as protecting the environment—they know they can’t compete against American trade.

 

The Northwest Passage is central to another contested issue between Canada and the United States. It arrises out of an issue of whether the Northwest Passage is in Canadian or international waters. The Northwest Passage is a sea route around the top of North America, through the Arctic Ocean, connecting the Atlantic and Pacific Oceans.

While most other seafaring nations, including the United States, claim they should be able to pass freely through the Northwest Passage because it is in international waters, the Canadian government has long contended that because passage is gained by navigating an archipelago of northern Canadian islands, the waters are clearly under Canadian jurisdiction.

Eventually, the U.S. took the position that, though the Northwest Passage is technically in Canadian territory, it should be regarded as an international strait with free passage for all, as with other straits around the world.

The Canadians have always claimed sovereignty over the waters surrounding their northern islands—taking the position that the right to institute and enforce regulations on passage through the area is the best way to avoid unnecessary spills and environmental catastrophe.

As climate change has been reducing the arctic ice pack for decades, the issue has become increasingly important. With less ice, especially in the summer, the channels can accommodate larger ships. With free access, American companies could move their supertankers through the passage, creating a more cost-effective way to connect shipping lanes on either seaboard.

The dispute first flared up in 1969 when the American oil tanker Manhattan navigated through the strait without permission. The issue came to a head in 1985 when a U.S. Coast Guard icebreaker Polar Sea passed unannounced through the waters, travelling from Greenland to Alaska. When confronted by the Canadian Coast Guard, the ship’s crew permitted an inspection, and the Canadians allowed passage, but the incident sparked outrage on both sides of the border. The Americans wanted to be able to travel unimpeded without asking permission, and the Canadians wanted to be able to enforce the sovereignty of their own borders.

The incident led to Canada issuing a declaration reaffirming its jurisdiction over the Northwest Passage, but the U.S. refused to acknowledge the declaration. In 1988, the two countries eventually signed an Arctic cooperation agreement, reaching the compromise that American Coast Guard ships would not be permitted access without permission.

The understanding seemed to be working until U.S. nuclear submarines were suspected of having passed through Canadian waters without permission on their way to research missions in the Arctic Ocean as reported in Canada’s National Post newspaper in December 2005.

Tensions once again flared. In response to the allegations, the U.S. ambassador to Canada, David Wilkins, restated the American position that its ships are free to pass through international waters.

Then-newly-elected Canadian Prime Minister Stephen Harper publicly announced Canada would develop a plan to enforce its sovereignty in the Arctic. The Canadian military announced it would no longer call the area the Northwest Passage and would instead refer to it as Canadian Internal Waters. The Canadians followed up by announcing the construction of a new deep-water port on Baffin Island.

In making the announcement, Prime Minister Harper was unequivocal about Canadian intentions.

“Canada has a choice when it comes to defending our sovereignty over the Arctic,” he said. “We either use it or lose it. And make no mistake, this Government intends to use it. Because Canada’s Arctic is central to our national identity as a northern nation. It is part of our history. And it represents the tremendous potential of our future.”

The Canadian plan also called for six to eight new patrol ships, at a cost of $3.1 billion.

Uncharacteristically, Americans seemed to have had little response to this tough talk from Canadians. Surprisingly, a former U.S. ambassador, Paul Cellucci, publicly supported the Canadian position in the dispute.

A Canadian Parliamentary research paper dug a bit deeper into the American response and concluded that in a post-9/11 world, American support for Canadian sovereignty in the Arctic serves American interests as much as Canadian interests.

“With regard to the United States’ legal position, however, there have been some suggestions that U.S. concerns with continental security since the terrorist attacks of 11 September 2001 could dampen its assertions that Canada’s Arctic waters constitute an international strait. Accordingly, Canada might perhaps manage relations with the United States over the Northwest Passage by controlling the passage ‘as a way of securing the North American perimeter,’” the paper said.

It seems the Americans have realized that by insisting the Northwest Passage should be an international strait with unimpeded access for all, they would not only be opening access for themselves but also for the rest of the world. In a time when security is at the forefront of the American psyche, the U.S. will acquiesce to Canadian sovereignty only because, for the time being, it is in their best interest as well.

 

After the 9/11 terrorist attacks, the United States imposed a series of increasingly restrictive regulations that effectively relegated Canada to the same status as any other foreign country.

On January 23, 2007, the United States began requiring Canadians travelling into the country by air to present a passport. On June 1, 2009, the requirement was extended to Canadians entering the country by land or by sea. At the time the law came into effect, only 54 percent of Canadians had a passport. According to the Montreal Gazette, Canadian officials were processing 22,000 passport requests per day in the weeks leading up to the June 1 deadline.

The new laws were part of the Western Hemisphere Travel Initiative (WHTI), an anti-terrorism initiative of the U.S. Department of Homeland Security and Department of State. Prior to the WHTI, U.S. policy exempted Canadians entering the country from any point in the Western Hemisphere other than Cuba from the Visa and Passport requirements of the U.S. Immigration and Nationality Act.

A 2006 research paper prepared for Canada’s Library of Parliament in advance of the initial changes in 2007 approached the analysis with the expected Canadian politeness, highlighting the benefits claimed by Americans before enumerating the many costs for the Canadian government and its travellers:

The WHTI aims to strengthen U.S. national security through increased border security, while simultaneously expediting the movements of frequent travellers (including those who reside in border communities). These potential benefits should be considered alongside the potential costs of the initiative, including:

  • costs of implementation, including design of passport alternatives, training of border personnel, etc.;
  • costs to travellers—in terms of time and money—associated with obtaining or renewing passports (or acceptable alternatives), which were not previously required to cross the Canada-U.S. border; and
  • negative economic impacts resulting from foregone cross-border tourism, trade, and commerce if the new documentation requirements discourage travellers and businesses from crossing the Canada-U.S. border.

In addition, while it is envisioned that the WHTI will expedite border crossings for frequent and low-risk travellers, some critics believe that the new documentation requirements may create border congestion, at least in the short term. Any increases in border congestion would have cost implications—in terms of time and money—for travellers and businesses such as manufacturers, importers and exporters, as well as environmental and health costs.

In submissions to U.S. authorities in the consultation stage, the Canadian government suggested that backlogs at the border could create new security vulnerabilities where significant quantities of goods at rest could themselves become the target of terrorist tampering. Canadian officials also noted the environmental impacts that would come with idling vehicles stuck waiting to cross the border.

The WHTI also requires Americans re-entering the U.S. to produce a passport proving their American citizenship. With only 30 percent of Americans already carrying passports, however, the expected result was fewer Americans entering Canada to engage in cross-border shopping.

The 2006 paper cited a Conference Board of Canada report that estimated both the number of American travellers to Canada and the amount of money spent in Canada from cross-border shopping would decrease in the first three years of phasing in WHTI requirements from 2005-2008. The report estimated that cumulative losses would be “about 6.6 million person-trips and nearly $1.63 billion in travel receipts” over the initial three-year period, which did not include the border crossings lost on account of the requirement of passports for land border crossings implemented in 2009.

In addition, in October of 2011, the decision was adopted by the American government to institute a $5.50 border-crossing levy on Canadians. It was not made for reasons of homeland security but as a means of raising revenue. Facing a $1-trillion deficit, the U.S. government expects to collect $110 million from the fees.

While the fees are being levied on Canadians for the first time, the change actually came about by eliminating a long-standing exemption for a fee already on the books. Originally, the exemption existed for travellers from Canada, Mexico, and the Caribbean.

“Raising taxes at the border just raises costs on consumers,” Canada’s International Trade Minister Ed Fast said in a statement after the change was announced. “Canadian officials have raised concerns about the removal of this exemption at the highest level. We will continue to raise Canada’s concerns with U.S. lawmakers.”

Canadian Prime Minister Stephen Harper spoke publicly against the move, saying, “We want to ensure trade and travel between our two countries is easier, not more difficult, and we don’t need additional taxes on that kind of economic activity.”

The October, 2011 announcement of the new levy is even more unusual in retrospect, considering the two countries jointly announced the new Beyond the Border initiative in December—a deal that promises to remove barriers between the two countries and re-focus efforts on cooperation.

 

Canada-U.S. Border crossing in Surrey, B.C., 2008.

Beyond the Border is the latest development in Canada-U.S. relations. When President Barack Obama and Prime Minister Stephen Harper announced in December, 2011 they had reached a new agreement to increase cooperation on security issues and reduce trade barriers, Harper placed the deal in its historical context.

“These agreements represent the most significant step forward in Canada-U.S. cooperation since the North American Free Trade Agreement,” Harper said in a statement.

The new deal creates a link between trade and security issues. In simple terms, Canada agrees to share more information about travellers it allows to enter North America, and the United States agrees to eliminate some of the red tape that has complicated and slowed trade between the two countries for the past decade.

The Canadians acknowledge that to a large extent their fortunes and their security are tied to their much larger southern neighbour.

“What threatens the security and well-being of the United States threatens the security and well-being of Canada,” Harper said during the announcement in Washington.

Some of the more practical changes travelers should experience include not having to clear baggage at U.S. airports if it has already been cleared in Canada and faster border crossings with more dedicated lanes for commercial vehicles and with posted wait times at border crossings. In addition to sharing more information, Canada will also adopt two U.S. screening measures over the next four years—an electronic travel authorization for travelers who don’t need visas and a new system that will provide an alert about unacceptable passengers before they board a plane.

By 2014, the countries agree to share biometric information of people from outside Canada and the United States to strengthen screening and reduce identity fraud. They have agreed to more integrated border and law enforcement efforts, including two-way radio communication between guards on each side of the border. And, perhaps most significantly, they will also coordinate response plans in the event of chemical, nuclear or biological emergencies.

The deal includes clear goals and the dates by which the changes are to take effect. The first pilot projects under the deal will begin in April of this year, with benchmarks for some of the initiatives set over the next four years.

Canadian officials estimate the new coordinated regulations could save them $16 billion annually while Canadian business groups say their savings will be closer to $30 billion annually.

The agreement to share more information with the Americans has been met with some resistance in Canada, however, which has a regime of privacy laws to protect against the sharing of citizens’ personal information, even between departments of the Canadian government.

Canada’s privacy commissioner, Jennifer Stoddard, said her office will closely monitor the new initiatives to ensure Canadian privacy legislation is not violated.

“Overall, we must note that the mere fact that the initiatives proposed will result in unprecedented information sharing requires vigilance from a privacy standpoint. Consequently, as the various initiatives unfold, we will be monitoring developments very closely,” she said in a statement to the Huffington Post in December.

 

As the 200th anniversary of the War of 1812 approaches, Canada and the United States are emerging from a decade in which access to the world’s largest land border was more restricted than at any time in the two centuries since the nations were at war.

Just as the powerful British Empire pressured and cajoled the colonial Americans at the start of the 19th century, we see that in many disputes with Canada, America is now the powerful empire. Whether regarding international trade disputes, the environment, border issues, or matters of Canadian sovereignty in the North, the Americans have consistently trumpeted the merits of their own position even when opinion in the international community is squarely against them. In the case of Northwest Passage and border security issues, Americans have deviated from their position only when partnership with Canadians is also of benefit to America.

The U.S. has shown over the past decade that poorly thought-out fences make bad neighbours, but its recent willingness to move “Beyond the Border” is not a result of a renewed neighbourly interest in its relationship with Canada. For a country with a $1 trillion annual deficit, it’s an act of self-preservation to reach out to its largest trading partner and to try to re-open commercial channels that have been congested for over a decade in the name of security.

President Obama is hoping for another Canadian invasion—but this time one of trade. The U.S. wants its northern neighbours to come politely pouring over the border and stoke the fire of the American economy.

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