Order Code 96-397
Canada-U.S. Relations
Updated May 12, 2008
Carl Ek, Coordinator, and Ian F. Fergusson
Foreign Affairs, Defense, and Trade Division
Blas Nuñez-Neto and Stephen F. Clarke
Domestic Social Policy Division and Law Library
Amy Abel, Pervaze Sheikh, Eugene H. Buck, M. Lynne Corn,
Stephen Cooney, Ross W. Gorte, Charles E. Hanrahan,
James E. McCarthy, and Randy Schnepf
Resources, Science, and Industry Division
Canada-U.S. Relations
Canada-U.S. Relations
Carl Ek, Coordinator
Specialist in International Relations
May 12, 2009
Congressional Research Service
7-5700
www.crs.gov
96-397
CRS Report for Congress
Prepared for Members and Committees of Congress
Canada-U.S. Relations
Summary
Relations between the United States and Canada, though generally close, have undergone changes in
in tenor over the past three decades. During the 1980s, the two countries generally
enjoyed very
good relations. The early 1990s brought new governments to Ottawa
and Washington, and
although Canada’s Liberal Party emphasized its determination
to act independently of the United
States when necessary, relations continued to be
generally cordial. In early 2006, a minority Conservative
government assumed power
in Ottawa. It iswas regarded as being more philosophically in tune
with the Bush
Administration than the Liberals were; some observers believe that this compatibility
compatibility has helped facilitate bilateral cooperation. The election of President Obama
November 2008 signaled a new chapter in U.S.-Canada relations; unlike President Bush, Obama
is quite popular in Canada.
The two North American countries continue to cooperate widely in international
security and
political issues, both bilaterally and through numerous international
organizations. Canada’s
foreign and defense policies are usually in harmony with
those of the United States. Areas of
contention are relatively few, but sometimes
sharp, as has beenwas the case in policy toward Iraq. Since
September 11, the United
States and Canada have cooperated extensively on efforts to combat
terrorism,
particularly in Afghanistan.
The United States and Canada maintain the world’s largest trading relationship,
one that has been
strengthened over the past two decades by the approval of two
multilateral free trade agreements.
Although commercial disputes may not be quite
as prominent now as they have been in the past,
the two countries in recent years
have engaged in difficult negotiations over items in several trade
sectors, including
natural resources, agricultural commodities, and the cultural/entertainment
industry.
However, these disputes affect but a small percentage of the total goods and services
exchanged. In recent years, energy has increasingly emerged as a key component of
the trade
relationship. In addition, the United States and Canada work together
closely on environmental
matters, including monitoring air quality and solid waste
transfers, and protecting and
maintaining the quality of border waterways.
Many Members of Congress follow U.S.-Canada environmental, trade, and
transborder issues
that affect their states and districts. In addition, because the
countries are similar in many ways,
lawmakers in both countries study solutions
proposed in the other to such issues as federal fiscal
policy and federal-provincial
power sharing.
This report provides a short overview of Canada’s political scene, its economic
conditions, and its
recent security and foreign policy, focusing particularly on issues
that may be relevant to U.S.
policymakers. This brief country survey is followed by
several summaries of current bilateral
issues in the political, trade, and environmental
arenas. The report is updated annually.
Contents
Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Canada’s Domestic Scene . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Security and Foreign Policy Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Economic and Trade Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Environmental Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Canada’s Arctic Sovereignty Claim . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Border Security Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Border Security: Trade and Commercial Concerns . . . . . . . . . . . . . . . . . . . . . . . 27
Immigration and Refugee Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Canada and the WTO Doha Development Agenda . . . . . . . . . . . . . . . . . . . . . . . 33
North American Integration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Security and Prosperity Partnership of North America . . . . . . . . . . . . . . . . . . . . 37
U.S. Imports of Canadian Softwood Lumber . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
U.S. Agricultural Support Dispute . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Country of Origin Labeling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Steel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Intellectual Property Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Electric Reliability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
U.S. Energy Security and Canadian Oil Sands . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Natural Gas Pipeline from Alaska . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Northern Energy Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Great Lakes Restoration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Great Lakes Water Levels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Status of Polar Bears . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Canada-U.S. Relations
Overview1
Relations between the United States and Canada have undergone several
changes in tenor over the past three decades. The 1980s and early 1990s were
marked by an increasingly close partnership, whose milestones included the mid1980s “Shamrock Summits” (named after the Irish heritage shared by the two
countries’ leaders, Brian Mulroney and Ronald Reagan), the 1988 U.S.-Canada Free
Trade Agreement, and the 1993 North American Free Trade Agreement (NAFTA).
To many Canadians, however, Ottawa seemed at times to have drawn a bit too close
to Washington, D.C., with Canada casting itself too willingly in a secondary role.
In 1994, one Canada watcher observed that in the foreign policy arena, Canada
“politely distances itself from the United States” in certain ways.2 In an interview
that year for a nationally syndicated American magazine, the newly elected Liberal
Prime Minister Jean Chrétien summed up his view of the bilateral relationship: “We
like each other. I just don’t want Canada to be perceived as being the 51st state of
America.... With me, a more mature relation will exist between us and the United
States.”3 Some believe, however, that this initial show of mild reserve was intended
for domestic consumption, particularly during election campaigns, and that Canada
and the United States in fact continued to enjoy excellent relations. Chrétien and
Clinton are said to have had congenial meetings; they focused on areas where the two
countries were able to reach agreement, including environmental issues, cooperation
on border measures and technology projects.
In February 2001, President George W. Bush met with Chrétien. The two
leaders discussed energy, missile defense, and trade. Since September 11, however,
economic and environmental issues have often taken a back seat to joint efforts to
improve security, both at home and abroad. Canada became involved in the crisis at
the outset, and has cooperated closely with the United States in efforts to combat
international terrorism. In the immediate aftermath of the 9/11 attacks, U.S. airspace
was temporarily closed and Canada allowed more than 200 flights to American
destinations to be diverted to Canadian airports.
Nevertheless, Chrétien did not establish with President Bush the same rapport
that he had enjoyed with Clinton. Differences over a number of issues tended to
1
Prepared by Carl Ek, Specialist in International Relations; Foreign Affairs, Defense, and
Trade Division.
2
“Canada Narrows Its Foreign Policy Goals to Focus on Trade.” By Charles Trueheart.
Washington Post. November 17, 1994. p. A44.
3
“Don’t Take Canada For Granted.” By Tad Szulc. Parade Magazine. February 20, 1994.
CRS-2
strain relations. The Bush administration inherited some long-standing trade
disputes, most notably over wheat and softwood lumber, and Canada and the United
States were on different sides of several international issues, including the U.S.
withdrawal from the ABM treaty and the International Criminal Court. In addition,
the Liberal government’s plan to decriminalize marijuana raised concerns in
Washington. But it has been over security-related matters, particularly defense
spending, Iraq, and missile defense, that the two governments had their sharpest
differences. Notwithstanding these controversies, Canada and the United States have
been working together on a number of fronts to thwart terrorism, including
strengthening border security, sharing intelligence and expanding law enforcement
cooperation. The Canadian government passed a new anti-terrorism act, and Canada
has contributed significant military assets to the coalition in Afghanistan. Although
bilateral tensions heated up in 2005 over the issues of missile defense and softwood
lumber, Canada’s government and private citizens responded promptly and
generously to assist the United States after hurricane Katrina.
Paul Martin, who became prime minister in December 2003, met several times
with President Bush. At the January 2004 Summit of the Americas, the two leaders
discussed several topics and came to agreement on Canadian eligibility to bid on
reconstruction contracts in Iraq and on the ground rules for U.S. deportation of
Canadian citizens. In April 2004 in Washington, D.C., Martin and Bush met once
more and talked about a variety of issues, from the war on terrorism to the “mad
cow” crisis. In November 2004, during President Bush’s first official visit to
Canada, missile defense, border security, and global “hot spots” were on the agenda.4
February 2006, after a come-from-behind election victory, the Conservative
Party assumed power as a minority government, and Stephen Harper became
Canada’s 22nd Prime Minister, the first Conservative to lead the country in 12 years.
Observers believe that Harper’s government is somewhat more politically compatible
with the Bush administration in many areas. However, although the policy
orientation of Harper’s Conservatives may be similar to that of the Republicans in
Washington, differences have still arisen on certain issues, particularly those that
touch upon matters of perceived sovereignty. For example, on January 26, 2006,
days before his inauguration, Harper sharply took exception to comments made
earlier by U.S. Ambassador to Canada David Wilkins and asserted Canada’s
sovereignty over the so-called Northwest Passage, the frozen arctic region that global
warming may turn into a waterway linking Asia and Europe.5
Canada’s Domestic Scene
Background and Current Political Situation. In August 2002, Jean
Chrétien, who had served as Prime Minister since 1993, announced that he would
retire from politics when the Liberals held their next leadership vote. Paul Martin,
4
Bush Welcomes Canadian Prime Minister to the White House. State Department Press
Release. April 30, 2004. “Bush Launches Bid To Repair US-Canada Ties.” Agence
France-Presse. November 30, 2004.
5
“Harper Tells U.S. To Butt Out On Plans For Defending Canada’s Arctic.” The Canadian
Press. January 26, 2006.
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the former Finance Minister, became Prime Minister in December 2003. Although
elections need not have been held until late 2005, Martin called for elections to be
held in spring 2004. Maintaining a Liberal majority appeared to be a safe bet when
Martin took office, but such an outcome became doubtful in February 2004, when the
“sponsorship scandal” erupted. Canada’s Auditor General published a report stating
that, under a program intended to build support for Canadian unity, the Chrétien
government had funneled C$100 million in public funds for dubious contracts to
Québec advertising firms associated with the Liberal party. The Auditor General,
who characterized the program as “such a blatant misuse of public funds that it is
shocking,” reported that questionable methods had been used in awarding the
contracts and that little or no actual work had been performed.6
The Liberals’ standing in the polls plummeted, and the opposition parties gained
strength. To the right of the Liberals, two conservative parties had merged under a
popular new leader, Albertan Stephen Harper. And to the left, the New Democratic
Party (NDP) likewise had recently elected a dynamic party chief, Jack Layton. In the
June 2004 elections, the Liberals won 135 out of 308 seats in the House of Commons
— a loss of 33 seats — and chose to govern as a minority.
In May 2005, the Liberals survived — by one vote — a proxy confidence vote
and avoided spring elections. But in November they lost a second confidence vote,
and federal elections were held on January 23, 2006. This time, the Conservatives
won a plurality. They currently hold 127 out of 308 seats in the House of Commons,
and are governing as a minority (the Liberals have 96 seats, the Bloc Québécois 48,
and the NDP 30. Four members are seated as independents, and there are three
vacancies.)7
Some analysts caution that the Tory victory does not necessarily represent a
“paradigm shift” to the right in Canadian politics; they note that the Conservative
party won only 37% of the popular vote. Because minority governments only last an
average of about 18 months in Canada, Prime Minister Harper has been keeping one
eye on the next elections.8 In addition, Harper has relied upon the ad hoc support of
the other three parties to ensure passage of the various items on his legislative
agenda. Many therefore believe that is why he has advocated fairly centrist policies,
by, for example, seeking legislative approval of the five priorities on which he
campaigned: 1) greater government accountability; 2) shorter health care wait times;
3) tax cuts; 4) child care assistance; and 5) criminal law reform.9
6
“Canada: Martin on the Ropes in Funding Scandal.” Oxford Analytica. February 25,
2004. “Scandalous!” By John Geddes. Maclean’s. February 23, 2004. “Canada’s Premier
Acts to Counter Scandal.” By DeNeen L. Brown. Washington Post. February 17, 2004.
7
For a description of the campaign, see “Inside Story.” By Paul Wells. Maclean’s.
February 6, 2006. For current standings, see the Canadian Parliament’s website.
[http://www.parl.gc.ca/information/about/process/house/partystandings/standings-E.htm]
Updated April 7, 2008.
8
See “Interview: Stephen Harper.” Maclean’s. March 6, 2006.
9
See “Conservatives To Govern From Political Center.” Oxford Analytica. January 24,
(continued...)
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Harper immediately began to work on these items. The first bill his government
introduced in parliament was the Federal Accountability Act, the Conservatives’
response to the sponsorship scandal. The proposal is intended to “change the way
business is done in Ottawa forever” by addressing such issues as whistleblower
protection, political contributions, lobbying reform, and government contracts and
appointments. Some critics charge that the new law is selective, while others
maintain that it represents overkill. Supporters praise the measure as an effort to
bring about long-overdue changes.10 During his two-plus years as prime minister,
Harper has dealt with several other issues, including the environment, crime, Senate
reform, and health care. For the most part, he has not forcefully advocated
controversial social issues.
However, Harper has been willing to challenge public opinion over Canada’s
participation in the international stabilization effort in Afghanistan, where the Liberal
government deployed troops in 2002. In March 2006, he made a surprise visit to
Canadian troops in Kandahar. Two months later, he won a narrow vote in parliament
to keep Canadian troops in Afghanistan for two additional years. Harper initially
characterized the mission as humanitarian in nature and also asserted that it was in
Canada’s national interest to demonstrate its ability to play a leadership role
internationally. Over the past two years, however, Canadian operations have shifted
from peacekeeping to counter-insurgency, and public support for Canada’s presence
in Afghanistan has diminished. The government has been banking on a new
approach that emphasizes training Afghan troops to replace departing Canadians. In
the fall of 2007, Harper appointed an advisory panel, headed by former Liberal
Foreign Affairs Minister John Manley, to review options on the mission. In
December 2007, the commission found that the troop presence was justifiable and
that the mission should be maintained until 2011, but recommended that Canadian
forces be withdrawn unless NATO allies stepped up their contributions. The
recommendation became the basis of a February 2008 compromise between the
Liberals and Conservatives. At the April 2008 NATO summit in Bucharest, France
announced it would commit 800 additional troops to Afghanistan, and the United
States is expected to add to that number before the year is out.11
In October 2007, through the Governor General’s Throne Speech, Harper
indicated that his government would focus on five new policy “themes”: national
sovereignty, the economy, federal-provincial relations, the environment, and, once
again, law enforcement. The sovereignty issue is tied both to Ottawa’s claim that the
Arctic waters in the northern archipelago are Canadian territory, and to Canada’s
mission in Afghanistan. The environment will likely be addressed through efforts to
9
(...continued)
2006. “Harper’s Five Easy Pieces.” Economist. April 8, 2006.
10
“Harper Rolls Out His Ethics Act.” CanWest News Service. April 12, 2006. “Clean
Doesn’t Get Any Squeakier.” By John Ibbotson. Globe and Mail. April 12, 2006.
11
“Harper’s Mission Statement.” By Andrew Coyne. National Post. March 15, 2006.
“Bring Troops Home In 2009, Majority Says.” Ottawa Citizen. April 24, 2007. “Manley
Urges Renewed Commitment.” Oxford Analytica. January 25, 2008. “North America:
Canada.” Hemisphere Highlights. Center for Strategic and International Studies. Vol. VII,
No. 4. April 20008.
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develop new emission reduction targets. The conservatives will likely tap the large
annual budget surpluses for tax cuts aimed at strengthening the economy. The
federalism issue will revolve around funding transfers from Ottawa to the provinces.
Criminal law reform has been carried over from the Conservative’s first year in
office. Observers suggest that these issues were chosen both to set the stage for the
next elections, as well as to provide unifying principles of governance for the
Conservatives.12
Canada is scheduled to hold its next elections by October 2009. In recent
months, the Conservatives have been challenging the opposition to defeat major
legislation and thereby trigger a snap vote, but the Liberals have declined. Some
observers puzzle over Harper’s strategy, noting that the Conservatives are not
particularly high in the polls, and are perceived to be vulnerable because of a
weakening economy. In addition, a high-profile legal battle over allegedly illegal
payments by an arms lobbyist to former Conservative Premier Brian Mulroney may
be a drag on Tory support.
However, the main opposition party is not particularly well-positioned, either.
In December 2006, after a months-long campaign, the Liberals elected Stéphane Dion
as their new leader. A former academic, Dion had spearheaded Chrétien’s federalist
policies toward Québec and also served as Paul Martin’s environment minister. A
native of Québec, Dion came from behind to defeat the two front-runners for the
party leadership post, Michael Ignatieff and Bob Rae. Polls indicate that Dion has
had some difficulty gaining traction with voters. He has pressed hard on the
environment — an issue that has emerged as one of key importance to Canadian
voters, and not a strong issue for the Harper government. Many analysts believe that
the next elections, whether early or on schedule, will most likely result in another
Conservative minority government, likely prompting a Liberal leadership change.13
Budget Policy. The federal deficit, which stood at a record high C$42 (as of
May 12, 2008, one Canadian dollar equals US$1.01) billion when Chrétien became
Prime Minister in 1993, was reduced steadily each year until 1998, when thenFinance Minister Paul Martin introduced Canada’s first balanced budget in nearly
three decades. This dramatic elimination of the deficit was accomplished in part
through higher than anticipated tax revenues, and through such politically risky
measures as cutting federal funding for health and education transfers, and applying
a means test to those eligible for Seniors Benefits.
For the past eleven years, Canadian politicians have been in a post-deficit
environment in which they have had to select among competing demands on annual
budget surpluses. Some officeholders argue that much of the budget surplus should
be devoted to large reductions in corporate and income taxes. They maintain that
Canada’s high taxation, relative to that of other countries, discourages job creation,
12
“Harper’s Five Priorities Have Morphed Into Five Themes.” Montreal Gazette. October
17, 2007. “Harper’s Master Stroke.” National Post. October 18, 2007. “Canada: Harper
Goads Opposition To Force Election.” Oxford Analytica. October 19, 2007.
13
Country Report: Canada. Economist Intelligence Unit. April, 2008. “Canada Politics:
Liberals Back Down.” Economist Intelligence Unit. March 13, 2008.
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reduces household incomes, diminishes worker productivity, and causes a “brain
drain” of Canadian professionals, chiefly to the United States. However, other
policymakers point out that Canada’s current tax system enables the government to
maintain a host of social programs that make Canada the envy of many countries; in
addition, they note that, high taxes notwithstanding, thousands of talented people
emigrate to Canada every year.14
The Conservatives tabled their first budget in May 2006. Some of the Harper
government’s fiscal priorities arose from campaign themes, including a pledge to
reduce by one percent the unpopular Goods and Services Tax (GST, a form of
national sales tax); income and corporate taxes were also cut. In addition, funding
was earmarked for child care allowances and infrastructure improvements. The 2007
budget emphasized several programs long favored by the Liberals, including
increased spending for health care, post-secondary education, and infrastructure. The
spending blueprint also contained a “green levy” consisting of higher taxes for
vehicles with poor gas mileage, and a rebate for the purchase of fuel-efficient cars
and trucks. Perhaps most notably, the budget continued to transfer large sums to the
provinces — Quebec being the big winner, with 40% of the increase. In October
2007, the Conservatives tabled a mini-budget with a five-year, C$60 billion tax cut,
and in early March 2008, parliament approved a new, “prudent” budget that featured
a tax-free savings account, as well as measures intended to stimulate the sluggish
economy. Both of the most recent budgets maintained a surplus.15
National Unity. For four decades, an emotional debate has raged over the
status of French-speaking Québec, Canada’s second largest province geographically
and home to about one-quarter of its population. Many Québécois are concerned that
their language and culture will be overwhelmed by the rest of English-speaking
Canada. Some believe that their society may only be preserved if Québec separates
from the rest of Canada and forms an independent country. A 1980 referendum on
“sovereignty-association” for Québec was defeated 60%-40%.
In October 1994 elections, after the provincial Liberals had governed Québec
for several years, the province once more elected the separatist Parti Québécois (PQ).
The victorious PQ held a referendum on sovereignty on October 30, 1995.
Québeckers essentially voted on whether they wished to continue to remain a part of
Canada, or strike off on their own. The question was decided by the narrowest of
margins; the vote went 50.6% to 49.4% in favor of keeping the country whole. The
wafer-thin margin shocked federalists and separatists alike. More than a decade later,
the country is still affected by the impact of what has been called a “near-death
experience.”
14
See “The Tax Trap. By Mary Janigan.” Maclean’s. April 12, 1999. p. 14. And: “The
Brain Drain: Myth and Reality.” By Ross Finnie. Choices. Vol. 7, No. 6. November 2001.
15
“A Budget So Liberal, the Grits Should Sue.” John Ibbitson. Globe and Mail. March 20,
2007. “Canada Unveils ‘Prudent’ Budget.” Agence France Presse. February 26, 2008.
Harper Government Easily Survives Final Budget Vote. Canadian Press. “March 4, 2008.
Budget 2008: Overview.” website of the Department of Finance Canada.
http://www.budget.gc.ca/2008/pamphlet-depliant/pamphlet-depliant1-eng.asp
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Québec held provincial elections once again in October 1998, and the PQ
retained a comfortable majority in the provincial legislature. In 2003, however,
Québec voters turned out the Péquistes and replaced them with the Liberals, led by
Jean Charest. A former leader of the Progressive Conservatives at the national level,
Charest is a committed federalist, which rules out another sovereignty referendum
during his tenure. In the early part of his first term, Charest lost popularity when he
attempted to reduce the economic role of the provincial government; those efforts
prompted strong protests from the powerful public service unions. Some Québecwatchers assert that Charest learned from this experience and changed his tactics.
Charest was said to have been encouraged by the victory of Harper, who favors
greater government decentralization. The two also share an opposition to
sovereignty, and, for pragmatic political reasons, have cooperated with one another
in several areas.16 Many believe that Harper (and, by association, Charest) won favor
in the province in November 2006 by gaining parliamentary approval in Ottawa of
a measure recognizing Québec as a “nation” within a united Canada. Some observers
believe that Charest’s standing received a boost by Harper’s 2007 budget, which
provided generous transfers from Ottawa to the province.
Québec held elections in March 2007, and the Liberals won a plurality (33%)
of the vote. Charest remains premier, but he leads the first minority government the
province has had in more than a century. The PQ captured only 28%, and was
knocked down to third place. Some believed that the real winner of the elections was
Mario Dumont’s Action Démocratique du Québec (ADQ), which took 31% of the
votes. A relatively new party, the moderate ADQ espouses a vaguely defined
“autonomy” over outright independence for Quebec. It is believed to reflect the
views of small towns and rural areas whose residents are proud Quebeckers, but do
not wish to hold another referendum. In recent months, however, Dumont’s ADQ
has fallen sharply in the polls, which also show that, if elections were held in the near
future, Charest and the Liberals would be close to reclaiming a majority.17
Since the debate began in the 1960s, the United States government has
assiduously sought to remain officially neutral on the issue of Québec, continually
repeating the three-point “mantra” that the United States enjoys excellent relations
with a strong and united Canada; that the Québec question is an internal issue that is
for Canadians to decide; and that the United States does not wish to interfere with
Canada’s domestic matters. However, some analysts detected a slight “tilt” on the
part of Clinton Administration toward the federalists during the 1995 referendum
campaign. If, at some future date, Québec eventually does leave the confederation,
the U.S. government will be faced with difficult political and economic questions.
16
“Unpopular Charest Needs Harper’s Help To Gain Re-election.” By Rhéal Séguin. Globe
and Mail. April 15, 2006.
17
“Au Revoir Separatism, Bonjour ‘Autonomy.’” The Economist. March 31, 2007. “Mario
Dumont’s Decline Started On Election Night.” Montreal Gazette. May 5, 2008. “Charest’s
Stunning Turnaround.” Toronto Star. May 4, 2008.
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Security and Foreign Policy Issues
Canadian Security Issues. Canadians are proud of their active role as
international peacekeepers. Since the United Nations first dispatched an armed
peacekeeping contingent, to help defuse the Suez Crisis in 1956, Canada has
participated in nearly every U.N. peacekeeping operation, from Cyprus and the Sinai,
to Bosnia, Rwanda and Somalia. As of February 2008, over 2,900 Canadian Forces
personnel were participating in international operations in Afghanistan, the Balkans,
the Middle East, and Africa.18
As with other countries in the 1990s, Canada’s military was subject to dual
pressures. In Ottawa’s view, the collapse of the Soviet Union and the Warsaw Pact
reduced the military threat, making it more difficult for the government to justify
sustaining historic spending levels on defense. Leaders believed that the country’s
large debt early in the decade necessitated funding cutbacks in most areas of
government, including defense. However, relative to its NATO allies, Canada had
devoted only a modest share, about 2% of GDP, of its budget to defense spending
during the 1980s and 1990s. That percentage declined even further, from 2.01% in
1990 to 1.1% in 2005; among the 26 NATO members, only Luxembourg and Iceland
(which has no armed forces) spent a lower percentage. Canada’s meager military
budget irked some within the alliance, particularly the United States; former U.S.
Ambassador Paul Cellucci repeatedly urged the Canadian government to devote
greater resources to its military.19
After the round of cutbacks in the 1990s, the number of active personnel in
Canada’s armed forces tumbled from 87,000 in 1989 to 52,000 in 2004, the 56th
largest in the world. The Canadian forces have also been strapped for resources to
replace aging equipment. This trend disturbed many, and there were numerous
warnings published. In March 2002, a Canadian Senate committee called for
increased defense spending to counter the threat of international terrorism; it also
recommended that personnel levels be increased and that more resources be provided
to the Canadian Security Intelligence Service. A November 2002 Senate report
recommended boosting troop levels to 75,000 and restructuring the armed forces. A
brace of studies in the fall of 2003 likewise called for changes in force restructure and
procurement practices and for increases in manpower and budgets. A news report
characterized one of the studies as concluding that “Canadian Forces are teetering on
the edge of irrelevance.” In September 2005 the Senate published yet another report,
which called for a doubling of spending on defense.20
18
Canada and International Peacekeeping. By Joseph T. Jockel. Center for Strategic and
International Studies/Canadian Institute of Strategic Studies. Washington, DC, 1994.
Current Operations. Canadian Expeditionary Force Command website. Updated February
29, 2008. [http://www.cefcom.forces.gc.ca/site/ops/index_e.asp]
19
20
“Spend More On Military, U.S. Envoy Urges Ottawa.” Toronto Star. February 25, 2004.
“Canada’s Security At Risk.” By Jim Bronskill. Ottawa Citizen. March 2, 2002. “Pull
Troops From Overseas, Senators Say.” Globe and Mail. November 12, 2002. “Armed
Forces Hobbled, Report Says.” By Daniel LeBlanc. Globe and Mail. December 3, 2003.
“Senators Sounding Alarm On Defence.” The Gazette. October 3, 2005.
CRS-9
Recent Canadian government appear to have heeded these messages. As of
August 2007, there were approximately 62,000 regular force members and 25,000
reserves. In addition, Canada’s defense spending has been trending upward. The
budget tabled in February 2005 contained the largest military spending increase in
two decades: C$12.8 billion — roughly equal to the entire 2005 military budget —
spread over five years. The Harper government’s first budget boosted added C$5.4
billion in military spending over the next four years. The 2007 budget confirmed the
previous year’s spending increase, and the 2008 budget seeks to ensure continuity
through the Canada First Defence Strategy, which will provide for yearly increases
of 2% beginning in 2011-12.21
In April 2005, the Martin government released the long-anticipated International
Policy Statement, of which defense is one part (the last such defense policy overhaul
took place in 1994.) The new security plan aims to make Canada’s military “more
effective, relevant and responsive.” Among other things, it calls for a change in the
command structure; the addition of 5,000 regular troops and 3,000 reserves; the
expansion of Canada’s special forces, including tactical support equipment; the
creation of an anti-nuclear, biological, and chemical weapons unit and a rapidreaction force; and the acquisition of a wide range of materiel, particularly of air,
land, and sea transport. The Harper government plans to procure both tactical as well
as strategic transport aircraft as well as land and sea transport.22
U.S.-Canada Security Issues. According to the U.S. State Department,
“U.S. defense arrangements with Canada are more extensive than with any other
country.” Former Canadian Ambassador Michael Kergin referred to the defense
relationship as being “intermestic” in nature.23
Over the past century, U.S.-Canadian defense cooperation has been close. In
1940, President Roosevelt and Prime Minister McKenzie King established the
Permanent Joint Board on Defense (PJBD), which formalized bilateral consultation
on military matters and is still in operation. In 1949, the two countries were founding
members of NATO. During peacetime, military cooperation has occurred chiefly in
the context of multinational organizations.
In 1958, Canada and the United States signed the North American Aerospace
Defense Command (NORAD) agreement. The continental air defense pact monitors
U.S. and Canadian airspace and encourages joint efforts in aerospace technologies.
21
Canadian Department of National Defence (DND) website, updated August 16, 2007:
[http://www.forces.gc.ca/site/about/index_e.asp]. Defence and Budget 2005 — Highlights.
DND website. [http://www.forces.gc.ca/site/reports/budget05/summ05_e.asp] Defence and
Budget 2007 — Highlights.
[http://www.forces.gc.ca/site/Reports/budget_2007/
index_e.asp]. Budget 2008. website of the Department of Finance Canada.
22
“‘Canada First’ Defence Procurement.” DND website. Updated August 15, 2007.
[http://www.forces.gc.ca/site/Focus/first/index_e.asp] “Canada’s Forces In the 21st
Century.” CBC News. April 21, 2008. [http://www.cbc.ca/news/background/cdnmilitary/]
23
United States Department of State. Bureau of Western Hemisphere Affairs. Background
Note: Canada. January 2008. “Remarks to the Center for Strategic and International
Studies.” February 28, 2005.
CRS-10
The pact, which had been subject to five-year renewals, was made permanent (subject
to review) in May 2006. In the wake of the September 11 terrorist attacks, there were
discussions of deepening military cooperation along the NORAD model, in the
context of the newly created U.S. Northern Command, to include land and sea forces.
But some Canadians were concerned that such a move might impinge upon Canada’s
sovereignty, and in August 2002, the Canadian government announced that its land
and sea forces would not be participating in the command. In December 2002,
however, the two countries signed a new accord creating a binational planning group
(BPG) based at NORAD to coordinate responses to terrorist attacks and other crises.
The BPG issued its final report in March 2006; the panel put forward numerous
recommendations, including that the two countries develop a common security vision
and improve interoperability through joint military planning, training, exercises, and
information sharing. In August 2004, Canada and the United States amended
NORAD to permit it to share information on incoming ballistic missiles. Ottawa and
Washington also agreed to expand the scope of the agreement to encompass nautical
surveillance. In mid-April 2008, Canadian Defense Minister Peter MacKay visited
NORAD headquarters in Colorado.24
On February 14, 2008, the commanding generals of U.S. Northern Command
and of its Canadian counterpart, Canada Command, signed a binational Civil
Assistance Plan. Under the plan, the armed forces of each country, after appropriate
consultation with civilian authorities on both sides of the border, may come to the
support of the other country’s military in the event of civil emergencies such as
floods, earthquakes, or the effects of a terrorist attack.25
Ottawa also long debated whether it should participate in the U.S. missile
defense (MD) system. Some analysts expressed reservations over the plan, in the
belief that it might spark a new arms race, while others reportedly preferred to keep
Canada’s options open. Parliament held hearings on the issue, but no official policy
was enunciated. Finally, in May 2003, Canada said that it would enter into
discussions with the United States; a Canadian military affairs journalist described
Canada’s likely negotiating goals:
Canada wants the anti-missile shield run by NORAD — in effect, giving Canada
equal status in protecting North America and a finger on the trigger. Ottawa
wants a share of the industrial benefits and access to secret technologies, all
while paying little or nothing. And it continues to insist that space not be
weaponized.26
24
“Continental Divides.” By Sydney J. Freedberg, Jr. National Journal. March 23, 2002.
“Leading academics Examine Risks Inherent In Closer Military Co-operation With the
United States.” Canada NewsWire. April 26, 2002. “Canada Won’t Join Norad-Like LandSea Force. By Rick Mofina.” Ottawa Citizen. August 15, 2002. “All For One?” By Luiza
Ch. Savage. Maclean’s. September 12, 2005. Binational Planning Group. Final Report.
March 13, 2006. [http://www.canadianally.com/BPGFinalReport.pdf] “Tory NORAD
Agreement Wins Approval of House.” Globe and Mail. May 9, 2006.
25
U.S. Northern Command website: [http://www.northcom.mil/news/2008/021408.html]
26
“Shoot Down Defence Dreamers.” By Paul Koring. Globe and Mail. June 25, 2003.
CRS-11
On February 24, 2005, the Canadian government said that it would not
participate in MD. However, Canada’s ambassador to the United States had pointed
out earlier that the two countries had already agreed to allow NORAD to share
information with U.S. MD commands. U.S. officials expressed puzzlement and
disappointment with the announcement, noting that Canada had sent signals that it
would likely sign on. Polls showed that a majority of Canadians, particularly
Québeckers, opposed MD, leading some analysts to suggest that domestic political
pressures may have guided the decision. In late February 2006, newly named
Defense Minister Gordon O’Connor said that the Harper government likely would
review the missile defense issue if asked to do so by Washington. Any final decision
on participation, he added, would be subject to a parliamentary vote. In April 2008,
U.S. General Gene Renuart, head of NORAD, was quoted as having said that all
incoming intelligence concerning missile threats was shared with Canada.27
In February 2002, Canada agreed to participate in the further development of the
U.S.-led Joint Strike Fighter program, contributing $150 million over a 10-year
period. In December 2006, it was announced that the Canadian government had
committed an additional C$500 million for the development of the aircraft. Canada
has reportedly agreed to consider the purchase 80 of the new fighters to replace its
own fleet of CF-18 planes when they are retired in 2017, and has earmarked nearly
C$4 billion for the new planes. In June 2007, the Department of National Defense
announced plans to form a new office to evaluate Canada’s future air defense
requirements. Canada appears to be reaping rewards from its participation; as of
June 2007, Canadian firms had won 150 JSF contracts worth about $160 million.28
Although it has no troops stationed in NATO territory in Europe, Canada in
recent years contributed several hundred troops to the NATO-led Stabilization Force
(SFOR) in the Balkans and 500 troops to maintain stability in Haiti. Canada also
supplied 200 troops to NATO’s mission in Macedonia, and 600 to the initial U.N.
peacekeeping mission in East Timor. In addition, Canada cooperated “wing-to-wing”
with the United States in Operation Allied Force, the NATO campaign of air strikes
against targets in Serbia and Kosovo, contributing 18 CF-18 fighter aircraft and
providing two rotations of approximately 1500 troops each to KFOR. Canada also
provided 844 personnel to assist in the post-Hurricane Katrina relief activities in
27
“Canada and the U.S. Missile Defense System.” Dwight M. Mason. CSIS Hemisphere
Focus. January 9, 2004. “Martin and the Politics of Missile Defense.” Globe and Mail.
May 1, 2004. “Missile Defence Won’t Work.” Ottawa Citizen. December 15, 2004.
“Martin’s Move Irritates U.S.” By Sean Gordon. Toronto Star. February 24, 2005.
“Minister Backs U.S. Missile Plan.” Toronto Star. February 24, 2006. “Canada Kept In
Loop At NORAD About All Missile Threats.” Ottawa Citizen. April 10, 2008.
28
“Canadian Firms Big Winners In U.S. Jet Project.” National Post. April 21, 2006.
“Canada Commits Up To $500 Million to the Development of CF-18 Replacement.” The
Canadian Press. December 13, 2006. “New Office To Assess Canada’s Fighter Needs.”
Defense News. June 18, 2007. Forces Tag $3.8B To Buy Advanced Jets. Ottawa Citizen.
June 27, 2007.
CRS-12
New Orleans. Canada currently has hundreds of peacekeepers stationed in
Afghanistan, the Balkans, Africa and the Middle East.29
Canada has been engaged in the debate over NATO’s future. It supported the
1999 and 2004 rounds of enlargement and has announced that it will participate in
the NATO Response Force, which the alliance agreed to at its November 2002
Prague summit. At the April 2008 Bucharest summit, Canada endorsed the addition
of Croatia, Albania, and Macedonia; in addition it supported the proposal to offer
Membership Action Plans to Georgia and Ukraine. Finally, as noted above, Ottawa
has maintained troops in Afghanistan since 2002, and its military leaders have served
in a command capacity. In April 2003, then Foreign Minister Graham, along with
the Dutch and German governments, requested that NATO take over command of
ISAF.30
Canada has also made military contributions to the global war on terror. It was
one of the first countries to join the military operation in Afghanistan. In October,
2001 the government launched Operation Apollo, in support of U.S. Operation
Enduring Freedom. Nearly 900 infantry troops and approximately 40 members of
Canada’s special forces unit, Joint Task Force 2, served in the initial combat in
Afghanistan. Their main task was to provide airbase security, but they were also
involved in delivering humanitarian aid and in combat missions, including Operation
Anaconda. Other Canadian military assets supporting Operation Enduring Freedom
have included a naval task force group and transport and surveillance aircraft. Along
with British, Dutch and U.S. troops, Canadian forces are currently serving on the
front line in the combat operations to counter attacks by al Qaeda and Taliban
fighters. A total of 84 Canadians, including one diplomat, have died in Afghanistan.
In August 2005, Canada launched a Provincial Reconstruction Team mission
in Kandahar. Canada has been maintaining approximately 2,500 troops in the
country. Ottawa also has provided humanitarian and reconstruction assistance to
Afghanistan. Canada is among the top five donors to the country, and has pledged
C1.2 billion through 2011 in reconstruction and development assistance.31
Foreign Policy Background and Issues. After Chrétien became prime
minister in 1993, some analysts concluded that he had “tilted Canada’s foreign policy
towards the more explicit pursuit of economic self-interest and away from concerns
29
Current Operations. Canadian Expeditionary Force Command website. Updated
February, 2008. [http://www.cefcom.forces.gc.ca/site/ops/index_e.asp]
30
“NATO Umbrella Sought.” By Allan Thompson. Toronto Star. April 4, 2003. “NATO
Sees Key Role For Canada In Afghan Security.” Reuters. May 6, 2003. CRS interview of
Canadian government official, May 7, 2008.
31
“Backgrounder: Canadian Forces Operations in Afghanistan.” August 14, 2007. DND
website: [http://www.forces.gc.ca/site/newsroom/view_news_e.asp?id=1703]. “Canadian
Development Assistance In Afghanistan: Current Projects.” Government of Canada website.
Updated Januaray 31, 2008.
[http://www.canada-afghanistan.gc.ca/cip-pic/afghanistan/library/afgh_security-en.asp]
CRS-13
about human rights abroad.”32 Under Lloyd Axworthy’s leadership beginning in
1996, however, many observers detected a swing in attitude at the Foreign Affairs
Ministry back toward Canada assuming the role of “soft power,” relying on its
reputation as an honest broker to help effect consensus through negotiation and moral
suasion rather than military force or economic sanctions.33 In the most significant
example of this approach, Axworthy launched the “Ottawa process” to reach
agreement on a treaty banning the manufacture, trade, and use of antipersonnel land
mines; the effort culminated in a December 1997 conference at which more than 100
nations signed the accord. The United States did not sign the pact.
John Manley replaced Axworthy in 2000; in January 2002, when Manley
became Deputy Prime Minister, Bill Graham, chairman of the parliamentary
committee on foreign affairs and international trade, took over. According to one
writer, Graham “can often sound like Axworthy,” while others believe he placed
more emphasis on pragmatism.34 In July 2004, Martin reshuffled his cabinet, moving
Graham to Defense and replacing him with Pierre Pettigrew, a Québecker. In
February 2006, Harper named Nova Scotian Peter MacKay Foreign Minister; in
August 2008, MacKay assumed the Defense portfolio, and Quebecker Maxime
Bernier became the new Foreign Minister.
As a middle power, Canada has exercised a somewhat disproportionate
influence in world affairs, chiefly through its active participation in international
organizations, including the G-8, and the Asia-Pacific Economic Cooperation forum.
From 1998-2006, Canadian diplomat Louise Frechette served as Deputy Secretary
General of the United Nations, and from 1996-2006 Canadian Donald Johnston was
Secretary General of the Organization for Economic Cooperation and Development.
The president of the International Criminal Court is Judge Philippe Kirsch from
Canada. The first head of the U.N. War Crimes Tribunal was Canadian Louise
Arbour. In June 2005, Canadian Air Force General Ray Henault was named head of
NATO’s military committee.
Canada and the United States have worked closely together in a number of
troubled regions. One example of such cooperation over the past decade was the
U.N. mission in Haiti, where a contingent of the Canadian armed forces, along with
members of the Royal Canadian Mounted Police, took the reins from departing U.S.
forces who had helped restore the democratically elected government in Haiti in
1994. In 2004, after the Aristide government stepped down in the face of armed
rebellion, Canada joined the United States and France in providing peacekeepers to
the U.N.-authorized Multinational Interim Force sent to the troubled island; Canada
dispatched 6 helicopters and nearly 500 troops. In February 2008, Canadian Foreign
Minister Maxime Bernier traveled to the island nation, where he announced that
32
“Canada Bows Out As ‘Boy Scout’ To the World.” By Jeffrey Simpson. Hemisfile:
Perspectives on Political and Economic Trends in the America. July/August 1995.
33
“Canada to Play Global Role as ‘Soft Power.’” By Mike Trickey. Ottawa Citizen. March
3, 1998. “Ottawa’s New-Age Diplomacy Ruffles Many Feathers in Washington.” By
Steven Pearlstein. International Herald Tribune. February 22, 1999.
34
“Out of Africa: The Perils For A PM.” By Anthony Wilson-Smith. Maclean’s. March
25, 2002.
CRS-14
Ottawa’s total aid package would be raised to $555 million. In the wake of the recent
turmoil over food shortages, he called for international donors to harmonize their
assistance during a donor conference scheduled for April 24-25, 2008.35
U.S.-Canada Agenda. Canada was disinclined to expand the war on
terrorism beyond Afghanistan to Iraq. In February 2002, Foreign Affairs Minister
Graham stated that Ottawa would oppose U.S. unilateral action against Iraq unless
Baghdad were linked to terrorism, or it were “shown that they are amassing their
weapons of mass destruction with a vision of using them against someone in the
immediate future....” Later, when asked whether Canada would require “tangible
proof” of a connection between terrorists and the Iraqi government before Canada
would consider joining a military action against Iraq, Graham replied “Yes,
absolutely.”36
In September 2002, during a brief meeting in Detroit with President Bush,
Chrétien reaffirmed Canada’s preference for a U.N. mandate, a stance that strongly
reflected Canadian public opinion. Two months later, Washington requested of
Ottawa specific military commitments in the event of a conflict with Iraq, but no
definitive answer was given. Over the following months, the government’s
statements on Iraq were characterized by the media as imprecise and at times
contradictory, an apparent attempt to keep options open. But in the House of
Commons on March 18 2003, Chrétien stated unequivocally that “Canada will not
participate.”37 One week later in Toronto, U.S. Ambassador Cellucci delivered a
speech in which he expressed the Bush Administration’s disappointment with the
Canadian government’s decision. The remarks raised strong concerns in Canada
over the state of bilateral relations, particularly after the White House postponed a
state visit by President Bush to Ottawa. In April, seeking to repair the apparent rift,
Secretary of State Powell acknowledged that “differences will come along,” and
declared the two countries to be “inseparable.”38
Washington subsequently requested that Canada assist in the reconstruction of
Iraq by sending troops or military police. Ottawa responded by offering 150
members of its Disaster Assistance Response Team, a non-traditional military unit
consisting of security, engineering, and medical personnel. Since then, Canada has
provided funding in a number of areas, including humanitarian and reconstruction
aid, support for elections, and police training. Altogether, the Canadian International
35
“Canada Pledges $555 Million In Aid To Haiti.” Reuters. February 24, 2008. Canada
Participates In Harmonization Efforts In Haiti. News Release. Foreign Affairs and
International Trade Canada. April 23, 2008.
36
“Canada Won’t Back War On Iraq.” By Mike Trickey and Hilary Mackenzie. Ottawa
Citizen. February 15, 2002. “Canada FM Requires Proof Of Terror Links For War Beyond
Afghanistan.” Agence France-Presse. March 11, 2002.
37
“Well, Maybe ... .” Economist. September 28, 2002. “PM Scolds McCallum On
Canada’s Role In Iraq.” By Shawn McCarthy and Daniel Leblanc. Globe and Mail.
January 16, 2003. “Bravos Greet Chrétien.” By Tim Harper. Toronto Star. March 18,
2003.
38
“Powell Says Canada and US ‘Inseparable’ Friends Despite Iraq Tiff.” By Robert Russo.
Canadian Press. April 15, 2003.
CRS-15
Development Agency has pledged C$300 million (2003-2010) in assistance to Iraq.
In January 2004, Canada announced that it would cancel Iraq’s $564 million debt.39
Cuba has been another issue where the two countries have not seen eye-to-eye.
For decades, Canada and Cuba have had relatively extensive business links. Because
of this ongoing commercial relationship, Canadian government officials have
publicly criticized a U.S. law (the Cuban Liberty and Democratic Solidarity Act, P.L.
104-114) that seeks to apply indirect pressure on the Castro regime by permitting
Cuban-Americans to file lawsuits against foreign firms that use Cuban property that
was expropriated by the Castro regime. U.S. supporters of the Cuba embargo have
been critical of Canadian mining companies and hotel chains that do business with
the island nation. Canadians, who are sensitive to being perceived as America’s
“junior partner,” object that the law amounts to the United States forcing its foreign
and commercial policies upon other countries. In 2003, after the Castro government
handed down Draconian prison terms to several political dissidents, Ottawa
expressed official disapproval.40 In recent months, the Canadian press has featured
vigorous debate over what policy Ottawa should adopt toward Cuba after the Castro
brothers depart.41
The International Criminal Court (ICC) is another issue on which the two
countries differ. Canada has long been a leading advocate of the U.N.-sponsored
tribunal, while some U.S. policymakers have opposed U.S. participation on the
grounds that it might make U.S. military personnel vulnerable to politically
motivated prosecution by hostile regimes. In May 2002, the Bush administration
declared that the United States would not support the ICC; the same day, Foreign
Minister Graham declared that he was “extremely disappointed” with the U.S.
decision. In a U.N. speech four months later, Graham faulted the United States “for
its ‘ad hoc and unilateral pursuit’ of the prosecution of crimes against humanity.”42
In the wake of the attacks on New York and Washington, U.S.-Canadian
relations came to the fore. In particular, the issue of U.S.-Canada border security was
brought into sharp focus. The issue first became a matter of urgent concern in
December 1999, when U.S. border officials, acting on a tip from Canadian
authorities, stopped Ahmed Ressam at the U.S.-Canadian border as he was
attempting to smuggle explosives into the United States; it was later discovered that
39
“Iraq: Canada’s Commitment.” Canadian International Development Agency web page:
[http://www.acdi-cida.gc.ca/iraq#1] Updated May 24, 2007.
40
“Chrétien Admits Having ‘A Problem’ With Cuba, But Will Maintain Pressure.” Agence
France-Presse. April 10, 2003.
41
See, for example: “Castro’s Resignation Unlikely To Change Canadian-Cuban Relations,
Experts Say.” The Canadian Press. February 19, 2008. “Don’t Support Castro’s Island
Prison.” National Post. February 19, 2008. “With Fidel Castro Gone, U.S. Hawks Will
Look North.” Toronto Star. February 20, 2008. “The Autumn Of the Patriarch.” Ottawa
Citizen. February 23, 2008.
42
“Canada Raps U.S. Rejection Of World Criminal Court.” By David Ljunggren. Reuters.
May 6, 2002. “U.S. Rift With Allies On World Court Widens.” By Julia Preston. New
York Times. September 10, 2002.
CRS-16
Ressam had planned to bomb the Los Angeles airport, and that he had received
terrorist training from Al-Qaeda in Afghanistan.
Despite the fact that none of the 19 September 11 highjackers entered from
Canada, the attacks sparked renewed debate over Canadian laws regarding the
treatment of immigrants seeking refugee status or political asylum. By February
2002, Ottawa had already made “steps to tighten immigration and refugee policies,
including more rigorous screening of people who claim refugee status and stepped
up detentions and deportations of claimants suspected of being security risks.”43
Some American policymakers pointed to the Ressam case as proof that the
United States must tighten its borders with Canada. Skeptics, however, note that
such measures might seriously impede commerce by creating long delays at border
crossings, and that determined terrorists and criminals would at best be
inconvenienced, not stopped, in traversing the two countries’ 5,500-mile border.
About 70% of U.S.-Canada merchandise trade crosses the border by truck; many of
these shipments are “just-in-time” deliveries; their delay at border crossings can
seriously disrupt manufacturing in the United States and Canada.44 Both sides have
strong incentives to strengthen security but keep goods flowing.
Since the September 11, 2001, attacks, Ottawa and Washington have taken
numerous steps, separately and jointly, to improve border control. In December
2001, they signed the Smart Border declaration that aims at improving security and
efficiency at border crossings; the agreement lays out a 30-point (since increased to
32-point) list of areas of joint activity, ranging from pre-clearance of goods (the
FAST program) and people (NEXUS), to biometric identifiers, to infrastructure
improvements. The cooperation covers crossings by air, land, and sea traffic. In
December 2002, the two nations signed the Safe Third Country agreement, which
will permit coordination of refugee and asylum policy.
Ottawa and Washington are currently working to resolve issues surrounding the
Western Hemisphere Travel Initiative, a provision of a 2004 U.S. law that will
require travelers passing between the two countries to present a passport, or an
equivalent document, at the border by June 1, 2009. Travel-dependent businesses,
particularly in Canada, are concerned that the cost of acquiring either a passport (only
about 25% of Americans and 40% of Canadians hold passports) or similar ID would
inhibit travel; other critics are worried that the requirement could indirectly
discourage Asian and European investment in both countries. The Department of
Homeland Security (DHS) will require that Canadian citizens present a passport or
frequent traveler card to enter the United States on June 1, 2009; however, DHS is
currently working with the Canadian government to develop an alternative document
that is secure, inexpensive, and would be carried anyway — for example, a driver’s
43
“Al-Qaida In Canada?” CBSNEWS.com. April 25, 2002. “Canada Alters Security
Policy To Ease Concerns of U.S.” By Clifford Krauss. New York Times. February 18,
2002.
44
“Delays at the Canadian Border Eat Up Trade.” By John Stark. AP. February 1, 2003.
CRS-17
license containing enhanced biometric information; U.S. state and Canadian
provincial governments have been actively working to develop such documents.45
Canada’s custom service stepped up the purchase of high-tech X-ray equipment,
and U.S. and Canadian customs agents are working together, inspecting containers
at several Canadian and U.S. seaports. Border security personnel levels have also
been beefed up, and Integrated Border Enforcement Teams have been established in
high-priority regions. Canada also has set up an Air Transport Security Authority,
which, among other activities, is responsible for pre-board screening.
The Martin government in December 2004 created a Department of Public
Safety and Emergency Preparedness, a counterpart to the U.S. Department of
Security (DHS), and a Border Services Agency. Recent Canadian federal budgets
have contained new monies for security-related priorities such as intelligence,
maritime and cyber security, threat assessment, and emergency response.
Canada has taken other actions beyond the realm of border security, including
freezing terrorists’ assets, broadening the scope of terrorist activities punishable by
law, extending police investigative powers, introducing legislation that would put
restraints on fund-raising activities by extremist organizations, expanding
cooperation between the FBI and the Royal Canadian Mounted Police, and increasing
outlays for countering nuclear, biological, and chemical weapons attacks.
In early June 2006, Canadian tactical police squads conducted a series of raids
in the Toronto area, arresting 17 individuals. The arrests were made in accordance
with the Anti-Terrorism Act passed late in 2001. The group reportedly had discussed
attacking several possible targets, including power plants, a Canadian military base,
the Toronto Stock Exchange, and other prominent sites. The plan involved having
some members of the group detonate truck bombs while another group reportedly
would storm the parliament buildings and capture hostages. Prime Minister Harper
was said to have been a key target; he allegedly was to be beheaded if he failed to
order a withdrawal of Canadian troops from Afghanistan, as well as the release of
jihadist captives. Most of the 17 were men and youths in their teens or early 20s. All
were either Canadian-born or had immigrated to the country at an early age. The
suspects had a variety of backgrounds; some were students, some held jobs, and
some were unemployed. Many were from middle class backgrounds, and few of
them had criminal records.
U.S. Secretary of State Condeelezza Rice praised the police operation as “a very
great success,” and other U.S. officials claimed that the arrests proved that Canada’s
law enforcement and intelligence services are doing an excellent job of ensuring
security. An FBI spokesperson said there was “no imminent threat” to the United
States stemming from the Toronto operation. However, some U.S. Members of
Congress claimed that Canada maintains lax immigration and asylum policies, and
that the arrests demonstrated that stricter controls over the U.S.-Canada border are
in order. The incident prompted close consultations between U.S. and Canadian
45
“A Tightening Border Has Canadians Worried.” By Ian Austen. New York Times. April
15, 2006.
CRS-18
policymakers and law enforcement officials. The operation has not arisen as a
domestic political issue in Canada, but it has renewed debate about Canada’s
immigration practices, its commitment to a multicultural environment, its security
measures, and the presence of its troops in Afghanistan.46
During a March 2005 summit meeting in Texas, President Bush, Mexican
President Vincente Fox, and Prime Minister Martin agreed to a Security and
Prosperity Partnership (SPP) of North America. The initiative is intended to provide
security for the continent against criminal activities and external threats, while easing
the flow of goods and travelers who cross the borders between the three countries.
It also aims to improve prosperity in all three countries through promoting
cooperation in a number of areas, including health, food safety, environmental
protection, transportation, energy, and financial services. Government officials from
all three countries meet in working groups to discuss was to eliminate duplication
and harmonize regulations. Presidents Bush and Fox, joined by Harper, met again
in March 2006 and agreed to five priority areas: 1) competitiveness and regulatory
cooperation, 2) emergency management, 3) avian and pandemic influenza, 4) energy
security, and 5) smart, secure borders. In August 2007, the leaders of the three
countries met in Montebello, Quebec, where they reviewed progress and planned the
next phase of cooperation, 47
Economic and Trade Issues
After several years of steady growth, Canada’s economy has been slowing in
recent quarters. Canada’s GDP rose by 2.9% in 2005, 2.8% in 2006, and 2.7% in
2007. However, the Economist Intelligence Unit expects the economy to grow by
just 1.3% in 2008. Forecasters attribute the slowdown in part to the strengthening of
the Canadian dollar and the weakening of the U.S. economy; because the United
States is by far the chief customer for export-dependent Canada, both factors have
had a fairly strong impact. Annual consumer price inflation in 2007 stood at 2.1%.
The March 2008 unemployment rate was 6.0% — a slight gain from the previous
month, but still low by historical standards.48 In 2007, Canada enjoyed a current
account surplus of $13.2 billion.
In February 2003, Chinese officials announced the outbreak of the severe acute
respiratory syndrome (SARS) and in March, it was discovered that a traveler had
carried the disease to Toronto. Eventually, about 150 Canadians contracted the
illness, and 23 died. Canadian health authorities made strenuous efforts to contain
the sickness, and in April, the World Health Organization lifted the travel advisory
46
“Canada’s Terror Sweep Grabs Spotlight in U.S.” Canadian Press. June 3, 2006. “U.S.
Praises Canada On Terror Arrests But Critics Blast Immigration Laws.” Canadian Press.
June 4, 2006. “Terrorists In Toronto: Is Canada Safe? Are We?” By Tanya Primiani and
Christopher Sands. CSIS Commentary. Center for Strategic and International Studies. June
20, 2006. “The Toronto Terror Plot.” Economist. June 10, 2006.
47
48
See SPP website: [http://www.spp.gov/].
Economic data are from Economist Intelligence Unit, wire service reports, and “The
Economy In Brief, April 2007.” Website of Department of Finance Canada. Updated April
2008. [http://www.fin.gc.ca/ECONBR/ecbr07-04e.html]
CRS-19
it had placed on Toronto.49 The Martin government announced the establishment of
a Canadian Public Health Agency, which will play a role similar to that of the U.S.
Centers for Disease Control and Prevention. Many public heath officials on both
sides of the border are worried over the possible spread of avian influenza. Bird flu
has a much higher mortality rate and is a matter of serious concern to
epidemiologists. The security of the two countries’ food supplies is another area that
policymakers continue to monitor, both bilaterally and in the context of the Security
and Prosperity Partnership.
Canada is the United States’ largest supplier of energy — including oil,
uranium, natural gas, and electricity — and the energy relationship has been growing.
Canada is the world’s seventh largest petroleum producer, and its reserves are
believed by some to be second only to those of Saudi Arabia; Canada’s sources of oil
include traditional and offshore wells and, increasingly, Alberta’s tar sands. In 2006,
U.S. energy imports from Canada were $75 billion. Canada provides 17% of U.S.
oil imports and supplies 16% of U.S. natural gas demand. Canada is particularly
valued because it is a reliable source of energy, a key factor contributing to U.S.
economic security — it is not a member of OPEC. The two countries are cooperating
on the development of pipeline construction projects. China has shown interest in
Canada’s oil sector, a development that is believed to have “caused some
consternation in Washington.” Canada also a net exporter of electricity to the United
States, and the North American electricity grid is closely interconnected. Following
the August 2003 blackout, the two sides have worked to develop improved standards
for electricity transmission reliability.50
Bilateral Trade Issues. The United States and Canada enjoy the largest
bilateral commercial relationship in the world; the U.S. State Department estimates
total two-way trade at $1.5 billion per day. Many analysts believe that the sharp
differences of the past, over diverse items ranging from automobiles to peanut butter,
are not as prominent today. A likely reason for this is the conclusion of two
important bilateral treaties: the 1988 U.S.-Canada Free Trade Agreement and the
1993 North American Free Trade Agreement. These documents, along with major
revisions in the Uruguay Round of the General Agreement on Tariffs and Trade and
the creation of the World Trade Organization (WTO), contained mutual concessions
on commercial trade barriers, and, more importantly perhaps, established or
improved upon mechanisms for resolving disputes.51
49
“A Model of Epidemic Control.” David Brown. Washington Post. May 3, 2003.
“SARS: Fear and Loathing in Toronto.” Jonathon Gatehouse. Maclean’s. May 5, 2003.
“Canada Says SARS Has Infected Its Economy.” Gilbert Le Gras. Reuters. April 29, 2003.
50
Canada-U.S. Energy Relations. Updated February 1, 2008. Canadian Embassy website:
[http://www.dfait-maeci.gc.ca/can-am/washington/trade_and_investment/energy-en.asp].
Country Analysis Briefs: Canada. U.S. Energy Information Administration website.
Updated April 2007. [http://www.eia.doe.gov/emeu/cabs/Canada/Background.html].
51
United States Department of State. Bureau of Western Hemisphere Affairs. Background
Note: Canada. January 2008. “Current State of U.S.-Canada Economic Relations.” By
Sidney Weintraub. American Review of Canadian Studies. Winter, 1994.
CRS-20
Nevertheless, several trade issues — some old, some new — have yet to be
completely resolved. Many of these disputes involve long-running battles over
agricultural commodities or natural resources, including softwood lumber and farm
goods. Some analysts attribute the longevity of these conflicts to the inherent
incompatibility of the two countries’ different natural resource and agricultural
programs, others to the political sensitivity of the commodities under negotiation.
This was particularly true of the long-running dispute over softwood lumber.
A 1996 agreement restricting Canadian lumber exports to the United States expired
in March 2001. Shortly thereafter, the U.S. Commerce Department launched
countervailing duty and anti-dumping investigations; in May 2002, the International
Trade Commission (ITC) found that Canadian imports threatened to injure U.S.
industry, and Commerce applied 27% (later reduced to 21%) duties on Canadian
softwood. Canada challenged the agency decisions under NAFTA and in the WTO.
In August 2005, NAFTA affirmed earlier NAFTA decisions resulting in an ITC “no
threat” determination. Canadians asserted that the United States should lift its tariffs
on softwood and refund some C$5 billion in estimated lumber duties, which might
otherwise be distributed to U.S. lumber producers under the Byrd Amendment. The
Bush Administration maintained, however, that the ITC “no threat” determination
(issued in September 2004) was superseded by a November 2004 “threat of injury”
determination issued by the ITC in response to a separate WTO decision. Further
complications arose later in August when a WTO panel preliminarily ruled that the
November threat determination was not in violation of WTO rules. Canada has
challenged implementation of the November ITC determination in U.S. court.
Finally, on April 26, 2006, the two sides announced that they had struck a tentative
seven-year agreement on softwood. As part of a complicated formula, the United
States will allow unlimited imports of Canadian timber when market prices remain
above a specified level; when prices fall below that level, Canada will impose export
taxes. In addition, the United States will return to Canada a large majority of the
duties it had collected.52
In May 2003, a cow in the Canadian province of Alberta was discovered to be
infected with bovine spongiform encephalopathy (BSE, or “mad cow” disease). The
United States banned importation of Canadian cattle or cattle products. The
Canadians quarantined several ranches and destroyed and tested several thousand
animals. In September 2003, the United States began permitting importation of live
animals young enough to be at low risk of having the disease. In December,
however, a Canadian-born cow in Washington State was discovered to have BSE,
and most countries banned imports of U.S. beef. In January 2005, two new BSEinfected animals were found in Canada. In early March, a U.S. federal judge blocked
a USDA ruling that would have permitted more Canadian cattle to enter the United
States, and the Senate approved a White House-opposed resolution that would
overturn the rule. A U.S. appeals court reversed the blocked ruling in July,
permitting Canadian cattle to enter the United States. The two countries have been
cooperating bilaterally and in international organizations to develop consistent
52
“U.S. Gets a Lift In Lumber Fight With Canada.” By Ian Austen and Clifford Krauss.
New York Times. August 31, 2005. “Conservative Government Wins Softwood Truce.”
Globe and Mail. April 28, 2006.
CRS-21
approaches to animal health and food safety regulations. In March 2008, a twelfth
Canadian animal was discovered to be infected with BSE.53
Regardless of the occasional rancor of U.S.-Canadian trade disputes, there is
little danger that such conflicts would ever escalate into a full-blown trade war. The
Canadians in particular have a strong incentive to resolve feuds and maintain close
trade ties with the United States. The Canadian economy is heavily export-oriented,
and its largest trading partner by far is the United States, which takes about threequarters of Canada’s exports and is the source of nearly two-thirds of its imports.
And although sharp disputes still plague the enormous bilateral trade relationship, it
is important to bear in mind that such disputes normally affect only 2% of trade.
Environmental Issues
The United States and Canada, which share a common border that stretches
5,500 miles, cooperate extensively on environmental matters. Since they signed the
Boundary Waters Treaty in 1909, the two countries have, through the International
Joint Commission, worked together on protecting and maintaining border waterways,
especially the Great Lakes. In 1978, the two signed the Great Lakes Water Quality
Agreement.
In 2002, Canada ratified the Kyoto Agreement; in 2006, however, the
government announced that emission targets had been exceeded. The Harper
government has established a goal of cutting greenhouse gas emissions 20% by 2020.
To do so, the government proposes numerous measures, including increased reliance
on hydro- and nuclear power, and revised regulations for the oil sands industry.
The long feud over Pacific salmon — one of the more prominent bilateral
disputes in recent years — had both environmental and commercial aspects. Canada
contended that American fishermen were taking more than their equitable share of
the migratory fish; the United States, on the other hand, maintained that its fishing
was in accordance with the 1985 Pacific Salmon Treaty and with sound conservation
practices. After a pause, talks resumed in 1997, and the two sides finally reached an
accord in 1999; both countries are monitoring implementation of the agreement.54
One area of contention concerns the diversion of the naturally overflowing
waters of Devils Lake, in North Dakota. For flood-control purposes, the state has
constructed a channel that diverts excess water ultimately to the Red River, which
flows northward. Manitobans have objected to this solution, arguing that the lake
water contains toxic chemicals from agricultural runoff; they are also concerned that
the introduction of alien species of aquatic life may disturb the ecological balance
and endanger recreational fishing in Lake Winnipeg, into which the Red River
empties. The Canadian government has requested that the case be referred to the
International Joint Commission. In April 2006, after meetings between senior
53
For further information, see CRS Report RS21709, Mad Cow Disease and U.S. Beef
Trade. January 29, 2008.
54
CRS Report RL30234, The Pacific Salmon Treaty: The 1999 Agreement In Historical
Perspective, by Eugene H. Buck.
CRS-22
environmental officials of the two governments, the United States agreed to install
a permanent filtration system at the Devils Lake outlet. In February 2008, the North
Dakota Supreme Court found that the state had acted improperly in changing certain
environmental standards for the water released from the Lake’s outlet.55
Other environmental problems the two countries have dealt with in recent years
include secondary wastewater treatment, control of predator fish and other invasive
species introduced into the Lakes by ocean-going vessels, and sustainability of the
St. Lawrence Seaway. In addition, the United States and Canada concluded a
hazardous waste trade agreement in 1986; more recently, transboundary shipments
of solid waste, particularly from Ontario to Ohio, Michigan, and other U.S. states,
have been under review, and have been the subject of legislation in the U.S.
Congress. The two countries have continued the long-standing debate over the
ecological impact of possible development in Alaska’s Arctic National Wildlife
Refuge. Finally, the two sides continue to monitor the progress of the 1991 CanadaUnited States Air Quality Agreement. On January 7, 2003, Canadian and U.S.
officials announced a new Joint Border Air Quality Strategy; under the initiative,
pilot programs to reduce air pollution will be developed involving stakeholders at the
state, provincial and local levels.
Canada’s Arctic Sovereignty Claim56
Issue Definition. Scientists have forecast that, by 2030 or earlier, global
warming will reduce the Arctic ice pack in Canada’s northern archipelago sufficiently
to create a “northwest passage” that will permit commercial ship traffic through the
summer months. If created, a northwest passage would significantly reduce transit
distances for commercial ships operating between certain ports. It could also be used
by commercial fishing or cruise ships, ships supporting Arctic scientific research or
resource exploration, or military ships. The presence of ships in the passage could
require the establishment and enforcement of shipping lanes and other rules for
ensuring safe ship operations while in the passage, add to existing demands for
maritime search and rescue capabilities, and create a risk of environmental damage
to the Arctic due to engine exhaust, fuel spills, dumping of waste, or release of ballast
water containing contaminants or non-native marine organisms. The use of the
passage by foreign military ships might be viewed as creating potential security risks
to Canada (and the United States). Successive Canadian governments have
maintained that such a passage would be an inland waterway, and would therefore
be sovereign Canadian territory, subject to Ottawa’s surveillance and regulation. The
United States, the European Union, Japan, and others assert that the passage would
constitute an international strait between two high seas.
55
“Devil Down South.” The Economist. July 16, 2005. “Little-Known White House Office
Negotiates Devils Lake Dispute.” AP. September 5, 2005. “U.S. Promises Devils Lake
Filter, But Water May Flow Before Installation.” Canadian Press. April 25, 2006.
Manitoba Scores Partial victory In Water Dispute With North Dakota. The Canadian Press.
February 22, 2008.
56
Prepared by Carl Ek, Specialist in International Relations; Foreign Affairs, Defense, and
Trade Division.
CRS-23
Background and Analysis. Arctic sovereignty has been an issue for Canada
for decades. In the 1980s, the Mulroney government proposed the purchase of a
large icebreaker to patrol the region, but the proposal was scrapped due to budget
constraints. In 1985, a U.S. icebreaker, the Polar Sea, caused an uproar in Canada
when it traversed the waters of the northern archipelago without first seeking
permission. Afterward, Washington and Ottawa came to an agreement under which
the United States pledged to notify Canada when its ships would transit the region,
and Canada agreed to grant its consent. In recent years, however, the question over
who, if anyone, would have control over the regional waters has intensified as
scientific consensus has grown that the melting of the polar icecap will open up a
Northwest Passage during the summer months.
The debate over the Northwest Passage has commercial, environmental, and
security considerations. The opening of a channel of water during the summer
months through Canada’s 36,000-island arctic archipelago would cut shipping routes
between Europe and Asia by 3,000-4,000 miles, saving time and fuel costs. Also,
it is believed that larger vessels which cannot use the Panama Canal would be able
to sail the passage. However, many Canadians are concerned that unfettered
maritime traffic through the region could result in serious environmental hazzards
ranging from the catastrophe of an oil spill, to more cumulative pollution caused by
ocean dumping of ballast and garbage by transiting vessels. In terms of security, the
Canadians are concerned that recognition of the passage as international waters
would result in free access to naval warships and submarines, including, for example,
those of Russia and China.
Canada seeks recognition of its sovereignty over the entire area, among other
reasons, because of a strong national identification with its northern regions. Ottawa
argues that it has a historical claim based on centuries of Inuit inhabitation — of the
islands and of the ice extending from them. From a practical standpoint, Canada
wishes to have the ability to enforce protection of the fragile arctic ecosystem and to
ensure sustainable commercial fishing practices. In addition, the Canadians want
there to be no doubt that they have rights to the region’s abundant natural resources,
including oil, natural gas, minerals, and precious metals.
The Harper government has been seeking to bolster Canada’s sovereignty claim
by establishing a stronger military presence. In July 2007, Harper announced plans
for the construction of 6-8 armed, medium-sized icebreakers to patrol the north. The
following month, he traveled to Resolute Bay, Nunavut and announced plans to
construct a winter warfare training center and deep-water port in the region. He
declared that “Canada’s new government understands that the first principle of Arctic
sovereignty is: Use it or lose it.” Some Canadians, however, have criticized Harper
for seeking to militarize the debate.
The prospective passage raises jurisdictional questions. Canadians maintain that
it would be an internal waterway and would likely require all vessels to register with
their coast guard’s vessel traffic reporting system. They contend that this would
facilitate possible search-and-rescue missions, and would dissuade ships bearing
contraband from sailing through the region. There is general agreement that the
natural resources in the region are Canadian; the debate concerns free transit rights.
Analysts note that the UN Convention on the Law of the Seas calls for the right of
CRS-24
transit passage “between one part of the high seas ... and another part of the high seas
... .” In addition, some analysts believe that the recognition of the Northwest Passage
as a Canadian inland waterway would set an international precedent that might be
viewed as applicable elsewhere in the world. Other governments could echo
Canada’s sovereignty claim and prohibit the passage of U.S. naval ships, as well as
of oil tankers bound for the United States; the Straits of Malacca and Hormuz have
been cited as examples. Others, however, such as former U.S. Ambassador to
Canada Paul Cellucci, argue that it would be in the interests of U.S. national security
if Canada were to manage and police shipping through the straits.
Several possible solutions have been put forward. Some argue that Canada
could achieve its objectives through regulations approved by the UN International
Maritime Organization. Also, it has suggested that NORAD and the Arctic Council
might be able to coordinate cooperative patrolling of the passage. Others — though
not the United States — have proposed that the countries bordering the Arctic adopt
an agreement prohibiting military, residential, or commercial use of the region, as
was done for Antarctica in 1959.
Status of the Issue. The Bush Administration has not made a major issue
of the future northwest passage. At the trilateral leaders’ summit of the Security and
Prosperity Partnership, held in August 2007 in Montebello, Quebec, President Bush
reiterated the Administration’s policy that any future Northwest Passage would be
considered straits for international navigation. For the time being, the Ottawa and
Washington have “agreed to disagree.” However, Canadian analysts have argued that
the debate over who should manage the straits will intensify if ships carrying
hazardous materials or illegal immigrants are discovered in the region. Because it
has been highlighted as a priority area for the Harper government, this issue will
likely continue to be the subject of bilateral discussions between U.S. and Canadian
policymakers.
Questions. 1. Several governments have taken issue with Canada’s assertion
of sovereignty over the Arctic waters. Do any foreign countries support Canada on
this question? Has the Canadian government offered a legal precedent for its claim?
2. If Canada were to win recognition of its sovereignty over the passage, how might
it regulate shipping traffic through the straits?
3. What might be the security, economic and environmental consequences for the
United States if Canada were to win its sovereignty claim? If the passage were to be
declared international waters?
Border Security Issues57
Issue Definition. Border security has emerged as an area of public concern,
particularly after the September 11, 2001 terrorist attacks. Since the terrorist attacks,
57
Prepared by Blas Nuñez-Neto, Analyst in Domestic Security, Domestic Social Policy
Division.
CRS-25
the United States and Canada have been striving to balance adequate border security
with the facilitation of legitimate cross-border travel and commerce. As Congress
passes legislation to enhance border security and the Administration puts into place
procedures to tighten border enforcement, concerns persist with respect to the
potential for terrorists to exploit the border. Congress previously passed significant
border security-related legislation as discussed below, and issues pertaining to the
oversight of such legislation and their possible policy implications for U.S.-Canada
border relations continue to be of interest to Congress. These issues include (1) the
new requirement that U.S. Citizens, Canadian nationals, and other foreign nationals
from countries in the Western Hemisphere, will soon need a travel document to enter
the United States; and (2) improvements to infrastructure at the border and ports of
entry.
Background and Analysis. Both the United States and Canada have taken
various measures to better secure the shared border while simultaneously preventing
disruption to the flow of people and trade. While such efforts date back to 1995,
recent efforts include a 30-point plan, commonly referred to as the “Smart Border
Accord” (signed on December 12, 2001). The declaration includes a 30-point (now
32-point) plan to secure the border and facilitate the flow of low-risk travelers and
goods through coordinated law enforcement operations, intelligence sharing,
infrastructure improvements, improvement of compatible immigration databases,
visa policy coordination, common biometric identifiers in travel documents,
prescreening of air passengers, joint passenger analysis units, and improved
processing of refugee and asylum claims, among other things. Previously, on
December 3, 2001 the two countries signed a joint statement of cooperation on
border security and migration that focuses on detection and prosecution of security
threats, the disruption of illegal migration, and the efficient management of legitimate
travel. Other efforts to increase border security between the U.S. and Canadian
government include the 1999 Canada-U.S. Partnership Forum (CUSP) and the
February 24, 1995, joint accord, Our Shared Border.
Congress also took action to better secure the border by passing the USA
PATRIOT Act (P.L. 107-56). The act authorized the Attorney General to triple the
number of border patrol personnel and immigration inspectors along the northern
border and authorized $50 million for the former INS to make technological
improvements and to acquire additional equipment for the northern border. The
Enhanced Border Security and Visa Reform Act of 2002 (the Border Security Act;
P.L. 107-173) similarly authorized additional personnel and technological and
infrastructure improvements at the borders. The Border Security Act contained a
provision that required the development of technology to track the entry and exit of
foreign nationals (referred to as the US-VISIT program). Both the USA PATRIOT
Act and the Border Security Act required travel documents to be tamper resistant and
contain a biometric identifier that is unique to the card holder.
Western Hemisphere Travel Initiative. More recently, Congress passed
legislation that requires the Secretary of Homeland Security, in consultation with the
Secretary of State, to develop and implement a plan as expeditiously as possible to
require a passport or other document, or combination of documents, “deemed by the
Secretary of Homeland Security to be sufficient to denote identity and citizenship,”
for all travelers entering the United States. Commonly referred to as the Western
CRS-26
Hemisphere Travel Initiative (WHTI), this provision in the Intelligence Reform and
Terrorism Prevention Act of 2004 (P.L. 108-458) requires American and Canadian
nationals (and other foreign nationals) to present some form of approved travel
document to enter the United States by January 1, 2008. On November 24, 2006,
DHS published a Final Rule concerning the acceptable WHTI travel documents for
entry into the United States through airports. The DHS final rule required all U.S.
citizens and nonimmigrant aliens from Canada, Bermuda, and Mexico to present a
valid passport in order to be allowed entry into the United States at airports starting
on January 23, 2007. The Consolidated Appropriations Act of fiscal year (FY) 2008
(P.L. 110-161) included language modifying the WHTI deadlines that were enacted
by P.L. 108-458 and subsequently extended by P.L. 109-295. The new deadline for
implementation of WHTI is the later of the following two dates: June 1, 2009, or,
three months after the Secretaries of Homeland Security and State certify that a
number of implementation requirements have been met.
Despite this legislation, as of January 31, 2008, DHS has ended the practice of
accepting oral declarations of citizenship at the land border and is currently requiring
U.S. citizens to present a passport, some other accepted biometric document, or the
combination of a driver’s license and a birth certificate, in order to reenter the
country. On March 27, DHS and the Department of State (DOS) announced the final
rule for WHTI. The WHTI final rule will require that U.S. citizens present an
approved secure document that denotes identity and citizenship at the land border
starting June 1, 2009. This would end the current practice of accepting driver’s
licenses and birth certificates as proof of identity and citizenship at the border.
Approved documents will include passport books, passport cards (currently being
developed by DOS), and frequent traveler cards (such as SENTRI, NEXUS, and
FAST). Additionally, some states have entered into agreements with DHS to develop
enhanced driver’s licenses (EDL) that will include citizenship information and will
be valid for WHTI purposes. DOS has begun accepting passport card applications
and is currently forecasting that production of the new card will begin in June of
2008. DHS has also stated that they are working with the Canadian government and
several Canadian provinces to develop EDLs or other similar documents for
Canadian citizens that would be valid for WHTI purposes.
The WHTI has fostered much debate in Canada as well as the United States.
According to published reports, only about 23% of Americans and 40% of Canadians
own passports. These statistics have led some observers to voice concerns that the
increased documentation that will be required at the border may suppress travel
between the two nations.
Current Coordination Between the Two Countries. The U.S. and
Canadian governments continue to implement the provisions in the Smart Border
Accord. For example, both countries have expanded the NEXUS program to eleven
land border crossings. Both countries continue to explore the feasibility of creating
additional joint facilities at agreed upon ports of entry and sharing of information
through interoperable technology. Additionally, both countries have begun to take
steps to share passenger information on high-risk travelers en route to either country
through a risk-scoring scheme that was jointly developed; and in 2004, an automated
process to share “lookout” data between both countries was developed. However,
negotiations between the U.S. and Canada over two proposed pre-clearance pilot
CRS-27
programs were reportedly recently abandoned by DHS due to concerns about
Canadian legal restrictions on Customs and Border Protection officers’ authority to
fingerprint individuals who refuse inspection.
Questions. 1. When fully implemented, the WHTI will make significant
changes to the current documentary requirements needed to enter the United States.
What steps will the Canadian government be taking to ensure that Canadian citizens
are aware of these changes? Will the Canadian government consider imposing
similar requirements on American citizens entering Canada? Will Canada develop
its own version of the passport card for Canadian citizens? Will Canadian provinces
develop their own EDLs for WHTI?
2. In recent years, a number of different technologies, including the US-VISIT
program, have been implemented at northern ports of entry. With the advent of the
WHTI, the demand for improved infrastructure will continue to be critical. What
measures have been taken by the Canadian government to mitigate the impact of such
a demand at its border crossings? Are there collaborative efforts that could be
undertaken to alleviate some of the pressure on busy POE?
3. The Smart Border Accord calls on the two countries to develop approaches to
move customs and immigration inspection activities away from the border. While
such an approach is already present at Canadian airports, there has been interest in
expanding it to areas away from land ports of entry. What is the Canadian
government doing to facilitate this objective? What was the reason that negotiations
over the land-border pilot program failed? Are there any potential solutions for the
problems that led to the pre-clearance pilots to be scrapped?
Border Security: Trade and Commercial Concerns58
Issue Definition. The aftermath of the terrorist attacks on the United States
on September 11, 2001 increased scrutiny of the Canadian border as a possible point
of entry for terrorists or for weapons of mass destruction. The potential for economic
disruption that closing the border would cause has spurred cooperation between the
United States and Canada to improve border security in an atmosphere conducive
to continued and expanded commerce. This brief details commercial considerations
in U.S.-Canadian border security discussions.
Background. The issue of border security is linked to the increased
integration of the United States and Canadian economies. This integration has been
aided by several trade agreements, culminating in the North American Free Trade
Agreement of 1994 (NAFTA). These trade agreements not only eliminated tariff
barriers between the two nations, but also reoriented Canada’s industrial structure
towards the United States. Industries in each country are now able to produce goods
for a larger continent-wide market, and productivity has increased through increased
economies of scale and specialization. Such specialization led to increased bilateral
58
Prepared by Ian F. Fergusson, Specialist in International Trade and Finance, Foreign
Affairs, Defense, and Trade Division.
CRS-28
trade, much of it in intermediate products. This integration has, in turn, led to
industrial practices such as “just in time” parts procurement that depend on a
relatively open border.
The volume of economic activity across the border underscores the extent of
economic integration between the United States and Canada. Today, the United
States and Canada have the largest trading relationship in the world with over $1.5
billion per day in goods and services crossing the border in 2007. Canada purchases
21.3% of U.S. exports, a share larger than Japan and the entire European Union and
supplies 16% of all U.S. imports. The United States supplied 64.9% of Canada’s
imports of goods in 2007 and purchased 76.3% of Canada’s merchandise exports;
two-way trade with the United States represents nearly 40% of Canadian GDP. The
Ambassador Bridge that links Detroit, Michigan and Windsor, Ontario is the largest
trade link in the world with more than 7,000 daily truck crossings totaling more than
$120 billion per year.
Action Programs and Initiatives. New initiatives to increase security of
the border without impeding the flow of commerce are being developed under the
Security and Prosperity Partnership (SPP), which was launched by the leaders of the
United States, Canada, and Mexico in March 2005. Many of these initiatives expand
upon previous bilateral efforts by the United States and Canada, including the Smart
Border Action Plan of December 2001 consisting of 4 pillars: the secure flow of
people, the secure flow of goods, a secure infrastructure, and coordinated
enforcement and information sharing. The pillar concerned with the flow of goods
consists of initiatives on harmonized commercial processing, supply chain
management, clearance away from the border, joint or shared facilities, enhancement
of information sharing, and infrastructure improvements.
The U.S. Bureau of Customs and Border Protection’s Customs-Trade
Partnership Against Terrorism (C-TPAT) and the Canadian Border Security
Agency’s Partners in Protection Program are supply-chain security initiatives in
which companies undertake audit-based compliance measures to enhance security
along the supply chain. Goods shipped under these programs are eligible for
preclearance away from the border. The SPP calls for the two programs to be
harmonized within two years.
The Free and Secure Trade (FAST) is a joint harmonized commercial
processing initiative at 21 border locations, which provides for dedicated inspection
lanes to goods carried by approved lower-risk shippers, to goods purchased from
pre-authorized importers such as C-TPAT, and to goods transported by preauthorized drivers and carriers. A complementary program (NEXUS) to expedite the
secure movement of people has also been established for frequent travelers who have
undergone security clearances on both sides of the border.
Another objective of the border security efforts has been the screening of goods
entering North America. The ongoing U.S. Container Security Initiative (CSI) is
designed to pre-screen high risk containers entering the United States at overseas
ports of departure. Under the SPP, the three countries will develop common
screening methods and technology, establish criteria to identify high risk cargo, and
harmonize cargo information technology. Preclearance and prescreening is a possible
CRS-29
first step in the creation of a North American security perimeter, a concept whereby
clearance occurs at the first point of entrance rather than at the final border.
Status. Land preclearance away from the border by U.S. and Canadian customs
agents working in each other’s territory is an issue that has proven controversial,
primarily due to concerns about sovereignty. Joint U.S.-Canada customs teams
already operate in the CSI ports of Halifax, Montreal, and Vancouver, as well as
Newark and Seattle-Tacoma, although the visiting agent serves only an advisory role
with no enforcement powers. The SPP calls for negotiations on a U.S.-Canada
preclearance agreement with implementation of two pilot sites, the Peace Bridge
(Buffalo, NY-Fort Erie, ON) and the Thousand Islands Bridge (Alexandria Bay, NYLandsdowne, ON). However, these negotiations were suspended on April 26, 2007,
over the issue of fingerprinting Canadian citizens crossing the border. Canadian law
does not provide for fingerprinting Canadian citizens that have not been charged with
a crime.
A second issue is the ability of the transportation infrastructure to cope with
increased security measures. The aging condition and limited capacity of the land
border infrastructure preceded the terrorist attacks. For example, the Ambassador
Bridge and the Detroit-Windsor Tunnel, which together carry 25% of total U.S.Canada cross-border traffic, both opened in 1930. Approaches to the crossings, often
city streets, have been criticized as inadequate to the commercial needs of the 21st
century. This issue affects the efficient implementation of security measures. The
FAST system provides for dedicated lanes at land border ports for expedited
preclearance. However, these lanes will not save time if the FAST participant cannot
access this lane due to congestion or delays at the points of access. The SPP
completed a pilot program that attained a 25% improvement in border crossing times
at the Detroit-Windsor gateway in December 2005, yet the aging and adequacy of the
border infrastructure may affect whether such improvements are sustainable. A
binational partnership to construct additional crossing capacity at the DetroitWindsor gateway is engaged in technical and environmental assessments of potential
new crossing sites; however, the opening of new bridge or tunnel capacity is not
envisioned before 2013.
Questions. 1. Is Canada doing enough to secure the border against the transit
of terrorists or weapons of mass destruction? Do Canadians think that the United
States has placed too much emphasis on securing the northern border against
terrorists to the detriment of efficient trade relations?
2. Is Canadian sovereignty threatened by having U.S. customs agents with
enforcement powers active on Canadian soil? Do you believe the fingerprinting issue
is a make-or-break issue concerning land preclearance? What are the elements of
sovereignty that most concern you? Is legislative action necessary to permit this
cooperation?
3. Are Canadian business and government officials concerned that another terroristrelated border shutdown could cause the relocation of business to the United States
or dampen the attractiveness of Canada as a recipient of foreign investment?
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4. Who should pay for the replacement or improvement of aging border
infrastructure? Should business pick up part of the tab?
Immigration and Refugee Policies59
Issue Definition. Should the United States be concerned that Canada’s
immigration and refugee laws and policies pose a threat to its national security?
Background and Analysis. Although Canada does not have country or
worldwide immigration quotas, the government does establish annual targets. In
2005 and 2006, Canada accepted approximately 260,000 and 250,000 new permanent
residents, respectively. An additional 100,000 persons were accepted annually as
temporary residents. Many of these temporary residents were unskilled workers or
students. New arrivals as permanent and temporary residents total more than 1% of
the entire Canadian population. Asian countries, such as China, India, Pakistan, and
the Philippines, are heavily represented at the top of the list of countries from which
Canada’s immigrants come, but no one nation dominates. Iran is the country closest
to the Middle East that recently has been in the top ten. Security checks are
conducted by federal authorities. Because Quebec, however, has an agreement with
the federal government that allows it to select immigrants intending to settle in that
province, Quebec’s system adds a second screening process for its applicants.
Quebec also has addressed security concerns by adjusting its programs for recruiting
immigrants. The federal government and Quebec use point systems for assessing
independent applicants that were changed ten years ago to attract more highly skilled
and educated immigrants, regardless of whether they had arranged employment or
not. Under this system, Canada accepts a much higher percentage of independent
immigrants and a much lower percentage of family class immigrants than does the
United States. Immigrant groups and the opposition parties that support increases in
the family reunification program fear that a recent government proposal to give
priority to the processing of certain applicants who have arranged employment will
drive the skilled worker category even higher.
One notable feature of Canadian immigration is that nearly three-quarters of the
persons accepted settle in the three largest cities: Toronto, Montreal, and Vancouver.
This tendency, combined with the high rate of immigration, has raised some concerns
about destructive “diaspora nationalism” emerging in these concentrated
communities. The 2006 arrests of a group of Muslims who had been raised in
Canada and had planned attacks in southern Ontario fueled this concern. However,
this problem is not unique to Canada and opposition to immigration has not been
voiced nearly as loudly or as forcefully as it recently has been in parts of Western
Europe. In fact, immigration still generally is viewed as an opportunity for growth
in what would otherwise be a declining population.
The Canadian policy for asylum applicants is a far more contentious issue
within the country than immigration, not so much for its negative effects within
59
Prepared by Stephen F. Clarke, Senior Foreign Law Specialist, Western Law Division,
Law Library of Congress, May 2008.
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Canada, but because it generally is believed to invite fraud and abuse. Between 1989
and 2004, an average of about 30,000 refugee claims were presented annually. In
2006, the number of refugees was approximately 32,500 and about 47% of the
applications were accepted. This number is higher than the corresponding figure in
the United States. Of particular concern to Canadian officials prior to 2005 was the
fact that approximately 40% of the overall total claimants and some 70% of
port-of-entry claimants had entered Canada through the United States. There was
significant evidence that illegal migrants were abusing the U.S. Non-Immigrant Visa
system to access North America and the Canadian asylum system to stay in Canada.
Canada is attractive to these persons because it detains few undocumented refugee
claimants pending independent identification and because the federal and provincial
governments grant immediate assistance to applicants who have yet to substantiate
their claims. The result has been that the majority of Canada’s refugee claimants
arrive in Canada without any documents and are allowed free entry into the country,
even though it is clear that many disposed of the documents they had before coming
to Canada. While Canadian officials do not often detain undocumented arrivals,
Canada has created new facilities for the detention for persons who may be viewed
as posing a security or flight risk.
A number of U.S. television programs that have portrayed the Canadian refugee
system as extremely liberal have received considerable attention in Canada. Most of
these segments have mentioned four high-profile cases of terrorists from the Middle
East who entered Canada as refugees with the intention of launching attacks against
U.S. targets. Among these examples was the case of Ahmed Ressam, who was
captured in 1999 while crossing the border with explosives that he planned to set off
at Los Angeles International Airport. Also highlighted have been the cases of
suspected terrorists who have remained in the country for many years while fighting
their way through a very lengthy appeal process. In 2002, the Supreme Court of
Canada ruled that two persons linked to terrorist organizations could be deported to
countries where they might face torture, when security concerns so require. One of
these individuals was returned to Iran fairly quickly, but the other has continued
fighting his extradition to Sri Lanka.
American media coverage of the Canadian refugee system has elicited a wide
range of responses. While a number of Canadian commentators agree that the United
States has good reason to fear that Canada’s refugee policies can be easily employed
by terrorists to enter North America, others contend that terrorists are more likely to
use other means to enter both Canada and the United States. Many analysts point out
that there is no evidence that any of the September 11 hijackers had a Canadian
connection and that the refugee system essentially has been used for “queue jumping”
by enterprising persons who might not qualify under Canada’s immigration laws.
Proponents of this view question how great the security risk to the United States can
be if a significant number of claimants are coming to Canada from this country.
In December 2002, the United States and Canada signed a Safe Third Country
Agreement to allow immigration officials in both countries to require most persons
seeking asylum at a border crossing to go back and present the claims in their
respective countries. This type of Agreement had been called for in the Action Plan
to the Smart Border Declaration signed in the aftermath of the September 11 attacks
in the United States. Implementation of the Agreement was delayed by the lengthy
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and complicated process for drafting and approving appropriate regulations in the
United States, but it finally went into force at the beginning of 2005. In 2007, a judge
of the Federal Court of Canada held that the law implementing the agreement was
unconstitutional, because the United States does not fully comply with international
conventions on refugees. This action followed two other court decisions in which
part of the definition of terrorism in the Anti-Terrorism Act and the procedure for
detaining suspected terrorists under the immigration laws were both struck down.
The government has appealed the decision respecting the Safe Third Country
Agreement to the Federal Court of Appeal, and the agreement remains in force
pending resolution of the case by that body or the Supreme Court of Canada.
Although the Safe Third Country Agreement aims to limit asylum shopping and
the filing of multiple claims, it is limited in scope and subject to several major
exceptions. One major limitation is that it only covers the presentation of claims at
land border crossings. Airport and marine facilities are not covered because, as the
drafters of the Agreement have explained, authorities know that persons are in the
other country only in instances where they are seen crossing the border. However,
critics contend that this will simply encourage a would-be refugee claimant to sneak
into his or her country of choice illegally or fly into a country of choice in order to
present a claim. The Agreement also contains very broad exceptions for relatives,
including relatives of other asylum seekers, and it allows the parties to “examine any
refugee status claim made to that party where it determines that it is in the public
interest to do so.” Because the Safe Third Country Agreement generally is opposed
by refugee groups in both countries, it is likely that internal pressure will be put on
both countries to invoke this reserved right in particular cases.
Statistics show that the number of refugee claims presented at border crossings
in Canada declined by approximately 40% in the first half of 2005, and fewer than
20,000 total claims were filed for the entire year. In 2006, the number of refugees
admitted for permanent residence was down about 3,000 from 2005. Although the
data would suggest that the Safe Third County Agreement had a dramatic immediate
impact, it also has been noted that claims presented at airports, which are not subject
to the Agreement, initially were down about 25%. Thus, the Safe Third Country
Agreement appears to have gone into effect during a period in which the number of
refugee claims already was declining. Since then, increased enforcement in the
United States has helped offset some of the immediate benefits to Canada of the Safe
Third Country Agreement by encouraging more persons to seek refuge in Canada.
One longstanding problem in Canada is that deportation is a very complicated
and lengthy process. The number of persons deported has been growing, but
Canada’s Auditor-General recently found that the government does not know the
whereabouts of approximately two-thirds of the over 60,000 persons who are subject
to deportation or removal orders. Included in this group are persons who were found
to be inadmissible on the grounds of criminality. While the Auditor-General was
critical of the situation, she did not find that the missing persons constituted a clear
national security risk.
Questions. 1. Could the Safe Third Country Agreement have had a broader
application and will it eventually withstand judicial scrutiny on legal, including
constitutional, grounds in Canada and the United States?
CRS-33
2. Are the well-reported cases of terrorists and potential terrorists entering North
America through legal means a sign of a potentially much greater threat?
3. Why do Canada and the United States officials maintain different detention
policies in the case of undocumented refugee claimants?
4. What steps does the Canadian government intend to take to keep track of persons
subject to deportation or removal orders?
Canada and the WTO
Doha Development Agenda60
Issue Definition. A signatory to the Havana Treaty in 1947, Canada was one
of the founding members of the General Agreement on Tariffs and Trade (GATT).
Over the intervening half-century, Canada has become a leading trading economy and
has become increasingly involved in shaping the world trading system through
several rounds of GATT and, since 1994, World Trade Organization (WTO)
negotiations. Canada played a key role in facilitating the 2001 launch of the Doha
Development Round. The Doha Ministerial Declaration set forth objectives in
several negotiating areas such as agriculture, industrial tariffs, services, and the
special needs of developing countries in the international trading system.
Background and Analysis. Canada’s interest in the world trading system
can be partly attributed to its dependence on it. In the half-century since the signing
of the GATT, Canada has developed an export driven economy. In 1947, Canada
exported approximately 2% of its GDP; that figure was 29% of GDP in 2007.
Imports of goods represent 27% of GDP. It has been estimated that one-third of
Canadian employment is directly dependent on international trade. The United States
is Canada’s largest trading partner, buying 76% of its merchandise exports and
supplying 65% of Canada’s goods imports in 2007. It must be noted, however, that
much of this trade relationship is due more to the Canada-U.S. Free Trade Agreement
of 1988 (which was incorporated into the North American Free Trade Agreement in
1994), than to multilateral trade liberalization. Recently, some commentators have
questioned the influence that Canada has on the WTO negotiations as well as the
relevance of those negotiations to Canadian trade flows.
The Doha Round negotiations are currently stalled. Four years into the
negotiations and after a string of missed deadlines for conclusion of the talks,
agreement on modalities — methodologies such as formulas for tariff reductions by
which negotiations are conducted — still elude the agriculture, industrial market
access, services, and other negotiating groups. The negotiations were suspended in
July 2006 over the lack of progress in the agricultural talks. Informal discussions
have now resumed, but no breakthrough has been made.
60
Prepared by Ian F. Fergusson, Specialist in International Trade and Finance; Foreign
Affairs, Defense, and Trade Division of CRS.
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Agriculture. Canada and the United States broadly share common objectives
concerning agricultural negotiations begun in early 2000. As the fourth largest
agricultural exporter, Canada seeks to maximize reductions or elimination of trade
distorting domestic support and to improve market access for agricultural products.
Canada also supports the total elimination of export subsidies, which was agreed to
at the Hong Kong Ministerial in 2005. However, Canadian negotiators have resisted
attempts to include state trading enterprises (such as the Canadian Wheat Board) in
parallel negotiations on other trade-distorting export practices. Disciplines on these
entities are a priority for the United States.
Non-Agricultural Market Access (NAMA). The United States and Canada
have similar goals for the NAMA talks. Canada’s main objectives in tariff
negotiations are to seek broad-based market access opportunities, especially among
developing countries where tariffs on non-agricultural products remain high. It
favors the reduction of tariff rates through a Swiss formula approach adopted at the
Hong Kong Ministerial. However, it has not advocated specific coefficients in the
talks. It has favored the negotiation of non-tariff barriers and, with the United States,
expanding the use of sectoral tariff elimination agreements, specifically on chemicals,
forestry products, non-ferrous metals, fisheries, fertilizers and energy equipment.
Services. Negotiations on amending the General Agreement on Trade in
Services (GATS) have been in progress since early 2000. Canada’s stated objective
is to target sector requests to maximize the opportunities of Canadian service
exporters, especially small and medium enterprises (SMEs) in the areas of
architecture, engineering and integrated engineering, computer and related services,
construction and related engineering, energy, environment, finance, law, maritime
transport and telecommunications. Canada also is interested in providing additional
labor mobility for its service professionals overseas. Conversely, Canada is
committed not to negotiate liberalization of health care, education, or social services
provision. Canada has also declared that its cultural identity policies (including
Canadian content restrictions and media subsidies) will not be subject to the GATS,
but instead it has proposed the negotiation of a “New International Instrument on
Cultural Diversity” that would govern regulations concerning cultural industries.
Trade Remedies. The launch of negotiations at Doha to discipline, to clarify,
and to provide transparency in the use anti-dumping, subsidies, and countervailing
measures is a key priority for Canada. The government’s position in these
negotiations is to separate legitimate uses of trade remedy legislation from what it
considers disguised attempts at protectionism and has sought to impose more specific
disciplines and increased transparency in the use of trade remedy measures. In
addition, Canada has objected to the use of these remedies by the United States and
has been engaged in anti-dumping and countervailing duty disputes at the WTO over
softwood lumber, wheat, and the Byrd amendment. The U.S. position has sought
to reflect the negotiating mandate of trade promotion authority, i.e. not to undermine
U.S. trade remedy laws. The United States has focused on promoting transparency
in the administration of trade remedy laws, adherence to appropriate standards of
review in dispute settlement panels, and addressing underlying trade distorting
practices.
CRS-35
Questions. 1. What is the legislative process in Canada for approving trade
agreements? Are there expedited legislative procedures analogous to trade promotion
authority (TPA) in place between 2002-2007. Do you believe that progress in the
Doha talks has been hampered by the expiration of TPA?
2. Have U.S. antidumping and countervailing duty cases against Canadian softwood
lumber and wheat stiffened Canada’s resolve to press for additional disciplines on
trade remedies in the WTO negotiations? Given the general opposition of Members
of Congress to changes in U.S. trade remedy laws, what types of disciplines can be
agreed upon?
North American Integration61
Issue Definition. The terrorist attacks on the United States in 2001 fueled a
wide-ranging debate in Canada over its relationship with the United States, including
the feasibility or desirability of furthering the process of North American integration.
While concerns in the United States over the U.S.-Canada border are focused
primarily on border security and immigration issues, the debate in Canada has
become much broader, encompassing such issues as sovereignty, the desirability and
feasibility of further economic integration with the United States, and even the
adoption of the U.S. dollar. This discourse is not unusual in Canada; questions
concerning its relationship with the United States continually loom large in policy
discussions. Recent initiatives, however, may spur the process of economic
integration.
The venue for discussion of further economic and security cooperation in North
America has become the Security and Prosperity Partnership (SPP). In 2005, the
leaders of the United States, Canada, and Mexico pledged to develop a series of
security and economic cooperation measures among the three countries of the North
American Free Trade Agreement (NAFTA). Ministerial working groups were
established to develop concrete proposals, the first set of which were announced in
June 2005. Additional measures were announced at the trilateral Cancun summit in
March 2006, Montebello, Quebec in August 2007, and New Orleans, Louisiana in
April 2008. The impetus for the establishment of the SPP has been the effect on
trade from the increase in security along the border following the 2001 terror attacks
as well as the growing perception among some that NAFTA needs to be
reinvigorated in order to compete with the growing economic power of Asia. Many
of the security planks expand on the Smart Border Action Plan of 2001. (For further
information, see “Security and Prosperity Partnership of North America”)
Many of these initiatives reportedly were chosen because they could be
undertaken through the regulatory process and would not require legislation. Some
initiatives are being developed by the North American Competitiveness Council,
formed after the 2006 summit. Business groups in the United States and Canada
61
Prepared by Ian F. Fergusson, Specialist in International Trade and Finance, Foreign
Affairs, Defense, and Trade Division.
CRS-36
have generally supported this effort, and some have called for its expansion.
However, other groups have decried what they consider the undemocratic nature of
implementing regulatory changes without legislative approval and what they consider
the business-driven agenda of the initiatives. Some Canadians also fear that
regulatory harmonization, given the wide disparity in population and economic
power of the two nations, would inevitably lead Canada to adopt U.S. standards and,
implicitly, the policies behind them.
More generally, some in Canada believe the lesson from September 11 is that
increased cooperation with the United States is both necessary and inevitable, given
the reality of Canadian trade flows and economic interdependence. Several longterm economic options have received renewed attention, including a customs union,
a common market, or a monetary union. These concepts are not new; they have been
discussed in conjunction with “deepening”NAFTA. Consequently, these discussions
often involve Mexico as well.
Customs Union. The first step usually discussed regarding the further
integration of the North American economy is the creation of a customs union.
Members of a customs union commonly eliminate tariffs among themselves, and
erect common barriers against the rest of the world. Both the U.S. and Canada have
already eliminated all tariffs between each other under NAFTA, and have similar,
though not identical, tariff schedules with third countries. However, the continued
use of trade remedy laws against each other would be called into doubt. Although
customs duties would be paid at ports of entry at the perimeter of the customs union,
border agents would still enforce immigration, sanitary and phytosanitary, and
environmental laws, as a customs union does not imply a harmonization or mutual
recognition of each nation’s regulations.
Common Market or Economic Union. In addition to a common tariff
policy and free trade in goods and services, a common market would imply free
movement of capital and labor. At this point, harmonization of certain investment
and immigration issues would need to be agreed upon. A type of economic union
approaching that of the European Union would also require harmonized or mutually
recognized standards and regulations and perhaps some supranational institutions.
Although the United States and Canada share many developed country level
standards, this form of integration would require regulatory harmonization or mutual
standards recognition. For example, would the United States adopt the metric system
to fulfill its obligations to harmonize standards? Could the two nations adopt
common forestry practices and management policies that have been at the heart of
the softwood lumber dispute? These questions illustrate the extent to which North
American economic integration may affect the governance of the United States,
Canada, and possibly Mexico.
Monetary Union. The concept of monetary union took hold in Canada during
the 1990s and early 2000s when the Canadian dollar steadily depreciated against the
U.S. dollar. However, since 2003 the loonie (named after the bird on the C$1 coin)
has risen over 40% from 2002 levels to parity in November 2007, and has hovered
around that point since then. The loonie is benefitting from record high prices for
energy and other primary products. Hence, talk of the desirability of monetary union
has been muted. However, those who support monetary union argue that it would
CRS-37
force Canada to make the necessary structural adjustments that would make it more
competitive with the United States. In addition, business would also reap significant
savings in transaction costs associated with the huge volume of bilateral trade.
Opponents of monetary union contend that it would lead to an unacceptable loss of
political and economic sovereignty. According to them, monetary policy would be
dependent on (or tied to) actions of the U.S. Federal Reserve, with which Canada
would have little influence.
Status of the Issue. The active pursuit of North American integration is not
a front-burner issue for either the United States or Canadian government. However,
the evolution of the SPP indicates that the three NAFTA countries are beginning to
think about the parameters of economic integration, and may be taking the first steps
towards the creation of a North American economic space.
Questions. 1. How does the Canadian public feel about closer economic ties
with the United States? Is there a perceptible difference on this issue among
Canadian political parties?
2. Has the loonie’s appreciation since 2002 hurt the Canadian manufacturing sector
that previously relied, in part, on a weak currency to maintain competitiveness?
3. Has the Security and Prosperity Partnership received much attention in Canada?
Has it proved controversial? Do you think Parliament and Congress should be more
involved in making these decisions?
Security and Prosperity Partnership of North
America62
Issue Definition. How can the United States cooperate with its North
American neighbors on issues related to trade, transportation, and security? What
has been the impact of the Security and Prosperity Partnership of North America in
improving security and competitiveness in North America?
Background and Analysis. The Security and Prosperity Partnership of
North America (SPP) is a trilateral initiative, launched in March 2005, that is
intended to increase cooperation and information sharing in an effort to increase and
enhance prosperity in the United States, Canada, and Mexico. The SPP is a
government initiative that was endorsed by the leaders of the three countries, but it
is not a signed agreement or treaty and, therefore, contains no legally binding
commitments or obligations. It can, at best, be characterized as an endeavor by the
three countries to facilitate communication and cooperation across several key policy
areas of mutual interest. Although the SPP builds upon the existing trade and
economic relationship of the three countries, it is not a trade agreement and is distinct
from the existing North American Free Trade Agreement (NAFTA). Some key
62
Prepared by Angeles Villarreal, Specialist in International Trade and Finance, Foreign
Affairs, Defense, and Trade Division.
CRS-38
issues for Congress regarding the SPP concern possible implications related to
national sovereignty, transportation corridors, cargo security, and border security.
These issues are discussed in various sections of the report.
Since 2005, the SPP working groups have made annual recommendations to the
North American leaders on how to accomplish the goals of the SPP. In 2008, the
working groups agreed to continue to advance the agenda of the SPP by identifying
and focusing on a set of high priority initiatives. They decided to: 1) increase the
competitiveness of North American businesses and economies through more
compatible regulations; 2) make borders smarter and more secure by coordinating
long-term infrastructure plans, enhancing services, and reducing bottlenecks and
congestion at major border crossings; 3) strengthen energy security and protect the
environment by developing a framework for harmonization of energy efficiency
standards and sharing technical information; 4) improve access to safe food, and
health and consumer products by increasing cooperation and information sharing on
the safety of food and products; and 5) improve North American response to
emergencies by updating bilateral agreements to enable government authorities from
the three countries help each other more quickly and efficiently during times of crisis.
Goals of the SPP in the area of prosperity are to increase cooperation and
sharing of information in order to improve productivity, reduce the costs of trade, and
enhance the quality of life. Leaders from the three countries have highlighted the
need to enhance North American competitiveness through compatible regulations and
standards that would help the three countries protect health, safety and the
environment, as well as to facilitate trade in goods and services across their borders.
In the 2008 joint statement, the leaders highlighted the need for the three countries
to implement compatible fuel efficiency regimes and high safety standards to protect
human health and the environment, and to reduce the costs of producing cars and
trucks for the North American market. They also emphasized their efforts to advance
intellectual property rights protection in North America through the Intellectual
Property Action Strategy.
The SPP is not a trade agreement, nor a form of economic integration, and goes
only as far as leading to some measure of regulatory harmonization among the United
States, Canada, and Mexico. The SPP working groups are not contemplating further
market integration in North America. Such a move would require a government
approval process within each of the three countries. In the United States, such an
agreement would require the approval of the U.S. Congress.
The goal of the security components of the SPP is to coordinate the security
efforts undertaken by each of the three participating nations to better protect citizens
from terrorist threats and transnational crime while promoting the safe and efficient
movement of legitimate people and goods. Working groups were established to
address the security aspects of the SPP and are grouped by three broad themes: 1)
external threats to North America; 2) streamlined and secured shared borders; and 3)
prevention and response within North America.
One of the stated goals of the SPP is to improve the safety, security, and
efficiency of the flow goods between the three countries. The majority of trade
between the United States, Canada and Mexico is transported by land modes (truck,
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rail, and pipeline). One of the central tensions in border management policy concerns
how to design policies that facilitate the efficient entry of legitimate cargo while
simultaneously ensuring that a sufficient level of security and scrutiny is applied to
deny the entry of illegitimate cargo. Since 9/11, the U.S. government has undertaken
a number of initiatives aimed at improving cargo security and the facilitation of
legitimate or low-risk cargo. Two SPP security working groups are devoted to cargo
security and border facilitation.
Some critics of the SPP believe that it may be more than an initiative to increase
cooperation and that it could lead to the creation of a common market or economic
union in North America. Others contend that it may ultimately lead to a so-called
“NAFTA Superhighway” that would link the United States, Canada, and Mexico
with a ‘super-corridor’. However, if the United States were to potentially consider
the formation of a customs union or common market with its North American
neighbors, it would require approval by the U.S. Congress. The federal government
has stated that there are no plans to build a “NAFTA Superhighway,” and that no
super-corridor initiative of any sort is a part of the SPP. Further, no legal authority
exists and no funds have been appropriated to construct such a superhighway, nor are
there current plans to seek such authority or funding.
Status of the Issue. The United States, Canada, and Mexico have made
progress in recent years in addressing issues related to North American
competitiveness and security through the SPP. The SPP serves as a mechanism to
increase communications among North American trading partners on issues of
mutual concern, but because it is not a binding agreement, its role in improving
prosperity and security may be limited.
Questions. 1. How effective has the SPP been in improving North American
competitiveness through its focus on intellectual property rights protection and
regulation harmonization? What other steps can be taken within the SPP to improve
competitiveness and is this the appropriate mechanism to do so?
2. How effective has the SPP been in improving safety, security, and the flow of
goods and services among the North American partners? What other steps could be
taken in these areas?
U.S. Imports of Canadian Softwood Lumber63
Issue Definition. The U.S. lumber industry has long argued that imports of
subsidized Canadian lumber were injuring U.S. producers. In May 2002, after the
U.S. lumber industry filed antidumping and countervailing petitions to restrict
imports, agency determinations of Canadian subsidies, dumping, and injury to the
U.S. industry led to a duty of 29% on most Canadian softwood lumber imported into
the United States. Canada challenged these findings under NAFTA and before the
63
Prepared by Ross W. Gorte, Natural Resource Economist and Senior Policy Specialist,
Resources, Science, and Industry Division, and Jeanne J. Grimmett, Legislative Attorney,
American Law Division.
CRS-40
WTO. Negotiations led to a seven-year agreement with Canadian export charges
depending on U.S. lumber prices, and the United States revoked the countervailing
and antidumping orders. Recent U.S. interest group complaints have asserted
unfaithful implementation of the agreement.
Background and Analysis. U.S. lumber producers have long expressed
concerns about imports of subsidized Canadian lumber. The current lumber
agreement is termed Lumber IV, because it is the result of the fourth dispute since
1981, with various findings of subsidy levels and agreements in the previous
disputes.
Tension between the United States and Canada over softwood lumber trade may
be inevitable. Both countries have extensive forest resources, but vastly different
population levels and development pressures; vast stretches of Canada are still
largely undeveloped, while less area in the United States (outside Alaska) remains
relatively pristine. These differences have led to divergent forest policies. In
Canada, 90% of the forests are owned by the provincial governments, which have
allocated and priced timber to encourage development of the extensive timber
reserves and settlement of unpopulated areas. In the United States, 58% of
timberlands are privately owned, and private markets dominate the allocation and
pricing of timber. U.S. federal and other government-owned forests are regionally
important, but the timber is typically sold in a competitive market.
U.S. lumber producers assert that subsidies have given Canadian producers an
unfair advantage in the U.S. market. Canadian provincial stumpage fees (for the
right to harvest trees) are asserted to be subsidized, leading to lumber prices that are
less than their fair market value. The provinces generally use leases and administered
fees to allocate and price timber. Administered fees are unlikely to match market
values, but determining whether the fees are below market values has been
controversial, because of differences in tree species, sizes, and grades; in
measurement systems; in requirements on harvesters; in environmental protection;
and in other factors.
Log export restrictions in British Columbia are also alleged to be subsidies,
because they assure more supply (less competition for timber and thus lower costs)
for Canadian producers. Evidence from the U.S. Pacific Northwest, where private
logs can be exported but public timber cannot, indicates substantially higher prices
for exported logs.
Injuries to U.S. lumber producers are difficult to establish decisively, although
the U.S. International Trade Commission (ITC) has found injury every time it has
examined the issue. Canada’s share of the U.S. lumber market has risen
substantially, from less than 7% in the early 1950s to more than 33% since the mid1990s. Under the 1996 agreement, the quantity of imports continued to rise, but the
market share was relatively stable. The impact of restrictions on U.S. lumber prices
is not easily estimated, but restrictions have probably put upward pressure on prices.
Status of the Issue. In 2001, after the 1996 U.S.-Canada softwood lumber
agreement expired, the U.S. Coalition for Fair Lumber Imports filed countervailing
duty and antidumping petitions, asking the DOC to investigate Canadian imports
CRS-41
again. The Department of Commerce issued final determinations of subsidies on
March 22, 2002. On May 3, 2002, the ITC determined that the U.S. lumber industry
was threatened with material injury by Canadian imports. A duty averaging 27% was
imposed on May 22, 2002.
Canada challenged each of the agency determinations under the North America
Free Trade Agreement (NAFTA) and in the World Trade Organization (WTO). The
NAFTA panels largely supported the Canadian positions. The WTO proceedings
resulted in mixed decisions. Canada was also concerned that the US$5 billion in
estimated duties on softwood lumber collected by the United States would eventually
be distributed to U.S. lumber producers under the Continued Dumping and Subsidy
Offset Act (Byrd Amendment). Canada obtained a U.S. court decision, however,
holding that the Byrd Amendment did not apply to Canadian imports.
On April 26, 2006, a tentative 7-year agreement, with an optional two-year
renewal, to resolve the dispute was announced. The United States revoked the
countervailing and antidumping duty orders and returned about US$4 billion to the
importers of record. The remaining deposits (about US$1 billion) were split evenly
between the members of the Coalition for Fair Lumber Imports and jointly agreedupon initiatives. Canada is collecting export charges ranging up to 15%, depending
on a weighted average lumber price, or up to 5% with volume restraints. A surge
mechanism would raise export charges if a Canadian region’s exports exceed its
allocated share. Lumber from logs harvested in the Atlantic Provinces, Yukon,
Northwest Territories, or Nunavut is exempt from the export charges. Disputes are
to be resolved through bilateral consultations, non-binding mediation, or binding
arbitration in the London Court of International Arbitration.
U.S. interest groups have questioned whether Canada is faithfully implementing
the agreement. In August 2007, U.S. officials requested a ruling from the London
Court on export quota volumes and export tax levels. In March 2008, the Court ruled
that Canada had violated the export quota volumes for its eastern provinces for the
first six months of 2007, but was not required to collect taxes related to export surges
from Alberta and British Columbia during that period; a decision on the remedy for
the violation is pending. In January 2008, U.S. officials filed another arbitration
case, alleging that Ontario and Quebec lumber industry subsidies violate the
agreement; a decision is due by September. Separately in January, U.S. officials sent
a letter to Canadian officials expressing concern about possible subsidies from the
proposed $1 billion Community Development Trust.
Questions. 1. The dispute over U.S. imports of Canadian lumber has
persisted for more than 25 years. Do Canadian producers have a significant cost
advantage because of Canadian timber practices and/or subsidies? Should Canadian
practices be modified to enhance competition for timber? Do the systems and
situations vary sufficiently to warrant different responses to each Canadian province?
What might be the environmental consequences of various possible changes?
2. The 2006 agreement terminated the duties, returned most of the money collected,
and established price-dependent export charges on Canadian lumber. What changes
are needed by 2013 to assure that the recent duties, challenges, and litigation is not
CRS-42
repeated when the agreement expires? What happens if some of the provinces make
appropriate changes and others do not?
3. Are the current oversight mechanisms sufficient to assure implementation of the
agreement that is acceptable to all parties? Are there ways to provide adequate and
timely data to identify possible violations (deliberate or unintentional) and thus the
delay and cost of arbitration and subsequent remedies? What approaches are feasible
to compensate communities and workers for injury from weak lumber markets
without providing subsidies to the lumber industry? What unilateral U.S.
enforcement measures might be acceptable to Canada under the agreement?
U.S. Agricultural Support Dispute64
Issue Definition. In January 2007, Canada requested consultations with the
United States, under the auspices of the World Trade Organization’s (WTO’s)
dispute settlement process, to discuss three specific charges against U.S. farm
programs: (1) U.S. farm support resulted in serious prejudice against Canadian corn
producers, (2) U.S. domestic support exceeded its WTO commitments; and (3) U.S.
export credit guarantee programs contained implicit WTO-illegal subsidies. The
request for consultations represented the first step in instituting a WTO dispute
settlement case against the United States — the assigning of an official dispute
settlement case number (DS357) — thus setting in motion the explicit rules and
timetables of the WTO dispute settlement process.
Canada’s first allegation in its WTO case built upon previous trade complaints
against the United States initiated by Canadian corn producers starting in 2005, while
the latter two allegations were based on a previous WTO ruling in a case (WTO case
DS267) brought by Brazil against the U.S. cotton program. The first charge of
serious prejudice against Canadian corn producers was dropped, but the second and
third charges retained, when Canada requested the formation of a WTO panel to
review its case against the United States in June 2007. However, the importance of
the case has not been diminished to the U.S. agricultural community. U.S.
agriculture depends heavily on international markets to sell its surpluses. In FY2007,
U.S. agricultural exports were a record $81.9 billion and represented 24% of gross
farm income.
Background and Analysis. Canada and the United States have a history of
commodity trade disputes, traditionally focused on various wheat support programs
and trade practices. In 2005, after several years of wrangling over wheat trade issues,
Canada extended its disagreement with U.S. farm programs to the corn sector when
Canadian corn producers sought legal action for alleged unfair subsidization and
dumping of U.S. corn in Canadian markets. Canada’s International Trade Tribunal
ultimately ruled on the 2005 anti-dumping and countervailing duty case in favor of
the United States. However, Canadian corn producers continued to press their
concerns upon the Canadian government about perceived unfair subsidization of U.S.
64
Prepared by Randy Schnepf, Specialist in Agricultural Policy, Resources, Science and
Industry Division.
CRS-43
corn. In response, in early 2007 the Canadian government requested consultations
with the United States to discuss several allegations against U.S. commodity
subsidies under the auspices of the WTO’s dispute settlement process. Three specific
charges against U.S. farm programs were identified in Canada’s request for
consultations including a charge that U.S. farm subsidies resulted in serious prejudice
against Canadian corn producers. However, the serious prejudice charge was
eventually dropped by Canada from its WTO case, in large part because of
substantial increases in U.S. and international corn prices since mid-2007.
The remaining two charges in Canada’s WTO case allege that, first, the United
States has exceeded its annual WTO commitment levels for total Aggregate
Measurement of Support (AMS) for agriculture in each of the years 1999, 2000,
2001, 2002, 2004, and 2005, and second, that the U.S. export credit guarantee
program for agricultural commodities operates as a WTO-illegal export subsidy.
These charges stem, in large part, from a previous negative ruling against U.S. farm
programs in a previous case (DS267) brought by Brazil against the U.S. cotton
program. In that case, a WTO panel ruled (and subsequently was upheld by a WTO
Appellate Body) that first, direct payments made under U.S. farm programs do not
qualify for green box exemption status because of a restriction prohibiting the
planting of fruits, vegetables, or wild rice on payment acres; and second, the U.S.
export credit guarantee program operates as a prohibited export subsidy program
because the financial benefits returned by these programs failed to cover their longrun operating costs. As a result, export credit guarantees should be subject to
previously scheduled export subsidy commitments.
Canada claims that, since they fail to qualify for inclusion in the green box, U.S.
direct payments should be added to its AMS when calculating total domestic support.
In addition, they also charge that the United States has improperly notified several
of its farm support programs as exempt from the AMS limit, while several other
programs were improperly excluded from U.S. notifications. Canada also claims that
when all of the outlays from these allegedly mis-notified programs are included, then
the U.S. AMS total exceeds its WTO commitment level.
In response to Canada’s charges, then-U.S. Secretary of Agriculture Mike
Johanns declared in early 2007 that the United States would vigorously defend U.S.
farm programs against any possible WTO challenge by Canada. A spokesman for
the U.S. Trade Representative (USTR) said that this dispute was an unnecessary
diversion of resources and time from the Doha Round negotiations. The official also
stated that U.S. farm programs were designed to be in compliance with its WTO
obligations and believed that the panel would agree.
Status of the Issues. In late 2007, Brazil initiated its own similar case
against U.S. farm support. Canada and Brazil appear to have coordinated their
efforts as both countries submitted official requests on November 8, 2007, for the
Dispute Settlement Body (DSB) to add the establishment of a panel to its next
meeting agenda. In accordance with WTO rules, the United States blocked this first
panel request at the November 27, 2007, DSB meeting. However, at its next meeting
on December 17, the DSB announced the establishment of a single panel to jointly
hear both cases brought by Canada (DS357) and Brazil (DS365) against U.S. farm
programs. In their requests, Brazil and Canada asked for a single panel to be
CRS-44
established to consider both cases jointly. The United States did not object to this
proposal. All three countries involved — the United States, Canada, and Brazil —
have agreed that the meeting of the panel would be open to the public.
In accordance with the Understanding on Rules and Procedures Governing the
Settlement of Disputes, once the establishment of a panel has been announced the
DSB has up to 45 days for a panel to be appointed, plus 6 months for the panel to
conclude its work. As a result, it is not likely that the panel, once appointed, will
finish its work and issue a final ruling before late 2008. Subsequent appeals of any
negative ruling and disagreement over appropriate retaliatory levels, etc., could push
resolution of the dispute well into the future. Should any eventual changes in U.S.
farm policy be needed to comply with a WTO ruling against the United States, it
would likely involve action by Congress to produce new legislation. For more
information see CRS Report RL34351, Brazil’s and Canada’s WTO Case Against
U.S. Agricultural Support.
Questions. 1. To what extent would completion of the ongoing Doha Round
help to resolve Canada’s and Brazil’s dispute settlement case against U.S. farm
programs?
2. What effect, if any, will the formulation of a new U.S. farm bill have on Canada’s
WTO case?
Country of Origin Labeling65
Issue Definition. Section 10816 of the Farm Security and Rural Investment
Act of 2002 (P.L. 107-171), as amended, requires many retailers to provide
country-of-origin labeling (COOL) for fresh produce, red meats, seafood, and
peanuts. Although seafood COOL began September 30, 2004, Congress delayed the
implementation date for the other covered commodities until September 30, 2008.
In early May 2008, a House-Senate conference committee was attempting to finalize
a new omnibus farm bill (H.R. 2419), and it is anticipated that the final measure will
contain some changes in COOL requirements, if not the implementation deadline.
In light of this uncertainty, a currently pressing issue is whether COOL will in fact
be implemented by September 30, or even whether USDA could complete the
necessary rulemaking by then.
Background and Analysis. Under the Tariff Act of 1930, as amended, most
unprocessed agricultural commodities have long been exempt from requirements that
every import be clearly marked to indicate country of origin for the “ultimate
purchaser.” The 2002 farm bill required those retailers covered by the Perishable
Agricultural Commodities Act, i.e., those which deal in at least $230,000 per year in
produce (fresh and fresh-frozen fruits and vegetables), to begin providing such
information. Specifically covered commodities are: ground and muscle cuts of beef,
65
Prepared by Geoffrey S. Becker, Specialist in Agricultural Policy, Resources, Science and
Industry Division, Congressional Research Service.
CRS-45
lamb and pork; seafood; peanuts; and produce. These commodities are exempt if
they are ingredients in processed foods, or if they are sold in dining out settings.
Passage of the law in 2002 did not end debate over the value and efficacy of
mandatory COOL, particularly with regard to meats. COOL opponents have
continued to argue that record-keeping and verification costs will far exceed any
perceived economic benefits to producers; that smaller-sized farms and firms will
have the most difficulty with compliance; that there is little evidence consumers
actually want labeling; and that COOL is a protectionist policy that undermines free
trade. Supporters have countered that compliance would not be nearly as
burdensome as some large industry groups and USDA have attempted to portray it;
that studies show U.S. consumers, if offered a clear choice, will pay extra for fresh
foods of domestic origin, thereby strengthening demand and prices for them; and that
consumers have a right to know where their foods were produced. They have pointed
out that all but two of the North American cases of “mad cow” disease (bovine
spongiform encephalopathy, or BSE) occurred in Canadian-born cattle, yet the
United States is permitting the importation of large quantities of Canadian beef and
cattle. (COOL opponents argue that country of origin labeling is a matter of
marketing, not food safety, and that food safety concerns are best addressed through
science-based regulation.)
Canada is by far the leading source of U.S. food and agricultural imports,
accounting for about 20% of total import value, and reflecting the close and growing
economic integration of the two countries’ markets. Many of these imports are those
covered by mandatory COOL, including live animals, red meats, seafood, and fresh
vegetables and fruits. The Canadian government’s views generally parallel those
held by other opponents of mandatory COOL. Canadian officials had earlier stated
that they would challenge the COOL law as trade distorting under the North
American Free Trade Agreement (NAFTA) and the World Trade Organization
(WTO) Agreements.
Status of the Issue. The 2002 farm bill initially called for mandatory COOL
to be implemented by September 30, 2004. However, Congress has twice postponed
the requirement. The omnibus FY2004 appropriations law (P.L. 108-199) delayed
this date for all covered commodities, except seafood, until September 30, 2006.
(The seafood regulations have been in place for several years.) The FY2006 USDA
appropriation (P.L. 109-97) postponed the date for two more years, until September
30, 2008.
Language (in H.Rept. 110-258) to accompany the FY2008 USDA appropriation
(Division A of P.L.110-161) directs USDA’s Agricultural Marketing Service (AMS)
to meet the following timeline in implementing COOL:
!
!
!
!
January 17, 2008, publish re-proposed rule for covered commodities
with a 60-day comment period;
July 19, 2008, publish final rule for all covered commodities;
July 26, 2008, initiate congressional review for final rule for all
covered commodities;
September 30, 2008, effective date for final rule for all covered
commodities.
CRS-46
As of early May 2008, AMS had not met this first deadline, for proposed rules;
officials have cited possible changes in the final COOL requirements that are in the
pending omnibus farm bill (H.R. 2419). Both versions of this bill, which was
nearing completion in a House-Senate conference committee in early May, would
maintain the September 30 implementation date, but modify (i.e., ease) some of the
labeling and record-keeping requirements, as well as exempt products from any
animals born prior to January 2008. The Senate-passed farm would also newly
extend coverage to poultry and macadamia nuts; the House-passed bill to goat meat,
making it possible that these provisions could be in the final version as well.
Although the labeling and recordkeeping changes are intended to make it easier for
the livestock and meat industry in particular to comply with mandatory COOL, they
also have created uncertainty among regulators and the regulated industries about
what the final requirements will be.
Questions. 1. Canada has commented in the past that it intends to challenge
the COOL law as trade distorting under the WTO and NAFTA. Does it still intend
to do so, even if the labeling and paperwork changes anticipated by the new U.S.
farm bill are adopted? If so, what, specifically, will be its arguments?
2. Reports in meat trade publications have suggested that the current uncertainties
about final COOL requirements have strained marketing relationships between
Canadian and U.S. producers and processors. Has this tension altered trade between
the United States and Canada, and, if so, in what way? What policy and economic
adjustments if any are being considered in light of the current situation?
3. In general, how will COOL likely affect the composition and economic viability
of both the cattle/beef and hog/pork sectors in North America?
4. Does Canada have its own country of origin labeling programs, and how do they
compare to those for which implementation is pending in the United States?
Steel66
Issue Definition. Steel issues have not been at the forefront of U.S-Canada
trade relations in recent years. In part, this is because the independent Canadian steel
industry, as with other Canadian metals producers, has been largely subsumed within
globally operating companies, which also have large investments in the U.S. market.
Increasingly, the U.S. and Canadian industries, though both highly profitable today,
have common concerns with the increasing potential of competition from China. The
continued strong performance of the Canadian economy, and the movement of the
Canadian dollar exchange rate to a position above parity with the U.S. dollar, have
reduced tensions in trade with Canada on this side of the border. On the other hand,
there have been serious concerns raised in Canada about the viability of important
66
Prepared by Stephen Cooney, Specialist in Industrial Organization and Business,
Resources, Science and Industry Division.
CRS-47
steel-consuming industries, notably motor vehicle manufacturing, if these conditions
continue over the long term.
Background and Analysis. Local Ownership Ends at Canadian Steel Mills.
Canadian-owned companies have disappeared from the list of the world’s largest
steelmaking enterprises. One of the two largest and the most profitable, Dofasco,
in January 2006 was bought by Arcelor, which then placed it in a trust operated by
a Netherlands-based foundation as a ploy to complicate its own hostile takeover by
Mittal Steel. The maneuver failed, and Dofasco is now part of ArcelorMittal, the
world’s largest steelmaker, and a major operator of U.S. integrated steel mills.
Canada’s largest minimill operator was also acquired by a company based
outside North America. Ipsco had moved its headquarters to Illinois, but its origins
were in western Canada, and it maintained operations in both countries. On May 3,
2007, it announced agreement on a friendly acquisition by Svenskt Stal AB (SSAB)
of Sweden, a producer of high-value and specialty steel products. Since then, SSAB
has sold Ipsco’s tubular products division to the Russian steel company, Evraz. In
another friendly acquisition of a Canadian company, Essar of India acquired Algoma
Steel, based in Sault Ste. Marie, Ontario, in a $1.7 billion deal. The Algoma
acquisition is part of Essar’s plan to operate integrated operations in the Great Lakes
region.
Finally, on August 26, 2007, U.S. Steel announced an agreement to acquire
Stelco. Stelco was, in 2005, Canada’s largest steel producer and remained its last
locally owned major steel company. It reorganized in 2006 after two years in
bankruptcy protection, with an output of of 3.81 million metric tons, well below
earlier levels. The company, based in the Canadian steelmaking center of Hamilton,
Ontario, continued to struggle financially, losing more than C$300 million in 2006.
U.S. Steel announced an acquisition price of $1.1 billion (U.S.), plus assumption of
Stelco’s debts and pension liabilities.
U.S. Trade Remedy Cases on Imported Iron and Steel from Canada. Only two
U.S. antidumping orders remain in place on iron and steel products from Canada.
One is applied to iron construction castings. The other is a 2002 order on imports of
carbon and alloy steel wire rod from Canada and other countries. This is now subject
to a five-year sunset review investigation. The U.S. International Trade Commission
(ITC) held a hearing in April 2008, and will vote on continued injury, and whether
to revoke the order, in June.
Canadian and U.S. Policy Actions on Imported Pipe from China. In 2007, the
ITC, in another sunset case, revoked duties that had been placed on steel products
imported from a number of countries and used in the oil and gas industry (known
generically as “oil country tubular goods” or OCTG). U.S. imports from China of
such products increased substantially and, unlike with other steel products, the
Chinese government did not take measures to slow exports down.
In August 2007, an antidumping case was initiated in Canada against certain
OCTG imports from China, alleging that government subsidies were allowing
Chinese producers to dump product at low prices. In 2008, the Canadian Border
Services Agency applied trade remedy duties of up to 91% on subject imports, and
CRS-48
the Canadian International Trade Tribunal confirmed a finding of injury to Canadian
producers. The Chinese government and industry reacted strongly. They have
indicated that they will appeal the Canadian actions and possibly file a complaint
with the World Trade Organization (WTO).
In the United States, a similar case was filed on April 3, 2008 before the ITC
against imports from China of welded carbon steel line pipe, another product widely
used in the oil and gas industry. The ITC will announce its preliminary decision on
May 16.
Intellectual Property Rights67
Issue Definition. The United States has expressed concern that Canada’s
protection and enforcement of intellectual property rights (IPRs) are not adequate and
do not meet internationally agreed upon standards. Although Canada has signed the
World Intellectual Property Organization (WIPO) Internet treaties, the treaties have
not been implemented through Canada’s domestic legislation. Canada is the only
member of the G-8 country grouping that has not implemented the treaties.
Background. IPR infringement is a growing problem internationally due to
increased level of trade in goods and services and the development of advanced
technologies. Protection and enforcement of IPRs is important to U.S.-Canada
relations because of the high levels of bilateral trade between the United States and
Canada. As members of the World Trade Organization (WTO), both countries are
signatories to the Agreement on Trade-Related Aspects of Intellectual Property
Rights (TRIPS), which set minimum standards for IPR protection and enforcement.
IPR provisions also exist in the North American Free Trade Agreement (NAFTA).
Some estimate that IPR infringement costs Canadian businesses about $22 billion a
year. The Canadian Manufacturers & Exporters estimate that the counterfeit industry
in Canada is worth between $20 and $30 billion annually.
Special 301 Watch List. Since 1995, the U.S. Trade Representative (USTR)
has placed Canada on its Special 301 “Watch List,” the mildest category of criticism
for inadequate IPR protection and enforcement. Some U.S. industry associations have
called on the USTR to elevate Canada to the “Priority Watch List.” The USTR has
considered elevating Canada’s status, but Canada remained on the Watch List in the
2008 Special 301 Report. Canada has raised concern about the Special 301 process,
claiming that it is industry-driven and not objective. Some Canadian industry groups
maintain that USTR’s identification of Canada on its Watch List is a genuine signal
of the inadequacies of Canada’s IPR regime.
Copyright Legislation Reform. Canada and the United States are both
signatories to the 1996 World Intellectual Property Organization (WIPO) Copyright
Treaty and the Performance and Phonograms Treaty. Known as the “WIPO Internet
treaties,” they address IPR protection and enforcement issues related to the Internet
67
Prepared by Shayerah Ilias, Analyst in International Trade and Finance, Foreign Affairs,
Defense, and Trade Division, CRS, May 6, 2008.
CRS-49
and other forms of digital media. However, Canada has not implemented either of
the WIPO Internet treaties. This has raised controversy in Canada. Some critics assert
that Canada does not adequately prevent the circumvention of technological measures
that protect copyrighted works. Concerns also have been raised that Canada does not
sufficiently protect against online piracy. In addition, some criticize Canada for
focusing on only commercial piracy. Rather, they maintain that Canada should also
prosecute retail piracy, which takes place on a smaller scale but can still contribute
to significant copyright losses. Others express the need to reform copyright law in a
way that balances the interests of both copyright holders and users.
In contrast, the United States implemented the WIPO Internet treaties in 1998
through the Digital Millennium Copyright Act (DCMA). The United States has
pressured Canada extensively to implement an equivalent of the DCMA. In 2007,
Canadian government officials stated that copyright reform was a top national
priority, and some industry groups had high hopes of significant copyright change in
Canada. Canada recently passed legislation criminalizing illegal recording of movies
in theaters. Bill C-10, which would bring Canada in compliance with the WIPO
Internet treaties, may be introduced into Parliament soon. Previous versions of the
bill were not successfully passed in earlier Parliament sessions.
Border Enforcement. There is significant trade in counterfeit and pirated
goods within Canada and through Canada. According to the 2008 U.S. National
Trade Estimate Report on Foreign Trade Barriers, most pirated goods entering
Canada are “high quality, factory produced” goods from Asia, including pirated
software and circumvention devices. There also has been concern about grey market
goods, i.e., the diversion of prescription drugs from Canada into the United States in
cases where the drugs may be sold legally in Canada but are not approved for sale in
the United States by the U.S. Food and Drug Administration (FDA).
A second issue is that the Canada Border Services Agency (CBSA) is not
authorized to seize products at the border that are believed to be pirated or counterfeit
without a court order, which requires detailed information. Some contend that this
lack of authority limits the effectiveness of IPR enforcement in Canada.
Domestic IPR Enforcement. Enforcement within Canada is led by the
Royal Canadian Mounted Police (RCMP) and local police, which do not have
sufficient IPR resources, expertise, and staff, according to the Canadian AntiCounterfeiting Network. In addition, IPR enforcement competes with many priorities
for the RCMP. IPR-infringement prosecutions are believed to be rare because of a
lack of legal professionals dedicated to IPR and a lack of technical expertise. The
United States contends that the enforcement penalties imposed by Canada do not
serve as sufficient deterrents for future IPR infringement.
Recent International IPR Efforts. Canada and the United States are part
of regional and multilateral efforts to protect and enforce IPRs. As part of the
Security and Prosperity Partnership (SPP) of North America, Canada, the United
States, and Mexico developed an Intellectual Property Action Strategy, an overall
plan to combat piracy and counterfeiting. Under the plan, the three countries agreed
to improve IPR protection and enforcement by combating trade in IPR-infringing
goods, increasing public awareness and outreach, and engaging in activities to better
CRS-50
measure IPR infringement levels. In addition, Canada and the United States are
among the states working on a new international IPR trade agreement, the AntiCounterfeiting Trade Agreement (ACTA), which would focus on international
cooperation, best practices for IPR enforcement, and an IPR legal framework. ACTA
would set enforcement standards higher than that of the WTO TRIPS Agreement.
Questions. 1. What issues have arisen in developing legislation to implement
the WIPO Internet treaties? What is Canada’s vision of fair and balanced copyright
law? How would Canada’s implementation of the WIPO Internet treaties differ from
the U.S. DCMA?
2. What measures is Canada currently taking to address trade and transshipment of
pirated and counterfeit goods? What steps can Canada undertake to improve IPR
border and domestic enforcement? What can the United States do to assist Canada
in improving IPR enforcement?
3. How does Canada view the U.S. Special 301 process? How does the Special 301
list affect U.S.-Canadian relations? Does identification on the list affect Canadian
IPR policy?
4. What steps has Canada taken to promote international protection and enforcement
of IPR? What are the opportunities and challenges that Canada sees in the SPP and
ACTA?
Electric Reliability68
Issue Definition. Reliability of electricity supply is a significant concern in
both Canada and the United States. As was shown during the 2003 blackout, both
countries are interconnected, and operational control issues in one country can affect
the electric system in both countries. The Energy Policy Act of 2005 (P.L. 109-58)
requires the formation of an Electric Reliability Organization (ERO) with enforceable
standards and mandatory membership. The Federal Energy Regulatory Commission
(FERC) has selected the North American Electric Reliability Corporation (NERC)
as the ERO and has approved 102 of the ERO’s 142 proposed reliability standards.
NERC is an industry organization whose membership had been voluntary prior to
enactment of the Energy Policy Act of 2005. Its mission is to ensure that the bulk
power system is reliable, adequate, and secure. The ten regional reliability councils
of NERC account for virtually all the electricity supplied and used in the United
States, Canada, and a small portion of Mexico. At issue is whether the provincial
and federal governments of Canada will approve and enforce FERC-approved
reliability standards. In addition, the U.S. electric industry relies on Canadian
natural gas to generate approximately 16% of U.S. electricity generation. At issue is
whether Canada will be able to continue to increase its exports of natural gas to the
United States.
68
Prepared by Stan Kaplan, Specialist in Energy and Environmental Policy, and Amy Abel,
Specialist in Energy Policy, Resources, Science, and Industry Division.
CRS-51
Background and Analysis. There are three components of electric power
delivery: generation, transmission, and distribution. Electric generators need to move
their power to their ultimate customers through the transmission system, crossing
state and international borders. The current system allows for power transfers within,
but not between, three major regions of the United States, Canada, and parts of
Mexico: the area west of the Rockies (Western Interconnection), Texas, and the
Eastern Interconnection. Because of these international interconnections, operational
control issues in one country may affect the reliability of the power supply in the
neighboring country.
The United States is a net importer of electricity from Canada. In 2006, net
imports of electricity from Canada were 17.4 terawatt-hours [1 terawatt-hour=1012
watt-hours], which increased to 29.6 terawatt-hours in 2007. During 2006 (the latest
published data), total sales to ultimate consumers of electricity in the United States
were 3,670 terawatt-hours.
On September 15, 2006, the National Energy Board of Canada entered into a
Memorandum of Understanding recognizing NERC as the ERO for jurisdictional
transmission lines. This allows the National Energy Board to promote ERO
standards for international transmission lines but not for lines located within
Canada’s borders. Ontario is the only province that has approved NERC reliability
standards.
Transmission Constraints. Power transfers between the United States and
Canada are limited by the physical infrastructure of the transmission system and its
operation. One method to improve reliability is to increase transmission capacity.
Bangor Hydro (Maine) and New Brunswick Power energized the newly constructed
Northeast Reliability Interconnect transmission line in December 2007. Sea Breeze
Power Corporation has applied for a U.S. Presidential Permit for the construction of
a 550-megawatt high voltage transmission line. The U.S. Department of Energy has
not completed its consideration of the permit. The proposed line would extend from
Vancouver Island to the Olympic Peninsula in Washington state. Sea Breeze Power
Corporation obtained the necessary permits from the National Energy Board of
Canada on September 7, 2006.
Three types of constraints limit the transfer capability within the existing
transmission system: thermal constraints, voltage constraints, and system operating
constraints. Thermal constraints limit the capability of a transmission line or
transformer to carry power because the resistance created by the movement of
electrons causes heat to be produced. Overheating can lead to two possible
problems: The transmission line loses strength, which can reduce the expected life
of the line, and the transmission line expands and sags between the supporting
towers. This presents safety issues as the lines approach the ground as well as
reliability concerns. Voltage can be likened to the pressure inside the transmission
system. Constraints on the maximum voltage levels are set by the design of the
transmission line. If voltage levels exceed the maximum, short-circuits, radio
interference, and noise may occur. Low voltages are also a problem and can cause
customers’ equipment to malfunction and can damage motors. System operating
constraints refer to reliability and security. Maintaining synchronization among
generators on the system as well as preventing the collapse of voltages are major
CRS-52
aspects of the role for transmission operators. ERO standards require utilities to be
able to handle any single outage through redundancy in the system. Reducing the
constraints on the system through technology improvements is one way to increase
the transfer capability over existing lines.
Status of the Issue. The Energy Policy Act of 2005 provides for an Electric
Reliability Organization to develop and enforce mandatory reliability standards.
FERC issued a final rule on the certification of the ERO on February 2, 2006. The
rulemaking included provisions for the approval and enforcement of mandatory
electric reliability standards. On April 4, 2006, NERC filed its application to become
the ERO in both the United States and Canada. FERC approved NERC as the ERO
on July 20, 2006.
Natural Gas Supply. A significant part of U.S. gas consumption is used to
fuel power plants. Currently about 20% of electric generation in the United States
is produced using natural gas. In 2006, generators consumed about 6.2 trillion cubic
feet (Tcf) of natural gas, equivalent to 29% of total consumption (21.7 Tcf). Under
the Energy Information Administration’s current Annual Energy Outlook reference
case, gas used for power generation is expected to remain near current levels in the
midterm, before slowly declining to 5.0 Tcf by 2030. However, this projection is
based on current laws and regulations, and does not account for prospective actions,
such as climate change regulation, that could encourage the use of natural gas over
coal in new power plants. A recent EIA study of the Lieberman-Warner Climate
Security Act of 2007 investigated several implementation scenarios, including cases
in which natural gas-fired generation increases by up to 88% as early as 2020 and
accounts for over a third of all power production.
A secure and affordable supply of natural gas is therefore important to the U.S.
power sector today, and in some scenarios that importance could grow substantially.
The United States does not, however, produce enough natural gas to meet its own
needs; the United States is the world’s largest natural gas importer. In 2006 imports
totaled 4.2 Tcf compared to consumption of 21.7 Tcf. Over 80% of gross U.S.
imports are delivered via pipeline from Canada (3.6 Tcf in 2006). However,
Canadian imports are expected by EIA to decline steadily, to under 1 Tcf by 2025.
The Canadian National Energy Board (NEB) also expects net exports to decline
under current trends, with Canada becoming a net importer of gas by 2030. The
decline in exports is due to increases in Canadian consumption, demand for gas and
competition for investment capital from oil sands extraction projects, and reduced
productivity from gas production fields in western Canada. The decline in Canadian
exports may cause the United States to rely increasingly on potentially less secure
sources of natural gas imports, brought into the country by tanker as liquefied natural
gas.
Questions. 1. Will Canadian regulators approve and enforce identical electric
reliability standards? Without identical standards and enforcement, the reliability of
the electric power system could be reduced.
2. Encouraging investment to improve reliability has not been a goal of electric
regulatory restructuring. In a more competitive electric market, utilities minimize
unnecessary expenses. For example, FirstEnergy implemented cost saving measures
CRS-53
by reducing the frequency of tree trimming activities, contributing to the blackout of
2003. Compliance with reliability standards may involve new capital investment
and/or expenses. Will regulators in both the United States and Canada approve
recovery of these costs?
3. What steps are the Canadian federal and provincial governments likely to take to
maintain and increase gas production?
4. What are the prospects for using alternative fuels in Canadian oil sands extraction
projects (a major and potentially growing domestic consumer of natural gas)?
U.S. Energy Security and Canadian Oil Sands69
Issue Definition. Canada now ranks as the United States’ number one source
of imported petroleum and thus plays an increasing role in U.S. energy security.
Canada’s oil sands make up an increasing proportion of its petroleum production, and
Canada’s oil sands producers continue to look to the United States as the major
market for their heavy oil exports. Of the nearly one million barrels per day (mbd)
of petroleum Canada exports to the United States, 75% is delivered to the Midwest.
This region’s current capacity and planned expansion places it in a position to receive
some increased heavy oil exports from Canada.
Overall U.S. refinery capacity is forecast to increase from 16.9 mbd in 2004
to nearly 19.3 mbd in 2030 — a 2.4 mbd increase. Several announced refinery
expansions will come online by 2015. The expanded capacity may not be enough to
keep up with Canada’s projected increase in oil sand production, even if the
expansion includes upgrades in heavy oil processing. Canada is also pursuing
additional refinery capacity for its heavier oil. Refinery expansions will have
environmental impacts, and Congress will continue to face controversy over the
balance between energy security and the environment.
Another matter of concern is Section 526 of the recently enacted Energy
Independence and Security Act of 2007 (P.L. 110-140) that prohibits federal
procurement of an alternative or synthetic fuel “unless the contract specifies that the
lifecycle GHG emissions are less than or equal to such emissions from the equivalent
conventional fuel produced from conventional petroleum sources.” The provision
is intended to ensure that federal agencies are not spending taxpayer dollars to
promote new fuel sources that will exacerbate global warming, and would apply to
fuels derived from “tar sands,” (a term synonymous with oil sands) which are
currently associated with producing higher greenhouse gas emissions than fuels
derived from conventional petroleum.
Background and Analysis. When it comes to future oil supplies, Canada’s
oil sands will likely make up a larger share of U.S. oil imports. Oil sands account for
about 42% of Canada’s total oil production, and oil sand production is increasing as
69
by Marc Humphries, Analyst in Energy Policy; and Anthony Andrews, Specialist In
Energy and Energy Infrastructure Policy; Resources, Science, and Industry Division.
CRS-54
conventional oil production declines. Since 2004, when production from a substantial
portion of Canada’s oil sands were deemed economic, Canada has been ranked
second behind Saudi Arabia in oil reserves. Canada has 175 billion barrels of
reserves and a total of over 300 billion barrels of potentially recoverable oil sands (an
attractive investment under current conditions demonstrated by the billions of dollars
already committed to Canadian development). Canadian crude oil exports (from oil
sands and petroleum) were about 1.82 million barrels per day (mpd) in 2006, of
which 1.8 mbd or 99% went to the United States. Canadian crude oil accounts for
about 18% of U.S. net imports and about 12% of all U.S. crude oil supply. U.S.based oil companies are major investors in Canadian oil sands. The infrastructure to
produce, upgrade, refine, and transport oil from Canadian oil sand reserves to the
United States is already in place. Oil sands production is expected to rise from its
current level of 1.3 mbd to 2.8 mbd by 2015.
Greenhouse gas “emissions intensity” (CO2/barrel) from oil sands are
significantly higher than that from conventional oil production. Canada’s federal
government classifies the oil sands industry as a large industrial air pollution emitter
and expects it to produce half of Canada’s growth in greenhouse gas (GHG)
emissions by 2010. Reducing air emissions is one of the most serious challenges
facing the oil sands industry. Between 1995-2004, the oil sands industry reduced its
emission intensity by 29% while oil production rose. Overall, CO2 emissions have
declined from 0.14 tons/barrel (bbl) to about 0.08 tons/bbl since 1990. However,
Alberta’s GHG goals of 238 megatons of CO2 in 2010 and 218 megatons CO2 in
2020 are not expected to be met.
Status of the Issue. New refinery capacity that would accommodate heavier
crude from Canadian oil sands is being challenged in Indiana, Michigan, South
Dakota, and elsewhere. Some of these expansions or new refineries are several years
away. A BP refinery upgrade and expansion in Whiting, Indiana, expected to be
complete in 2011, is in the permitting stage as its air permit is undergoing regulatory
review and public comment. A new $10 billion refinery in Union County, South
Dakota, being planned to process heavy crude from oil sands, would be the first new
refinery in the United States in over 25 years. Environmental groups continue to
promote standards for low-carbon emission fuel and oppose the permitting of these
refinery projects on the basis that processing heavy crude from Canadian oil sands
would generate much higher greenhouse gas emissions than from conventional
petroleum sources.
The National Defense Authorization bill for Fiscal Year 2009, as marked up by
the Senate Armed Services Committee, would authorize ten-year contracts for the
purchase of alternative and synthetic fuels while incorporating greenhouse gas
requirements identical to those in Section 526 of the Energy Independence and
Security Act. Bills such as the American Energy Production Act (S. 2958) would
repeal Section 526.
Questions. 1. What changes are necessary to significantly reduce the
environmental footprint of heavy oil from Canadian oil sands?
2. How much capital investment in pipeline and refinery infrastructure is needed to
support increased crude oil imports from Canada?
CRS-55
3. What would be the impact on U.S. federal and defense fuel procurements if
Section 526 restrictions remain in place on fuel produced from Canadian oil sands?
4. How much Canadian crude oil is expected to be impacted by Section 526?
Natural Gas Pipeline from Alaska70
Issue Definition. In October 2004, Congress approved the Alaska Natural
Gas Pipeline Act (ANGPA), which authorizes, in principle, a pipeline to carry natural
gas from Alaska’s North Slope, establishes rules governing its construction, and
authorizes federal guarantees on pipeline project loans. In 2006, the then-Governor
Murkowski of Alaska and the three North Slope oil producers and the state of Alaska
agreed on a contract to build the pipeline. But the contract never received the
necessary approval of the state legislature, and a new governor, Sarah Palin, took
office in December 2006. She has called for a new contract with a firm or
consortium of firms, to build the pipeline, in accordance with new legislation that has
been introduced in the legislature. In 2007, TransCanada Corporation, the Alberta,
Canada based pipeline operator, submitted the only proposal that met state
guidelines. Governor Palin has not sent the proposal to the legislature for
consideration. In 2008, BP and ConocoPhillips proposed a pipeline project that
required no state money for construction.
The destination of the gas is expected to be markets in the lower 48 states. A
proviso of ANGPA effectively prevents the pipeline from passing through or near the
Mackenzie Delta gas fields in northwest Canada. This prohibition appears likely to
limit the potential gas throughput inasmuch as Canada is moving to construct its own
pipeline from the Mackenzie Delta fields. It is the sense of Congress, as stated in
ANGPA, that there is sufficient demand for gas from both projects. Also, if the
Mackenzie pipeline is built, it appears at this time that all the gas from that project
would be used to operate the oil sands projects in northern Alberta.
Background and Analysis. Alaskan natural gas is a major potential U.S.
energy resource that has been hardly tapped. The Alaska Department of Natural
Resources estimates recoverable gas reserves in the North Slope oil fields at about
30 trillion cubic feet (tcf), which is the energy equivalent of about 5.3 billion barrels
of oil. Natural gas is believed to be under the Arctic National Wildlife Refuge
(ANWR) as well, although seemingly not as much as already discovered in the rest
of the North Slope. The already discovered natural gas resource has not been
developed because of a lack of a cost-effective means of transportation to major
markets; estimated costs of construction have precluded serious consideration of
transporting the gas by pipeline. Most of the gas produced so far on Alaska’s North
Slope — 80% of the 8-9 billion cubic feet produced annually — has been re-injected
into the ground. The small amounts produced are used for operations in conjunction
with oil production and transportation, such as powering oil through pipelines.
70
Prepared by Robert Pirog, Specialist in Energy Economics, Resources, Science, and
Industry Division.
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Construction of a pipeline to transport natural gas to North American markets
and/or a warm-water port for shipping liquefied natural gas (LNG) could enhance
North Slope oil and gas economics and the commercial promise of ANWR. Recent
steep increases in gas prices and projections of continued high prices have suggested
improvement in the relationship between market prices and the combined cost of
known North Slope gas resources and of pipeline transportation. Potential
profitability of the authorized pipeline is enhanced by the $18 billion in loan
guarantees approved by Congress for the project, estimated in 2004 to cost as much
as $20 billion. Since then, however, the rising costs of steel, other material and
construction labor have driven estimated costs of the pipeline to approximately $30
billion. The LNG alternative, a possibility considered by the state of Alaska, has so
far not found favor with the North Slope producers.
Congress had previously created a statutory framework for an Alaska natural gas
pipeline in the mid-1970s. Legislative authority for designation of the route, and for
the U.S. role in the approval, construction and operation of such a pipeline, were
established in the Alaska Natural Gas Transportation Act of 1976 (15 USC 719 et
seq.). Under that authority, still in force, a gas pipeline would parallel the existing
Alaska oil pipeline from the North Slope to Fairbanks, then head southeastward
along the Alaska Highway and into Canada via the Yukon Territory, British
Columbia, and Alberta. This, the Alaska Natural Gas Transportation System
(ANGTS), was approved by the U.S. and Canadian governments. Phase I of the
ANGTS pipeline was completed in the early 1980s and is in operation. Its two legs,
stretching from a collecting point in Alberta in the directions of the U.S. West Coast
and the Midwest, respectively, deliver one-third of Canada’s total annual gas exports
to the United States. The construction of the third leg, connecting North Slope to the
“prebuilt” network, has never been started.
Alaska has enacted separate legislation that bans construction of a gas pipeline
in northern state waters, while supporting a pipeline to the south. Under the shorter,
less costly, northern route, wellhead prices (determined by subtracting transportation
cost from market price) would be higher, and royalties to the state would be higher
(the gas resources are state-owned). But state officials see greater gain through the
income multiplier effect of construction within the state and Alaskan communities’
greater access to the gas supplies. There are some questions concerning who will
construct and operate the Canadian portion of the pipeline originating in Alaska, but
the Canadian government has promised that these issues will not impede completion
of the project. The U.S.-authorized pipeline likely would not enter service for ten
years after an initial construction contract is approved.
Canada supports a natural gas pipeline that would travel from the North Slope
through Canada and has opposed any unilateral selection of routes by the United
States. The Canadian government believes that the private sector is best suited to
decide the route, subject to regulatory and environmental review procedures. Canada
has an interest in selling more oil and natural gas to meet U.S. energy needs. Both
the Canadian government and the Bush Administration opposed supporting
development of a pipeline by setting a government-guaranteed price floor under gas
delivered from Alaska, and such a provision was not included in the ANGPA
legislation.
CRS-57
Negotiations are continuing in Canada on the plan to build the Mackenzie
Valley gas pipeline, which is intended to carry natural gas from inside the Arctic
Circle to northern Alberta, where it would flow into the existing natural gas
transportation system. A joint review panel has been established under the auspices
of the Canadian National Energy Board, for the purpose of determining the feasibility
of the Mackenzie project. Among the subjects it is considering are the participation
and compensation of aboriginal peoples in Canada along the route of the pipeline.
A final report is due to the National Energy Board by mid-2007. The Board will then
make a final recommendation to the Canadian government, possibly in 2008.
Status of the Issue. Both the United States and Canada are moving toward
the construction of natural gas pipelines built from their respective Arctic regions that
will partly compete with each other for markets in the Lower 48 states and in
southern Canada. At this time, neither the Canadian or the U.S. and the state of
Alaska have authorized projects in place. As the Mackenzie route is technically less
difficult than that from Alaska, it might seem that the Canadian project could be
completed more quickly and sooner than the Alaska natural gas pipeline, if Canada
decides to go ahead with the project.
Questions. 1. How close is Canada to actually making a decision to go ahead
on the Mackenzie pipeline?
2. Will the Canadian project begin construction long enough before the U.S. project
begins so as to minimize competition between the projects for inputs such as labor
and steel?
3. To what extent might the partly competing natural gas pipelines, once completed,
diminish the economic viability of each other?
4. What proportion of the gas delivered by the Mackenzie pipeline is likely to be
used by the Canadian oil sands development?
5. Is it likely that further delays in either, or both, pipeline projects will cause the
North American gas market to be lost to LNGimports?
Northern Energy Development71
Issue Definition. Should the United States proceed to develop energy
resources thought to be in the coastal plain of the Arctic National Wildlife Refuge
(ANWR)? And if it chooses to do so, how would Canadian interests, especially
those of the Gwich’in people who live on both sides of the Alaska/Yukon boundary,
be affected? Canada opposes ANWR development, arguing a need to protect the
calving grounds of a caribou herd heavily used by Gwich’in in both countries.
71
Prepared by M. Lynne Corn, Specialist in Natural Resources Policy; Resources, Science,
and Industry Division.
CRS-58
Background and Analysis. During the 110th Congress, ANWR has not
been a major element of the energy debate until the run-up in energy prices. Some
bills in the second session of Congress have been introduced to address energy
supply and these bills include titles to open the Refuge. The debate is (a) the extent
to which any ANWR discoveries might lower energy prices, and (b) whether to
approve energy development in the Arctic National Wildlife Refuge (ANWR) in
northeastern Alaska, and if so, under what restrictions, or whether to continue to
prohibit development to protect the area’s biological resources. ANWR is an area
rich in fauna, flora, and oil potential. Development proponents argue that ANWR oil
would reduce U.S. energy markets’ exposure to recurring crises in the Middle East,
create many jobs in Alaska and elsewhere, boost North Slope oil production, and
extend the economic life of the Trans Alaska Pipeline System. They maintain that
ANWR oil could be developed with minimal environmental harm, with a footprint
limited to 2,000 acres of the 19 million acre Refuge. Opponents argue that intrusion
on this ecosystem cannot be justified on any terms; that it should be designated as
wilderness; that oil found (if any) would provide little energy security and could be
replaced by cost-effective alternatives; and that job claims are exaggerated. With the
change in control of the House and Senate, chance of action on ANWR development
appears much reduced, especially since any ANWR oil would come on-line in 7 to
12 years, and therefore have little immediate effect on gasoline prices. At the same
time, prospects of legislation to protect the area as statutory wilderness are also dim,
due to the likelihood of a Senate filibuster and presidential veto.
Global warming has added a new factor to the debate in recent years. If the
Arctic Ocean becomes navigable in the summer, northern oil and gas may be more
readily transported to lucrative markets in the North Atlantic. This reduced cost
would make marginal finds in either country more profitable and lead to increased
industry interest.
Canada opposes energy development in ANWR primarily because it might
disturb calving of the Porcupine Caribou Herd (PCH). The PCH is covered under the
Agreement Between the United States of America and Canada on the Conservation
of the Porcupine Caribou Herd, which entered into force on July 17, 1987. The
objective of the agreement is to conserve the herd for customary, traditional uses by
peoples on both sides of the international boundary, with disputes to be settled by
consultation between the parties. Since it was an executive agreement, no
implementing legislation was required. The U.S. agency primarily responsible for
implementing the agreement is the Fish and Wildlife Service.
The range of the PCH is centered on the Porcupine River in the United States
and Canada; the herd winters south of the Brooks Range in both nations. The herd
of about 130,000 animals provides the staple diet of Gwich’in hunters in Alaska, the
Yukon, and the Northwest Territories. It is also the source of cultural tradition and
a focus of religious ceremonies. Fearing that oil development in the herd’s most
frequent calving ground in ANWR’s coastal plain area might jeopardize their
livelihood and even their culture, the Gwich’in on both sides of the border have
vigorously opposed development. Indeed, the concern over the PCH has invigorated
cross-border contacts between Gwich’in for more than a decade.
CRS-59
Under current law, Alaskan Gwich’in would receive relatively little economic
benefit from development, successful or otherwise. (Canadian Gwich’in would
receive no direct economic benefit; there are no known reports of indirect benefits.)
In contrast, Inuit Natives (primarily from Barrow and Kaktovik) along Alaska’s
North Slope would receive tax revenues, as well as bonus, royalty, and rent payments
if successful development took place on Native-owned subsurface lands within
ANWR. As a result of their experience with Prudhoe Bay development, and of its
effects on the smaller Central Arctic Herd (CAH), many Inuit feel that ANWR
development can proceed without significant risk to the PCH. Other Alaskan Inuit
are more cautious, with villagers such as some in Nuiqsut, west of ANWR, arguing
that a nearby existing development has not generated expected levels of employment
or dividends, while exacerbating social problems or driving a local caribou herd
farther away.
The Canadian portion of the PCH calving ground is protected in Ivvavik
National Park. While some energy exploration has taken place in the Canadian
portion of the calving area, Canadians argue that that activity occurred only before
the government was aware of the importance of the area to the PCH. Indeed, some
Canadian industry officials have complained of government hostility to development
in the northern areas of the country, based on what they perceive as overzealous
environmental concerns. Critics note that the Canadian part of the calving area was
protected not only after the area’s importance to caribou was known, but also after
it was known to lack commercial energy resources. Canada is proceeding with
development plans farther east, in the Mackenzie River Delta.
Status of the Issue. Canadian Prime Ministers have raised the issue of
development in the PCH calving range on several occasions over the years, and their
government has sent numerous position papers to various U.S. agencies and
departments. Three ANWR development bills have been introduced in the 110th
Congress; two bills have been introduced to designate the area as wilderness. The
Alaska delegation and the Bush Administration remain strong proponents of ANWR
development.
Questions. 1. What data are available to the federal or provincial
governments regarding the effects of global climate change on northern species such
as the PCH?
2. Is Canada planning for increased industry activity in the Arctic in the coming
decades? Have natural resource companies (i.e., energy, mining, and others) become
more active in recent years? Is any other industry already showing signs of increased
interest, and if so, how and where? How have development practices changed in
light of melting permafrost and other climate-related impacts?
3. If Congress were to decide to open ANWR to development, are there specific
mitigation practices that Canada is seeking for the protection of caribou? For the
protection of other marine or terrestrial species?
4. What energy activities are going on currently in the northern Yukon and the
Northwest Territories? What activities have occurred in the last two years? How do
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these activities affect calving grounds, migration routes, and wintering areas in
Canada? Are there any known effects on the PCH?
5. How can one reconcile the opposition of the Canadian government to energy
development in ANWR (where the PCH calves in most years) to its support of an
“over-the-top” natural gas pipeline? Would the pipeline be sited to avoid the areas
that the PCH tends to use for calving in the years when it does not reach ANWR in
time for calving?
Great Lakes Restoration72
Issue Definition. The Great Lakes are recognized by many as an international
natural resource that has been significantly altered over the last two centuries. In
response, the federal governments of the United States and Canada, and the state and
provincial governments in the Great Lakes basin have implemented several
restoration activities. After several years of restoration activities, some contend that
efforts are not progressing and are loosely organized. Some specific concerns include
the slow rate of cleaning up toxic sediments in this ecosystem, and the potential
negative consequences of new proposals to withdraw large volumes of water from
the Great Lakes for consumption.
Background and Analysis. The Great Lakes watershed is the largest system
of fresh surface water in the world. The watershed covers approximately 300,000
square miles and is shared by eight U.S. states (Illinois, Indiana, Michigan,
Minnesota, New York, Ohio, Pennsylvania, and Wisconsin) and one Canadian
province (Ontario). The Great Lakes contain nearly 90% of the surface freshwater
of the United States and 20% of the surface freshwater of the world. An estimated
40 million people rely on the Great Lakes basin to provide jobs, drinking water, and
recreation, among other things. In the last several decades, agricultural activity
throughout the basin, and urban and industrial development concentrated along the
shoreline, have degraded water quality in the Great Lakes, posing potential threats
to the ecosystem. Development has also led to changes in terrestrial and aquatic
habitats, the introduction of non-native species, the contamination of sediments, and
the listing of more than 50 threatened or endangered species in the basin.
The Great Lakes Strategy. In 2004 a federal Great Lakes Interagency Task
Force was created to provide strategic direction for Great Lakes policies on
restoration and to form a regional collaboration of stakeholders interested in restoring
the Great Lakes ecosystem. The Great Lakes Regional Collaboration, which consists
of over 1,500 stakeholders, released the Great Lakes Regional Collaboration Strategy,
a plan based on implementing a series of recommendations for actions and activities
to start the restoration of the Great Lakes ecosystem over the next five years. The
Strategy encompasses eight issue areas: aquatic invasive species, fish and wildlife
habitat (habitat/species), coastal health, contaminated sediments, nonpoint source
pollution, toxic pollutants, indicators and information, and sustainable development.
72
Prepared by Pervaze Sheikh, Analyst Natural Resources Policy, Resources, Science, and
Industry Division.
CRS-61
The total cost of implementing the Strategy is estimated to be $20 billion over five
years. The implementation of the Strategy relies on existing authorities, programs,
and funding at federal, state, and local levels of government, as well as some new
actions that may require enacting new federal legislation.
Restoring Areas of Concern the Great Lakes. The Great Lakes Legacy
Act of 2002 was enacted to address sediment contamination in Areas of Concern
(AOCs) within the Great Lakes ecosystem. AOCs are geographical areas within the
Great Lakes that represent the most degraded portions of the ecosystem. AOCs
contain contaminated sediment, wastewater, and other non-point source pollution.
In 1987, the United States and Canada identified 43 AOCs in the Great Lakes basin.
Twenty-six AOCs are in U.S. waters, 12 in Canadian waters, and 5 shared by both
countries. The act authorizes $50 million annually in appropriations for FY2004FY2008 for contaminated sediment remediation projects in AOCs in the United
States. From FY2004-FY2008, there has been approximately $126 million
appropriated to all programs authorized under the Legacy Act, approximately half the
authorized amount. The act also authorizes funding for research and development
of remediation technologies, and public outreach and education about remediation.
The Environmental Protection Agency (EPA) administers the selection and funding
of projects authorized under the Legacy Act. Six projects are currently being
evaluated, one projects is underway, and four projects have been completed under the
Legacy Act. No AOCs have been delisted in the United States and two have been
delisted in Canada.
Water Withdrawals From the Great Lakes. Several laws, policies, and
governing bodies regulate the use, withdrawal, and diversion of water from the Great
Lakes basin; however, the concern over domestic and international demand for Great
Lakes water has prompted officials from the United States and Canada to reevaluate
these laws and policies. The Council of Great Lakes Governors (CGLG) — a
partnership of the governors of the eight Great Lakes states and the Canadian
provincial premiers of Ontario and Quebec — was tasked with creating a new
common conservation standard to manage water diversions, withdrawals, and
consumptive use proposals. In 2005, the CGLG released (1) the Great Lakes-St.
Lawrence River Basin Sustainable Water Resources Agreement (Agreement) and (2)
the Great Lakes-St. Lawrence River Basin Water Resources Compact (Compact).
These water management proposals ban new and increased diversions of water
outside the Great Lakes Basin with only limited, highly regulated exceptions, and
establish a framework for each state and province to enact laws protecting the Basin.
The Compact needs to be approved by each state legislature, as well as the U.S.
Congress, to achieve full force and effect as an interstate compact. Each of the Great
Lake states are considering the Compact. Currently, one state (Michigan) has
introduced a related bill; three states (Ohio, Pennsylvania, and Wisconsin) have
passed bills in one chamber; and four states (Illinois, Indiana, Minnesota, and New
York) have enacted legislation approving the Compact. The Canadian federal
government and the provinces of Ontario or Quebec are not parties to the Compact;
however, the provinces are signatories to the related international state-provincial
Agreement.
Status of the Issue. Several bills have been introduced in the present
Congress that address restoration of the Great Lakes ecosystem. None of the bills
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authorize the implementation of the Strategy, nor authorize funding for restoration
prescribed by the Strategy. The Great Lakes Collaboration Implementation Act (H.R.
1350 and S. 791), introduced March 6, 2007, is the most prominent restoration bill.
This bill would authorize appropriations to conduct research, provide for detection
and prevention of aquatic non-native species around the country, address water
quality in the Great Lakes, and ocean monitoring. The bill would also authorize
duties and activities for the Great Lakes Interagency Task Force and the Great Lakes
Regional Collaboration. A separate bill introduced May 9, 2008 would reauthorize
the Great Lakes Legacy Act and authorize $150 million annually from FY2008FY2012 for cleaning up AOCs in the U.S. Other bills in the 110th Congress address
invasive species in the Great Lakes, migratory birds, and specific projects that may
restore portions of the Great Lakes ecosystem. Water withdrawals guidelines for the
Great Lakes as prescribed in the Compact and Agreement have not been addressed
in the present Congress.
Questions. 1. Given that the boundaries of the Great Lakes ecosystem
extends across the United States and Canada, what major efforts are being done in
Canada to restore the Great Lakes? Is Canada considering a comprehensive
restoration plan that may involve binational participation?
2. What efforts are being done to clean-up AOCs in Canada, and have they been
successful? Is there scientific, technical, or programmatic collaboration between the
U.S. and Canada in cleaning up AOCs shared by both countries?
3. The Compact and resulting water withdrawals could potentially affect the
environment and the economies of, and relationship between, Canada and the United
States. What is the Canadian position on the Compact and Agreement? Is Canada
considering similar measures to govern its use of Great Lakes water? Would a
parallel Compact in Canada be considered at some time?
4. Water quality is a concern for many in the U.S. and Canada, and is currently
addressed by the Great Lakes Water Quality Agreement. The Agreement is being
considered for revision by the Governments of Canada and the United States. What
is the status of the review of the Agreement? Is Canada considering revisions to the
Agreement?
Great Lakes Water Levels73
Issue Definition. Great Lakes water levels have been decreasing steadily
since 1997, with Lake Superior setting a record low for September in 2007, and
Lakes Michigan and Huron near their record lows for December in 2007. Low water
levels disrupt shipping, alter coastal and aquatic ecosystems, reduce recreational
boating and fishing, and adversely affect water quality. Water levels are directly
related to precipitation, runoff, evapotranspiration, and outflows (e.g., through the St.
Lawrence River and diversions). Climate change and new precipitation patterns are
73
Prepared by Pervaze A. Sheikh, Analyst in Natural Resources Policy, Resources, Science,
and Industry Division.
CRS-63
cited as a possible causes for low water levels. Some also contend that dredging in
Lake St. Clair in the 1960s might have led to widening the channel in the St. Clair
River and increasing outflows from the Lakes. Understanding the causes of declining
water levels in the Great Lakes is a concern for many because of their potential
economic and environmental costs.
Background. The Great Lakes watershed is the largest system of fresh surface
water in the world. The Great Lakes contain nearly 95% of the surface freshwater
in North America and 20% of the surface freshwater of the world. An estimated 40
million people rely on the Great Lakes basin to provide jobs, drinking water, and
recreation, among other things. The water levels of the Great Lakes are affected by
a number of factors, including precipitation, evaporation, groundwater, surface water
runoff, diversions into and out of the system and regulation. Some of these factors
are controlled by the seasons, which can bring varying amounts of precipitation and
runoff to the lakes. For example, water levels are high in the spring and summer,
when runoff amounts are high, but low in the winter, when little or no runoff occurs.
As a system, the Great Lakes annually lose approximately 1% of their water through
natural outflows (i.e., via the St. Lawrence River).
Decline in Water Levels. Water levels in the Great Lakes have been
declining since 1997, according to the National Oceanic and Atmospheric
Administration (NOAA). This decline is most prominent in Lake Superior, which
recorded a historic low for September and October 2007. Some contend that recent
declines in Great Lakes water levels are following a pattern of fluctuating Lake levels
that have been recorded since the 1800s. For example, Lakes Huron and Michigan
experienced record highs in 1886 and 1986; and experienced record lows in the
1930s, corresponding to drought conditions during the Dust Bowl. Others suggest
that low water levels are a combination of several natural and man-made factors.
NOAA collects data on historic water levels in the Great Lakes, and the U.S. Army
Corps of Engineers (Corps) maintains models that predict changes in Great Lakes
water levels. Corps models, for example, predict below average water levels for
Lake Michigan, Lake Huron, and Lake Superior for the remainder of 2008.
Potential Threats to Water Levels. Potential changes in water levels may
come from existing and new diversions; climatic variations; geologic processes;
variations in precipitation, evaporation, and runoff; population growth; and changes
in land use (i.e., farm to urban). Many contend the greatest threat to water levels in
the Great Lakes is excessive consumptive withdrawals.
Most experts believe that there is still much to be learned regarding the effects
of water withdrawals, climate change, and consumptive uses on the Great Lakes.
Moreover, trying to determine the individual impact of a single factor may be
difficult to quantify because more than one factor might contributing to declining
water levels. Accordingly, many have become concerned with the cumulative effects
of these factors on the Great Lakes. The International Joint Commission (IJC) began
an investigation in the causes of water level decline in Lake Superior in March 2007.
Effects of climate change, dredging and channel widening in the St. Clair River, and
changes in precipitation are some of the factors being considered. With respect to
climate change, some hypothesize that warmer winters in the Great Lakes basin will
lead to less ice formation on the Lakes, and consequently greater evaporation of
CRS-64
water into the atmosphere. If precipitation does not correspondingly increase, then
lower water levels could result. Uncertainty in predicting future water levels, in
conjunction with the cumulative impact that many of the above factors may have on
lake levels, has stimulated many to consider a “precautionary approach” addressing
water withdrawals and diversions out of the Great Lakes Watershed.
Potential Impacts of Low Water Levels. Variations in water levels can
have potentially significant socio-economic and environmental consequences. Lower
water levels can reduce hydroelectric power generation and increase costs to
commercial shipping. The Great Lakes-St. Lawrence shipping corridor, which is
more than 2,300 miles in length, would need more dredging to maintain current
levels of navigation if water levels decrease. Dredging may also be necessary for
recreational boating. Lower water levels could also affect water quality by limiting
the ability of the lakes to flush out toxic substances and excessive levels of nutrients,
such as phosphorous and nitrogen. Coastal wetlands can dry up if water levels
significantly recede along the shoreline and wetland habitat may be replaced by
forested lands or dunes. Receding shorelines could also create problems in accessing
marinas and necessitate change in other infrastructure (e.g., extending water intake
pipes) to maintain recreational and other activities. Some contend that changes in
scenic areas and the environment would decrease tourism and recreation. Lower
water levels may have some positive impacts, such as decreasing the potential for
flooding and increasing the area of beaches in some regions of the Basin.
Status of Issue. Congress is addressing declining water levels in the Great
Lakes through proposed legislation that would authorize the Secretary of Commerce
to study and continue monitoring fluctuating water levels in the Great Lakes (S.
2355, introduced November 14, 2007, and H.R. 250, introduced January 5, 2007).
Great Lakes water levels are indirectly addressed through proposed legislation that
would authorize a national strategy to ensure the recovery, resiliency, and health of
coastal and Great Lakes ecosystems from climate change effects (S. 2211, introduced
October 19, 2007). Lastly, the IJC is conducting a five-year, $15 million study to
examine declining water levels in the Great Lakes. (The duration of the study is from
2007-2012.)
Questions. 1) Understanding the contribution of potential causes for
declining water levels in the Great Lakes is a concern. Is Canada sponsoring any
studies to address this issue, have any results been released?
2) The socio-economic consequences of declining water levels in the Great Lakes
might be significant for both Canada and the United States. Does Canada have any
existing programs that are implementing mitigation strategies for declining water
levels ?
3). Climate change might be a significant factor in declining water levels. Is Canada
addressing the effects of climate change on natural resources such as water supplies
in the Great Lakes, and if so, has Canada developed any strategies for adapting to
climate change that involve the Great Lakes?
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Status of Polar Bears74
Issue Definition. The United States has proposed listing of polar bears as
“threatened” under the Endangered Species Act (ESA; 16 U.S.C. §§1531 et seq.).
Under 1994 amendments to the Marine Mammal Protection Act (MMPA; 16 U.S.C.
§§1361 et seq.), U.S. citizens may obtain permits to import sport-harvested polar bear
trophies from Canada. In Canada, Inuit hunters are permitted to allocate a limited
portion of the subsistence harvest to sport hunters. However, an ESA listing as
“threatened” triggers an automatic listing as “depleted” under the MMPA, a listing
that would prevent U.S. citizens from importing polar bear products. Some suggest
that an import ban, effectively stopping U.S. citizens from hunting polar bear in
Canada, could compromise successful Canadian community-based conservation
programs.
Background and Analysis. Polar bears depend on Arctic sea ice, which
most scientists acknowledge will be affected by climate warming causing, at
minimum, an earlier annual or seasonal thaw and a later freeze of coastal sea ice.
Globally, less than one-third of the 19 known or recognized polar bear populations
are declining, more than one-third are increasing or stable. The remaining third have
insufficient data available to estimate population trends and their status has not been
assessed. Two polar bear populations occur within U.S. jurisdiction.
Polar bears are affected by climate change, contaminants, and subsistence and
sport hunting. Environmental organizations have voiced public concern that polar
bear populations are threatened by climate change. Scientists have confirmed that,
in recent decades, the extent of Arctic sea ice has declined significantly as the result
of climate warming: annual ice break-up in many areas is occurring earlier and
freeze-up later. Arctic sea ice is experiencing a continuing decline that may not
easily be reversed, and some models project that Arctic sea ice could disappear
completely during summer by the second half of this century. In addition, three
groups of contaminants are implicated as potentially threatening polar bears —
petroleum hydrocarbons, persistent organic pollutants, and heavy metals. The United
States allows limited subsistence harvest of polar bears by Alaska Natives. In
Canada, Native hunters are permitted to allocate a limited portion of the subsistence
harvest to sport hunters. Under 1994 amendments to the MMPA, U.S. citizens may
obtain permits to import sport-harvested polar bear trophies from Canada.
Status of the Issue. The Fish and Wildlife Service (FWS) has proposed
listing polar bears as a threatened species under ESA, acknowledging the increasing
threats to their existence. The FWS listing decision must be based solely on the best
available scientific and commercial information regarding five factors: habitat
destruction, overutilization, disease or predation, inadequacy of other regulatory
mechanisms, and other natural or manmade factors. Under a late April 2008 court
ruling, a listing decision on the polar bear must be published by FWS no later than
May 15, 2008.
74
Prepared by Eugene H. Buck, Specialist in Natural Resources Policy; Resources, Science,
and Industry Division.
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In late April 2008, the Committee on the Status of Endangered Wildlife in
Canada (COSEWIC) announced a status assessment of the polar bear in Canada as
a species of “special concern,” with a more detailed official report scheduled for
release in August 2008. After the August COSEWIC report is received, Canada’s
Environment Minister, John Baird, is scheduled to issue a statement outlining how
the Government of Canada will proceed toward a decision on polar bear listing under
Canada’s Species at Risk Act.
Questions. 1. What are the current programs in joint cross-border
management through the Inuvialuit-Inupiat Polar Bear Management Agreement for
the Southern Beaufort Sea between Alaska and Canada?
2. How might halting the hunting of polar bears by U.S. citizens in Canada affect
Canadian community-based conservation programs for this species?
3. What are the options available to Canada under their Species at Risk Act, relative
crsphpgw
to polar bears? arenas. The report is updated annually.
Congressional Research Service
Canada-U.S. Relations
Contents
Overview ....................................................................................................................................1
Canada’s Domestic Scene .....................................................................................................2
Background and Current Political Situation .....................................................................2
Budget Policy .................................................................................................................5
National Unity ................................................................................................................6
Foreign and Security Policy Issues ........................................................................................7
Canadian Foreign Policy .................................................................................................7
Canadian Security Issues.................................................................................................8
U.S.-Canada Security and Foreign Policy Issues............................................................ 10
Economic and Trade Issues ................................................................................................. 17
Bilateral Trade Issues .................................................................................................... 18
Environmental Issues .......................................................................................................... 21
Canada’s Arctic Sovereignty Claim ........................................................................................... 22
Issue Definition............................................................................................................. 22
Background and Analysis .............................................................................................. 23
Status of the Issue ......................................................................................................... 24
Questions ...................................................................................................................... 24
Border Security Issues............................................................................................................... 24
Issue Definition............................................................................................................. 24
Background and Analysis .............................................................................................. 25
Questions ...................................................................................................................... 26
Border Security: Trade and Commercial Concerns .................................................................... 27
Issue Definition............................................................................................................. 27
Background and Analysis .............................................................................................. 27
Status of the Issue ......................................................................................................... 28
Questions ...................................................................................................................... 29
Immigration and Refugee Policies ............................................................................................. 29
Issue Definition............................................................................................................. 29
Background and Analysis .............................................................................................. 29
Status of the Issue ......................................................................................................... 32
Questions ...................................................................................................................... 32
Canada and NAFTA.................................................................................................................. 32
Issue Definition............................................................................................................. 32
Background and Analysis .............................................................................................. 33
Status of the Issue ......................................................................................................... 34
Questions ...................................................................................................................... 34
Security and Prosperity Partnership of North America ............................................................... 34
Issue Definition............................................................................................................. 34
Background and Analysis .............................................................................................. 34
Status of the Issue ......................................................................................................... 36
Questions ...................................................................................................................... 36
Canada’s Financial System........................................................................................................ 36
Issue Definition............................................................................................................. 36
Background and Analysis .............................................................................................. 36
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Canada-U.S. Relations
Questions ...................................................................................................................... 38
Buy American Provisions .......................................................................................................... 38
Issue Definition............................................................................................................. 38
Background and Analysis .............................................................................................. 39
Status of the Issue ......................................................................................................... 40
Questions ...................................................................................................................... 40
U.S. Imports of Canadian Softwood Lumber ............................................................................. 41
Issue Definition............................................................................................................. 41
Background and Analysis .............................................................................................. 41
Status of the Issue ......................................................................................................... 42
Questions ...................................................................................................................... 43
U.S. Agricultural Support Dispute ............................................................................................. 43
Issue Definition............................................................................................................. 43
Background and Analysis .............................................................................................. 44
Status of the Issues........................................................................................................ 45
Questions ...................................................................................................................... 45
Country of Origin Labeling ....................................................................................................... 46
Issue Definition............................................................................................................. 46
Background and Analysis .............................................................................................. 46
Status of the Issue ......................................................................................................... 47
Questions ...................................................................................................................... 48
The Canadian Auto Sector......................................................................................................... 48
Issue Definition............................................................................................................. 48
Background and Analysis .............................................................................................. 48
Status of the Issue ......................................................................................................... 50
Questions:..................................................................................................................... 50
Intellectual Property Rights ....................................................................................................... 51
Issue Definition............................................................................................................. 51
Background and Analysis .............................................................................................. 51
Questions ...................................................................................................................... 53
Electric Reliability, Trade, and Access to Renewable Power ...................................................... 54
Issue Definition............................................................................................................. 54
Background and Analysis .............................................................................................. 54
Status of the Issues........................................................................................................ 56
Questions ...................................................................................................................... 56
U.S. Energy Security and Canadian Oil Sands ........................................................................... 57
Issue Definition............................................................................................................. 57
Background and Analysis .............................................................................................. 57
Status of the Issue ......................................................................................................... 58
Questions ...................................................................................................................... 58
Natural Gas Pipeline from Alaska.............................................................................................. 59
Issue Definition............................................................................................................. 59
Background and Analysis .............................................................................................. 59
Status of the Issue ......................................................................................................... 61
Questions ...................................................................................................................... 61
Northern Energy Development .................................................................................................. 61
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Canada-U.S. Relations
Issue Definition............................................................................................................. 61
Background and Analysis .............................................................................................. 61
Status of the Issue ......................................................................................................... 63
Questions ...................................................................................................................... 63
Global Climate Change ............................................................................................................. 64
Issue Definition............................................................................................................. 64
Background and Analysis .............................................................................................. 64
Status of the Issue ......................................................................................................... 65
Questions ...................................................................................................................... 66
Great Lakes Restoration ............................................................................................................ 67
Issue Definition............................................................................................................. 67
Background and Analysis .............................................................................................. 67
Status of the Issue ......................................................................................................... 69
Questions ...................................................................................................................... 69
Great Lakes Water Levels.......................................................................................................... 70
Issue Definition............................................................................................................. 70
Background and Analysis .............................................................................................. 70
Status of Issue............................................................................................................... 72
Questions ...................................................................................................................... 72
Status of Polar Bears ................................................................................................................. 72
Issue Definition............................................................................................................. 72
Background and Analysis .............................................................................................. 73
Status of the Issue ......................................................................................................... 73
Questions ...................................................................................................................... 73
Contacts
Author Contact Information ...................................................................................................... 74
Congressional Research Service
Canada-U.S. Relations
Overview1
Relations between the United States and Canada, though generally cordial, have undergone
several changes in tenor over the past three decades. The 1980s and early 1990s were marked by
an increasingly close partnership, whose milestones included the mid-1980s “Shamrock
Summits” (named after the Irish heritage shared by the two countries’ leaders, Brian Mulroney
and Ronald Reagan), the 1988 U.S.-Canada Free Trade Agreement, and the 1993 North American
Free Trade Agreement (NAFTA). To many Canadians, however, Ottawa seemed at times to have
drawn a bit too close to Washington, D.C., with Canada casting itself too willingly in a secondary
role.
In 1994, one Canada watcher observed that in the foreign policy arena, Canada “politely distances
itself from the United States” in certain ways. 2 In an interview that year, the newly elected Liberal
Prime Minister Jean Chrétien summed up his view of the bilateral relationship: “We like each
other. I just don’t want Canada to be perceived as being the 51st state of America.... With me, a
more mature relation will exist between us and the United States.”3 Some believe, however, that
this initial show of mild reserve was intended for domestic consumption, particularly during
election campaigns, and that Canada and the United States in fact continued to enjoy excellent
relations. Chrétien and Clinton are said to have had congenial meetings; they focused on areas
where the two countries were able to reach agreement, including environmental issues,
cooperation on border measures and technology projects.
In February 2001, President George W. Bush met with Chrétien. The two leaders discussed
energy, missile defense, and trade. After September 11, however, economic and environmental
issues often took a back seat to joint efforts to improve security, both at home and abroad. Canada
became involved in the crisis at the outset, and has cooperated closely with the United States in
efforts to combat international terrorism. In the immediate aftermath of the 9/11 attacks, U.S.
airspace was temporarily closed and Canada allowed more than 200 flights to American
destinations to be diverted to Canadian airports.
Nevertheless, Chrétien did not establish with President Bush the same rapport that he had enjoyed
with Clinton. Differences over a number of issues tended to strain relations. The Bush
administration inherited some long-standing trade disputes, most notably over wheat and
softwood lumber, and Canada and the United States were on different sides of several
international issues, including the U.S. withdrawal from the ABM treaty and the International
Criminal Court. In addition, the Liberal government’s plan to decriminalize marijuana raised
concerns in Washington. But it was over security-related matters, particularly defense spending,
Iraq, and missile defense, that the two governments had their sharpest differences.
Notwithstanding these controversies, Canada and the United States have continued to work
together on a number of fronts to thwart terrorism, including strengthening border security,
sharing intelligence and expanding law enforcement cooperation. The Canadian government
passed a new anti-terrorism act, and Canada has contributed significant military assets to the
1
Prepared by Carl Ek, Specialist in International Relations; and Ian F. Fergusson, Specialist in International Trade and
Finance, Foreign Affairs, Defense, and Trade Division.
2
“Canada Narrows Its Foreign Policy Goals to Focus on Trade.” By Charles Trueheart. Washington Post.
November 17, 1994. p. A44.
3
“Don’t Take Canada For Granted.” By Tad Szulc. Parade Magazine. February 20, 1994.
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coalition in Afghanistan. Although bilateral tensions heated up in 2005 over the issues of missile
defense and softwood lumber, Canada’s government and private citizens responded promptly and
generously to assist the United States after hurricane Katrina.
Paul Martin, who became prime minister in December 2003, met several times with President
Bush. At the January 2004 Summit of the Americas, the two leaders discussed several topics and
came to agreement on Canadian eligibility to bid on reconstruction contracts in Iraq and on the
ground rules for U.S. deportation of Canadian citizens. In April 2004 in Washington, D.C., Martin
and Bush met once more and talked about a variety of issues, from terrorism to the “mad cow”
crisis. In November 2004, during President Bush’s first official visit to Canada, missile defense,
border security, and global “hot spots” were on the agenda.4
In February 2006, after a come-from-behind election victory, the Conservative Party assumed
power as a minority government, and Stephen Harper became Canada’s 22nd Prime Minister, the
first Conservative to lead the country in 12 years. Observers believe that Harper’s government is
somewhat more politically compatible with the Bush administration in many areas. However,
although the policy orientation of Harper’s Conservatives may be similar to that of the
Republicans in Washington, differences have still arisen on certain issues, particularly those that
touch upon matters of perceived sovereignty. For example, on January 26, 2006, days before his
inauguration, Harper sharply took exception to comments made earlier by U.S. Ambassador to
Canada David Wilkins and asserted Canada’s sovereignty over the so-called Northwest Passage,
the frozen arctic region that global warming may turn into a waterway linking Asia and Europe.5
The election of Barack Obama as America’s President in November 2008 signaled a new chapter
in U.S.-Canada relations. Unlike President Bush, Obama is quite popular in Canada—one public
opinion poll put the new American president’s approval rating in Canada at 86%. This favorable
view may facilitate the Harper government’s cooperative efforts with the United States. In
addition, although Harper has a somewhat more conservative orientation than Obama, both
leaders are pragmatic in their approach to solving public policy problems, and observers believe
the bilateral relationship will continue to be collaborative and productive. On February 19, 2009,
renewing a tradition broken in 2001 by President Bush, Obama made Canada his first official
foreign visit. He and Harper focused on trade, climate change, and Afghanistan, among other
issues. 6
Canada’s Domestic Scene
Background and Current Political Situation
In August 2002, Jean Chrétien, who had served as Prime Minister since 1993, announced that he
would retire from politics when the Liberals held their next leadership vote. Paul Martin, the
former Finance Minister, became Prime Minister in December 2003. Although elections need not
have been held until late 2005, Martin called for a vote in spring 2004. Maintaining a Liberal
4
Bush Welcomes Canadian Prime Minister to the White House. State Department Press Release. April 30, 2004. “Bush
Launches Bid To Repair US-Canada Ties.” Agence France-Presse. November 30, 2004.
5
“Harper Tells U.S. To Butt Out On Plans For Defending Canada’s Arctic.” The Canadian Press. January 26, 2006.
6
US President-Elect Obama Has More Than 80% Approval In Canada. Dow Jones International News. January 29,
2009. Obama Makes Overtures to Canada Prime Minister. New York Times. February 20, 2009.
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majority appeared to be a safe bet when Martin took office, but such an outcome became doubtful
in February 2004, when the “sponsorship scandal” erupted. Canada’s Auditor General published a
report stating that, under a program intended to build support for Canadian unity, the Chrétien
government had funneled C$100 million in public funds for dubious contracts to Québec
advertising firms associated with the Liberal party.7
The Liberals’ standing in the polls plummeted, and the opposition parties gained strength. To the
right of the Liberals, two conservative parties had merged under a popular new leader, Albertan
Stephen Harper. And to the left, the New Democratic Party (NDP) likewise had recently elected a
dynamic party chief, Jack Layton. In the June 2004 elections, the Liberals won 135 out of 308
seats in the House of Commons—a loss of 33 seats—and chose to govern as a minority.
In May 2005, the Liberals survived—by one vote—a proxy confidence vote and avoided spring
elections. But in November they lost a second confidence vote, and federal elections were held on
January 23, 2006. This time, the Conservatives won a plurality. They took 127 out of 308 seats in
the House of Commons, and have been governing as a minority (the Liberals captured 96 seats,
the Bloc Québécois 48, and the NDP 30. Four members were seated as independents, and there
were three vacancies.)8
Some analysts cautioned that the Tory victory did not necessarily represent a “paradigm shift” to
the right in Canadian politics; they noted that the Conservative party won only 37% of the
popular vote. Because minority governments only last an average of about 18 months in Canada,
Prime Minister Harper has been keeping one eye on the next elections.9 In addition, Harper has
relied upon the ad hoc support of the other three parties to ensure passage of the various items on
his legislative agenda. Many therefore believe that is why he has advocated fairly centrist
policies, by, for example, seeking legislative approval of the five priorities on which he
campaigned: 1) greater government accountability; 2) shorter health care wait times; 3) tax cuts;
4) child care assistance; and 5) criminal law reform.10
Harper immediately began to work on these items. The first bill his government introduced in
parliament was the Federal Accountability Act, intended to “change the way business is done in
Ottawa forever” by addressing such issues as whistleblower protection, political contributions,
lobbying reform, and government contracts and appointments. Some critics charge that the new
law is selective, while others maintain that it represents overkill. Supporters praise the measure as
an effort to bring about long-overdue changes.11 During his tenure as prime minister, Harper has
dealt with several other issues, including the environment, crime, Senate reform, and health care.
For the most part, he has not forcefully advocated controversial social issues.
However, Harper has been willing to challenge public opinion over Canada’s participation in the
international stabilization effort in Afghanistan, where the Liberal government deployed troops in
7
“Canada: Martin on the Ropes in Funding Scandal.” Oxford Analytica. February 25, 2004. February 23, 2004.
“Canada’s Premier Acts to Counter Scandal.” By DeNeen L. Brown. Washington Post. February 17, 2004.
8
For a description of the campaign, see “Inside Story.” By Paul Wells. Maclean’s. February 6, 2006.
9
See “Interview: Stephen Harper.” Maclean’s. March 6, 2006.
10
See “Conservatives To Govern From Political Center.” Oxford Analytica. January 24, 2006. “Harper’s Five Easy
Pieces.” Economist. April 8, 2006.
11
“Harper Rolls Out His Ethics Act.” CanWest News Service. April 12, 2006. “Clean Doesn’t Get Any Squeakier.” By
John Ibbotson. Globe and Mail. April 12, 2006.
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2002. In 2006, he won a narrow vote in parliament to keep Canadian troops in Afghanistan for
two additional years. Harper initially characterized the mission as humanitarian in nature and also
asserted that it was in Canada’s national interest to demonstrate its ability to play a leadership role
internationally. Over the past three years, however, Canadian operations have shifted from
peacekeeping to counter-insurgency, and public support for Canada’s presence in Afghanistan has
diminished. The government has been banking on approval of an approach that emphasizes
training Afghan troops to replace departing Canadians. In the fall of 2007, Harper appointed an
advisory panel to review options on the mission. The commission found that the troop presence
was justifiable and that the mission should be maintained until 2011, but recommended that
Canadian forces be withdrawn unless NATO allies stepped up their contributions. This became
the basis of a March 2008 compromise between the Liberals and Conservatives. Harper declared
that Canadian troops would be withdrawn in 2009 unless other NATO countries provided an
additional 1,000 troops. At the April 2008 NATO summit in Bucharest, France announced it
would commit 800 additional troops, and the United States was expected to add to that number.
Canadian troops are now scheduled to be pulled out by the end of 2011. At the April 2009 NATO
summit, Canada reportedly pledged to send an additional 100 civilian specialists to Afghanistan.12
Canada’s most recent elections, held on October 14, 2008, did little to change the makeup of
parliament. The Conservatives, who reportedly anticipated a weakening in future support, called
the elections in hopes of capturing a majority. However, the Tories emerged only with a
somewhat stronger plurality of 143 seats—a gain of 19, but still 12 shy of a majority. Currently,
the Liberals hold 77 seats, the BQ 49, and the NDP 36, with one independent and two
vacancies. 13 Canada has now had three minority governments in a row.
One casualty of the election was the Liberal party—which lost 19 seats—and its leader. In
December 2006, after a months-long campaign, the Liberals had elected Stéphane Dion to lead
them. A former academic, Dion had spearheaded Chrétien’s federalist policies toward Québec and
also served as Paul Martin’s environment minister. A native of Québec, Dion came from behind to
defeat the two front-runners for the party leadership post, Michael Ignatieff and Bob Rae. Dion
had some difficulty gaining traction with voters. Even though he pressed hard on the
environment—an issue of importance to Canadian voters, and not a strong point for the Harper
government—he was perceived as ineffectual, and announced one week after the elections that he
would be stepping down.
In November 2008, a budget bill put forward by the Conservatives precipitated a political crisis;
the spending plan proposed, among other things, the elimination of federal funding for political
parties. The opposition parties, which would have been severely affected by the plan, rebelled and
were poised to vote down the government—ostensibly because Harper had failed to put forward a
stimulus package that would respond to the economic downturn. Harper withdrew his proposals
12
“Harper’s Mission Statement.” By Andrew Coyne. National Post. March 15, 2006. “Bring Troops Home In 2009,
Majority Says.” Ottawa Citizen. April 24, 2007. “Manley Urges Renewed Commitment.” Oxford Analytica.
January 25, 2008. “North America: Canada.” Hemisphere Highlights. Center for Strategic and International Studies.
Vol. VII, No. 4. April 20008. NATO Summit: the Truth Behind the Troops Heading To Afghanistan. The Times
(London). April 6, 2009.
13
Canada: An Early Appointment With Electoral Destiny. The Economist. September 6, 2008. For current standings,
see the Canadian Parliament’s website, updated May 1, 2009:
http://www.parl.gc.ca/information/about/process/house/partystandings/standings-e.htm
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and, to avoid the no-confidence motion, prorogued (suspended or recessed) the session of
parliament until January 2009; the shutdown was sharply criticized by many.14
During this time, Stéphane Dion resigned and the Liberals named Michael Ignatieff as their
interim leader, and ratified that choice at the May 2 party convention. Some believed that when
Parliament returned in January, Ignatieff would seek to bring down the government and force new
elections. However, he declined to do so, reportedly choosing instead to consolidate the party’s
strength rather than challenge the Conservatives immediately. Many observers now believe that
he will challenge the Harper government with a no-confidence vote in the fall of 2009, which will
likely result in Canadians returning to the voting booths in October. Currently, the Liberals are
slightly ahead in the polls, particularly in Ontario. However, an uptick in the economy could help
Harper. In addition, many argue that Canadians are weary of elections; at 59.1%, turnout for the
last vote was the lowest in history. Voter participation may therefore play a key role in the next
election.15
Budget Policy
Canada entered into recession in the 4th quarter of 2008. While Canada is heavily dependent on
the world economy, and thus easily affected by it, some Canadian policymakers believed that the
country was in a relatively better position to ride out the economic downturn. After all, Canada
had profited handsomely from the resources boom that only began to wind down the summer of
2008. Also, Canadians were reassured by its comparatively more regulated banking system,
which was able to avoid the worst excesses of the U.S. financial meltdown. However, Canada
could not long avoid the effects of the collapse of the U.S. housing market, the woes of the U.S.
automotive sector, and the seizing up of credit markets worldwide.
Canada was relatively late in responding to the economic downturn. Following the re-election of
the Conservatives on October 14, 2008, the government issued its autumn economic statement,
which maintained a balanced budget, did not include new stimulus measures, but, as noted above,
did include such politically divisive measures as the end of subsidies for political parties.16
Following the reconvening of parliament in January 2009, the government introduced a C$258.6
billion budget, which calls for C$40 billion in stimulus over the next two years. The stimulus
consists of a package of income tax cuts, extending employment insurance (EI) benefit
extensions, job retraining, ‘hard’ infrastructure spending, tax credits for home renovation, retrofits
for social housing, and investments in First Nation’s health programs. 17 In all, the C$40 billion
represents a stimulus of about 1.5% of GDP in the first year and 1.1% in the second year.
Increased spending represents approximately 72% of this package and tax cuts contribute the
remaining 28%. While a general consensus developed on the need for government stimulus
spending, some criticized the budget proposals as a ‘mish-mash’ of proposals that did not address
14
Canadian Leader Shuts Parliament To Avoid No-Confidence Vote, Angering Many. New York Times. December 5,
2008. A Most Un-Canadian Caper. The Economist. December 6, 2008.
15
North America – Canada. Hemisphere Highlights. Vol. VII, No. 9. Center for Strategic and International Studies.
October, 2008. The Liberals Try a New Leader. The Economist. December 13, 2008. Liberals Make Gains In Key
Regions, Poll Says. Canadian Press. April 23, 2009.
16
The economic statement serves as a mid-year budget update and is subject to a no confidence vote.
17
“Tories to Aggressively Implement Budget Spending Measures,” The Hill Times, February 2, 2009.
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what is perceived to be Canada’s long-term structural problems of lagging productivity and
competitiveness. 18
The budget also marked a return to deficit spending for Canada after 12 successive budgets in
balance or surplus. The budget contemplates a deficit of C$34 billion the first year, and a total of
C$81 billion in borrowing over five years before the budget returns to surplus in 2013. The return
to deficit spending, while acknowledged as necessary by most of the political spectrum to combat
the severe economic recession, was not undertaken lightly. Prior to the ‘austerity’ budget of 1995,
Canada had wracked up 27 straight years of deficit spending. At its peak in 1996, Canada’s public
debt represented 101.6% of GDP, and government sector spending reached 53.6% of GDP in
1993. Realizing this course was unsustainable, the Liberal government of then Prime Minister
Jean Chretien and his Finance Minister Paul Martin embarked on a financial austerity plan using
such politically risky measures as cutting federal funding for health and education transfers,
applying a means test to those eligible for Seniors Benefits, and cuts in defense. A nationwide
goods and services tax was introduced to help close the gap. Under this budget discipline, the
government submitted a balanced budget in 1998 and a political consensus emerged not to resort
to deficit spending, at least until now.
National Unity
For four decades, an emotional debate has raged over the status of French-speaking Québec,
Canada’s second largest province geographically and home to about one-quarter of its population.
Many Québécois are concerned that their language and culture will be overwhelmed by the rest of
English-speaking Canada. Some believe that their society may only be preserved if Québec
separates from the rest of Canada and forms an independent country. A 1980 referendum on
“sovereignty-association” for Québec was defeated 60%-40%.
In October 1994 elections, after the provincial Liberals had governed Québec for several years,
the province once more elected the separatist Parti Québécois (PQ). The victorious PQ held a
referendum on sovereignty on October 30, 1995. Québeckers essentially voted on whether they
wished to continue to remain a part of Canada, or strike off on their own. The question was
decided by the narrowest of margins; the vote went 50.6% to 49.4% in favor of keeping the
country whole. The wafer-thin margin shocked federalists and separatists alike. More than a
decade later, the country is still affected by the impact of what has been called a “near-death
experience.”
Québec held provincial elections once again in October 1998, and the PQ retained a comfortable
majority in the provincial legislature. In 2003, however, Québec voters turned out the Péquistes
and replaced them with the Liberals, led by Jean Charest. A former leader of the Progressive
Conservatives at the national level, Charest is a committed federalist, which rules out another
sovereignty referendum during his tenure. In the early part of his first term, Charest lost
popularity when he attempted to reduce the economic role of the provincial government; those
efforts prompted strong protests from the powerful public service unions. Some Québec-watchers
assert that Charest learned from this experience and changed his tactics.
Charest was said to have been encouraged by the victory of Harper, who favors greater
government decentralization. The two also share an opposition to sovereignty, and, for pragmatic
18
See, for example, “A Tale of Two Stimulus Packages,” by Jeremy Leonard, Policy Options, March 2009.
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political reasons, cooperated with one another in several areas.19 Many believe that Harper (and,
by association, Charest) won favor in the province in November 2006 by gaining parliamentary
approval in Ottawa of a measure recognizing Québec as a “nation” within a united Canada. Some
observers believe that Charest’s standing received a boost by Harper’s 2007 budget, which
provided generous transfers from Ottawa to the province.
Québec held elections in March 2007, and the Liberals won a plurality (33%) of the vote. Charest
remained premier, but he led the first minority government the province had had in more than a
century. The PQ was knocked down to third place. Mario Dumont’s Action Démocratique du
Québec (ADQ), which took 31% of the votes. A relatively new party, the moderate ADQ
espoused a vaguely defined “autonomy” over outright independence for Quebec. It was believed
to reflect the views of small towns and rural areas whose residents are proud Quebeckers, but do
not wish to hold another referendum. Subsequently, however, Dumont’s ADQ fell sharply in the
polls. In December 2008, Charest, sensing victory, called a snap election and won a narrow
majority. 20 The PQ came in second and will be the official opposition; the ADQ failed to pass the
20% electoral threshold for official party status, and Mario Dumont announced his resignation.21
Since the debate began in the 1960s, the United States government has assiduously sought to
remain officially neutral on the issue of Québec, continually repeating the three-point “mantra”
that the United States enjoys excellent relations with a strong and united Canada; that the Québec
question is an internal issue that is for Canadians to decide; and that the United States does not
wish to interfere with Canada’s domestic matters. However, some analysts detected a slight “tilt”
on the part of Clinton Administration toward the federalists during the 1995 referendum
campaign. If, at some future date, Québec eventually does leave the confederation, the U.S.
government will be faced with difficult political and economic questions.
Foreign and Security Policy Issues
Canadian Foreign Policy
After Jean Chrétien became prime minister in 1993, some analysts concluded that he had “tilted
Canada’s foreign policy towards the more explicit pursuit of economic self-interest and away
from concerns about human rights abroad.”22 Under Lloyd Axworthy’s leadership beginning in
1996, however, many observers detected a swing in attitude at the Foreign Affairs Ministry back
toward Canada assuming the role of “soft power,” relying on its reputation as an honest broker to
help effect consensus through negotiation and moral suasion rather than military force or
economic sanctions. 23 In the most significant example of this approach, Axworthy launched the
“Ottawa process” to reach agreement on a treaty banning the manufacture, trade, and use of
19
“Unpopular Charest Needs Harper’s Help To Gain Re-election.” By Rhéal Séguin. Globe and Mail. April 15, 2006.
“Au Revoir Separatism, Bonjour ‘Autonomy.’” The Economist. March 31, 2007. “Mario Dumont’s Decline Started
On Election Night.” Montreal Gazette. May 5, 2008. “Charest’s Stunning Turnaround.” Toronto Star. May 4, 2008.
21
Charest Struggles To Slim Majority. The Globe and Mail. December 9, 2008.
22
“Canada Bows Out As ‘Boy Scout’ To the World.” By Jeffrey Simpson. Hemisfile: Perspectives on Political and
Economic Trends in the America. July/August 1995.
23
“Canada to Play Global Role as ‘Soft Power.’” By Mike Trickey. Ottawa Citizen. March 3, 1998. “Ottawa’s
New-Age Diplomacy Ruffles Many Feathers in Washington.” By Steven Pearlstein. International Herald Tribune.
February 22, 1999.
20
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antipersonnel land mines; the effort culminated in a December 1997 conference at which more
than 100 nations signed the accord. The United States did not sign the pact.
John Manley replaced Axworthy in 2000; in January 2002, when Manley became Deputy Prime
Minister, Bill Graham, chairman of the parliamentary committee on foreign affairs and
international trade, took over. According to one writer, Graham “can often sound like Axworthy,”
while others believe he placed more emphasis on pragmatism. 24 In July 2004, Martin reshuffled
his cabinet, moving Graham to Defense and replacing him with Pierre Pettigrew, a Québecker. In
February 2006, Harper named Nova Scotian Peter MacKay Foreign Minister. In August 2007,
MacKay assumed the Defense portfolio, and Maxime Bernier became the new Foreign Minister;
he served until May 2008, when he was replaced by fellow Quebecker Lawrence Cannon.
As a middle power, Canada has exercised a somewhat disproportionate influence in world affairs,
chiefly through its active participation in international organizations, including the G-8, and the
Asia-Pacific Economic Cooperation forum. From 1998-2006, Canadian diplomat Louise
Frechette served as Deputy Secretary General of the United Nations, and from 1996-2006
Canadian Donald Johnston was Secretary General of the Organization for Economic Cooperation
and Development. The president of the International Criminal Court is Judge Philippe Kirsch
from Canada. The first head of the U.N. War Crimes Tribunal was Canadian Louise Arbour. In
June 2005, Canadian Air Force General Ray Henault was named head of NATO’s military
committee.
Canadian Security Issues
Canadians are proud of the active role played by their military as international peacekeepers.
Since the United Nations first dispatched an armed peacekeeping contingent to help defuse the
Suez Crisis in 1956, Canada has participated in nearly every U.N. peacekeeping operation, from
Cyprus and the Sinai, to Bosnia, Rwanda, Somalia, and Afghanistan. As of April 2009, over 2,900
Canadian Forces personnel were participating in international operations in Afghanistan, the
Balkans, the Middle East, and Africa.25
As with other countries in the 1990s, Canada’s military was subject to dual pressures. In Ottawa’s
view, the collapse of the Soviet Union and the Warsaw Pact reduced the military threat, making it
more difficult for the government to justify sustaining historic spending levels on defense.
Leaders believed that the country’s large debt early in the decade necessitated funding cutbacks in
most areas of government, including defense. However, relative to its NATO allies, Canada had
devoted only a modest share, about 2% of GDP, of its budget to defense spending during the
1980s and 1990s. That percentage declined even further, from 2.01% in 1990 to 1.1% in 2005;
among the 26 NATO members, only Luxembourg and Iceland (which has no armed forces) spent
a lower percentage. Canada’s meager military budget irked some within the alliance, particularly
the United States; former U.S. Ambassador Paul Cellucci repeatedly urged the Canadian
government to devote greater resources to its military.26
24
“Out of Africa: The Perils For A PM.” By Anthony Wilson-Smith. Maclean’s. March 25, 2002.
25
Canada and International Peacekeeping. By Joseph T. Jockel. Center for Strategic and International
Studies/Canadian Institute of Strategic Studies. Washington, DC, 1994. Current Operations. Canadian Expeditionary
Force Command website. Updated April 9, 2009. http://www.comfec-cefcom.forces.gc.ca/pa-ap/ops/index-eng.asp
26
“Spend More On Military, U.S. Envoy Urges Ottawa.” Toronto Star. February 25, 2004.
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After the round of cutbacks in the 1990s, the number of active personnel in Canada’s armed
forces tumbled from 87,000 in 1989 to 52,000 in 2004, the 56th largest in the world. The Canadian
forces also have been strapped for resources to replace aging equipment. This trend disturbed
many, and there were numerous warnings published. In March 2002, a Canadian Senate
committee called for increased defense spending to counter the threat of international terrorism; it
also recommended that personnel levels be increased and that more resources be provided to the
Canadian Security Intelligence Service. A November 2002 Senate report recommended boosting
troop levels to 75,000 and restructuring the armed forces. A brace of studies in the fall of 2003
likewise called for changes in force restructure and procurement practices and for increases in
manpower and budgets. A news report characterized one of the studies as concluding that
“Canadian Forces are teetering on the edge of irrelevance.” In September 2005 the Senate
published yet another report, which called for a doubling of spending on defense. 27
Recent Canadian governments appear to have heeded these messages. As of February 2009, there
were approximately 64,000 regular force members and 30,000 reserves. In addition, Canada’s
defense spending has been trending upward. The budget tabled in February 2005 contained the
largest military spending increase in two decades: C$12.8 billion—roughly equal to the entire
2005 military budget—spread over five years. The Harper government’s first budget boosted
added C$5.4 billion in military spending over the next four years. The 2007 budget confirmed the
previous year’s spending increase, and the 2008 budget seeks to ensure continuity through the
Canada First Defence Strategy, which will provide for yearly increases of 2% beginning in
2011-12. The government budget for the armed forces in 2008-2012 will average around C$20
billion annually.28
In April 2005, the Martin government released the long-anticipated International Policy
Statement, of which defense is one part (the last such defense policy overhaul took place in
1994.) The new security plan aims to make Canada’s military “more effective, relevant and
responsive.” Among other things, it calls for a change in the command structure; the addition of
5,000 regular troops and 3,000 reserves; the expansion of Canada’s special forces, including
tactical support equipment; the creation of an anti-nuclear, biological, and chemical weapons unit
and a rapid-reaction force; and the acquisition of a wide range of materiel, particularly of air,
land, and sea transport. The Harper government plans to procure both tactical as well as strategic
transport aircraft as well as land and sea transport. However, some observers have argued that
insufficient funding is being devoted to acquiring replacements for aging major weapons
systems. 29
27
“Canada’s Security At Risk.” By Jim Bronskill. Ottawa Citizen. March 2, 2002. “Pull Troops From Overseas,
Senators Say.” Globe and Mail. November 12, 2002. “Armed Forces Hobbled, Report Says.” By Daniel LeBlanc.
Globe and Mail. December 3, 2003. “Senators Sounding Alarm On Defence.” The Gazette. October 3, 2005.
28
The Military Balance, 2009. International Institute for Strategic Studies. London. February, 2009. Defence and
Budget 2005—Highlights. DND website. http://www.forces.gc.ca/site/reports/budget05/summ05_e.asp. The Canadian
Forces: Stuck In Neutral. National Post. April 3, 2009.
29
“‘Canada First’ Defence Procurement.” DND website. Updated August 15, 2007. http://www.forces.gc.ca/site/Focus/
first/index_e.asp “Canada’s Forces In the 21st Century.” CBC News. April 21, 2008. http://www.cbc.ca/news/
background/cdnmilitary/.
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U.S.-Canada Security and Foreign Policy Issues
According to the U.S. State Department, “U.S. defense arrangements with Canada are more
extensive than with any other country.” Former Canadian Ambassador Michael Kergin referred to
the defense relationship as being “intermestic” in nature. 30
Over the past century, U.S.-Canadian defense cooperation has been close. In 1940, President
Roosevelt and Prime Minister McKenzie King established the Permanent Joint Board on Defense
(PJBD), which formalized bilateral consultation on military matters and is still in operation. In
1949, the two countries were founding members of NATO. During peacetime, military
cooperation has occurred chiefly in the context of bi- and multinational organizations.
NORAD
In 1958, Canada and the United States signed the North American Aerospace Defense Command
(NORAD) agreement. The continental air defense pact monitors U.S. and Canadian airspace and
encourages joint efforts in aerospace technologies. The pact, which had been subject to five-year
renewals, was made permanent (subject to review) in May 2006. In the wake of the September 11
terrorist attacks, there were discussions of deepening military cooperation along the NORAD
model, in the context of the newly created U.S. Northern Command, to include land and sea
forces. But some Canadians were concerned that such a move might impinge upon Canada’s
sovereignty, and in August 2002, the Canadian government announced that its land and sea forces
would not be participating in the command. In December 2002, however, the two countries
signed a new accord creating a binational planning group (BPG) based at NORAD to coordinate
responses to terrorist attacks and other crises. The BPG issued its final report in March 2006; the
panel put forward numerous recommendations, including that the two countries develop a
common security vision and improve interoperability through joint military planning, training,
exercises, and information sharing. In August 2004, Canada and the United States amended
NORAD to permit it to share information on incoming ballistic missiles. Ottawa and Washington
also agreed to expand the scope of the agreement to encompass nautical surveillance. In midApril 2008, Canadian Defense Minister Peter MacKay visited NORAD headquarters in
Colorado.31
On February 14, 2008, the commanding generals of U.S. Northern Command and of its Canadian
counterpart, Canada Command, signed a binational Civil Assistance Plan. Under the plan, the
armed forces of each country, after appropriate consultation with civilian authorities on both sides
of the border, may come to the support of the other country’s military in the event of civil
emergencies such as floods, earthquakes, or the effects of a terrorist attack.32
30
United States Department of State. Bureau of Western Hemisphere Affairs. Background Note: Canada. November
2008. “Remarks to the Center for Strategic and International Studies.” February 28, 2005.
31
“Continental Divides.” By Sydney J. Freedberg, Jr. National Journal. March 23, 2002. “Leading academics Examine
Risks Inherent In Closer Military Co-operation With the United States.” Canada NewsWire. April 26, 2002. “Canada
Won’t Join Norad-Like Land-Sea Force. By Rick Mofina.” Ottawa Citizen. August 15, 2002. “All For One?” By Luiza
Ch. Savage. Maclean’s. September 12, 2005. Binational Planning Group. Final Report. March 13, 2006.
http://www.canadianally.com/BPGFinalReport.pdf “Tory NORAD Agreement Wins Approval of House.” Globe and
Mail. May 9, 2006.
32
U.S. Northern Command website: http://www.northcom.mil/news/2008/021408.html
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Missile Defense
Ottawa also long debated whether it should participate in the U.S. missile defense (MD) system.
Some analysts expressed reservations over the plan, in the belief that it might spark a new arms
race, while others reportedly preferred to keep Canada’s options open. Parliament held hearings
on the issue, but no official policy was enunciated. Finally, in May 2003, Canada said that it
would enter into discussions with the United States; a Canadian military affairs journalist
described Canada’s likely negotiating goals:
Canada wants the anti-missile shield run by NORAD—in effect, giving Canada equal status
in protecting North America and a finger on the trigger. Ottawa wants a share of the
industrial benefits and access to secret technologies, all while paying little or nothing. And it
continues to insist that space not be weaponized.33
On February 24, 2005, the Canadian government said that it would not participate in MD.
However, Canada’s ambassador to the United States had pointed out earlier that the two countries
had already agreed to allow NORAD to share information with U.S. MD commands. U.S.
officials expressed puzzlement and disappointment with the announcement, noting that Canada
had sent signals that it would likely sign on. Polls showed that a majority of Canadians,
particularly Québeckers, opposed MD, leading some analysts to suggest that domestic political
pressures may have guided the decision. In late February 2006, Canada’s Defense Minister said
that the Harper government likely would review the missile defense issue if asked to do so by
Washington. Any final decision on participation, he added, would be subject to a parliamentary
vote. In April 2008, U.S. General Gene Renuart, head of NORAD, was quoted as having said that
all incoming intelligence concerning missile threats was shared with Canada.34
Joint Strike Fighter
In February 2002, Canada agreed to participate in the further development of the U.S.-led
multinational Joint Strike Fighter program, contributing $150 million over a 10-year period. In
December 2006, it was announced that the Canadian government had committed an additional
C$500 million for the development of the aircraft. Canada has reportedly agreed to consider the
purchase 80 of the new fighters to replace its own fleet of CF-18 planes when they are retired in
2017, and has earmarked nearly C$4 billion for the new planes. In June 2007, the Department of
National Defense announced plans to form a new office to evaluate Canada’s future air defense
requirements. Canada appears to be reaping rewards from its participation; as of June 2007,
Canadian firms had won 150 JSF contracts worth about $160 million. In addition, Canadian
defense companies stand to benefit from the Pentagon’s plans to purchase additional F-35s.35
33
“Shoot Down Defence Dreamers.” By Paul Koring. Globe and Mail. June 25, 2003.
“Canada and the U.S. Missile Defense System.” Dwight M. Mason. CSIS Hemisphere Focus. January 9, 2004.
“Martin and the Politics of Missile Defense.” Globe and Mail. May 1, 2004. “Missile Defence Won’t Work.” Ottawa
Citizen. December 15, 2004. “Martin’s Move Irritates U.S.” By Sean Gordon. Toronto Star. February 24, 2005.
“Minister Backs U.S. Missile Plan.” Toronto Star. February 24, 2006. “Canada Kept In Loop At NORAD About All
Missile Threats.” Ottawa Citizen. April 10, 2008.
35
“Canadian Firms Big Winners In U.S. Jet Project.” National Post. April 21, 2006. “Canada Commits Up To $500
Million to the Development of CF-18 Replacement.” The Canadian Press. December 13, 2006. “New Office To Assess
Canada’s Fighter Needs.” Defense News. June 18, 2007. Forces Tag $3.8B To Buy Advanced Jets. Ottawa Citizen.
June 27, 2007. Canada To Gain From U.S. Defense Budget. National Post. April 8, 2009.
34
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NATO
Canada has been engaged in the debate over NATO’s future. It supported the 1999 and 2004
rounds of enlargement and has announced that it will participate in the NATO Response Force,
which the alliance agreed to at its November 2002 Prague summit. At the April 2008 Bucharest
summit, Canada endorsed the addition of Croatia, Albania, and Macedonia; in addition it
supported the proposal to offer Membership Action Plans to Georgia and Ukraine. Finally, as
noted above, Ottawa has maintained troops in Afghanistan since 2002, and its military leaders
have served in a command capacity. In April 2003, then Foreign Minister Graham, along with the
Dutch and German governments, requested that NATO take over command of ISAF.36 In a
February 2009 speech in the UK, Canadian Defense Minister Peter MacKay cautioned that NATO
was being tested in the crucible of Afghanistan, and urged more equitable burden sharing. 37
Although it has no troops stationed in NATO territory in Europe, Canada in recent years
contributed several hundred troops to the NATO-led Stabilization Force (SFOR) in the Balkans.
Canada also supplied 200 troops to NATO’s mission in Macedonia. Canada cooperated “wing-towing” with the United States in Operation Allied Force, the NATO campaign of air strikes against
targets in Serbia and Kosovo, contributing 18 CF-18 fighter aircraft and providing two rotations
of approximately 1500 troops each to KFOR. In addition Canada has supported non-NATO
peacekeeping operations; it has provided 600 to the initial U.N. peacekeeping mission in East
Timor and has also contributed 500 troops to maintain stability in Haiti.38
Afghanistan
Canada was one of the first countries to join the military operation in Afghanistan. In October,
2001 the government launched Operation Apollo, in support of U.S. Operation Enduring
Freedom. Nearly 900 infantry troops and approximately 40 members of Canada’s special forces
unit, Joint Task Force 2, served in the initial combat in Afghanistan. Their main task was to
provide airbase security, but they were also involved in delivering humanitarian aid and in
combat missions, including Operation Anaconda. Other Canadian military assets supporting
Operation Enduring Freedom have included a naval task force group and transport and
surveillance aircraft. Along with British, Dutch and U.S. troops, Canadian forces are currently
serving on the front line in the combat operations to counter attacks by al Qaeda and Taliban
fighters. A total of 119 Canadians, including one diplomat, have died in Afghanistan.39
In August 2005, Canada launched a Provincial Reconstruction Team mission in Kandahar.
Canada has been maintaining approximately 2,500 troops in the country. Ottawa also has
provided humanitarian and reconstruction assistance to Afghanistan. Canada is among the top
five donors to the country, and has pledged C$1.2 billion through 2011 in reconstruction and
development assistance. 40
36
“NATO Umbrella Sought.” By Allan Thompson. Toronto Star. April 4, 2003. “NATO Sees Key Role For Canada In
Afghan Security.” Reuters. May 6, 2003. CRS interview of Canadian government official, May 7, 2008.
37
NATO’s Future At Stake In Afghanistan: MacKay. Ottawa Citizen. February 16, 2009.
38
Current Operations. Canadian Expeditionary Force Command website. Updated April, 2009. http://www.comfeccefcom.forces.gc.ca/pa-ap/ops/index-eng.asp
39
Coalition Military Casualties by Country. Operation Enduring Freedom. May 5, 2009.
http://www.icasualties.org/OEF/Default.aspx
40
“Backgrounder: Canadian Forces Operations in Afghanistan.” August 14, 2007. DND website:
(continued...)
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As noted above, Canada’s recent political scene has been plagued by uncertainties over whether
the country will once more hold early parliamentary elections; many observers believe the answer
is yes, and that the vote will be held in October 2009. A recent poll showed the opposition
Liberals with a slight edge over the ruling Conservatives. If the Liberals should win a majority or
plurality, their interim leader, Michael Ignatieff, would likely become Prime Minister. In a March
22, 2009 speech, he accused Prime Minister Harper of permitting Canada’s Afghanistan strategy
“to be defined by Washington.” He stated that “once [Canada’s] military mission ends in 2011, we
will continue to support the Afghan people. With humanitarian aid, we will build schools, dig
wells, and teach human rights.” However, observers note that the same approach would likely be
taken by a Conservative government. Recent public opinion surveys indicate that slightly more
than half of Canadians oppose the Afghanistan mission. 41
Haiti
Canada and the United States have worked closely together over the past fifteen years with the
U.N. mission in Haiti, where a contingent of the Canadian armed forces, along with members of
the Royal Canadian Mounted Police, took the reins from departing U.S. forces who had helped
restore the democratically elected government in Haiti in 1994. In 2004, after the Aristide
government stepped down in the face of armed rebellion, Canada joined the United States and
France in providing peacekeepers to the U.N.-authorized Multinational Interim Force sent to the
troubled island; Canada dispatched 6 helicopters and nearly 500 troops. In February 2008,
Canadian Foreign Minister Maxime Bernier traveled to the island nation, where he announced
that Ottawa’s total aid package would be raised to C$555 million. In the wake of the turmoil over
food shortages, he called for international donors to harmonize their assistance during an April
2008 donor conference. Haiti is the second-largest recipient (after Afghanistan) of Canadian
development assistance. Canada’s Governor General, Michaëlle Jean, who was born in Haiti,
traveled to the island in January 2009; she visited several development projects, and met with
government and civil society leaders.42
Iraq
Canada was disinclined to expand the war on terrorism beyond Afghanistan to Iraq. In September
2002, during a meeting in Detroit with President Bush, Chrétien reaffirmed Canada’s preference
for a U.N. mandate, a stance that strongly reflected Canadian public opinion. Washington later
requested of Ottawa specific military commitments in the event of a conflict with Iraq, but no
definitive answer was given. Over the following months, the government’s statements on Iraq
were characterized by the media as imprecise and at times contradictory, an apparent attempt to
keep options open. But in the House of Commons on March 18 2003, Chrétien stated
unequivocally that “Canada will not participate.” One week later in Toronto, U.S. Ambassador
(...continued)
http://www.forces.gc.ca/site/newsroom/view_news_e.asp?id=1703. “Canadian Development Assistance In
Afghanistan: Current Projects.” Government of Canada website. Updated January 31, 2008. http://www.canadaafghanistan.gc.ca/cip-pic/afghanistan/library/afgh_security-en.asp
41
The Afghan Mission. Globe and Mail. March 23, 2009. Rape Law Saps Support For Afghan Mission: Poll. The
Canadian Press. April 8, 2009.
42
“Canada Pledges $555 Million In Aid To Haiti.” Reuters. February 24, 2008. Canada Participates In Harmonization
Efforts In Haiti. News Release. Foreign Affairs and International Trade Canada. April 23, 2008.
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Cellucci delivered a speech in which he expressed the Bush Administration’s disappointment with
the Canadian government’s decision. 43
Washington subsequently requested that Canada assist in the reconstruction of Iraq by sending
troops or military police. Ottawa responded by offering 150 members of its Disaster Assistance
Response Team, a non-traditional military unit consisting of security, engineering, and medical
personnel. Since then, Canada has provided funding in a number of areas, including humanitarian
and reconstruction aid, support for elections, and police training. Altogether, the Canadian
International Development Agency has pledged C$300 million (2003-2010) in assistance to Iraq.
In January 2004, Canada announced that it would cancel Iraq’s $564 million debt. 44
Cuba
Cuba has been another issue where the two countries have not seen eye-to-eye. For decades,
Canada and Cuba has maintained normal diplomatic relations with Cuba, and has maintained
relatively extensive business links. Because of this ongoing commercial relationship, Canadian
government officials publicly criticized a U.S. law (the Cuban Liberty and Democratic Solidarity
Act, P.L. 104-114) that seeks to apply indirect pressure on the Castro regime by permitting
Cuban-Americans to file lawsuits against foreign firms that use Cuban property that was
expropriated by the Castro regime. U.S. supporters of the Cuba embargo have been critical of
Canadian mining companies and hotel chains that do business with the island nation. Canadians,
who are sensitive to being perceived as America’s “junior partner,” object that the law amounts to
the United States forcing its foreign and commercial policies upon other countries. In 2003, after
the Castro government handed down Draconian prison terms to several political dissidents,
Ottawa expressed official disapproval. The transfer of Cuba’s presidency from Fidel to Raul
(temporary in 2006, permanent in 2008) prompted vigorous debate in the Canadian press over
what policy Ottawa should adopt toward Cuba.45 On April 13, 2009, the Obama Administration
announced that it would ease certain restrictions on travel to and trade and communications with
Cuba. The decision was welcomed by Ottawa; Peter Kent, Minister of State of Foreign Affairs for
the Americas, commented that “the election of the Obama Administration has given real
momentum to the sort of change that Canada has been encouraging for a long time.” Kent plans
to visit Havana in May in an attempt to persuade the government to release political prisoners.46
International Criminal Court
The International Criminal Court (ICC) is another issue on which the two countries differ. Canada
has long been a leading advocate of the U.N.-sponsored tribunal, while some U.S. policymakers
43
“Well, Maybe ... .” Economist. September 28, 2002. “PM Scolds McCallum On Canada’s Role In Iraq.” By Shawn
McCarthy and Daniel Leblanc. Globe and Mail. January 16, 2003. “Bravos Greet Chrétien.” By Tim Harper. Toronto
Star. March 18, 2003.
44
“Iraq: Canada’s Commitment.” Canadian International Development Agency web page: http://www.acdi-cida.gc.ca/
iraq#1 Updated May 24, 2007.
45
See, for example: “Castro’s Resignation Unlikely To Change Canadian-Cuban Relations, Experts Say.” The
Canadian Press. February 19, 2008. “Don’t Support Castro’s Island Prison.” National Post. February 19, 2008. “With
Fidel Castro Gone, U.S. Hawks Will Look North.” Toronto Star. February 20, 2008. “The Autumn Of the Patriarch.”
Ottawa Citizen. February 23, 2008.
46
CRS Report R40193, Cuba: Issues for the 111th Congress, by Mark P. Sullivan. Canadian Cabinet Minister To Visit
Cuba Next Month. Montreal Gazette. April 27, 2009.
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have opposed U.S. participation on the grounds that it might make U.S. military personnel
vulnerable to politically motivated prosecution by hostile regimes. In May 2002, the Bush
administration declared that the United States would not support the ICC; the same day, Canadian
Foreign Minister Bill Graham declared that he was “extremely disappointed” with the U.S.
decision. In a U.N. speech four months later, Graham faulted the United States “for its ‘ad hoc
and unilateral pursuit’ of the prosecution of crimes against humanity.”47
Border Security
In the wake of the attacks on New York and Washington, U.S.-Canadian relations came to the
fore. In particular, the issue of U.S.-Canada border security was brought into sharp focus. The
issue first became a matter of urgent concern in December 1999, when U.S. border officials,
acting on a tip from Canadian authorities, stopped Ahmed Ressam at the U.S.-Canadian border as
he was attempting to smuggle explosives into the United States; it was later discovered that
Ressam had planned to bomb the Los Angeles airport, and that he had received terrorist training
from Al-Qaeda in Afghanistan.
Despite the fact that none of the 19 September 11 highjackers entered from Canada, the attacks
sparked renewed debate over Canadian laws regarding the treatment of immigrants seeking
refugee status or political asylum. 48 By February 2002, Ottawa had already made “steps to tighten
immigration and refugee policies, including more rigorous screening of people who claim refugee
status and stepped up detentions and deportations of claimants suspected of being security
risks.”49
Some American policymakers pointed to the Ressam case as proof that the United States must
tighten its borders with Canada. Skeptics, however, note that such measures might seriously
impede commerce by creating long delays at border crossings, and that determined terrorists and
criminals would at best be inconvenienced, not stopped, in traversing the two countries’ 5,500mile border. About 70% of U.S.-Canada merchandise trade crosses the border by truck; many of
these shipments are “just-in-time” deliveries; their delay at border crossings can seriously disrupt
manufacturing in the United States and Canada.50 Both sides have strong incentives to strengthen
security but keep goods flowing.
Since the September 11, 2001, attacks, Ottawa and Washington have taken numerous steps,
separately and jointly, to improve border control. In December 2001, they signed the Smart
Border declaration that aims at improving security and efficiency at border crossings; the
agreement lays out a 30-point (since increased to 32-point) list of areas of joint activity, ranging
from pre-clearance of goods (the FAST program) and people (NEXUS), to biometric identifiers,
to infrastructure improvements. The cooperation covers crossings by air, land, and sea traffic. In
47
“Canada Raps U.S. Rejection Of World Criminal Court.” By David Ljunggren. Reuters. May 6, 2002. “U.S. Rift
With Allies On World Court Widens.” By Julia Preston. New York Times. September 10, 2002.
48
In April 2009, U.S. Department of Homeland Security Secretary Janet Napolitano raised concerns when she averred
that some of the 9/11 terrorists and crossed over from Canada. “Napolitano's Comments About Canada's Border Spark
Diplomatic Kerfuffle.” The Canadian Press. April 21, 2009.
49
“Al-Qaida In Canada?” CBSNEWS.com. April 25, 2002. “Canada Alters Security Policy To Ease Concerns of U.S.”
By Clifford Krauss. New York Times. February 18, 2002.
50
“Delays at the Canadian Border Eat Up Trade.” By John Stark. AP. February 1, 2003.
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December 2002, the two nations signed the Safe Third Country agreement, intended to permit
coordination of refugee and asylum policy.
Ottawa and Washington are currently working to resolve implementation issues surrounding the
Western Hemisphere Travel Initiative, a provision of a 2004 U.S. law that will require travelers
passing between the two countries to present a passport, a NEXUS card, or an equivalent secure,
approved document, at the border by June 1, 2009. Travel-dependent businesses, particularly in
Canada, have voiced concerns that the cost of acquiring either a passport (only about 25% of
Americans and 40% of Canadians hold passports) or similar ID may inhibit travel; other critics
are worried that the requirement could indirectly discourage Asian and European investment in
both countries. The Department of Homeland Security (DHS) will require that Canadian citizens
present a passport or document confirming identity and citizenship to enter the United States by
land, sea, or air on June 1, 2009. DHS has been working with the Canadian government to
develop an alternative document that is secure, inexpensive, and would be carried anyway—for
example, a driver’s license containing enhanced biometric information; U.S. state and Canadian
provincial governments have been actively working to develop such documents.51
Canada’s custom service stepped up the purchase of high-tech X-ray equipment, and U.S. and
Canadian customs agents are working together, inspecting containers at several Canadian and
U.S. seaports. Border security personnel levels have also been beefed up, and Integrated Border
Enforcement Teams have been established in high-priority regions. Canada also has set up an Air
Transport Security Authority, which, among other activities, is responsible for pre-board
screening.
In 2004, the Canadian government created a Department of Public Safety and Emergency
Preparedness, a counterpart to the U.S. Department of Security (DHS), and a Border Services
Agency. Recent Canadian federal budgets have contained new monies for security-related
priorities such as intelligence, maritime and cyber security, threat assessment, and emergency
response.
Canada has taken other actions beyond the realm of border security, including freezing terrorists’
assets, broadening the scope of terrorist activities punishable by law, extending police
investigative powers, introducing legislation that would put restraints on fund-raising activities by
extremist organizations, expanding cooperation between the FBI and the Royal Canadian
Mounted Police, and increasing outlays for countering nuclear, biological, and chemical weapons
attacks.52
In early June 2006, Canadian police conducted a series of raids in the Toronto area, arresting 17
individuals. The arrests were made in accordance with the Anti-Terrorism Act passed late in 2001.
The group reportedly had discussed attacking several possible targets, including power plants, a
Canadian military base, the Toronto Stock Exchange, and other prominent sites. The plan
involved having some members of the group detonate truck bombs while another group
reportedly would storm the parliament and capture hostages. Prime Minister Harper was said to
have been a key target. Most of the 17 were in their teens or early 20s. All were either Canadian51
“A Tightening Border Has Canadians Worried.” By Ian Austen. New York Times. April 15, 2006.
For another brief overview of efforts to secure the U.S.-Canada border, see: Joint Counter-Terrorism Initiatives. By
Melissa Radford. Border Facilitation: Products and People. By June Dewetering. Both in Canada and the United
States: Shared Interests and Concerns. Canadian Library of Parliament. January, 2009.
http://www.parl.gc.ca/information/library/PRBpubs/prb0834_00-e.htm
52
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born or had immigrated to the country at an early age. The suspects had a variety of backgrounds;
some were students, some held jobs, and some were unemployed. Many were from middle class
backgrounds, and few of them had criminal records.
U.S. officials claimed that the arrests proved that Canada’s law enforcement and intelligence
services were doing an excellent job of ensuring security. An FBI spokesperson said there was
“no imminent threat” to the United States stemming from the Toronto operation. However, some
U.S. Members of Congress claimed that Canada maintains lax immigration and asylum policies,
and that the arrests demonstrated that stricter controls over the U.S.-Canada border are in order.
The incident prompted close consultations between U.S. and Canadian policymakers and law
enforcement officials. The operation has not arisen as a domestic political issue in Canada, but it
has renewed debate about Canada’s immigration practices, its commitment to a multicultural
environment, its security measures, and the presence of its troops in Afghanistan.53
Security and Prosperity Partnership
During a March 2005 summit meeting in Texas, President Bush, Mexican President Vincente Fox,
and Prime Minister Paul Martin agreed to a Security and Prosperity Partnership (SPP) of North
America. The initiative is intended to provide security for the continent against criminal activities
and external threats, while easing the flow of goods and travelers who cross the borders between
the three countries. It also aims to improve prosperity in all three countries through promoting
cooperation in a number of areas, including health, food safety, environmental protection,
transportation, energy, and financial services. Government officials from all three countries meet
in working groups to discuss was to eliminate duplication and harmonize regulations. Presidents
Bush and Fox, joined Prime Minister Stephen Harper, met again in March 2006 and agreed to five
priority areas: 1) competitiveness and regulatory cooperation, 2) emergency management, 3)
avian and pandemic influenza, 4) energy security, and 5) smart, secure borders. Bush, Harper and
Mexican President Felipe Calderon meet in August 2007 in Montebello, Quebec, and in New
Orleans, Louisiana in April 2008 where they reviewed progress and planned the next phase of
cooperation on issues such as regulatory cooperation, intellectual property rights enforcement,
and secure borders. A leadership meeting has not yet been scheduled for this year. 54
Economic and Trade Issues
After several years of steady growth, Canada entered recession in the fall of 2008. Canada
managed to eke out an annual growth rate of 0.5% in 2008, however, the Economist Intelligence
Unit expects the economy to contract by 2.4% in 2009. Canada has been hard-hit by the
weakening of the U.S. economy as the United States is by far the chief customer for exportdependent Canada. Annual consumer price inflation in 2008 registered at 1.2% and is expected to
remain minimal in 2009. The unemployment rate, which hit a generational low of 5.8% in
January 2008, had climbed to 7.7% by February 2009.55 In 2008, Canada recorded an overall $10
53
“Canada’s Terror Sweep Grabs Spotlight in U.S.” Canadian Press. June 3, 2006. “U.S. Praises Canada On Terror
Arrests But Critics Blast Immigration Laws.” Canadian Press. June 4, 2006. “Terrorists In Toronto: Is Canada Safe?
Are We?” By Tanya Primiani and Christopher Sands. CSIS Commentary. Center for Strategic and International Studies.
June 20, 2006. “The Toronto Terror Plot.” Economist. June 10, 2006.
54
See SPP website: http://www.spp.gov/.
55
Economic data are from Economist Intelligence Unit, wire service reports, and “The Economy In Brief, April 2007.”
Website of Department of Finance Canada. Updated April 2008. http://www.fin.gc.ca/ECONBR/ecbr07-04e.html
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billion current account (CA) surplus, however the collapse in trade led to CA deficit of $6 billion
in the fourth quarter, the first CA deficit in nine years and the largest since 1993.56
Canada is the United States’ largest supplier of energy—including oil, uranium, natural gas, and
electricity—and the energy relationship has been growing. Canada is the world’s seventh largest
petroleum producer, and its reserves are believed by some to be second only to those of Saudi
Arabia; Canada’s sources of oil include traditional and offshore wells and, increasingly, Alberta’s
tar sands. In 2008, U.S. energy imports from Canada were $111 billion. Canada provides 18% of
U.S. oil imports and supplies 16% of U.S. natural gas demand. Canada is particularly valued
because it is a reliable source of energy, a key factor contributing to U.S. economic security—it is
not a member of OPEC. The two countries are cooperating on the development of pipeline
construction projects. China has shown interest in Canada’s oil sector, a development that is
believed to have “caused some consternation in Washington.” Canada also a net exporter of
electricity to the United States, and the North American electricity grid is closely interconnected.
Following the August 2003 blackout, the two sides have worked to develop improved standards
for electricity transmission reliability.57
Bilateral Trade Issues
The United States and Canada enjoy the largest bilateral commercial relationship in the world;
total two-way cross-border trade amounted to over $1.5 billion per day in 2008. Over the past
twenty years, U.S.-Canada trade relations have been governed first by the 1988 U.S.-Canada Free
Trade Agreement and, subsequently, by the 1993 North American Free Trade Agreement. These
agreements, along with the conclusion of the Uruguay Round of multilateral trade negotiations
and the creation of the World Trade Organization, contained mutual concessions on commercial
trade barriers, and, more importantly perhaps, established binding dispute settlement mechanisms.
While these agreements have resolved some of the sharp differences from the past, questions
regarding the effectiveness of dispute resolution mechanism remain.
Meanwhile, several trade issues—some old, some new—have yet to be completely resolved.
Many of these disputes involve long-running battles over agricultural commodities or natural
resources, including softwood lumber and farm goods. Some analysts attribute the longevity of
these conflicts to the inherent incompatibility of the two countries’ different natural resource and
agricultural programs, others to the political sensitivity of the commodities under negotiation.
Softwood Lumber
This is particularly true of the long-running dispute over softwood lumber. A 1996 agreement
restricting Canadian lumber exports to the United States expired in March 2001. Shortly
thereafter, the U.S. Commerce Department launched countervailing duty and anti-dumping
investigations; in May 2002, the International Trade Commission (ITC) found that Canadian
56
RBC Financial Group, Daily Forex Fundamentals, February 27, 2009. [ http://www.actionforex.com/fundamentalanalysis/daily-forex-fundamentals/canada%27s-fourth%11quarter-current-account-moves-into-deficit-after-nine-yearsof-surpluses-2009022780264/]
57
Canada-U.S. Energy Relations. Updated April 14, 2009. Canadian Embassy website:
http://www.canadainternational.gc.ca/washington/bilat_can/energy-energie.aspx?lang=eng&menu_id=341&menu=L.
Country Analysis Briefs: Canada. U.S. Energy Information Administration website. Updated May 2009.
http://www.eia.doe.gov/emeu/cabs/Canada/Background.html.
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imports threatened to injure U.S. industry, and Commerce applied 27% (later reduced) duties on
Canadian softwood. Canada challenged the agency decisions under NAFTA and in the WTO.
After several years of inconclusive and sometimes conflicting litigation, the two sides announced
that they had struck a seven-year agreement on softwood on April 26, 2006. As part of a
complicated formula, the United States will allow unlimited imports of Canadian timber when
market prices remain above a specified level; when prices fall below that level, Canada will
impose export taxes and/or quotas. In addition, the United States will return to Canada a large
majority of the duties it had collected.58
The implementation of the softwood lumber agreement has not been without controversy. As the
depressed housing market has reduced demand for softwood lumber, the market price always
been under the level ($355 thousand board feet) in which export taxes must be charged. The
United States and Canada resorted to arbitration over the use of adjustment mechanisms to
calculate the quotas used for eastern Canadian lumber. The arbitral panel sided with the United
States, and after Canada did not implement the panel’s recommendation, the United States levied
a 10% tariff on the affected lumber to recoup the compensation awarded by the arbitral panel.
Black Liquor
The U.S. pulp and paper industry has been utilizing a tax expenditure intended to increase the use
of renewable energy to supplement fossil fuel use. The industry has long produced energy (for
internal consumption) from "black liquor" —the liquid waste from pulping liquors used to
dissolve the lignin in wood and release the fibers needed to produce paper. The tax program
provides a renewable energy tax credit for energy production where renewable sources are added
to fossil fuels to reduce the use of fossil fuels in energy production. The pulp and paper industry
has found that firms can qualify for the tax credit by adding diesel to their black liquors in
producing energy. It is estimated that the industry will benefit by as much as $6 billion from this
tax program.59 Canadian firms see this as an unfair subsidy to the U.S. pulp and paper industry,
although the program was clearly not created or intended as an industry-specific subsidy.
Country of Origin Labeling
The 2002 Farm Bill required retailers to provide country-of-origin labeling (COOL) for fresh
produce, red meats, seafood, and peanuts. The requirements for seafood were implemented on
September 30, 2004, but COOL requirements for other products were delayed until September
30, 2008. The 2008 Farm Bill, The Food, Conservation, and Energy Act of 2008 (P.L. 110-246),
reaffirmed this timetable and added goat meat, chicken, ginseng, pecans, and macadamia nuts as
covered commodities. A final rule was issued on January 15, 2009, effective March 16, 2009. On
May 7, 2009, Canada sought consultations under WTO dispute settlement concerning the rule.
Canada claims the rule is a non-tariff barrier that has led to a steep drop in beef and hog
shipments to U.S. processors.
58
“U.S. Gets a Lift In Lumber Fight With Canada.” By Ian Austen and Clifford Krauss. New York Times. August 31,
2005. “Conservative Government Wins Softwood Truce.” Globe and Mail. April 28, 2006.
59
Lawmakers May Limit Paper Mills’ Windfall. New York Times. April 18, 2009.
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Buy American Stimulus Provisions
The Buy American provision of the American Recovery and Reinvestment Act of 2009 (ARRA,
Sec. 1605, P.L. 111-5) states that no funds shall be appropriated for building projects or public
works projects unless all the iron, steel, and manufactured goods are made in the United States.
This provision was subject to three discrete waivers: (a) applying this policy would not be in the
public interest, (b) the iron, steel or manufactured products are not produced in sufficient
quantities or of a satisfactory quantity in the United States, or (C) the inclusion of the applicable
U.S. products would increase the cost of the overall project by more than 25%. The Senate added
language to ensure that the provisions are applied in a manner consistent with U.S. trade
obligations.
With regard to Canada, the United States has undertaken government procurement obligations
under the World Trade Organization’s (WTO) Agreement on Government Procurement (AGP)
and under the North American Free Trade Agreement (NAFTA). The AGP is a plurilateral
agreement that only binds those WTO members that agreed to undertake obligations under it.
Furthermore, the AGP only applies to the sectors and the procurement agencies that the national
government and sub-national agencies includes in its schedule of national commitments. NAFTA
contains similar commitments on the national level, but excluded sub-national entities.
Both the United States and Canada have undertaken extensive obligations to open their
government procurements at the national level under both agreements. Thus Canada firms may
bid on ARRA-related federal procurement under the provisions of the AGP. Under the AGP, 37
U.S. states as well as other government entities such as the Tennessee Valley Authority and the
Port Authority of New York and New Jersey have made commitments under the AGP. By
contrast, Canada has not undertaken any government procurement obligations on behalf of its
provinces. Likely for this reason, guidance from the Office of Management Budget implementing
the Buy American provisions excluded Canadian firms from bidding on ARRA-financed
contracts that are tendered by the states that are party to the agreement.60 International Trade
Minister Stockwell Day has criticized this exclusion claiming, "there are provisions being put in
place which are effectively closing the door to procurement from Canadian companies, suppliers
and producers...where people at the municipal level feel they have no choice but to go with U.S.
only products and services." 61
Intellectual Property Rights
In 2009, the U.S. Trade Representative elevated Canada on its Special 301 report on intellectual
property rights protections to the priority watch list for intellectual property rights protections for
the first time. 62 The priority watch list indicates that the listed trading partner has problems with
respect to IPR protection, enforcement, or market access for persons relying on intellectual
property and that these problems merit “increased bilateral attention.” In this designation, Canada
60
Office of Management and Budget, “Updated Implementing Guidance for the American Recovery and Reinvestment
Act of 2009, April 3, 2009. pp. 160-166.
61
“U.S. protectionism a threat to North America: Stockwell Day,” Financial Post, April 29, 2009.
62
United States Trade Representative, 2009 Special 301 Report, p. 17. Available at
[http://www.ustr.gov/assets/Document_Library/Reports_Publications/2009/2009_Special_301_Report/asset_upload_fil
e500_15612.pdf]
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joins such notorious IPR violators as China and Russia. The United States again urged Canada to
implement the World Intellectual Property Organization’s Copyright treaty, which has been
signed but not ratified by Canada. 63 The United States also expressed concern about trade in
pirated and counterfeit goods in Canada, as well as the transhipment and transiting of such goods.
The United States urged Canada to adopt tougher border security measures to crack down on this
trade, including allowing for the seizure of pirated and counterfeit goods by customs agents
without a court order. However, USTR commended Canada for cooperation on bilateral and
multilateral IPR initiatives, including the proposed Anti-Counterfeiting Trade Agreement
(ACTA).
Environmental Issues
The United States and Canada, which share a common border that stretches 5,500 miles,
cooperate extensively on environmental matters. Since they signed the Boundary Waters Treaty in
1909, the two countries have, through the International Joint Commission, worked together on
protecting and maintaining border waterways, especially the Great Lakes. In 1978, the two signed
the Great Lakes Water Quality Agreement.
In 2002, Canada ratified the Kyoto Agreement; in 2006, however, the government announced that
emission targets had been exceeded. The Harper government has established a goal of cutting
greenhouse gas emissions 20% by 2020. To do so, the government proposes numerous measures,
including increased reliance on hydro- and nuclear power, and revised regulations for the oil
sands industry.
The long feud over Pacific salmon—one of the more prominent bilateral disputes in recent
years—had both environmental and commercial aspects. Canada contended that American
fishermen were taking more than their equitable share of the migratory fish; the United States, on
the other hand, maintained that its fishing was in accordance with the 1985 Pacific Salmon Treaty
(PST) and with sound conservation practices. After a pause, talks resumed in 1997, and the two
sides finally reached an accord in 1999; both countries are monitoring implementation of the
agreement.64 The so-called Annex IV fisheries regimes of the PST were renegotiated in 2008.
One area of contention concerns the diversion of the naturally overflowing waters of Devils Lake,
in North Dakota. For flood-control purposes, the state has constructed a channel that diverts
excess water ultimately to the Red River, which flows northward. Manitobans have objected to
this solution, arguing that the lake water contains toxic chemicals from agricultural runoff; they
are also concerned that the introduction of alien species of aquatic life may disturb the ecological
balance and endanger recreational fishing in Lake Winnipeg, into which the Red River empties.
The Canadian government has requested that the case be referred to the International Joint
Commission. In April 2006, after meetings between senior environmental officials of the two
governments, the United States agreed to install a permanent filtration system at the Devils Lake
outlet. However, this filtration system, estimated to cost $15 million, has not been installed. In
February 2008, the North Dakota Supreme Court found that the state had acted improperly in
changing certain environmental standards for the water released from the Lake’s outlet. At this
time, the channel operates intermittently, subject to North Dakota health regulations. Meanwhile,
63
The WIPO Copyright treaty updates existing copyright protections for Internet and other electronic media.
CRS Report RL30234, The Pacific Salmon Treaty: The 1999 Agreement and Renegotiated Annex IV, by Eugene H.
Buck.
64
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Manitoba has offered to address the issue of a 30 mile border road that acts as a dike, trapping
water in northeastern North Dakota, if North Dakota installs the filtration system at the Devil’s
Lake Channel. North Dakota’s governor demurred, maintaining that the two issues are
unrelated. 65
Other environmental problems the two countries have dealt with in recent years include
secondary wastewater treatment, control of predator fish and other invasive species introduced
into the Lakes by ocean-going vessels, and sustainability of the St. Lawrence Seaway. In addition,
the United States and Canada concluded a hazardous waste trade agreement in 1986; more
recently, transboundary shipments of solid waste, particularly from Ontario to Ohio, Michigan,
and other U.S. states, have been under review, and have been the subject of legislation in the U.S.
Congress. The two countries have continued the long-standing debate over the ecological impact
of possible development in Alaska’s Arctic National Wildlife Refuge. Finally, the two sides
continue to monitor the progress of the 1991 Canada-United States Air Quality Agreement. On
January 7, 2003, Canadian and U.S. officials announced a new Joint Border Air Quality Strategy;
under the initiative, pilot programs to reduce air pollution will be developed involving
stakeholders at the state, provincial and local levels.
Canada’s Arctic Sovereignty Claim66
Issue Definition
Scientists have forecast that, by 2030 or earlier, global warming will reduce the Arctic ice pack in
Canada’s northern archipelago sufficiently to create a “northwest passage” that will permit
commercial ship traffic through the summer months. If created, a northwest passage would
significantly reduce transit distances for commercial ships operating between certain ports. It
could also be used by commercial fishing or cruise ships, ships supporting Arctic scientific
research or resource exploration, or military ships. The presence of ships in the passage could
require the establishment and enforcement of shipping lanes and other rules for ensuring safe ship
operations while in the passage, add to existing demands for maritime search and rescue
capabilities, and create a risk of environmental damage to the Arctic due to engine exhaust, fuel
spills, dumping of waste, or release of ballast water containing contaminants or non-native marine
organisms. The use of the passage by foreign military ships might be viewed as creating potential
security risks to Canada (and the United States). Successive Canadian governments have
maintained that such a passage would be an inland waterway, and would therefore be sovereign
Canadian territory, subject to Ottawa’s surveillance and regulation. The United States, the
European Union, Japan, and others assert that the passage would constitute an international strait
between two high seas.
65
“Devil Down South.” The Economist. July 16, 2005. “Little-Known White House Office Negotiates Devils Lake
Dispute.” AP. September 5, 2005. “U.S. Promises Devils Lake Filter, But Water May Flow Before Installation.”
Canadian Press. April 25, 2006. Manitoba Scores Partial victory In Water Dispute With North Dakota. The Canadian
Press. February 22, 2008; “ND governor to Manitoba: No deal on water dispute,” Fargo Forum, May 8, 2009.
66
Prepared by Carl Ek, Specialist in International Relations; Foreign Affairs, Defense, and Trade Division.
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Background and Analysis
Arctic sovereignty has been an issue for Canada for decades. In 1985, a U.S. icebreaker, the Polar
Sea, caused an uproar in Canada when it traversed the waters of the northern archipelago without
first seeking permission. Afterward, Washington and Ottawa came to an agreement in 1988 under
which the United States pledged to notify Canada when its ships would transit the region, and
Canada agreed to grant its consent. In recent years, however, the question over who, if anyone,
would have control over the regional waters has intensified as scientific consensus has grown that
the melting of the polar icecap will open up a Northwest Passage during the summer months.
The debate over the Northwest Passage has commercial, environmental, and security
considerations. The opening of a channel of water during the summer months through Canada’s
36,000-island arctic archipelago would cut shipping routes between Europe and Asia by 3,0004,000 miles, saving time and fuel costs. However, many Canadians are concerned that unfettered
maritime traffic through the region could result in serious environmental hazards ranging from
the catastrophe of an oil spill, to more cumulative pollution caused by ocean dumping of ballast
and garbage by transiting vessels. In terms of security, the Canadians are concerned that
recognition of the passage as international waters would result in free access to naval warships
and submarines, including, for example, those of Russia and China.
Canada seeks recognition of its sovereignty over the entire area, among other reasons, because of
a strong national identification with its northern regions. Ottawa argues that it has a historical
claim based on centuries of Inuit inhabitation—of the islands and of the ice extending from them.
From a practical standpoint, Canada wishes to have the ability to enforce protection of the fragile
arctic ecosystem and to ensure sustainable commercial fishing practices. In addition, the
Canadians want there to be no doubt that they have rights to the region’s abundant natural
resources, including oil, natural gas, minerals, and precious metals.
The Harper government has been seeking to bolster Canada’s sovereignty claim by establishing a
stronger military presence. In July 2007, Harper announced plans for the construction of 6-8
armed, medium-sized icebreakers to patrol the north. The following month, he traveled to
Resolute Bay, Nunavut and announced plans to construct a winter warfare training center and
deep-water port in the region. He declared that “Canada’s new government understands that the
first principle of Arctic sovereignty is: Use it or lose it.” Some Canadians, however, have
criticized Harper for seeking to militarize the debate.
The prospective passage raises jurisdictional questions. Canadians maintain that it would be an
internal waterway and would likely require all vessels to register with their coast guard’s vessel
traffic reporting system. They contend that this would facilitate possible search-and-rescue
missions, and would dissuade ships bearing contraband from sailing through the region. There is
general agreement that the natural resources in the region are Canadian; the debate concerns free
transit rights. Analysts note that the UN Convention on the Law of the Seas calls for the right of
transit passage “between one part of the high seas ... and another part of the high seas ... .” In
addition, some analysts believe that the recognition of the Northwest Passage as a Canadian
inland waterway would set an international precedent that might be viewed as applicable
elsewhere in the world. Other governments could echo Canada’s sovereignty claim and prohibit
the passage of U.S. naval ships, as well as of oil tankers bound for the United States; the Straits of
Malacca and Hormuz have been cited as examples. Others, however, such as former U.S.
Ambassador to Canada Paul Cellucci, argue that it would be in the interests of U.S. national
security if Canada were to manage and police shipping through the straits.
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Several possible solutions have been put forward. Some argue that Canada could achieve its
objectives through regulations approved by the UN International Maritime Organization. Also, it
has suggested that NORAD and the Arctic Council might be able to coordinate cooperative
patrolling of the passage. Others—though not the United States—have proposed that the
countries bordering the Arctic adopt an agreement prohibiting military, residential, or commercial
use of the region, as was done for Antarctica in 1959. Finally, some believe that a renewed and
updated version of the 1988 U.S.-Canada agreement would suffice.
Status of the Issue
The Bush Administration did not make a major issue of the future northwest passage. On January
9, 2009, the White House issued National Security Presidential Directive 66, entitled Arctic
Region Policy. The document reiterated the Administration’s stance regarding Canada’s
sovereignty claim, stating that “the Northwest Passage is a strait used for international
navigation.” Many observers believe that it is unlikely that the Obama Administration will reverse
this stance, and that, for the time being, the Ottawa and Washington will continue to “agree to
disagree.” However, Canadian analysts have argued that the debate over who should manage the
straits will intensify if ships carrying hazardous materials or illegal immigrants are discovered in
the region. Because it has been highlighted as a priority area for the Harper government, this issue
will likely continue to be the subject of bilateral discussions between U.S. and Canadian
policymakers.
Questions
1. Several governments have taken issue with Canada’s assertion of sovereignty over the Arctic
waters. Do any foreign countries support Canada on this question? Has the Canadian government
offered a legal precedent for its claim?
2. If Canada were to win recognition of its sovereignty over the passage, how might it regulate
shipping traffic through the straits?
3. What might be the security, economic and environmental consequences for the United States if
Canada were to win its sovereignty claim? If the passage were to be declared international
waters?
Border Security Issues67
Issue Definition
Border security has emerged as an area of public concern, particularly after the September 11,
2001 terrorist attacks. Since the terrorist attacks, the United States and Canada have been striving
to balance adequate border security with the facilitation of legitimate cross-border travel and
commerce. As Congress passes legislation to enhance border security and the Administration puts
into place procedures to tighten border enforcement, concerns persist with respect to the potential
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Prepared by Chad C. Haddal, Analyst in Immigration Policy, Domestic Social Policy Division.
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for terrorists to exploit the border. Congress previously passed significant border security-related
legislation as discussed below, and issues pertaining to the oversight of such legislation and their
possible policy implications for U.S.-Canada border relations continue to be of interest to
Congress. These issues include (1) the new requirement that U.S. Citizens, Canadian nationals,
and other foreign nationals from countries in the Western Hemisphere, will soon need a travel
document to enter the United States; and (2) improvements to infrastructure at the border and
ports of entry.
Background and Analysis
Both the United States and Canada have taken various measures to better secure the shared border
while simultaneously preventing disruption to the flow of people and trade. While such efforts
date back to 1995, recent efforts include a 30-point plan, commonly referred to as the “Smart
Border Accord” (signed on December 12, 2001). The declaration includes a 30-point (now 32point) plan to secure the border and facilitate the flow of low-risk travelers and goods through
coordinated law enforcement operations, intelligence sharing, infrastructure improvements,
improvement of compatible immigration databases, visa policy coordination, common biometric
identifiers in travel documents, prescreening of air passengers, joint passenger analysis units, and
improved processing of refugee and asylum claims, among other things. Previously, on December
3, 2001 the two countries signed a joint statement of cooperation on border security and migration
that focuses on detection and prosecution of security threats, the disruption of illegal migration,
and the efficient management of legitimate travel. Other efforts to increase border security
between the U.S. and Canadian government include the 1999 Canada-U.S. Partnership Forum
(CUSP) and the February 24, 1995, joint accord, Our Shared Border.
Congress also took action to better secure the border by passing the USA PATRIOT Act (P.L.
107-56). The act authorized the Attorney General to triple the number of border patrol personnel
and immigration inspectors along the northern border and authorized $50 million for the former
INS to make technological improvements and to acquire additional equipment for the northern
border. The Enhanced Border Security and Visa Reform Act of 2002 (the Border Security Act;
P.L. 107-173) similarly authorized additional personnel and technological and infrastructure
improvements at the borders. The Border Security Act contained a provision that required the
development of technology to track the entry and exit of foreign nationals (referred to as the USVISIT program). Both the USA PATRIOT Act and the Border Security Act required travel
documents to be tamper resistant and contain a biometric identifier that is unique to the card
holder.
Western Hemisphere Travel Initiative
More recently, Congress passed legislation that requires the Secretary of Homeland Security, in
consultation with the Secretary of State, to develop and implement a plan as expeditiously as
possible to require a passport or other document, or combination of documents, “deemed by the
Secretary of Homeland Security to be sufficient to denote identity and citizenship,” for all
travelers entering the United States. Commonly referred to as the Western Hemisphere Travel
Initiative (WHTI), this provision in the Intelligence Reform and Terrorism Prevention Act of
2004 (P.L. 108-458) requires American and Canadian nationals (and other foreign nationals) to
present some form of approved travel document to enter the United States by January 1, 2008. On
November 24, 2006, DHS published a Final Rule concerning the acceptable WHTI travel
documents for entry into the United States through airports. The DHS final rule required all U.S.
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citizens and nonimmigrant aliens from Canada, Bermuda, and Mexico to present a valid passport
in order to be allowed entry into the United States at airports starting on January 23, 2007. The
Consolidated Appropriations Act of fiscal year (FY) 2008 (P.L. 110-161) included language
modifying the WHTI deadlines that were enacted by P.L. 108-458 and subsequently extended by
P.L. 109-295. The new deadline for implementation of WHTI is June 1, 2009.
Despite this legislation, as of January 31, 2008, DHS has ended the practice of accepting oral
declarations of citizenship at the land border and is currently requiring U.S. citizens to present a
passport, some other accepted biometric document, or the combination of a driver’s license and a
birth certificate, in order to reenter the country. On March 27, DHS and the Department of State
(DOS) announced the final rule for WHTI. The WHTI final rule will require that U.S. citizens
present an approved secure document that denotes identity and citizenship at the land border
starting June 1, 2009. This would end the current practice of accepting driver’s licenses and birth
certificates as proof of identity and citizenship at the border. Approved documents will include
passport books, passport cards, and frequent traveler cards (such as SENTRI, NEXUS, and
FAST). Additionally, some states have entered into agreements with DHS and have developed (or
are developing) enhanced driver’s licenses (EDL) that include citizenship information and are
valid for WHTI purposes. DHS has also stated that they are working with the Canadian
government and several Canadian provinces to develop EDLs or other similar documents for
Canadian citizens that would be valid for WHTI purposes. Yet, the WHTI has fostered much
debate in Canada as well as the United States, as some observers voice concerns that the
increased documentation that will be required at the border may suppress travel between the two
nations.
Status of the Issue
The U.S. and Canadian governments continue to implement the provisions in the Smart Border
Accord. For example, both countries have expanded the NEXUS program to twelve land border
crossings. Both countries continue to explore the feasibility of creating additional joint facilities
at agreed upon ports of entry and sharing of information through interoperable technology.
Additionally, both countries have begun to take steps to share passenger information on high-risk
travelers en route to either country through a risk-scoring scheme that was jointly developed; and
in 2004, an automated process to share “lookout” data between both countries was developed.
However, negotiations between the U.S. and Canada over two proposed pre-clearance pilot
programs were reportedly recently abandoned by DHS due to sovereignty issues, the right of
individuals to withdraw from inspections, and concerns about Canadian legal restrictions on
Customs and Border Protection officers’ authorities relating to arrests, fingerprinting, and other
activities.
Questions
1. When fully implemented, the WHTI will make significant changes to the current documentary
requirements needed to enter the United States. What steps will the Canadian government be
taking to ensure that Canadian citizens are aware of these changes? Will the Canadian
government consider imposing similar requirements on American citizens entering Canada? Will
Canada develop its own version of the passport card for Canadian citizens? Will Canadian
provinces develop their own EDLs for WHTI?
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2. In recent years, a number of different technologies, including the US-VISIT program, have
been implemented at northern ports of entry. With the advent of the WHTI, the demand for
improved infrastructure will continue to be critical. What measures have been taken by the
Canadian government to mitigate the impact of such a demand at its border crossings? Are there
collaborative efforts that could be undertaken to alleviate some of the pressure on busy POE?
3. The Smart Border Accord calls on the two countries to develop approaches to move customs
and immigration inspection activities away from the border. While such an approach is already
present at Canadian airports, there has been interest in expanding it to areas away from land ports
of entry. What is the Canadian government doing to facilitate this objective? What was the reason
that negotiations over the land-border pilot program failed? Are there any potential solutions for
the problems that led to the pre-clearance pilots to be scrapped?
Border Security: Trade and Commercial Concerns68
Issue Definition
The aftermath of the terrorist attacks on the United States on September 11, 2001 increased
scrutiny of the Canadian border as a possible point of entry for terrorists or for weapons of mass
destruction. The potential for economic disruption that closing the border would cause has
spurred cooperation between the United States and Canada to improve border security in an
atmosphere conducive to continued and expanded commerce. This brief details commercial
considerations in U.S.-Canadian border security discussions.
Background and Analysis
The issue of border security is linked to the increased integration of the United States and
Canadian economies. This integration has been aided by several trade agreements, culminating in
the North American Free Trade Agreement of 1994 (NAFTA). These trade agreements not only
eliminated tariff barriers between the two nations, but also reoriented Canada’s industrial
structure towards the United States. Industries in each country are now able to produce goods for
a larger continent-wide market, and productivity has increased through increased economies of
scale and specialization. Such specialization led to increased bilateral trade, much of it in
intermediate products. This integration has, in turn, led to industrial practices such as “just in
time” parts procurement that depend on a relatively open border.
The volume of economic activity across the border underscores the extent of economic
integration between the United States and Canada. Today, the United States and Canada have the
largest trading relationship in the world with over $1.5 billion per day in goods and services
crossing the border in 2008. Canada purchases 20% of U.S. exports and supplies 16% of all U.S.
imports. The United States supplied 53% of Canada’s imports of goods in 2008 and purchased
78% of Canada’s merchandise exports; two-way trade with the United States represents nearly
38% of Canadian GDP. The Ambassador Bridge that links Detroit, Michigan and Windsor,
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Prepared by Ian F. Fergusson, Specialist in International Trade and Finance, Foreign Affairs, Defense, and Trade
Division.
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Ontario is the largest trade link in the world with more than 7,000 daily truck crossings totaling
more than $120 billion per year.
Action Programs and Initiatives
New initiatives to increase security of the border without impeding the flow of commerce are
being developed under the Security and Prosperity Partnership (SPP), which was launched by the
leaders of the United States, Canada, and Mexico in March 2005. Many of these initiatives
expand upon previous bilateral efforts by the United States and Canada, including the Smart
Border Action Plan of December 2001 consisting of 4 pillars: the secure flow of people, the
secure flow of goods, a secure infrastructure, and coordinated enforcement and information
sharing. The pillar concerned with the flow of goods consists of initiatives on harmonized
commercial processing, supply chain management, clearance away from the border, joint or
shared facilities, enhancement of information sharing, and infrastructure improvements.
The U.S. Bureau of Customs and Border Protection’s Customs-Trade Partnership Against
Terrorism (C-TPAT) and the Canadian Border Security Agency’s Partners in Protection Program
are supply-chain security initiatives in which companies undertake audit-based compliance
measures to enhance security along the supply chain. Goods shipped under these programs are
eligible for preclearance away from the border. The SPP calls for the two programs to be
harmonized within two years.
The Free and Secure Trade (FAST) is a joint harmonized commercial processing initiative at 21
border locations, which provides for dedicated inspection lanes to goods carried by approved
lower-risk shippers, to goods purchased from pre-authorized importers such as C-TPAT, and to
goods transported by pre-authorized drivers and carriers. A complementary program (NEXUS) to
expedite the secure movement of people has also been established for frequent travelers who have
undergone security clearances on both sides of the border.
Another objective of the border security efforts has been the screening of goods entering North
America. The ongoing U.S. Container Security Initiative (CSI) is designed to pre-screen high risk
containers entering the United States at overseas ports of departure. Under the SPP, the three
countries will develop common screening methods and technology, establish criteria to identify
high risk cargo, and harmonize cargo information technology. Preclearance and prescreening is a
possible first step in the creation of a North American security perimeter, a concept whereby
clearance occurs at the first point of entrance rather than at the final border.
Status of the Issue
Land preclearance away from the border by U.S. and Canadian customs agents working in each
other’s territory is an issue that has proven controversial, primarily due to concerns about
sovereignty. Joint U.S.-Canada customs teams already operate in the CSI ports of Halifax,
Montreal, and Vancouver, as well as Newark and Seattle-Tacoma, although the visiting agent
serves only an advisory role with no enforcement powers. The SPP calls for negotiations on a
U.S.-Canada preclearance agreement with implementation of two pilot sites, the Peace Bridge
(Buffalo, NY-Fort Erie, ON) and the Thousand Islands Bridge (Alexandria Bay, NYLandsdowne, ON). However, these negotiations were suspended on April 26, 2007, over the issue
of fingerprinting Canadian citizens crossing the border. Canadian law does not provide for
fingerprinting Canadian citizens that have not been charged with a crime.
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A second issue is the ability of the transportation infrastructure to cope with increased security
measures. The aging condition and limited capacity of the land border infrastructure preceded the
terrorist attacks. For example, the Ambassador Bridge and the Detroit-Windsor Tunnel, which
together carry 25% of total U.S.-Canada cross-border traffic, both opened in 1930. Approaches to
the crossings, often city streets, have been criticized as inadequate to the commercial needs of the
21st century. This issue affects the efficient implementation of security measures. The FAST
system provides for dedicated lanes at land border ports for expedited preclearance. However,
these lanes will not save time if the FAST participant cannot access this lane due to congestion or
delays at the points of access. The SPP completed a pilot program that attained a 25%
improvement in border crossing times at the Detroit-Windsor gateway in December 2005, yet the
aging and adequacy of the border infrastructure may affect whether such improvements are
sustainable. A binational partnership to construct additional crossing capacity at the DetroitWindsor gateway is engaged in technical and environmental assessments of potential new
crossing sites; however, the opening of new bridge or tunnel capacity is not envisioned before
2013.
Questions
1. Is Canada doing enough to secure the border against the transit of terrorists or weapons of mass
destruction? Do Canadians think that the United States has placed too much emphasis on securing
the northern border against terrorists to the detriment of efficient trade relations?
2. Is Canadian sovereignty threatened by having U.S. customs agents with enforcement powers
active on Canadian soil? Do you believe the fingerprinting issue is a make-or-break issue
concerning land preclearance? What are the elements of sovereignty that most concern you? Is
legislative action necessary to permit this cooperation?
3. Are Canadian business and government officials concerned that another terrorist-related border
shutdown could cause the relocation of business to the United States or dampen the attractiveness
of Canada as a recipient of foreign investment?
Immigration and Refugee Policies69
Issue Definition
Should the United States be concerned that Canada’s immigration and refugee laws and policies
pose a threat to its national security?
Background and Analysis
Although Canada does not have country or worldwide immigration quotas, the government does
establish annual targets. Between 2004 and 2008, Canada accepted between 235,000 and 262,000
new permanent residents annually. In this same period, an average of between 90,000 and
100,000 persons were accepted annually as temporary workers. New arrivals as permanent and
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Prepared by Stephen F. Clarke, Senior Foreign Law Specialist, Western Law Division, Law Library of Congress,
May 2008.
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temporary residents total more than 1% of the entire Canadian population. Asian countries, such
as China, India, Pakistan, and the Philippines, are heavily represented at the top of the list of
countries from which Canada’s immigrants come, but no one nation dominates. Iran is the only
country adjacent to the Middle East that recently has been in the top ten. Security checks are
conducted by federal authorities. Because Quebec, however, has an agreement with the federal
government that allows it to select immigrants intending to settle in that province, Quebec’s
system adds a second screening process for its applicants. Quebec also has addressed security
concerns by adjusting its programs for recruiting immigrants. The federal government and
Quebec use point systems for assessing independent applicants that were changed ten years ago to
attract more highly skilled and educated immigrants, regardless of whether they had arranged
employment or not. Under this system, Canada has long accepted a much higher percentage of
independent immigrants and a much lower percentage of family class immigrants than the United
States. A decision to give priority to the processing of certain applicants who have arranged
employment drove the balance of the skilled worker category even higher relative to family class
immigrants, to a ratio of approximately 2.3:1 in 2008. This change was strongly opposed by
immigration groups who favor stronger family reunification policies.
One notable feature of Canadian immigration is that nearly three-quarters of the persons accepted
settle in the three largest cities: Toronto, Montreal, and Vancouver. This tendency, combined with
the high rate of immigration, has raised some concerns about destructive “diaspora nationalism”
emerging in these concentrated communities. The 2006 arrests of a group of Muslims who had
been raised in Canada and had planned attacks in southern Ontario fueled this concern. However,
this problem is not unique to Canada and opposition to immigration has not been voiced nearly as
loudly or as forcefully in Canada as it recently has been in parts of Western Europe. In fact,
immigration is still generally viewed as an opportunity for growth in what would otherwise be a
declining population.
The Canadian policy for asylum applicants is a far more contentious issue within the country than
immigration, not so much for its negative effects within Canada, but because it generally is
believed to invite fraud and abuse. Between 1998 and 2004, refugee claims began at around
25,000, rose to a high of about 45,000, and ended back down at approximately 25,000. In 2007,
the number of refugee claims was approximately 28,500. The acceptance rate has consistently
been somewhat higher than in the United States. In 2006, 47% of the refugee applications
processed were accepted. Of particular concern to Canadian officials prior to 2005 was the fact
that approximately 40% of the overall total claimants and some 70% of port-of-entry claimants
had entered Canada through the United States. There was significant evidence that illegal
migrants were abusing the U.S. Non-Immigrant Visa system to access North America, and the
Canadian asylum system to stay in Canada. Canada is attractive to these persons because it
detains few undocumented refugee claimants pending independent identification and because the
federal and provincial governments grant immediate assistance to applicants who have yet to
substantiate their claims. The result has been that the majority of Canada’s refugee claimants
arrive in Canada without any documents and are allowed free entry into the country, even though
it is clear that many disposed of the documents they had before coming to Canada. Canada is also
attractive to refugee claimants because it does not often detain undocumented arrivals. However,
facilities for the detention for persons who may be viewed as posing a security or flight risk have
been prepared.
A number of U.S. television programs that have portrayed the Canadian refugee system as
extremely liberal have received considerable attention in Canada. Most of these segments have
mentioned cases of terrorists from the Middle East who did or may have entered Canada as
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refugees with the intention of launching attacks against U.S. targets. The most prominent of these
cases is that of the “millennium bomber.” Ahmed Ressam was captured in 1999 while crossing
the border with explosives that he planned to set off at Los Angeles International Airport on
January 1, 2000. Also highlighted have been the cases of suspected terrorists who have remained
in the country for many years while fighting their way through a very lengthy appeal process. In
2002, the Supreme Court of Canada ruled that two persons linked to terrorist organizations could
be deported to countries where they might face torture, when security concerns so require. One of
these individuals was returned to Iran fairly quickly, but the other continued fighting his
extradition to Sri Lanka.
American media coverage of the Canadian refugee system has elicited a wide range of responses.
While a number of Canadian commentators agree that the United States has good reason to fear
that Canada’s refugee policies can be easily employed by terrorists to enter North America, others
contend that terrorists are more likely to use other means to enter both Canada and the United
States. Many analysts point out that there is no evidence that any of the September 11 hijackers
had a Canadian connection and that the refugee system essentially has been used for “queue
jumping” by enterprising persons who might not qualify under Canada’s immigration laws.
Proponents of this view are exasperated by repetitions of the well-refuted myth that the
September 11 hijackers came from Canada and question how great the security risk to the United
States can be if a significant number of claimants are coming to Canada from this country.
In December 2002, the United States and Canada signed a Safe Third Country Agreement to
allow immigration officials in both countries to require most persons seeking asylum at a border
crossing to go back and present the claims in their respective countries. This type of Agreement
had been called for in the Action Plan to the Smart Border Declaration signed in the aftermath of
the September 11 attacks in the United States. Implementation of the Agreement was delayed by
the lengthy and complicated process for drafting and approving appropriate regulations in the
United States, but it finally went into force at the beginning of 2005. In 2007, a judge of the
Federal Court of Canada held that the law implementing the agreement was unconstitutional,
based on his finding that the United States does not fully comply with international conventions
on refugees. This action followed two other court decisions in which part of the definition of
“terrorism” in the Anti-Terrorism Act and the procedure for detaining suspected terrorists under
the immigration laws were both struck down. However, the Federal Court of Appeals upheld the
Safe Third Country Agreement in a decision the Supreme Court of Canada decided not to review
in February 2009.
Although the Safe Third Country Agreement aims to limit asylum shopping and the filing of
multiple claims, it is limited in scope and subject to several major exceptions. One major
limitation is that it only covers the presentation of claims at land border crossings. Airport and
marine facilities are not covered except in very limited circumstances. Critics contend that this
will simply encourage a would-be refugee claimant to sneak into his or her country of choice
illegally or fly into a country of choice in order to present a claim. The Agreement also contains
very broad exceptions for relatives, including relatives of other asylum seekers, and it allows the
parties to “examine any refugee status claim made to that party where it determines that it is in
the public interest to do so.” Because the Safe Third Country Agreement generally is opposed by
refugee groups in both countries, it is likely that internal pressure will be put on both countries to
invoke this reserved right in particular cases.
Statistics show that the number of refugee claims presented at border crossings in Canada
declined by approximately 40% in the first half of 2005, and fewer than 20,000 total claims were
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filed for the entire year. In 2006, the number of refugees admitted for permanent residence was
down about 3,000 from 2005. Although the data would suggest that the Safe Third County
Agreement had a dramatic immediate impact, it also has been noted that claims presented at
airports, which are not subject to the Agreement, initially were down about 25%. Thus, the Safe
Third Country Agreement appears to have gone into effect during a period in which the number
of refugee claims already was declining. Since then, increased enforcement in the United States
has helped offset some of the immediate benefits to Canada of the Safe Third Country Agreement
by encouraging more persons to seek refuge in Canada.
Status of the Issue
One longstanding problem in Canada is that deportation is a very complicated and lengthy
process. The number of persons deported has been growing, but Canada’s Auditor-General
recently found in May 2008 that the government did not know the whereabouts of approximately
two-thirds of the over 60,000 persons who were subject to deportation or removal orders.
Included in this group are persons who were found to be inadmissible on the grounds of
criminality. While the Auditor-General was critical of the situation, she did not find that the
missing persons constituted a clear national security risk.
Questions
1. Could the Safe Third Country Agreement have had a broader application and apply to persons
making applications for refugee status within the country?
2. Are the reported cases of terrorists and high-risk persons entering North America through legal
means a sign of a potentially much greater threat?
3. Why do Canadian and U.S. officials maintain different detention policies in the case of
undocumented refugee claimants?
4. What steps does the Canadian government intend to take to keep track of persons subject to
deportation or removal orders?
Canada and NAFTA70
Issue Definition
During the 2008 U.S. election campaign, there were calls by some candidates, including President
Barack Obama, to reopen or renegotiate the North American Free Trade Agreement (NAFTA).
For many Canadians, such calls proved worrisome- especially when unaccompanied by details.
Although some Canadians have their own issues with NAFTA, the agreement is the cornerstone
of their economic relationship with the United States, by far its most important. Subsequent
clarifications by the new administration about the scope of the changes, perhaps to incorporate
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This section was written by Ian F. Fergusson, Specialist in International Trade and Finance; Foreign Affairs,
Defense, and Trade Division.
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some of the environment and labor side letters to the body of the agreement with reopening itself
have been welcomed by the leaders of Canada and Mexico.
Background and Analysis
Over the past twenty years, U.S.-Canada trade relations have been governed first by the 1988
U.S.-Canada Free Trade Agreement, which was incorporated into the subsequent 1993 North
American Free Trade Agreement that included Mexico. These agreements have removed tariffs
on all goods between the three countries, provided market access opportunities for investors,
financial service providers, and other cross-border services, opened certain government
procurement opportunities for firms of each nation in the other, set ground rules for intellectual
property protection, and provided a mechanism to resolve disputes among the parties. These
agreements provide the foundation for the North American economic space.
The U.S. interest in renegotiating or revising NAFTA center around the side agreements on labor
and on the environment. These agreements were added following the election of Bill Clinton in
order to win political support for the agreement during congressional consideration in 1993. Each
agreement provides for the establishment of a commission to investigate matters of concern and
to promote cooperative activities in labor and environmental protections. The agreements also
obligate each party to enforce their own laws with regard to labor and the environment and to
provide private parties the right of action under national laws. A NAFTA party can pursue a
complaint against another NAFTA party if it believes the other party is not enforcing its domestic
laws and a dispute settlement process is available for cases that are not resolved between
governments. Critics of the process believe that their status apart from the agreement
marginalizes their effectiveness and that governments have shown little desire to file complaints
against each other over labor or environmental matters. According to proponents of inclusion,
putting the labor and environmental provisions into the text of the agreement would serve to
elevate those issues on par with other disputes in NAFTA.
However, some policymakers are concerned that reopening of NAFTA could open a ‘pandora’s
box’ of pent-up issues resulting from the operation of the agreements for the past 15 years. For
Canada, these issues may include:
•
Chapter 6 Energy and Petrochemical Provisions. Critics say that this chapter,
and particularly the ‘proportionality’ provision, creates a supply obligation to the
United States causing Canada to lose sovereignty over its own energy resources.
These critics note that Mexico opted out of many of the Chapter’s provisions.
•
Dispute Settlement. Some Canadians have been disenchanted with the workings
of the Dispute Settlement system under NAFTA. Much of this feeling may be
due to the softwood lumber dispute, in which some Canadians believed their
position was upheld by NAFTA panels, only to have those decisions evaded or
ignored by the United States. This had led some to question the legitimacy of the
dispute system and may encourage the government to take future disputes to the
WTO instead.
•
The Border. While not specifically governed by NAFTA provisions, some
Canadian business and policymakers are claiming that the NAFTA promise of
free trade is being undermined by increased security at the border and what they
consider to be the increasing tendency of U.S. policymakers not to differentiate
between the concerns of the Canadian and Mexican borders.
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Status of the Issue
Although President Obama has suggested that the labor and environmental provisions should be
incorporated into the text of the agreement, U.S. Trade Representative Ron Kirk announced on
April 20, 2009 that those efforts could be accomplished without reopening the core text of the
agreement. According to USTR Kirk, all three leaders agreed to look at opportunities to review
and strengthen NAFTA.
Questions
1. How would you strengthen NAFTA? What problems do you see with the agreement? What
problems do you think Americans have with the agreement?
2. On balance, has NAFTA and free trade been good for your constituency? Why or why not?
3. Do you think the operation of NAFTA is being hampered by security at the border? How can
the needs of commerce be reconciled with security concerns on both sides of the border?
Security and Prosperity Partnership of
North America71
Issue Definition
How can the United States cooperate with its North American neighbors on issues related to trade
0 transportation, and security? What has been the impact of the Security and Prosperity
Partnership of North America in improving security and competitiveness in North America?
Background and Analysis
The Security and Prosperity Partnership of North America (SPP) is a trilateral initiative, launched
in March 2005, that is intended to increase cooperation and information sharing in an effort to
increase and enhance prosperity in the United States, Canada, and Mexico. The SPP is a
government initiative that was endorsed by the leaders of the three countries, but it is not a signed
agreement or treaty and, therefore, contains no legally binding commitments or obligations. It
can, at best, be characterized as an endeavor by the three countries to facilitate communication
and cooperation across several key policy areas of mutual interest. Although the SPP builds upon
the existing trade and economic relationship of the three countries, it is not a trade agreement and
is distinct from the existing North American Free Trade Agreement (NAFTA). The SPP working
groups are not contemplating further market integration in North America. Such a move would
require a government approval process within each of the three countries. In the United States,
such an agreement would require the approval of the U.S. Congress. Some key issues for
Congress regarding the SPP concern possible implications related to national sovereignty,
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Prepared by Angeles Villarreal, Specialist in International Trade and Finance, Foreign Affairs, Defense, and Trade
Division.
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transportation corridors, cargo security, and border security. These issues are discussed in various
sections of the report.
Since 2005, the SPP working groups have made annual recommendations to the North American
leaders on how to accomplish the goals of the SPP. In 2008, the working groups agreed to
continue to advance the agenda of the SPP by identifying and focusing on a set of high priority
initiatives. They decided to: 1) increase the competitiveness of North American businesses and
economies through more compatible regulations; 2) make borders smarter and more secure by
coordinating long-term infrastructure plans, enhancing services, and reducing bottlenecks and
congestion at major border crossings; 3) strengthen energy security and protect the environment
by developing a framework for harmonization of energy efficiency standards and sharing
technical information; 4) improve access to safe food, and health and consumer products by
increasing cooperation and information sharing on the safety of food and products; and 5)
improve North American response to emergencies by updating bilateral agreements to enable
government authorities from the three countries help each other more quickly and efficiently
during times of crisis. At the North American Leaders Summit in April 2008, the three leaders of
North America directed their ministers to renew and focus the work of the SPP in competiveness;
smarter and more secure borders; energy security and environmental protection; food and product
safety; and emergency response.
Goals of the SPP in the area of prosperity are to increase cooperation and sharing of information
in order to improve productivity, reduce the costs of trade, and enhance the quality of life.
Leaders from the three countries have highlighted the need to enhance North American
competitiveness through compatible regulations and standards that would help the three countries
protect health, safety and the environment, as well as to facilitate trade in goods and services
across their borders.
The goal of the security components of the SPP is to coordinate the security efforts undertaken by
each of the three participating nations to better protect citizens from terrorist threats and
transnational crime while promoting the safe and efficient movement of legitimate people and
goods. Working groups were established to address the security aspects of the SPP and are
grouped by three broad themes: 1) external threats to North America; 2) streamlined and secured
shared borders; and 3) prevention and response within North America.
One of the stated goals of the SPP is to improve the safety, security, and efficiency of the flow
goods between the three countries. The majority of trade between the United States, Canada and
Mexico is transported by land modes (truck, rail, and pipeline). One of the central tensions in
border management policy concerns how to design policies that facilitate the efficient entry of
legitimate cargo while simultaneously ensuring that a sufficient level of security and scrutiny is
applied to deny the entry of illegitimate cargo. Since 9/11, the U.S. government has undertaken a
number of initiatives aimed at improving cargo security and the facilitation of legitimate or lowrisk cargo. Two SPP security working groups are devoted to cargo security and border facilitation.
Some critics of the SPP believe that it may be more than an initiative to increase cooperation and
that it could lead to the creation of a common market or economic union in North America.
Others contend that it may ultimately lead to a so-called “NAFTA Superhighway” that would link
the United States, Canada, and Mexico with a ‘super-corridor’. However, if the United States
were to potentially consider the formation of a customs union or common market with its North
American neighbors, it would require approval by the U.S. Congress. The federal government has
stated that there are no plans to build a “NAFTA Superhighway,” and that no super-corridor
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initiative of any sort is a part of the SPP. Further, no legal authority exists and no funds have been
appropriated to construct such a superhighway, nor are there current plans to seek such authority
or funding.
Status of the Issue
The United States, Canada, and Mexico have made progress in recent years in addressing issues
related to North American competitiveness and security through the SPP. The SPP serves as a
mechanism to increase communications among North American trading partners on issues of
mutual concern, but because it is not a binding agreement, its role in improving prosperity and
security may be limited.
Questions
1. How effective has the SPP been in improving North American competitiveness through its
focus on intellectual property rights protection and regulation harmonization? What other steps
can be taken within the SPP to improve competitiveness and is this the appropriate mechanism to
do so?
2. How effective has the SPP been in improving safety, security, and the flow of goods and
services among the North American partners? What other steps could be taken in these areas?
Canada’s Financial System
Issue Definition
Canadian banks on the whole have weathered the current financial crisis better than banks in the
United States and Europe. Nevertheless, Canada’s financial system has been buffeted by the
financial crisis as equity and housing prices have fallen and as economic growth has decreased as
a result of the downturn in global trade. Are there lessons to be learned from Canada’s banking
system, which has proven to be somewhat more immune to the financial troubles that have
brought down better known banks?
Background and Analysis
Canada’s financial system has proven to be more resistant to the failures and bailout that have
marked systems in the United States and Europe. Nevertheless, the financial crisis and global
economic recession are battering the Canadian economy in ways that are similar to those in the
United States and in Europe. The International Monetary Fund (IMF) recently forecast that the
Canadian economy could contract by 2.5% in 2009 before rebounding with a positive rate of
economic growth of 1.2% in 2010. In comparison, the US economy is forecast to decline by 2.8%
in 2009 and remain flat in 2010.
Canadian banks suffered a loss of 50% in the value of their equities and the Canadian Imperial
Bank of Commerce lost $2.1 billion in derivatives in 2008, but the Bank of Canada so far has not
had to inject capital into any Canadian bank. The drop in commodity prices, however, has caused
the Canadian dollar to fall relative to the U.S. dollar, which should improve the cost competitive
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position of Canada’s exports. However, the slowdown in global trade and the shake-out in the
auto industry are having far-reaching negative effects on the Canadian economy. On April 21,
2009, the Bank of Canada lowered the nation’s key interest rate to 0.25%, and the Canadian
Government announced in January 2009 a US $33 billion fiscal stimulus package over two years
in infrastructure spending, tax decreases, worker retraining, housing, and aid to struggling
industries to spur the Canadian economy.
In a recent assessment of Canada’s financial system, the IMF concluded that Canada’s system is
highly mature, sophisticated, and well-managed. In addition, the system is characterized by strong
prudential regulation and supervision and a well-designed system of deposit insurance and
arrangements for crisis management and resolution of failed banks. Supervisory responsibility for
the financial sector in Canada is divided among the federal government, the provincial
governments, and among a group of agencies within the federal government. The federal
government is responsibly for supervising all banks, federally incorporated insurance companies,
trust and loan companies, cooperative credit associations and federal pension plans. Provincial
governments are responsible for supervising securities dealers, mutual fund and investment
advisors, credit unions, and provincially incorporated trust, loan, and insurance companies. As a
result, there are 13 regulatory authorities, each administering a separate set of securities laws and
regulations.
Within the federal government, the Financial Institutions Supervisory Committee (FISC) acts as
the chief coordinating body that sets regulatory policy and supervises financial institutions. The
Committee is comprised of the Department of Finance of the Ministry of Finance and four
independent government agencies: the Office of the Superintendent of Financial Institutions
(OSFI); the Bank of Canada; the Canada Deposit Insurance Corporation; and the Financial
Consumer Agency of Canada (FCAC). All of these agencies report to the Minister of Finance,
who is responsible to the Canadian Parliament. The Bank of Canada is responsible primarily for
conducting monetary policy by setting interest rate targets and adjusting the supply of credit. The
Bank also serves as the key component in the payments system by providing a check clearing
function, and it serves as the traditional lender of last resort. The Office of the Superintendent of
Financial Institutions plays a key role in Canada’s financial supervisory scheme by supervising all
domestic banks, branches of foreign banks operating in Canada, trust and loan companies,
cooperative credit companies, life insurance companies, and property and casualty insurance
companies.
The financial system is dominated by five large banking groups (Royal Bank of Canada, TD
Canada Trust, Bank of Nova Scotia, Bank of Montreal, and Canadian Imperial Bank) that account
for about 60% of total assets. In comparison, foreign banks account for about 4% of assets. The
low representation by foreign banks is attributed to the “widely-held” rule for large banks that
limits the concentration of bank share ownership and, therefore, reduces the scope for mergers
and for foreign entry through acquisition. Canada’s financial legal framework has allowed
Canadian banks to concentrate on their low-risk, profitable domestic retail banking activities
(services provided to individuals including: deposits, savings accounts, mortgages, credit cards,
etc.), leaving large domestic borrowers to conduct their wholesale banking activities (services
provided to corporations, governments, and other entities) abroad. Canada’s insurance sector is
dominated by three large domestic groups, which account for over 80% of the assets in this
sector. The securities sector is marked by large Canadian, as well as US. and UK. securities firms.
Unlike the United States and some European countries, subprime mortgages account for less than
5% of Canadian mortgages, which sharply limited Canada’s direct exposure to the meltdown that
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occurred in the subprime mortgage market. In addition, Canadian law requires that all bank-held
mortgages above a loan-to-value ratio above 80% be insured, which has curtailed the
securitization of mortgages by banks in Canada. In addition, prepayment penalties and the lack of
interest deductibility reduces the demand for long-term mortgages, so the maturity of most
mortgages does not exceed 5 to 10 years.
Canada’s financial supervisory system and regulatory structure have proven to be less susceptible
to the bank failures that have loomed in the United States and Europe. Nevertheless, Canada’s
approach has a number of drawbacks. Canada’s system of regulating securities markets at the
provincial level means that regulations regarding market participants and investor protection
differ by province and that the nature, structure, and powers of the provincial regulators also vary.
In addition, the conservative, risk-adverse approach employed by Canada’s banks shielded the
banks from some of the current financial turmoil, the approach also reduces efficiency in the
market and reduces competition. Acquisitions of Canadian banks is significantly impeded by the
rule that bank stocks be widely held and mergers are effectively prohibited. With reduced
competitiveness pressures, Canadian banks maintain low-risk balance sheets at the expense of
greater innovation and more efficient capital allocation.. This approach also means that financing
for small firms and venture capital for potentially high-growth companies is sharply reduced.
Questions
1. There is much to admire about the Canadian banking system, but do the differences in the size
and the scope of the U.S. and Canadian financial markets reduce the importance of the Canadian
system as a model for the United States to follow?
2. Are there aspects of Canada’s federal supervision of its banking system that could serve as a
model for bank supervision by the United States?
3. Canada’s approach to financial supervision concentrates the majority of that responsibility in
an authority that is separate from the central bank. Is this an approach that the United States
should consider at it examines changes to its own regulatory structure?
Buy American Provisions72
Issue Definition
The Buy American provision of the economic stimulus package, officially known as the
American Recovery and Reinvestment Act (P.L. 111-5), requires that iron, steel, and
manufactured goods used in the construction of public works projects funded by the Act be made
in the United States. This provision was widely criticized by U.S. trading partners, including
Canada, based on the fear that the Act, if not outright inconsistent with our international trade
obligations, would set a precedent that could provide the excuse for a cycle of “creeping
protectionism” by other nations. However, some analysts note that the relationship between
government procurement and the world trading system has always been tenuous, and that
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This section was written by Ian F. Fergusson, Specialist in International Trade and Finance; Foreign Affairs,
Defense, and Trade Division.
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disciplines on government procurement have not been as rigorous as those on other trade
practices.
Background and Analysis
The Buy American provision of the ARRA states that no funds may appropriated for building
projects or public works projects unless all the iron, steel, and manufactured goods are made in
the United States. The Act provides three discrete exceptions for cases in which a Federal agency
administrator finds that (a) applying this policy would not be in the public interest, (b) the iron,
steel or manufactured products are not produced in sufficient quantities or of a satisfactory
quantity in the United States, or (C) the inclusion of the applicable U.S. products would increase
the cost of the overall project by more than 25%. In the case of (a), the public interest waiver has
been used to invoke the authority granted to the President to waive discriminatory purchasing
requirements for signatories of the WTO Agreement on Government Procurement (AGP)
contained in the Trade Agreement Act of 1979 (Sec.301, P.L. 96-39). In the case of (c), this cost
differential is at variance with the general differential of 6% applicable to most Federal contracts,
12% in cases of small business or minority set-asides, or 50% for most Department of Defense
procurements. If any of these provisions are waived, the agency head must publish a justification
for the waiver in the Federal Register. Finally, the Senate added language to insure that the
provisions are applied in a manner consistent with U.S. trade obligations.
The United States and Canada both are signatories to the World Trade Organization’s Agreement
on Government Procurement (AGP), which came into effect in 1996. Unlike most of the Uruguay
Round agreements which make up the WTO system, the AGP is plurilateral in that it only binds
those nations that have accepted it. Currently, there are 39 signatories to the agreement,
predominantly developed and middle- income countries.73
The AGP commits signatories to practice the principles of national treatment and most-favorednation treatment in the laws, regulations, practices, and procedures concerning government
procurement. In this context, national treatment means that a signatory will provide no less
favorable treatment to another party’s products, goods, and suppliers than its own in its
government procurement process, nor will the signatory discriminate between the products,
services and suppliers of other parties under most-favored -nation principles. The agreement also
provides procedures to insure transparency, including detailed operating rules on the procurement
process of the signatory, a challenge procedure by which a rejected bid can be independently and
impartially reviewed, and recourse to WTO dispute settlement provisions in cases where the
parties cannot resolve their differences.
The AGP only applies to the sectors and the procurement agencies that each government includes
in its schedule of national commitments. Each member’s schedule lists the national and subnational agencies as well as other entities that participate, exceptions within those units, and the
threshold value for procurement tendered under its obligations. Both the United States and
Canada have undertaken extensive obligations to open their government procurements at the
national level under both agreements. Thus Canadian firms may bid on ARRA-related federal
procurement under the provisions of the AGP. Thirty-seven U.S. states as well as other
government entities such as the Tennessee Valley Authority and the Port Authority of New York
and New Jersey have made commitments under the AGP. While Canada has undertaken
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obligations for several of its crown corporations such as Canada Post and the St. Lawrence
Seaway Authority, the ten provincial governments and three territorial governments have not
undertaken any obligations under the AGP. In addition, the United States, Canada, and Mexico
have undertaken government procurement obligations under NAFTA, however, NAFTA
obligations do not extend to sub-national governments such as states or provinces.
The threshold values are denominated in Special Drawing Rights (SDR), an International
Monetary Fund (IMF) unit of account. On March 13, 2009, a U.S. dollar was worth
approximately 0.678 SDRs. The threshold for U.S. federal agencies is SDR 130,000 ( $191,740)
for supplies and services and SDR 5 million ($7,374,631) for construction services; for states the
corresponding thresholds are SDR 355,000 ($523,599) and SDR 5 million ($7,374,631).
Although the AGP does not specify threshold values, the U.S. federal threshold figures are
common ones in the schedules of signatories.
Each schedule also contains interpretations and exceptions. For example, Federal funds distributed
to the states for mass transit and highway projects are excluded. This reflects the Buy American
provisions of the Surface Transportation Act of 1982 (P.L. 97-427) and the Urban Mass Transit
Act of 1964 (P.L. 88-365). In addition, twelve states exclude the procurement of constructiongrade steel, motor vehicles and coal from their obligations under the AGP and states have excluded
other products and services as well. Canada has exempted certain of its procurement activities from
coverage under the AGP such as shipbuilding and repair, and urban rail and urban transportation
equipment, including specifically all project related materials of iron or steel.
Status of the Issue
On April 3, 2009, the Office Of Management and Budget (OMB) provided guidance on
implementing the Buy American provisions of the ARRA. Likely because Canadian provinces
and territories have not undertaken any obligations under the AGP, OMB excluded Canada from
the list of countries to which U.S. states participating in the AGP have international obligations.
This means that for state and local projects funded by federal money from the stimulus bill, there
is no obligation to treat Canadian firms in a manner consistent with U.S. obligations under the
AGP. Thus, Canadian firms would be ineligible to bid on contracts for iron, steel, and
manufactured products procured for public works projects undertaken by state and local
governments using federal stimulus money. However, U.S. obligations under the AGP do extend
to Canadian firms bidding on federal procurement funded by the ARRA, and Canadian firms
would be able to bid for those contracts. Nonetheless, there have been several anecdotal reports in
the Canadian press that U.S. contractors and suppliers are increasingly choosing to source
domestically in order not to be hassled with complying with Buy American provisions in certain
procurements.
Questions
1. The Buy American provisions in the stimulus package were criticized by many foreign
governments as being protectionist. However, the language of the Act and the subsequent
implementing regulations were written to be consistent with U.S. obligations under the WTO
Agreement on Government Procurement and U.S. free trade agreements including NAFTA. What
is the basis for calling these provisions protectionist?
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2. Is free trade in government procurement resulting from economic stimulus measures realistic?
Should taxpayers have the expectation that money spent on economic stimulus measures be used
to bolster the domestic economy?
3. What are the reasons that Canadian provinces have not signed on to the AGP? Will the
exclusion of Canadian firms from consideration for state and local procurement funded by federal
stimulus money put pressure on the provinces to undertake obligations under the AGP?
U.S. Imports of Canadian Softwood Lumber74
Issue Definition
The U.S. lumber industry has long argued that imports of subsidized Canadian lumber were
injuring U.S. producers. In May 2002, after the U.S. lumber industry filed antidumping and
countervailing petitions to restrict imports, agency determinations of Canadian subsidies,
dumping, and injury to the U.S. industry led to a duty of 29% on most Canadian softwood lumber
imported into the United States. Canada challenged these findings under NAFTA and before the
WTO. Negotiations led to a seven-year Softwood Lumber Agreement in 2006 with Canadian
export charges depending on U.S. lumber prices, and the United States revoked the countervailing
and antidumping orders. On February 26, 2009, a tribunal found that four Canadian provinces had
violated the Agreement in calculating 2007 quotas; the United States rejected the Canadian offer
of compensation, and on April 15, the United States began collecting 10% ad valorem duties from
the four provinces to compensate for the 2007 breach.
Background and Analysis
U.S. lumber producers have long expressed concerns about imports of subsidized Canadian
lumber. The current lumber agreement is termed Lumber IV, because it is the result of the fourth
dispute since 1981, with various findings of subsidy levels and agreements in the previous
disputes.
Tension between the United States and Canada over softwood lumber trade may be inevitable.
Both countries have extensive forest resources, but vastly different population levels and
development pressures; vast stretches of Canada are still largely undeveloped, while less area in
the United States (outside Alaska) remains relatively pristine. These differences have led to
divergent forest policies. In Canada, 90% of the forests are owned by the provincial governments,
which have allocated and priced timber to encourage development of the extensive timber
reserves and settlement of unpopulated areas. In the United States, 58% of timberlands are
privately owned, and private markets dominate the allocation and pricing of timber. U.S. federal
and other government-owned forests are regionally important, but the timber is typically sold in a
competitive market.
U.S. lumber producers assert that subsidies have given Canadian producers an unfair advantage in
the U.S. market. Canadian provincial stumpage fees (for the right to harvest trees) are asserted to
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Prepared by Ross W. Gorte, Natural Resource Economist and Senior Policy Specialist, Resources, Science, and
Industry Division, and Jeanne J. Grimmett, Legislative Attorney, American Law Division.
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be subsidized, leading to lumber prices that are less than their fair market value. The provinces
generally use leases and administered fees to allocate and price timber. Administered fees are
unlikely to match market values, but determining whether the fees are below market values has
been controversial, because of differences in tree species, sizes, and grades; in measurement
systems; in requirements on harvesters; in environmental protection; and in other factors.
Log export restrictions in British Columbia are also alleged to be subsidies, because they assure
more supply (less competition for timber and thus lower costs) for Canadian producers. Evidence
from the U.S. Pacific Northwest, where private logs can be exported but public timber cannot,
indicates substantially higher prices for exported logs.
Injuries to U.S. lumber producers are difficult to establish decisively, although the U.S.
International Trade Commission (ITC) has found injury every time it has examined the issue.
Canada’s share of the U.S. lumber market has risen substantially, from less than 7% in the early
1950s to more than 33% since the mid-1990s. Under the 1996 agreement, the quantity of imports
continued to rise, but the market share was relatively stable. The impact of restrictions on U.S.
lumber prices is not easily estimated, but restrictions have probably put upward pressure on
prices.
Status of the Issue
In 2001, after the 1996 U.S.-Canada softwood lumber agreement expired, the U.S. Coalition for
Fair Lumber Imports filed countervailing duty and antidumping petitions, asking the DOC to
investigate Canadian imports again. The Department of Commerce issued final determinations of
subsidies on March 22, 2002. On May 3, 2002, the ITC determined that the U.S. lumber industry
was threatened with material injury by Canadian imports. A duty averaging 27% was imposed on
May 22, 2002.
Canada challenged each of the agency determinations under the North America Free Trade
Agreement (NAFTA) and in the World Trade Organization (WTO). The NAFTA panels largely
supported the Canadian positions. The WTO proceedings resulted in mixed decisions. Canada
was also concerned that the US$5 billion in estimated duties on softwood lumber collected by the
United States would eventually be distributed to U.S. lumber producers under the Continued
Dumping and Subsidy Offset Act (Byrd Amendment). Canada obtained a U.S. court decision,
however, holding that the Byrd Amendment did not apply to Canadian imports.
On April 26, 2006, a tentative 7-year Softwood Lumber Agreement, with an optional two-year
renewal, to resolve the dispute was announced. The United States revoked the countervailing and
antidumping duty orders and returned about US$4 billion to the importers of record. The
remaining deposits (about US$1 billion) were split evenly between the members of the Coalition
for Fair Lumber Imports and jointly agreed-upon initiatives. Canada is collecting export charges
ranging up to 15%, depending on a weighted average lumber price, or up to 5% with volume
restraints. A surge mechanism would raise export charges if a Canadian region’s exports exceed
its allocated share. Lumber from logs harvested in the Atlantic Provinces, Yukon, Northwest
Territories, or Nunavut is exempt from the export charges. Disputes are to be resolved through
bilateral consultations, non-binding mediation, or binding arbitration in the London Court of
International Arbitration (now LCIA).
U.S. interest groups have questioned whether Canada is faithfully implementing the agreement.
The 2008 Farm Bill (P.L. 110-246) included a provision (§3301) establishing a softwood lumber
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importer declaration program to verify and reconcile data on softwood lumber imports. In August
2007, U.S. officials requested a ruling from the London Court on export quota volumes and
export tax levels. In March 2008, the Court ruled that Canada had violated the export quota
volumes for Manitoba, Ontario, Quebec, and Saskatchewan for the first six months of 2007, but
was not required to collect taxes related to export surges from Alberta and British Columbia
during that period. On February 26, 2009, an LCIA tribunal issued a decision that Canada must
collect an additional 10% ad valorem export charges from the four provinces until C$68.26
million (US$54.8 million) had been collected. The U.S. Trade Representative rejected the
Canadian offer of a compensation payment of US$36.66 million, and on April 15, 2009 began
collecting 10% duties on lumber from the four provinces.
Questions
1. The dispute over U.S. imports of Canadian lumber has persisted for nearly 30 years. Do
Canadian producers have a significant cost advantage because of Canadian timber practices
and/or subsidies? Should Canadian practices be modified to enhance competition for timber? Do
the systems and situations vary sufficiently to warrant different responses to each Canadian
province? What might be the environmental consequences of various possible changes?
2. The 2006 agreement terminated the duties, returned most of the money collected, and
established price-dependent export charges on Canadian lumber. What changes are needed by
2013 to assure that the recent duties, challenges, and litigation is not repeated when the agreement
expires? What happens if some of the provinces make appropriate changes and others do not?
3. Are the current oversight mechanisms sufficient to assure implementation of the agreement that
is acceptable to all parties? Are there ways to provide adequate and timely data to identify
possible violations (deliberate or unintentional) and thus the delay and cost of arbitration and
subsequent remedies? What approaches are feasible to compensate communities and workers for
injury from weak lumber markets without providing subsidies to the lumber industry? What
unilateral U.S. enforcement measures might be acceptable to Canada under the agreement?
U.S. Agricultural Support Dispute75
Issue Definition
In January 2007, Canada initiated a World Trade Organization (WTO) dispute settlement case
(DS357) involving three specific charges against certain aspects of U.S. farm programs: (1) U.S.
farm support resulted in serious prejudice against Canadian corn producers, (2) U.S. domestic
support exceeded its WTO commitments; and (3) U.S. export credit guarantee programs
contained implicit WTO-illegal subsidies. In June 2007 the first charge was dropped, but the
second and third charges retained, when Canada requested the formation of a WTO panel to
review its case against the United States. In late 2007, Brazil initiated its own similar case against
U.S. farm support based on the latter two allegations. On December 17, 2007, the WTO's Dispute
Settlement Body (DSB) announced the establishment of a single panel to hear both Canada’s and
Brazil’s cases against U.S. farm programs.
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Prepared by Randy Schnepf, Specialist in Agricultural Policy, Resources, Science and Industry Division.
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In late April 2008, Canada and Brazil informally agreed to postpone proceeding with their joint
WTO dispute settlement case against U.S. agricultural subsidies. At the time of the postponement
the three parties involved in the dispute had been unable to agree on panel membership. It is not
clear how long the postponement will persist. If resumed, the first order of business will be the
formation of a panel. Despite the postponement, the importance of the case has not been
diminished to the U.S. agricultural community. U.S. agriculture depends heavily on international
markets to sell its surpluses. In FY2007, U.S. agricultural exports were a record $81.9 billion and
represented 24% of gross farm income.
Background and Analysis
Canada and the United States have a history of commodity trade disputes, traditionally focused
on various wheat support programs and trade practices. In 2005, after several years of wrangling
over wheat trade issues, Canada extended its disagreement with U.S. farm programs to the corn
sector when Canadian corn producers sought legal action for alleged unfair subsidization and
dumping of U.S. corn in Canadian markets. Canada’s International Trade Tribunal ultimately
ruled on the 2005 anti-dumping and countervailing duty case in favor of the United States.
However, Canadian corn producers continued to press their concerns upon the Canadian
government about perceived unfair subsidization of U.S. corn. In response, in early 2007 the
Canadian government requested consultations with the United States to discuss several
allegations against U.S. commodity subsidies under the auspices of the WTO’s dispute settlement
process. Three specific charges (listed above) against U.S. farm programs were identified in
Canada’s request for consultations including a charge that U.S. farm subsidies resulted in serious
prejudice against Canadian corn producers. However, the serious prejudice charge was eventually
dropped by Canada from its WTO case, in large part because of substantial increases in U.S. and
international corn prices starting in mid-2007 and continuing through mid-2008
The remaining two charges in Canada’s WTO case allege that, first, the United States has
exceeded its annual WTO commitment levels for total Aggregate Measurement of Support
(AMS) for agriculture in each of the years 1999, 2000, 2001, 2002, 2004, and 2005, and second,
that the U.S. export credit guarantee program for agricultural commodities operates as a WTOillegal export subsidy. These charges stem, in large part, from a previous negative ruling against
U.S. farm programs in an earlier case (DS267) brought by Brazil against the U.S. cotton program.
In that case, a WTO panel ruled (and subsequently was upheld by a WTO Appellate Body) that
first, direct payments made under U.S. farm programs do not qualify for green box exemption
status because of a restriction prohibiting the planting of fruits, vegetables, or wild rice on
payment acres; and second, the U.S. export credit guarantee program operates as a prohibited
export subsidy program because the financial benefits returned by these programs failed to cover
their long-run operating costs. As a result, export credit guarantees should be subject to
previously scheduled export subsidy commitments.
Canada claims that, since they fail to qualify for inclusion in the green box, U.S. direct payments
should be added to its AMS when calculating total domestic support. In addition, they also charge
that the United States has improperly notified several of its farm support programs as exempt
from the AMS limit, while several other programs were improperly excluded from U.S.
notifications. Canada also claims that when all of the outlays from these allegedly mis-notified
programs are included, then the U.S. AMS total exceeds its WTO commitment level.
In response to Canada’s charges, then-U.S. Secretary of Agriculture Mike Johanns declared in
early 2007 that the United States would vigorously defend U.S. farm programs against any
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possible WTO challenge by Canada. A spokesman for the U.S. Trade Representative (USTR) said
that this dispute was an unnecessary diversion of resources and time from the Doha Round
negotiations. The official also stated that U.S. farm programs were designed to be in compliance
with its WTO obligations and believed that the panel would agree. Furthermore, U.S. officials
claim that changes to U.S. farm programs made under the 2008 farm bill (P.L. 110-246) have
resolved outstanding issues related to both the AMS and export credit programs.
Status of the Issues
On December 17, the WTO’s Dispute Settlement Body (DSB) announced the establishment of a
single panel to jointly hear both cases brought by Canada (DS357) and Brazil (DS365) against
U.S. farm programs. In their requests, Brazil and Canada asked for a single panel to be
established to consider both cases jointly. The United States did not object to this proposal. All
three countries involved—the United States, Canada, and Brazil—have agreed that the meeting of
the panel would be open to the public.
However, in late April 2008, Brazil and Canada informally agreed to postpone proceeding with
their joint WTO dispute settlement case against U.S. agricultural subsidies. It is not clear how
long the postponement will persist. If resumed, the first order of business will be the formation of
a panel. In accordance with the Understanding on Rules and Procedures Governing the Settlement
of Disputes, once the establishment of a panel has been announced the DSB has up to 45 days for
a panel to be appointed, plus 6 months for the panel to conclude its work. As a result, it is not
likely that the panel, once appointed, would finish its work and issue a final ruling before 2010.
Subsequent appeals of any negative ruling and disagreement over appropriate retaliatory levels,
etc., could push resolution of the dispute well into the future.
Should a panel be formed and eventually rule on this case, any changes in U.S. farm policy
needed to comply with a WTO ruling against the United States would likely involve action by
Congress to produce new legislation. For more information see CRS Report RL34351, Brazil’s
and Canada’s WTO Cases Against U.S. Agricultural Support, by Randy Schnepf.
Questions
1. To what extent would completion of the ongoing Doha Round help to resolve Canada’s and
Brazil’s dispute settlement case against U.S. farm programs?
2. To what extent has the global financial crisis and economic recession diminished Canada’s
interest in pursuing this WTO case?
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Country of Origin Labeling76
Issue Definition
Mandatory country-of-origin labeling (COOL) for specified agricultural products took effect on
March 16, 2009. This is the culmination of a near decade-long legislative effort to arrive at an
accommodation that addresses the concerns of competing interests. Food retailers are now
required to label the country of origin for fresh produce (fruits and vegetables), meats, nuts, and
seafood, among other products. Since Canada and Mexico are major suppliers of live cattle and
hogs that are fed in U.S. facilities and/or processed into beef and pork in U.S. meat packing
plants, both countries have expressed concerns that COOL would adversely affect their livestock
sectors’ sales into the U.S. market. Last minute “suggested” changes by the new Secretary of
Agriculture to the final COOL rule led the Canadian Government on May 7, 2009, to renew its
request that the United States enter into formal consultations on its concerns under the World
Trade Organization’s (WTO) dispute resolution process.
Background and Analysis
Under the Tariff Act of 1930, as amended, most unprocessed agricultural commodities have long
been exempt from requirements that every import be clearly marked to indicate country of origin
for the “ultimate purchaser.” However, provisions in the 2002 farm bill (section 10816 of P.L.
107-171) require that retailers covered by the Perishable Agricultural Commodities Act, (i.e.,
those which deal in at least $230,000 per year in produce—fresh and fresh-frozen fruits and
vegetables), begin to provide such information. Covered commodities specified then were :
ground and muscle cuts of beef, lamb and pork; seafood; peanuts; and produce. Labeling is not
required if these commodities are ingredients in processed foods, or if they are sold in dining out
settings.
Passage of the initial COOL provisions in 2002 did not end debate over the value and efficacy of
mandatory COOL, particularly with regard to meats. COOL opponents argued that recordkeeping and verification costs will far exceed any perceived economic benefits to producers; that
smaller-sized farms and firms will have the most difficulty with compliance; that there is little
evidence consumers actually want labeling; and that COOL is a protectionist policy that
undermines free trade. Supporters countered that compliance would not be nearly as burdensome
as some large industry groups and USDA have attempted to portray it; that studies show U.S.
consumers, if offered a clear choice, will pay extra for fresh foods of domestic origin, thereby
strengthening demand and prices for them; and that consumers have a right to know where their
foods were produced. They pointed out that all but two of the North American cases of “mad
cow” disease (bovine spongiform encephalopathy, or BSE) occurred in Canadian-born cattle, yet
the United States is permitting the import of large quantities of Canadian beef and cattle. (COOL
opponents argue that country of origin labeling is a matter of marketing, not food safety, and that
food safety concerns are best addressed through science-based regulation.)
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Prepared by Remy Jurenas, Specialist in Agricultural Policy, Resources, Science and Industry Division,
Congressional Research Service.
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Initially scheduled to take effect on September 30, 2004, Congress postponed COOL
implementation until September 30, 2008 for all but seafood because of ongoing debate. Some
issues were addressed in talks held among key players during consideration of the 2008 farm bill.
Compromises struck were incorporated into section 11002 of P.L. 110-246. These retained the
implementation schedule, and added other commodities (chicken, goat meat, ginseng, pecans, and
macadamia nuts) to its coverage. However, several new types of label categories were created
that are intended to facilitate and simplify compliance in specifying the country or countries of
red meat products. For all covered commodities, the amended law also seeks to ease
recordkeeping and verification requirements, and to lower non-compliance penalties.
Canada is by far the leading source of U.S. food and agricultural imports, accounting for about
20% of total import value. Its importance as a source reflects the close and growing economic
integration of the two countries’ markets. Many of these imported products are now covered by
mandatory COOL. The Canadian government has argued for some time that COOL is a
protectionist measure, and more recently, that its implementation would be challenged as trade
distorting under existing trade agreements.
Status of the Issue
Enactment of the amended COOL provisions allowed USDA to proceed to issue rules to
implement them. The August 2008 interim rule’s meat labeling requirements generated the most
controversy, in large part because of the steps that U.S. feeding operations and packing plants
would have to adopt to segregate, hold, and slaughter foreign-origin livestock from U.S.
livestock. Concerned with apparent changes in normal livestock trade flows in reaction to the
proposed rules and questioning COOL’s legality under trade rules, Canada and Mexico in
December 2008 filed requests for formal WTO consultations on COOL with the United States.
This is the first step of a process that could lead to the formal filing of a case to be considered
under WTO’s dispute settlement process.
Both countries in their filings asserted that COOL is inconsistent with several WTO-related trade
commitments, including those providing that imports must be treated no less favorably than
products of domestic origin; that laws on marks of origin should not damage imports, reduce their
value, or unreasonably increase their cost; and that laws, rules, and procedures on country of
origin should not “themselves” create or disrupt international trade. However, once USDA issued
the final COOL rules in mid-January 2009 with some changes that appear to have addressed its
concerns, Canada suspended its challenge until it could determine whether the rules will in fact
allow for more flexibility and ease financial impacts on Canadian producers.
The new Secretary of Agriculture, after his review of the final COOL rules issued by the Bush
Administration, announced that they would take effect as planned on March 16, 2009, but urged
affected industries to voluntarily adopt changes that he asserted would provide more useful origin
information to consumers and would more closely adhere to COOL’s intent. Expressing concern
that these “suggestions” would add to the challenges the Canadian livestock sector already is
experiencing (e.g., U.S. processors choosing not to buy Canadian animals or trying to purchase
them at a reduced price), the Canadian Government on May 7, 2009, formally requested that
consultations resume under WTO auspices.
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Questions
1. Canada has announced that it will challenge the COOL law and implementing regulations as
trade distorting under WTO rules. What, specifically, will be its arguments?
2. Reports in meat trade publications have suggested that the uncertainties caused by how the
final COOL requirements are implemented have strained marketing relationships between
Canadian and U.S. livestock producers and processors. How much has this tension altered trade
between the United States and Canada, and, if so, in what way? What policy and economic
adjustments if any are being considered in light of the current situation?
3. In general, how will COOL likely affect the composition and economic viability of both the
cattle/beef and hog/pork sectors in North America?
4. Does Canada have its own country of origin labeling programs? How do they compare to those
now implemented under COOL in the United States?
The Canadian Auto Sector77
Issue Definition
The U.S. and Canadian automotive industries have been highly integrated for decades. Before the
Automotive Agreement of 1965 (also known as the Auto Pact) between the two countries, each
country’s auto industry produced motor vehicles for its own market. The Auto Pact established a
two-way managed trade system by eliminating tariffs on shipments of autos and auto parts
between the two nations. This arrangement guaranteed that for every five cars sold in Canada,
three would be assembled there. The elimination of tariffs allowed U.S. auto companies to build
plants on both sides of the border that were large enough to serve both countries efficiently.
Background and Analysis
Canada, whose population was 23 million in 1976 and is estimated at 33 million in 2009, has
been able to build an auto industry that provides nearly 500,000 direct and indirect jobs in 2009
and gives Canadian consumers with a much larger and lower cost selection of vehicles than
would have otherwise been possible, given Canada’s small population. Coordinated production
on both sides of the border increased significantly, as did bilateral automotive trade. The
economic integration between the two countries was further accelerated by the bilateral U.S.Canada Free Trade Agreement (CUSFTA), which took effect January 1, 1989, and the North
American Free Trade Agreement (NAFTA), which entered into effect on January 1, 1994.
The auto industry produces 14% of Canada’s manufacturing output and accounts for 23% of its
manufactured exports. It is by far Canada’s largest industrial sector. Nearly a fifth of General
Motors (GM), Ford, and Chrysler’s North American production capacity is in Canada, principally
in Ontario. In 2008, of the two million light vehicles produced in Canada, the Detroit Three
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Prepared by Rachel Tang, Analyst in Industrial Organization & Business; Resources, Science, and Industry Division
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accounted for just over 61%—approximately 23% by GM, 15% Ford, and 23% Chrysler.
Moreover, the automotive aftermarket is reportedly the largest retail sector in Canada, ahead of
clothing, food, furniture, and pharmaceuticals. The auto industry in Canada employs 150,000
people directly, and 340,000 indirectly, including parts suppliers and auto dealers.
In addition to the Detroit Three’s Canadian facilities, which are unionized, Toyota and Honda
have assembly plants in Ontario that are non-union. A number of parts makers that supply original
equipment manufacturers (OEMs) throughout North America have also located in proximity to
the assemblers on both sides of the border. For U.S. automakers, the Canadian health care system
may be less expensive than company-provided healthcare in the United States, although recent
GM and Chrysler restructuring negotiations with the Canadian Auto Workers (CAW) resulted in
health-related benefits reductions. For example, Canadian Chrysler workers saw the elimination
of semi-private health care coverage, an increase in the waiting period for sickness and accident
benefits, and a reduction in the maximum dispensing fee for prescription drugs. This latter is
intended to reduce drug costs by reducing Chrysler’s contribution to dispensing fees that exceed
the maximum. With the agreement that the United Auto Workers (UAW) would be responsible for
future retiree health care costs, and with further health care reductions in new UAW contracts
negotiated in 2009, any apparent health care-related comparative advantage of Canadian auto
production costs over U.S. costs should, therefore, be substantially reduced going forward.
In late 2008, the entire U.S. auto industry was caught in the global economic recession. Auto sales
fell precipitously, and the difficult situation was further dampened by the credit crunch in
financial markets. The situation became so dire that General Motors, Ford, and Chrysler LLC (the
Detroit 3) turned to the U.S. government for assistance in November 2008. The Detroit 3 also
asked the Canadian authorities and the provincial government of Ontario for nearly $6 billion in
loans and loan guarantees. It was reported that the U.S. automakers had dropped strong hints that,
without such aid, they would move some operations from Canada to the United States.
On December 19, 2008, President George W. Bush announced a plan to loan $17.4 billion to GM
and Chrysler LLC to prevent any near-term bankruptcy and to help them restructure as more
viable and competitive companies in the long run. On the following day, the Canadian
government and province of Ontario responded to the U.S. auto bailout by pledging C$4 billion
in emergency loans to the local subsidiaries of GM and Chrysler, even though Prime Minster
Stephen Harper had previously resisted such a bailout. Ford has not asked for loans, but was
reported to have urged the Canadian government in March 2009 to introduce a program that
would give car buyers financial incentives for scrapping a 10-year old or older car for a new
vehicle.
On March 30, 2009, President Barack Obama announced that the Administration’s Auto Task
Force had decided that GM and Chrysler plans were not viable and gave the two companies 60
and 30 days, respectively, to revise their plans and undertake additional actions. An hour later,
officials from the Canadian and Ontario governments also rejected the automakers’ plans—their
comments mirrored the ones delivered in Washington, DC, as did the outline for what must come
next.
The actions of both government, almost in tandem, demonstrated not only how interconnected
their auto industries have become but also the collateral consequences of domestic rescue plans or
packages. In the fallout of the global economic downturn, large government assistance may force
other nations to act in order to protect the competitiveness and viability of their auto sectors.
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On April 30, 2009, Chrysler filed for bankruptcy in New York and President Obama announced
that the governments of Canada and the United States would offer a US$10.5 billion loan to
Chrysler. The U.S. Treasury will provide a total of $8.08 billion; the Canadian government will
provide US$2.42 billion in financing to Chrysler, based on a 3:1 contribution. The Canadian and
Ontario governments will receive a 2% stake in the restructured Chrysler, while the U.S.
government will hold 8%. Canada will also have the right to appoint one independent director to
a new 9-person Chrysler board, while the United States will select four independent directors.
Starting May 4, 2009, Chrysler plants ceased production until the company emerges from
bankruptcy, which has been projected to take approximately 30 to 60 days. Chrysler’s bankruptcy
filing, combined with GM’s announced summer shutdown of its U.S. plants, poses a potentially
severe threat to the auto parts suppliers across North America, who are already struggling in the
wake of the auto industry crisis. This could potentially disrupt production at other auto
manufacturers and send the shock waves, or so-called systemic risk, throughout the highly
interconnected industry. The U.S. government has allocated $5 billion to support suppliers, in
addition to providing government-backed vehicle warranties. Canada’s Automotive Parts
Manufacturers’ Association is preparing to ask the Canadian government to provide bridge
financing to tide its members over for the next few months.
Status of the Issue
GM has until the end of May 2009 to revise its restructuring plan and to reach money-saving
agreements with major stakeholders. In North America, GM produces almost twice as many
vehicles as Chrysler, and is served by a bigger network of parts suppliers and dealers. According
to General Motors of Canada Limited (GMCL, with headquarters in Oshawa, Ontario), it has
12,000 employees and 700 dealerships across Canada. While the absolute timeframe and outcome
of the Chrysler bankruptcy process remains unclear at this moment, the historic filing triggers an
increasing concern that the same could happen to GM, unless its bondholders and UAW agree to
concessions before the end-of-May deadline.
Questions:
1. What are the prospects of a restructured and more competitive auto sector (with GM,
Chrysler/Fiat, and Ford)?
2. What are the prospects of job creation in Canada, especially in Ontario, amid the auto plant
closures?
3. How and to what extent would the 2% stake and the right to select one Chrysler/Fiat board
director help to assert Canada’s interest and influence in building a new Chrysler?
4. Would the Canadian and Ontario governments offer assistance in the future if asked by
Chrysler, GM, or Ford?
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Intellectual Property Rights78
Issue Definition
The United States has expressed concern that Canada’s protection and enforcement of intellectual
property rights (IPR) are not adequate and do not meet internationally agreed upon standards.
Although Canada has signed the World Intellectual Property Organization (WIPO) Internet
treaties, the treaties have not been implemented through Canada’s domestic legislation. Canada is
the only member of the G-8 country grouping that has not implemented the treaties.
Background and Analysis
IPR infringement is a growing problem internationally due to increased level of trade in goods
and services and the development of advanced technologies. Protection and enforcement of IPR is
important to U.S.-Canada relations because of the high levels of bilateral trade between the
United States and Canada. As members of the World Trade Organization (WTO), both countries
are signatories to the Agreement on Trade-Related Aspects of Intellectual Property Rights
(TRIPS), which set minimum standards for IPR protection and enforcement. IPR provisions also
exist in the North American Free Trade Agreement (NAFTA). Some estimate that IPR
infringement costs the Canadian economy about $22 billion a year.
Special 301 Watch List
In 2009, the Office of the U.S. Trade Representative (USTR) elevated Canada to its Special 301
“Priority Watch List,” a designation of criticism for a country’s inadequate IPR protection and
enforcement. The USTR cited ongoing issues with Canada’s copyright reform and border
enforcement efforts for combating trade in IPR-infringing products. Previously, from 1995 to
2008, the USTR had placed Canada on its “Watch List,” the mildest category of criticism for a
country’s IPR regime. Canada has raised concern about the Special 301 process in its bilateral
discussions with the United States, claiming that the process is industry-driven and not objective.
Some Canadian industry groups maintain that USTR’s identification of Canada on its Special 301
list is a genuine signal of the inadequacies of Canada’s IPR regime, while others argue that
Canada’s piracy rates are significantly lower than those of other countries cited on the Priority
Watch List.
Copyright Legislation Reform
Canada and the United States are both signatories to the 1996 World Intellectual Property
Organization (WIPO) Copyright Treaty and the Performance and Phonograms Treaty (the “WIPO
Internet treaties”), which address IPR protection and enforcement issues related to the Internet
and other forms of digital media. However, Canada has not implemented either of the WIPO
Internet treaties. Some critics assert that Canada does not adequately prevent the circumvention of
technological measures that protect copyrighted works. Concerns also have been raised that
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Prepared by Shayerah Ilias, Analyst in International Trade and Finance, Foreign Affairs, Defense, and Trade
Division, CRS, May 6, 2008.
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Canada does not sufficiently protect against online piracy. In addition, some maintain that, in
addition to focusing on commercial piracy, Canada also should prosecute retail piracy, which
takes place on a smaller scale but can still contribute to significant copyright losses. Others
express the need to reform copyright law in a way that balances the interests of both copyright
holders and users.
In June 2008, a Copyright Amendment Act (C-61) was introduced in the House of Commons,
although it was not acted on before the dissolution of the 39th Parliament later that year. The bill
would have implemented the WIPO Internet treaties. Among its provisions, the bill would have
updated the rights and protections of copyright owners to better address the Internet in line with
international standards, and would have clarify the liability of Internet service providers.
Although the bill is expected to be reintroduced in the 40th Parliament which began in February
2009, that has not as yet happened.
In contrast, the United States implemented the WIPO Internet treaties in 1998 through the Digital
Millennium Copyright Act (DCMA). The United States has pressured Canada extensively to
implement an equivalent of the DCMA. In 2007, Canadian government officials stated that
copyright reform was a top national priority, and some industry groups had high hopes of
significant copyright change in Canada.
Border Enforcement
There is significant trade in counterfeit and pirated goods within Canada and through Canada.
According to the 2008 U.S. National Trade Estimate Report on Foreign Trade Barriers, most
pirated goods entering Canada are “high quality, factory produced” goods from Asia, including
pirated software and circumvention devices. There also has been concern about grey market
goods, i.e., the diversion of prescription drugs from Canada into the United States in cases where
the drugs may be sold legally in Canada but are not approved for sale in the United States by the
U.S. Food and Drug Administration (FDA).
A second issue is that the Canada Border Services Agency (CBSA) is not authorized to seize
products at the border that are believed to be pirated or counterfeit without a court order, which
requires detailed information. Some contend that this lack of authority limits the effectiveness of
IPR enforcement in Canada.
Domestic IPR Enforcement
Enforcement within Canada is led by the Royal Canadian Mounted Police (RCMP) and local
police, which do not have sufficient IPR resources, expertise, and staff, according to the Canadian
Anti-Counterfeiting Network. In addition, IPR enforcement competes with many priorities for the
RCMP. IPR-infringement prosecutions are believed to be rare because of a lack of legal
professionals dedicated to IPR and a lack of technical expertise. The United States contends that
the enforcement penalties imposed by Canada do not serve as sufficient deterrents for future IPR
infringement.
Recent International IPR Efforts
Canada and the United States are part of regional and multilateral efforts to protect and enforce
IPR. As part of the Security and Prosperity Partnership (SPP) of North America, Canada, the
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United States, and Mexico developed an Intellectual Property Action Strategy, an overall plan to
combat piracy and counterfeiting. Under the plan, the three countries agreed to improve IPR
protection and enforcement by combating trade in IPR-infringing goods, increasing public
awareness and outreach, and engaging in activities to better measure IPR infringement levels. In
addition, Canada and the United States are among the states working on a new international IPR
trade agreement, the Anti-Counterfeiting Trade Agreement (ACTA), which would focus on
international cooperation, best practices for IPR enforcement, and an IPR legal framework. ACTA
would set enforcement standards higher than that of the World Trade Organization (WTO)
Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS).
Access to Medicines
Through Canada’s Access to Medicines Regime (CAMR), Canada was one of the first countries
to adopt a WTO framework that allows eligible developing countries with insufficient
manufacturing capacity to import generic versions of patented drugs or medical devices, subject
to various WTO notification, quantity, and safeguard requirements. Since its implementation in
2004, Canada has utilized the CAMR once, in 2007, to issue a compulsory for the production of
an anti-retroviral HIV/AIDS drug combination by a Canadian-based generic drug manufacturer
for export to Rwanda. While some contend that the CAMR is a effective, efficient framework for
increasing access to medicines in developing countries, others criticize the notification and other
regulatory requirements as excessively burdensome.
Another issue related to access to medicines is the recent U.S. proposal to allow the parallel
importation of prescription drugs into the United States in order to increase U.S. access to more
affordably-priced medicines. In the 111th Congress, two bills (H.R. 163, S. 80) have been
introduced that would allow Americans to import prescription drugs from foreign countries.
Canada likely would be a leading source of such imports. While some in the United States
applaud this legislation as a way to promote access to medicines for the United States by allowing
access to less expensive drugs, others raise concerns that this is a way of importing Canada’s
price controls and does not address U.S. pricing issues. Still others raise concerns about the health
and safety implications of importing potentially counterfeit drugs. From the Canadian
perspective, some argue that U.S. importation of Canadian drugs may reduce the supply of
medicines, leading to higher prices in Canada.
Questions
1. What issues have arisen in developing legislation to implement the WIPO Internet treaties?
What is Canada’s vision of fair and balanced copyright law? How would Canada’s
implementation of the WIPO Internet treaties differ from the U.S. DCMA?
2. What measures is Canada currently taking to address trade and transshipment of pirated and
counterfeit goods? What steps can Canada undertake to improve IPR border and domestic
enforcement? What can the United States do to assist Canada in improving IPR enforcement?
3. How does Canada view the U.S. Special 301 process? How does the Special 301 list and the
elevation of Canada to the Priority Watch List in 2009 affect U.S.-Canadian relations? Does
identification on the list affect Canadian IPR policy and future U.S.-Canadian engagement on
IPR-related initiatives, such as the ACTA?
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4. What steps has Canada taken to promote international protection and enforcement of IPR?
What are the opportunities and challenges that Canada sees in the SPP and ACTA?
5. How does Canada view the legislation proposed by the United States to allow the importation
of drugs from Canada?
Electric Reliability, Trade, and Access to Renewable
Power79
Issue Definition
The electric power grids of the United States and Canada are physically connected. Consequently,
electric power reliability problems can easily cross the international border. This was
demonstrated by the 2003 power blackout, which originated in Ohio and eventually spread into
eastern Canada and the northeastern United States. The United States and Canada are therefore
mutually dependent for the reliable operation of their common electric power systems. The
interconnected grid also creates opportunities for trade and joint expansion of the use of
renewable power.
Background and Analysis
There are three components of electric power delivery: generation by power plants, transmission
over long-distances by high voltage power lines, and final delivery at low voltage by distribution
lines. The transmission lines that constitute the North American power grid cross state and
international boundaries. The U.S. and Canadian grids are, in fact, inextricably linked:
79
•
At the broadest level of organization, the North American grid is divided into
regional “interconnections” within which power moves freely (the links between
the regions are very limited). The large Eastern and Western Interconnections
cover most of the contiguous United States and the heavily populated regions of
Canada.
•
At the level of major transmission lines, the Canadian grid has evolved by
building south from heavily populated areas to connect with U.S. generation and
load. Consequently, while the grid in the United States is a web crisscrossing the
lower 48 states, the Canadian backbone system consists of north-south lines
closely linked to the United States.
•
In terms of system reliability, as discussed further below, the North American
Electric Reliability Corp. (NERC) has responsibilities for the reliable operation
of the power grid in both countries. Three of the eight regional reliability entities
through which NERC performs much of its work extend from the United States
into Canada and cover that nation’s entire southern tier.
Prepared by Stan Kaplan, Specialist in Energy and Environmental Policy.
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Reliability
In reaction to the 2003 blackout, the Energy Policy Act of 2005 (P.L. 109-58) required the Federal
Energy Regulatory Commission (FERC) to designate an Electric Reliability Organization (ERO)
charged with ensuring the reliability of the bulk power system, largely by issuing mandatory
reliability standards. In 2006 FERC selected NERC for this role (NERC is an industry
organization whose reliability recommendations had been voluntary prior to its designation as the
ERO). NERC’s members include Canadian power companies and it has memoranda of
understanding (MOU) with Canadian provinces and the Canadian federal government to help
coordinate reliability activities. However, NERC does not have the same statutory authority in
Canada as in the United States. The MOU between the Canadian National Energy Board (NEB)
and NERC recognized NERC as the ERO for the Canadian part of international transmission lines
but not for lines located entirely within Canada’s borders (which are under provincial, not federal,
regulation). NERC’s reliability standards are currently mandatory and enforceable in two
Canadian provinces, Ontario and New Brunswick.
Transmission capacity and congestion issues that can impair reliability exist in the United States
and Canada, and the solution is often to construct new transmission capacity or enhance existing
facilities. Many transmission projects are under construction or planned in both nations. However,
transmission planning and construction in the United States and Canada face similar challenges,
particularly for long-distance projects. These challenges include permitting and siting approvals
that often involve multiple jurisdictions, and finding the funding for the large investments in
transmission (and power generation) that will be needed to meet demand growth.
Trade and Renewable Energy Development
The North American grid is used to move power between the United States and Canada. The
United States is a net importer of electricity from Canada and the imports have recently been
increasing, from 17.7 terawatt-hours (Twh) of net revenue purchases in 2006 to 32.2 Twh in 2008.
From the U.S. perspective, while these imports can be locally important (e.g., as in New York and
New England), on a national basis they are very small, equivalent to 0.8% of total U.S. electric
power generation (4,114.9 Twh) in 2008.
Electricity trade is more significant from Canada’s standpoint. Canada generated 603 Twh of
electricity in 2008. Total revenue sales of power to the United States in 2008 of 55.7 Twh were
therefore equivalent to 9% of domestic supply, and revenue purchases from the United States of
23.5 Twh were equivalent to 4% of domestic supply. A conceptual outline for new Canadian
transmission corridors includes more links with the United States and the prospect of increased
trade. The Canadian power industry has expressed concern that the concept of an energy
independent United States might be extended to electricity trade with Canada.
Electricity trade between the countries is likely to become intertwined with renewable energy
development and transmission planning issues. Both nations currently have policies for the
increased use of renewable power. However, these resources tend to be remote from load centers.
For example, in the United States, some of the areas with the best wind resources are in the
northern plains. In Canada, many of the projected hydropower developments are in remote
locations and will require large investments in transmission.
In the United States, the intersecting issues of renewable power development, transmission
system expansion and reliability, and long-standing difficulties in multi-state permitting of new
projects, has spurred suggestions for new regulatory and planning processes. The planning piece
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of these proposals envision creating transmission “master-plans” on a wide geographic scope to
facilitate renewable energy development and other purposes. While these proposals are limited to
planning within the United States, they will inevitably have an impact on Canada because of the
grid connections and the much larger size of the U.S. power system.
In Canada, the electric power industry is seeking better regulatory coordination and planning by
the provinces and federal agencies. One objective of the Canadian power industry is construction
of additional east-west transmission lines. In addition to facilitating transfers of renewable and
other power within Canada, these lines would reportedly also facilitate additional trade with the
United States.
Canadian sources of renewable power may have the potential to reduce the need to build new
transmission projects (which can take up to a decade or more to permit and construct) in the
United States. For example, imports of hydropower from Quebec into New England and New
York, using new but relatively short power lines, have been suggested by the transmission system
authorities in those regions as an alternative to building power lines to Midwestern wind farms.
Because of these interactions across what has been characterized as a “borderless” electricity
market, optimal transmission planning and construction in the United States and Canada may be
difficult to accomplish without international coordination.
Status of the Issues
Reliability: NERC and FERC are continuing a process of developing and implementing
mandatory reliability standards for the grid, with cybersecurity a growing concern. In Canada, the
National Energy Board is reportedly working with provincial authorities on implementation of
mandatory reliability standards, although it is not clear if in all cases these will be the same as the
NERC standards or whether NERC will function as the ERO in every province.
Trade and Renewable Energy Development: The 111th Congress is considering legislation that
would create transmission planning and expedited permitting processes, aimed in large part at
renewable energy development. The proposals could facilitate transmission development for
enhancing reliability. In Canada, current efforts appear to be more focused on regulatory
coordination than regional transmission planning.
Questions
1. Will Canadian federal and provincial regulators approve and enforce NERC electric reliability
standards? Without identical standards in the United States and Canada, the reliability of the
electric power system could be reduced.
2. Given that the United States and Canadian power grids are integrated, what steps should be
taken to coordinate transmission planning (particularly if Congress enacts a new, federally
mandated planning process)?
3. To what degree is Canada interested in exporting renewable power to the United States, or
importing renewable energy from this country, rather than reserving these resources for domestic
consumption?
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U.S. Energy Security and Canadian Oil Sands80
Issue Definition
Canada now ranks as the United States’ number one source of imported petroleum and thus plays
an increasing role in U.S. energy security. Canada’s oil sands make up an increasing proportion of
its petroleum production, and Canada’s oil sands producers continue to look to the United States
as the major market for their heavy oil exports. Of the nearly 2.5 million barrels per day (mbd) of
petroleum Canada exports to the United States, approximately 50% is delivered to the Midwest.
This region’s current capacity and planned refinery expansion places it in a position to receive
increased heavy oil exports from Canada.
Overall U.S. refinery capacity is forecast to increase from 17.6 mbd in 2008 to nearly 19.3 mbd in
2030—a 1.7 mbd increase. Several announced refinery expansions will come online by 2015. The
expanded capacity may not be enough to keep up with Canada’s projected increase in oil sand
production, especially if the investment climate does not warrant expansions to include upgrades
for heavy oil processing. Canada is also pursuing additional refinery capacity for its heavier oil.
Refinery expansions based on the use of heavy oils will have environmental effects, and Congress
will continue to face controversy over the balance between energy security and the environment.
In addition, investment and production plans are likely to be altered by the reduced demand for
petroleum products associated with the ongoing economic recession that began in the last quarter
of 2007.
Another possible impediment to expanded heavy oil use is Section 526 of the Energy
Independence and Security Act of 2007 (P.L. 110-140) that prohibits federal procurement of an
alternative or synthetic fuel “unless the contract specifies that the lifecycle GHG emissions are
less than or equal to such emissions from the equivalent conventional fuel produced from
conventional petroleum sources.” The provision is intended to ensure that federal agencies are not
spending taxpayer dollars to promote new fuel sources that will exacerbate global warming, and
would apply to fuels derived from “oil sands,” which are currently associated with producing
higher greenhouse gas emissions than fuels derived from conventional, lighter crude oils.
Background and Analysis
When it comes to future oil supplies, Canada’s oil sands will likely make up a larger share of U.S.
oil imports. Oil sands account for about 42% of Canada’s total oil production, and oil sand
production is increasing as conventional oil production declines. Since 2004, when production
from a substantial portion of Canada’s oil sands were deemed economic, Canada has been ranked
second behind Saudi Arabia in proved oil reserves. Canada has 175 billion barrels of reserves and
a total of over 300 billion barrels of potentially recoverable oil sands (an attractive investment
under high oil price conditions, demonstrated by the billions of dollars already committed to
Canadian development). Canadian crude oil exports (from oil sands and conventional petroleum
sources) were about 2.46 mbd in 2008, of which 99% went to the United States. Canadian crude
oil accounts for about 19% of U.S. crude oil imports, and about 12% of all U.S. crude oil and
petroleum products supplied. U.S.-based oil companies are major investors in Canadian oil sands.
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The infrastructure to produce, upgrade, refine, and transport oil from Canadian oil sand reserves
to the United States is already in place. Oil sands production is expected to rise from its current
level of 1.3 mbd to 3.6 mbd by 2030.
Greenhouse gas “emissions intensity” (CO2/barrel) from oil sands are significantly higher than
that from conventional oil production. Canada’s federal government classifies the oil sands
industry as a large industrial air pollution emitter and expects it to produce half of Canada’s
growth in greenhouse gas (GHG) emissions in 2010. Reducing air emissions is one of the most
serious challenges facing the oil sands industry. Between 1995-2004, the oil sands industry
reduced its emission intensity by 29% while oil production rose. Overall, CO2 emissions have
declined from 0.14 tons/barrel (bbl) to about 0.08 tons/bbl since 1990. However, Alberta’s GHG
goals of 238 megatons of CO2 in 2010 and 218 megatons CO2 in 2020 are not expected to be met.
Status of the Issue
New refinery capacity that would accommodate heavier crude from Canadian oil sands is being
challenged in Indiana, Michigan, South Dakota, and elsewhere. Some of these expansions or new
refineries are several years away from operation. A BP refinery upgrade and expansion in
Whiting, Indiana, expected to be complete in 2011, is progressing, but faces lawsuits from
environmental groups. A new $10 billion refinery in Union County, South Dakota, being planned
to process heavy crude from oil sands, would be the first new refinery in the United States in over
25 years. Environmental groups continue to promote standards for low-carbon emission fuel and
oppose the permitting of these refinery projects on the basis that processing heavy crude from
Canadian oil sands would generate much higher greenhouse gas emissions than from
conventional petroleum sources.
Questions
1. What changes are necessary to significantly reduce the environmental footprint of heavy oil
from Canadian oil sands?
2. How much capital investment in pipeline and refinery infrastructure is needed to support
increased crude oil imports from Canada?
3. What would be the impact on U.S. federal and defense fuel procurements if Section 526
restrictions remain in place on fuel produced from Canadian oil sands?
4. After the drop in oil prices from over $100 per barrel and the ongoing economic recession, how
likely is it that Canadian oil sands development will be slowed because of revised investment
strategies by the major oil companies?
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Natural Gas Pipeline from Alaska81
Issue Definition
In October 2004, Congress approved the Alaska Natural Gas Pipeline Act (ANGPA, P.L. 108324), which authorized the Federal Energy Regulatory Commission (FERC) to consider any
application, created the Office of the Federal Coordinator, provided a loan guarantee for as much
as $18 billion, accelerated tax depreciation and enhanced oil recovery tax credit for natural gas
treatment for a pipeline to bring natural gas from Alaska’s North Slope to market. Then in 2006,
Governor Sarah Palin of Alaska announced the Alaska Gasline Inducement Act to establish an
exclusive right for an Alaskan natural gas pipeline and set up a competition for state funding of
such a project. Five proposals were submitted, but only one, the TransCanada (a Canadian
company), was considered complete. The proposal was approved by the state legislature in July
of 2008. One of the competing applications was from a joint venture of BP and ConocoPhillips,
however it was rejected. The two companies have nevertheless proceeded with the project, called
Denali, and are billing it as an alternative to AGIA.
The destination of the gas is expected to be the lower 48 states. A provision of the ANGPA
effectively prevents the pipeline from passing through or near the Mackenzie Delta gas fields in
northwest Canada, which contains an estimated 6 trillion cubic feet of natural gas. At one time,
development of Mackenzie Valley gas appeared likely to be through a spur line connecting to the
pipeline from Alaska. That configuration appears less likely today and Canadian interests hope to
proceed with a Mackenzie Valley pipeline before the Alaska pipeline project begins. It is the
sense of Congress, as legislated in the ANGPA, that there is sufficient demand for natural gas
from both projects.
Background and Analysis
Alaskan natural gas is a potentially significant U.S. energy resource. The U.S. Geological Survey
(USGS) estimates recoverable gas reserves in the North Slope oil fields at about 37.5 trillion
cubic feet (Tcf), which is equivalent to about 6.8 billion barrels of oil. Natural gas is believed to
be under the Arctic National Wildlife Refuge (ANWR) as well. The already discovered natural
gas resource has not been developed because of a lack of cost-effective means of transportation to
major markets; estimated costs of construction have repeatedly precluded successful project
development to transport Alaska gas by pipeline. The gas produced now is re-injected into the
ground to help recover oil; so far, it has helped recover 3 billion barrels of oil.
Construction of a pipeline to transport natural gas to North American markets and/or a warmwater port for shipping liquefied natural gas (LNG) might possibly enhance North Slope oil and
gas economics and the commercial potential of ANWR. Potential profitability for owners and the
state of Alaska from the authorized pipeline is enhanced by the $18 billion in loan guarantees
approved by Congress for the project, estimated in 2002 to cost as much as $20 billion. Since
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then, however, the rising cost of steel, other materials and construction labor drove up the cost of
the pipeline. Recent cost decreases have not been reflected in cost estimates available at this time.
An LNG option is being explored by the Alaska Gasline Port Authority (AGPA); FERC is
watching these proceedings since they would have jurisdiction over any Alaskan LNG project.
Congress had previously created a statutory framework for an Alaska natural gas pipeline in the
mid-1970s. Legislative authority for designation of the route, and for the U.S. role in the
approval, construction and operation of such a pipeline were established in the Alaska Natural
Gas Transportation Act of 1976 (15 USC 719 et seq.). Under that authority, still in force, a gas
pipeline would parallel the existing Alaska oil pipeline from the North Slope to Fairbanks, then
head southeastward along the Alaska Highway and into Canada via the Yukon Territory, British
Columbia, and Alberta. This, the Alaska Natural Gas Transportation System, was approved by
U.S. and Canadian governments. Phase I of the ANGTS pipeline was completed in the early
1980s and is in operation. Its two legs, stretching from a collecting point in Alberta in the
directions of the U.S. West Coast and the Midwest, respectively, deliver one-third of Canada’s
total annual gas exports to the United States. The construction of the third leg, connecting the
Alaska North Slope to the “pre-built” network was never started and in January of 2009 ANGTS
notified FERC that it was no longer a viable entity and surrendered its conditional certificate.
Alaska enacted separate legislation that bans construction of a gas pipeline in northern state
waters, while supporting a pipeline to the south. Under the shorter, less costly, northern route,
estimated netback wellhead prices (determined by subtracting transportation cost from market
price) would be higher, and royalties to the state would be higher (the gas resources are stateowned). But state officials apparently perceive greater gain through the income multiplier effect
of construction within the state and Alaskan communities' greater access to the gas supplies.
There are some questions concerning who will construct and operate the Canadian portion of the
pipeline originating in Alaska. The U.S.-authorized pipeline likely would not enter service for ten
years after an initial construction contract is approved. The company selected by AGIA,
TransCanada , is also the company that claims to have the legal right of way for building the
Canadian section of the pipeline because of the Northern Pipeline Act passed by Canada in 1977.
Canada supports a natural gas pipeline that would travel from the North Slope through Canada
and has opposed any unilateral selection of routes by the United States. The Canadian
government believes that the private sector is best suited to decide the route, subject to regulatory
and environmental review procedures. Canada has an interest in selling more oil and natural gas
to meet U.S. energy needs.
Negotiations are continuing in Canada on the plan to build the Mackenzie Valley gas pipeline,
which is intended to carry natural gas from inside the Arctic Circle in Canada to northern Alberta,
where it would flow into the existing natural gas transportation system. A joint review panel has
been established under the auspices of the Canadian National Energy Board, for the purpose of
determining the feasibility of the Mackenzie project. Among the subjects it is considering are the
participation and compensation of aboriginal peoples in Canada along the route of the pipeline.
The estimated cost of the Mackenzie Gas Project is about $13.5 billion (US), with an earliest
production start-up in 2014. The engineering and construction planning continues to improve the
details of Project needs.
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Status of the Issue
Both the United States and Canada are moving toward the construction of natural gas pipelines
built from their respective Arctic regions that will partly compete with each other for markets in
the Lower 48 states and in southern Canada. At this time, the Canadian government has not
authorized a project. However, the state of Alaska has authorized the TransCanada project, though
this company has not yet completed their application with FERC and the Denali pipeline
companies, though not authorized by Alaska, continue to pursue their project. In EIA’s most
recent forecast, it forecasts Alaska gas flow to begin in 2020.
Questions
1. How close is Canada to actually making a decision to go ahead on the Mackenzie pipeline?
2. Will the Canadian project time the construction to minimize competition between the U.S. and
Canadian projects for inputs such as labor and steel?
3. How likely are Arctic Ocean ice cover changes to open new LNG transport options for North
Slope gas?
4. With recent changes in the long term lower-48 natural gas supply outlook due to
unconventional gas success, when might a pipeline be competitive?
5. To what extent might the partly competing natural gas pipelines, once completed, diminish the
economic viability of each other?
6. What percentage of the gas delivered by the Mackenzie pipeline is likely to be used by the
Canadian oil sands development?
Northern Energy Development82
Issue Definition
Should the United States proceed to develop energy resources thought to be in the coastal plain of
the Arctic National Wildlife Refuge (ANWR)? And if it chooses to do so, how would Canadian
interests, especially those of the Gwich’in people who live on both sides of the Alaska/Yukon
boundary, be affected? Canada opposes ANWR development, arguing a need to protect the
calving grounds of a caribou herd heavily used by Gwich’in in both countries.
Background and Analysis
During the 110th Congress, ANWR was not a major element of the energy debate until the run-up
in energy prices. Some bills in the second session of Congress were introduced to address energy
supply and these bills include titles to open the Refuge. The debate was (a) the extent to which
any ANWR discoveries might lower energy prices, and (b) whether to approve energy
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development in the Arctic National Wildlife Refuge (ANWR) in northeastern Alaska, and if so,
under what restrictions, or whether to continue to prohibit development to protect the area’s
biological resources. ANWR is an area rich in fauna, flora, and oil potential. A study by the U.S.
Geological Survey estimated that the mean level of economically recoverable oil on federal lands
in the refuge is 7.1 billion barrels, at $55/barrel. Development proponents argue that ANWR oil
would reduce U.S. energy markets’ exposure to recurring crises in the Middle East, create many
jobs in Alaska and elsewhere, boost North Slope oil production, and extend the economic life of
the Trans Alaska Pipeline System. They maintain that ANWR oil could be developed with
minimal environmental harm, with a footprint limited to 2,000 acres of the 19 million acre
Refuge. Opponents argue that intrusion on this ecosystem cannot be justified on any terms; that it
should be designated as wilderness; that oil found (if any) would provide little energy security
and could be replaced by cost-effective alternatives; and that job claims are exaggerated.
With the change in control of the House and Senate, chance of action on ANWR development
appears substantially reduced. At the same time, prospects of legislation to protect the area as
statutory wilderness are also slim, due to the possibility of a Senate filibuster.
Global warming has added a new factor to the debate in recent years. If the Arctic Ocean becomes
navigable in the summer, northern oil and gas may be more readily transported during the
summer months to lucrative markets in the North Atlantic. This reduced cost would make
marginal finds in either country more profitable and lead to increased industry interest. In
addition, if other areas north of the Arctic Circle are also developed for energy or other resources,
the economics of Alaskan and Canadian development may change with the greater attention to the
area or with corresponding technology improvements.( The most recent comprehensive
assessment of Arctic resources may be found in Kenneth J. Bird et al., Circum-Arctic Resource
Appraisal: Undiscovered Oil and Gas North of the Arctic Circle, U.S. Geological Survey, Menlo
Park, CA, 2008, pp. 1-4, http://pubs.usgs.gov/fs/2008/3049/fs2008-3049.pdf.)
Canada opposes energy development in ANWR primarily because it might disturb calving of the
Porcupine Caribou Herd (PCH). The PCH is covered under the Agreement Between the United
States of America and Canada on the Conservation of the Porcupine Caribou Herd, which entered
into force on July 17, 1987. The objective of the agreement is to conserve the herd for customary,
traditional uses by peoples on both sides of the international boundary, with disputes to be settled
by consultation between the parties. Since it was an executive agreement, no implementing
legislation was required. The U.S. agency primarily responsible for implementing the agreement
is the Fish and Wildlife Service.
The range of the PCH centers on the Porcupine River in the United States and Canada; the herd
winters south of the Brooks Range in both nations. The herd of about 130,000 animals provides
the staple diet of Gwich’in hunters in Alaska, the Yukon, and the Northwest Territories. It is also
the source of cultural tradition and a focus of religious ceremonies. The Gwich’in on both sides of
the border have vigorously opposed oil development, fearing that development in the herd’s most
frequent calving ground in ANWR’s coastal plain area might jeopardize their livelihood and even
their culture. Indeed, the concern over the PCH has resulted in stronger cross-border contacts
between Gwich’in for more than a decade.
Under current law, Alaskan Gwich’in would receive relatively little economic benefit from
development, successful or otherwise. (Canadian Gwich’in would receive no direct economic
benefit; there are no known reports of indirect benefits.) In contrast, Inuit Natives (primarily from
Barrow and Kaktovik) along Alaska’s North Slope would receive tax revenues, as well as bonus,
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royalty, and rent payments if successful development took place on Native-owned subsurface
lands within ANWR. As a result of their experience with Prudhoe Bay development, and of its
effects on the smaller Central Arctic Herd (CAH), many Inuit feel that ANWR development can
proceed without significant risk to the PCH. Other Alaskan Inuit are more cautious, with villagers
such as some in Nuiqsut, west of ANWR, arguing that a nearby existing development has not
generated expected levels of employment or dividends, while exacerbating social problems or
driving a local caribou herd farther away.
The Canadian portion of the PCH calving ground is protected in Ivvavik National Park. While
some energy exploration has taken place in the Canadian portion of the calving area, Canadians
argue that that activity occurred only before the government was aware of the importance of the
area to the PCH. Indeed, some Canadian industry officials have complained of government
hostility to development in the northern areas of the country, based on what they perceive as
overzealous environmental concerns. Critics note that the Canadian part of the calving area was
protected not only after the area’s importance to caribou was known, but also after it was known
to lack commercial energy resources. Canada is proceeding with development plans farther east,
in the Mackenzie River Delta.
Status of the Issue
Canadian Prime Ministers have raised the issue of development in the PCH calving range on
several occasions over the years, and their government has sent numerous position papers to
various U.S. agencies and departments. Two ANWR bills have been introduced in the 111th
Congress to designate the ANWR area as wilderness, and two development bills have also been
introduced. One of the development bills would forbid surface occupancy of the federal lands in
the refuge. The Alaska delegation remains strongly in favor of ANWR development.
Questions
1. What data are available to the federal or provincial governments regarding the effects of global
climate change on northern species such as the PCH?
2. Is Canada planning for increased industry activity in the Arctic in the coming decades? Have
natural resource companies (i.e., energy, mining, and others) become more active in recent years?
Is any other industry already showing signs of increased interest, and if so, how and where? How
have development practices changed in light of melting permafrost and other climate-related
impacts?
3. If Congress were to decide to open ANWR to development, are there specific mitigation
practices that Canada is seeking for the protection of caribou? For the protection of other marine
or terrestrial species?
4. What energy development activities are going on currently in the northern Yukon and the
Northwest Territories? What activities have occurred in the last two years? How do these
activities affect calving grounds, migration routes, and wintering areas in Canada? Are there any
known effects on the PCH?
5. If natural gas is developed commercially in northern Alaska, there is debate about how best to
bring the gas to markets in the upper Midwest. While the United States has generally favored a
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route paralleling the Trans Alaska Pipeline, Canada has voiced support for a route running
seaward of ANWR into Canadian waters, then south through Canada to the same markets (this
route is often popularly called the “over-the-top” route). Wouldn’t this route affect the PCH too?
If so, how can this be consistent with the opposition of the Canadian government to energy
development in ANWR (where the PCH calves in most years)? Would the pipeline be sited to
avoid the areas that the PCH tends to use for calving in the years when it does not reach ANWR
in time for calving?
Global Climate Change83
Issue Definition
The United States and Canada share an errant status among industrialized countries on climate
change. The two countries share similar political challenges to taking more aggressive actions to
reduce human-induced climate change, due to strong fossil fuel dependence and interests,
infrastructure based on cheap fossil fuels and individual vehicles, long distances, cold winters,
and other factors that tend to increase costs of abating greenhouse gas (GHG) emissions. While
governments of both countries have articulated seriousness in addressing climate change, neither
country has enacted strong policies consistent with the commitments they signed in 1997. It
remains to be seen, the degree to which the federal governments will change courses and begin to
reduce GHG emissions domestically, and through the international cooperative processes. There
could be significant benefits, especially to Canada, in harmonizing aspects of any GHG control
strategies; for example, an interlocking emissions cap-and-trade system could help minimize binational costs and make compliance easier for transnational businesses.
Background and Analysis
Human emissions of “greenhouse gases” (GHG), largely from fuel use, agriculture and land use,
and some industrial products, have altered the balance of the atmosphere. The increase by onethird of atmospheric concentrations since the Industrial Revolution are very likely to have
contributed a major portion of the global climate change observed over the past three decades.
Industrialized countries, including Canada and the United States, are responsible for the majority
of the increased concentrations, although the rapid growth of developing countries will be
responsible for most of the future increases. If policies do not result in radically reducing
emissions from current levels, scientists have projected climate change to have increasingly
negative and severe—potentially catastrophic—effects on most countries and many sectors, as
well as natural systems.
Scientists have been aware of the risks of human-induced climate change for many decades, and
brought these risks to international political attention by the 1980s. Both Canada and the United
States were among the governments that set up the Intergovernmental Panel on Climate Change
(IPCC), and later negotiated the United Nations Framework Convention on Climate Change
(UNFCCC), to provide the scientific foundations for decision-making (IPCC) and the
international cooperation necessary to mitigate the risks effectively (the UNFCCC). While both
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countries have, for the most part, vocally supported greater action to address climate change, and
agreed to the Kyoto Protocol, a subsidiary agreement under the UNFCCC. In it, the United States
committed to reduce its GHG emissions to 7% below 1990 levels during 2008 to 2012, while
Canada committed to reduce to 6% below 1990.
Both countries signed the Kyoto Protocol in 1997. Neither country has fulfilled the commitments
it signed. U.S. President Clinton never submitted the agreement to the Senate for consent to
ratification, and in 2001, President Bush announced his rejection of the Kyoto Protocol. In
contrast, the Canadian government ratified the treaty in 2002. But, according to one analysis:
Jean Chretien’s Liberal government was faced with a tricky problem. In 1998, greenhouse
gas emissions were already 27% above the Kyoto target, and had been growing by 1.7% a
year since 1990: reversing that trend would have involved burning up significant amounts of
political capital. On the other hand, it was very mindful of Canada’s reputation for taking
part in multi-national agreements: there also would be a political cost to pay for not joining
the international consensus.... [The federal Liberals] needed the political support of the proKyoto constituency, but they weren’t in a position to pay the political costs of complying
with the protocol. Their solution to this dilemma was breathtaking in its effectiveness and its
simplicity:
•
Sign the treaty.
•
Make no effort to comply with the protocols....
(Stephen Gordon, The Politics of Climate Change Policy in Canada” Worthwhile Canadian
Initiative (webblog), posted 12 January 2007)
The conservative Canadian government of Prime Minister Harper eventually stated that Canada
did not intend to meet its Kyoto Protocol commitments. It now hopes its GHG emissions will
peak in 2010 then decline, though experts examining the policies in place have judged the
measures insufficient.
From the birth of the Kyoto Protocol to the U.S. elections of 2008, the two federal governments
have said they were serious in addressing climate change. But their actions have been mostly
limited to voluntary programs, moderate energy efficiency regulation, and government support
for science and research. The conservative Tory government did set up a cap-and-trade program,
but one based on energy intensity (emissions per GDP) and, thus, not a fixed cap on emissions, as
the economy grows. Action has been undertaken by some local and state/provincial governments,
however, and elements of the private sector.
Status of the Issue
Remaining a Party to the Kyoto Protocol, Canada has not incurred disdain from other countries
similar to that aimed frequently at the United States. Canadian GHG emissions were 26% above
1990 levels in 2007 (34% above their Kyoto commitment), compared to U.S. emissions at 16%
above 1990 in 2007. Canada is being investigated by the Protocol’s bodies for not having
established its required GHG accounting registry. On the other hand, the compliance sanctions in
the Kyoto Protocol—and in many other international agreements—are insufficient to motivate an
unwilling Party to meet its commitments.
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Now that UNFCCC Parties are engaged in negotiations towards commitments for the post-Kyoto
period, beyond 2012, many countries wonder how to deal with the similar but different problems
of gaining efforts from the United States and Canada. Canada has adapted a plan to reduce GHG
by 20% from 2006 levels by 2020. This would be slightly more aggressive numerically than
President Obama’s proposal to reduce U.S. emissions by 17% from 2005 levels. Neither country
has programs in place to assure that such targets are met.
In February 2009, President Obama and Prime Minister Harper discussed trade and climate
change. They agreed to work jointly on research and development of advanced carbon reduction
technologies and on establishing an advanced, “smart” electric grid that could enhance electricity
trade. Elements of tension include the high CO2 emissions that would be associated with
development of Canada’s extensive tar sands resources, as a more reliable and less expensive
substitute for other fossil fuels. California Governor Schwarzenegger has threatened to ban tar
sands oil from his state. On the other hand, U.S. coal-fired powerplants are less efficient than
Canada’s. The Canadian federal government generally is waiting to see what measures the United
States will take—on vehicle standards, on GHG cap-and-trade legislation, and other GHG
reduction programs. In February 2009, Canadian Environment Minister Jim Prentice suggested a
common cap-and-trade system, fuel efficiency standards, and targets for biofuels. He suggested as
well that the two countries consider a joint GHG target under the pos-Kyoto agreement, similar to
the arrangement of countries within the European Union. Like in the United States, opinion polls
suggest that the public shares concerns about climate change and would permit the governments
to take action, even with modest cost. For Conservative Party Prime Minister Harper, this support
may be important politically. His party lacks a majority in Parliament, and reportedly, one in three
Conservative voters hold the Green Party as their second choice.
Questions
1. Previously, the Canadian government established a cap-and-trade system without an absolute
cap on greenhouse gas emissions. If other major industrialized countries participating in a post2012 treaty to reduce GHG emissions agree to absolute caps on their emissions, will the
Government of Canada as well? How quickly?
2. Canada has expressed interest in possible taking on a joint GHG reduction commitment with
the United States in a post-2012 agreement. Please tell us in more detail how this might work,
especially given that we do not have the legal frameworks in place that the European Union uses
to enforce its regional target. Are there specific issues the U.S. Congress should take into account
as it drafts legislation to control GHG emissions?
3. In the Framework Convention on Climate Change and the Kyoto Protocol, Parties agree to
count and take responsibility for the emissions that occur within their borders. I understand that
Canada has tried to rewrite that principle with regard to the respective responsibilities of the
United States and Canada for emissions associated with energy trade. Please explain your
reasoning for making this an exception to how emissions associated with other manufacturing and
trade is counted.
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Great Lakes Restoration84
Issue Definition
The Great Lakes are recognized by many as an international natural resource that has been
significantly altered over the last two centuries. In response, the federal governments of the
United States and Canada, and the state and provincial governments in the Great Lakes basin
have implemented several restoration activities. After several years of restoration activities, some
contend that efforts are not progressing and are loosely organized. Some specific concerns
include the slow rate of cleaning up toxic sediments in this ecosystem, and lack of governance
and a comprehensive plan to address restoration of the Great Lakes.
Background and Analysis
The Great Lakes watershed is the largest system of fresh surface water in the world. The
watershed covers approximately 300,000 square miles and is shared by eight U.S. states (Illinois,
Indiana, Michigan, Minnesota, New York, Ohio, Pennsylvania, and Wisconsin) and one Canadian
province (Ontario). The Great Lakes contain nearly 90% of the surface freshwater of the United
States and 20% of the surface freshwater of the world. An estimated 40 million people rely on the
Great Lakes basin to provide jobs, drinking water, and recreation, among other things. In the last
several decades, agricultural activity throughout the basin, and urban and industrial development
concentrated along the shoreline, have degraded water quality in the Great Lakes, posing
potential threats to the ecosystem. Development has also led to changes in terrestrial and aquatic
habitats, the introduction of non-native species, the contamination of sediments, and the listing of
more than 50 threatened or endangered species in the basin.
The Great Lakes Strategy
In 2004 a federal Great Lakes Interagency Task Force was created to provide strategic direction
for Great Lakes policies on restoration and to form a regional collaboration of stakeholders
interested in restoring the Great Lakes ecosystem. The Great Lakes Regional Collaboration,
which consists of over 1,500 stakeholders, released the Great Lakes Regional Collaboration
Strategy, a plan based on implementing a series of recommendations for actions and activities to
start the restoration of the Great Lakes ecosystem over the next five years. The Strategy
encompasses eight issue areas: aquatic invasive species, fish and wildlife habitat (habitat/species),
coastal health, contaminated sediments, nonpoint source pollution, toxic pollutants, indicators and
information, and sustainable development. The total cost of implementing the Strategy is
estimated to be $20 billion over five years. The implementation of the Strategy relies on existing
authorities, programs, and funding at federal, state, and local levels of government, as well as
some new actions that may require enacting new federal legislation. The Strategy as a whole is
not being implemented, although several existing restoration programs that are included in the
Strategy are ongoing.
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The Great Lakes Restoration Initiative
The Great Lakes Restoration Initiative (GLRI) aims to restore and maintain the chemical,
physical and biological integrity of the Great Lakes Basin Ecosystem. The GLRI is slated to
begin in 2010 and the Administration has requested $475 million in the FY2010 budget request to
fund the GLRI. The planning, structure, projects, and programs of the Initiative are based on the
work of the Great Lakes Interagency Task Force. The Initiative will be directing funding to the
following focus areas:
•
Toxic substances and Areas of Concern;
•
Invasive species;
•
Nearshore health and nonpoint source pollution;
•
Habitat and wildlife protection and restoration; and
•
Accountability, monitoring, evaluation, communication, and partnerships
The EPA will be the lead agency for the GLRI. The Administration is requesting authority for the
EPA to be able to transfer funds to federal agencies for subsequent use and distribution for Great
Lakes restoration activities and projects. The request also would allow for grants to be
competitively awarded to governmental entities, nonprofit organizations, institutions, and
individuals for planning, research, monitoring, outreach, and implementation of the Great Lakes
Restoration Initiative and Great Lakes Water Quality Agreement. Although current EPA
restoration programs and activities for the Great Lakes are included in the $475 million, other
ongoing restoration activities conducted by federal agencies are not expected to be diminished,
according to the Administration’s FY2010 budget request. This represents approximately $414
million in additional funding for Great Lakes restoration over the FY2009 enacted level for the
EPA.
Restoring Areas of Concern the Great Lakes
The Great Lakes Legacy Act of 2002 was enacted to address sediment contamination in Areas of
Concern (AOCs) within the Great Lakes ecosystem. AOCs are geographical areas within the
Great Lakes that represent the most degraded portions of the ecosystem. AOCs contain
contaminated sediment, wastewater, and other non-point source pollution. In 1987, the United
States and Canada identified 43 AOCs in the Great Lakes basin. Twenty-six AOCs are in U.S.
waters, 12 in Canadian waters, and 5 shared by both countries. The act authorizes $50 million
annually in appropriations for FY2004-FY2008 for contaminated sediment remediation projects
in AOCs in the United States. From FY2004-FY2009, there has been approximately $163 million
appropriated to all programs authorized under the Legacy Act, approximately half the authorized
amount. The act also authorizes funding for research and development of remediation
technologies, and public outreach and education about remediation. The Environmental
Protection Agency (EPA) administers the selection and funding of projects authorized under the
Legacy Act. Six projects are currently being evaluated, one projects is underway, and four
projects have been completed under the Legacy Act. One AOC has been delisted in the United
States and two have been delisted in Canada.
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Water Withdrawals From the Great Lakes
Several laws, policies, and governing bodies regulate the use, withdrawal, and diversion of water
from the Great Lakes basin; however, the concern over domestic and international demand for
Great Lakes water has prompted officials from the United States and Canada to reevaluate these
laws and policies. The Council of Great Lakes Governors (CGLG)—a partnership of the
governors of the eight Great Lakes states and the Canadian provincial premiers of Ontario and
Quebec—was tasked with creating a new common conservation standard to manage water
diversions, withdrawals, and consumptive use proposals. In 2005, the CGLG released (1) the
Great Lakes-St. Lawrence River Basin Sustainable Water Resources Agreement (Agreement) and
(2) the Great Lakes-St. Lawrence River Basin Water Resources Compact (Compact). These water
management proposals ban new and increased diversions of water outside the Great Lakes Basin
with only limited, highly regulated exceptions, and establish a framework for each state and
province to enact laws protecting the Basin. The Compact was approved by each state legislature
and the U.S. Congress. It is now taken effect as an interstate compact. The Canadian federal
government and the provinces of Ontario or Quebec are not parties to the Compact; however, the
provinces are signatories to the related international state-provincial Agreement.
Status of the Issue
The FY2010 budget request from the Administration introduces the Great Lakes Restoration
Initiative and requests $475 million for its implementation in 2010. Congress is expected to
deliberate the specifics of this request and the GLRI during the appropriations process.
Several bills have been introduced in the present Congress that address restoration of the Great
Lakes ecosystem. None of the bills authorize the implementation of the Strategy, nor authorize
funding for restoration prescribed by the Strategy. The Great Lakes Collaboration Implementation
Act (H.R. 500 and S. 237) is the most prominent restoration bill. This bill would authorize
appropriations to conduct research, provide for detection and prevention of aquatic non-native
species around the country, address water quality in the Great Lakes, and ocean monitoring. The
bill would also authorize duties and activities for the Great Lakes Interagency Task Force and the
Great Lakes Regional Collaboration. A separate bill introduced April 30, 2009 would reauthorize
the Great Lakes Legacy Act and authorize $150 million annually from FY2008-FY2012 for
cleaning up AOCs in the U.S.
Questions
1. Given that the boundaries of the Great Lakes ecosystem extends across the United States and
Canada, what major efforts are being done in Canada to restore the Great Lakes? Is Canada
considering a comprehensive restoration plan that may involve binational participation?
2. Does Canada have plans for a comprehensive Great Lakes restoration strategy or plan? How
can Canada collaborate with the EPA in undertaking restoration activities in the GLRI?
3. What efforts are being done to clean-up AOCs in Canada, and have they been successful? Is
there scientific, technical, or programmatic collaboration between the U.S. and Canada in
cleaning up AOCs shared by both countries?
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4. The Compact and resulting water withdrawals could potentially affect the environment and the
economies of, and relationship between, Canada and the United States. How is Canada
implementing the Great Lakes Water Agreement? Are there any foreseen implementation
challenges that might require binational cooperation?
5. Water quality is a concern for many in the U.S. and Canada, and is currently addressed by the
Great Lakes Water Quality Agreement. The Agreement is being considered for revision by the
Governments of Canada and the United States. What is the status of the review of the Agreement?
Is Canada considering revisions to the Agreement?
Great Lakes Water Levels85
Issue Definition
Great Lakes water levels have been decreasing steadily since 1997, with Lake Superior setting a
record low for September in 2007, and Lakes Michigan and Huron near their record lows for
December in 2007. In 2008, water levels initially rose for all Lakes, due to above average
snowfalls in the northern Great Lakes. The latest water level forecast predicts higher water levels
on Lake Superior and Lake Michigan-Huron when compared with 2008. The remaining lakes are
expected to have lower water levels than 2008.
Low water levels disrupt shipping, alter coastal and aquatic ecosystems, reduce recreational
boating and fishing, and adversely affect water quality. Water levels are directly related to
precipitation, runoff, evapotranspiration, and outflows (e.g., through the St. Lawrence River and
diversions). Climate change and new precipitation patterns are cited as a possible causes for low
water levels. Some also contend that dredging in Lake St. Clair in the 1960s might have led to
widening the channel in the St. Clair River and increasing outflows from the Lakes.
Understanding the causes of declining water levels in the Great Lakes is a concern for many
because of their potential economic and environmental costs.
Background and Analysis
The Great Lakes watershed is the largest system of fresh surface water in the world. The Great
Lakes contain nearly 95% of the surface freshwater in North America and 20% of the surface
freshwater of the world. An estimated 40 million people rely on the Great Lakes basin to provide
jobs, drinking water, and recreation, among other things. The water levels of the Great Lakes are
affected by a number of factors, including precipitation, evaporation, groundwater, surface water
runoff, diversions into and out of the system and regulation. Some of these factors are controlled
by the seasons, which can bring varying amounts of precipitation and runoff to the lakes. For
example, water levels are high in the spring and summer, when runoff amounts are high, but low
in the winter, when little or no runoff occurs. As a system, the Great Lakes annually lose
approximately 1% of their water through natural outflows (i.e., via the St. Lawrence River).
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Decline in Water Levels
Water levels in the Great Lakes have been declining since 1997, according to the National
Oceanic and Atmospheric Administration (NOAA). This decline is most prominent in Lake
Superior, which recorded a historic low for September and October 2007. Some contend that
recent declines in Great Lakes water levels are following a pattern of fluctuating Lake levels that
have been recorded since the 1800s. For example, Lakes Huron and Michigan experienced record
highs in 1886 and 1986; and experienced record lows in the 1930s, corresponding to drought
conditions during the Dust Bowl. Others suggest that low water levels are a combination of
several natural and man-made factors. NOAA collects data on historic water levels in the Great
Lakes, and the U.S. Army Corps of Engineers (Corps) maintains models that predict changes in
Great Lakes water levels.
Potential Threats to Water Levels
Potential changes in water levels may come from existing and new diversions; climatic
variations; geologic processes; variations in precipitation, evaporation, and runoff; population
growth; and changes in land use (i.e., farm to urban). Many contend the greatest threat to water
levels in the Great Lakes is excessive consumptive withdrawals.
Most experts believe that there is still much to be learned regarding the effects of water
withdrawals, climate change, and consumptive uses on the Great Lakes. Moreover, trying to
determine the individual impact of a single factor may be difficult to quantify because more than
one factor might contributing to declining water levels. Accordingly, many have become
concerned with the cumulative effects of these factors on the Great Lakes. The International Joint
Commission (IJC) began an investigation in the causes of water level decline in Lake Superior in
March 2007. Effects of climate change, dredging and channel widening in the St. Clair River, and
changes in precipitation are some of the factors being considered. With respect to climate change,
some hypothesize that warmer winters in the Great Lakes basin will lead to less ice formation on
the Lakes, and consequently greater evaporation of water into the atmosphere. If precipitation
does not correspondingly increase, then lower water levels could result. Uncertainty in predicting
future water levels, in conjunction with the cumulative impact that many of the above factors may
have on lake levels, has stimulated many to consider a “precautionary approach” addressing water
withdrawals and diversions out of the Great Lakes Watershed.
Potential Impacts of Low Water Levels
Variations in water levels can have potentially significant socio-economic and environmental
consequences. Lower water levels can reduce hydroelectric power generation and increase costs
to commercial shipping. The Great Lakes-St. Lawrence shipping corridor, which is more than
2,300 miles in length, would need more dredging to maintain current levels of navigation if water
levels decrease. Dredging may also be necessary for recreational boating. Lower water levels
could also affect water quality by limiting the ability of the lakes to flush out toxic substances and
excessive levels of nutrients, such as phosphorous and nitrogen. Coastal wetlands can dry up if
water levels significantly recede along the shoreline and wetland habitat may be replaced by
forested lands or dunes. Receding shorelines could also create problems in accessing marinas and
necessitate change in other infrastructure (e.g., extending water intake pipes) to maintain
recreational and other activities. Some contend that changes in scenic areas and the environment
would decrease tourism and recreation. Lower water levels may have some positive impacts, such
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as decreasing the potential for flooding and increasing the area of beaches in some regions of the
Basin.
Status of Issue
Congress is addressing declining water levels in the Great Lakes through proposed legislation that
would authorize the Secretary of Commerce to study and continue monitoring fluctuating water
levels in the Great Lakes (H.R. 1905, H.R. 500, and S. 237). Lastly, the IJC is conducting a fiveyear, $15 million study to examine declining water levels in the Great Lakes. (The duration of the
study is from 2007-2012.)
Questions
1. Understanding the contribution of potential causes for declining water levels in the Great Lakes
is a concern. Is Canada sponsoring any studies to address this issue, have any results been
released?
2. The socio-economic consequences of declining water levels in the Great Lakes might be
significant for both Canada and the United States. Does Canada have any existing programs that
are implementing mitigation strategies for declining water levels ?
3. Climate change might be a significant factor in declining water levels. Is Canada addressing
the effects of climate change on natural resources such as water supplies in the Great Lakes, and
if so, has Canada developed any strategies for adapting to climate change that involve the Great
Lakes?
Status of Polar Bears86
Issue Definition
In May 2008, the United States listed polar bears as “threatened” under the Endangered Species
Act (ESA; 16 U.S.C. §§1531 et seq.). An ESA listing as “threatened” triggered an automatic
listing of polar bears as “depleted” under the Marine Mammal Protection Act (MMPA; 16 U.S.C.
§§1361 et seq.), preventing U.S. citizens from importing polar bear products (under 1994
amendments to the MMPA, U.S. sport hunters had been authorized to obtain permits to import
polar bear trophies from Canada). Under the MMPA, the United States allows only limited
subsistence harvest of polar bears by Alaska Natives. In Canada, only Inuit hunters are permitted
to hunt polar bears, but they may allocate a limited portion of their subsistence harvest to sport
hunters. Some suggest that the import ban, effectively stopping U.S. sport hunters from killing
polar bears in Canada, could compromise successful Canadian community-based conservation
programs.
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Background and Analysis
Globally, 6 of the 19 recognized polar bear populations are declining, while 4 populations are
stable and 3 populations are increasing. The remaining 6 populations have insufficient data
available to estimate population trends, and their status is uncertain. Two polar bear populations
occur partially within U.S. jurisdiction; fourteen polar populations occur within Canadian
jurisdiction.
Polar bears are affected by climate change, contaminants, and subsistence and sport hunting.
Polar bears depend on Arctic sea ice for movement, hunting, and other activities and, except for
pregnant females, rarely come ashore in many populations. Seals, which are caught when coming
to ice holes to breathe, are the preferred prey of polar bears. Scientists have confirmed that, in
recent decades, the extent of Arctic sea ice has declined significantly as the result of climate
change: annual ice break-up in many areas is occurring earlier and freeze-up later. Arctic sea ice
is experiencing a continuing decline that may not easily be reversed, and some models project
that Arctic sea ice could disappear completely by 2037 (M. Wang and J. E. Overland, “A Sea Ice
Free Summer Arctic Within 30 Years?,” Geophysical Research Letters, v. 36, no. 7 (2009):
L07502). In addition, three groups of contaminants are implicated as potentially threatening polar
bears—petroleum hydrocarbons, persistent organic pollutants, and heavy metals.
Status of the Issue
On May 15, 2008, the Fish and Wildlife Service (FWS) listed polar bears as a threatened species
under ESA, acknowledging the increasing threats to their existence. The FWS listing was to be
based solely on the best available scientific and commercial information regarding five factors:
habitat destruction, overutilization, disease or predation, inadequacy of other regulatory
mechanisms, and other natural or manmade factors.
In late April 2008, the Committee on the Status of Endangered Wildlife in Canada (COSEWIC)
announced a status assessment of the polar bear in Canada as a species of “special concern,” and
a more detailed official report was released in August 2008 (This report is available at
http://www.sararegistry.gc.ca/virtual_sara/files/cosewic/sr_polar_bear_0808_e.pdf). When the
COSEWIC report was released, Canada’s Environment Minister, John Baird, announced that a
National Roundtable on Polar Bears would be held as part of determining how the Government of
Canada will proceed toward a decision on how best to conserve polar bears under Canada’s
Species at Risk Act. This National Roundtable was held on January 16, 2009, in Winnipeg,
Manitoba.
Questions
1. What are the current programs in joint cross-border management through the Inuvialuit-Inupiat
Polar Bear Management Agreement for the Southern Beaufort Sea between Alaska and Canada?
2. How might halting the hunting of Canadian polar bears by U.S. sport hunters affect Canadian
community-based conservation programs for this species?
3. What are the options available to Canada under their Species at Risk Act, relative to polar
bears? What was the significance of Canada’s National Roundtable on Polar Bears?
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Author Contact Information
Carl Ek, Coordinator
Specialist in International Relations
cek@crs.loc.gov, 7-7286
Shayerah Ilias
Analyst in International Trade and Finance
silias@crs.loc.gov, 7-9253
Eugene H. Buck
Specialist in Natural Resources Policy
gbuck@crs.loc.gov, 7-7262
Remy Jurenas
Specialist in Agricultural Policy
rjurenas@crs.loc.gov, 7-7281
Stephen F. Clarke
Stan Mark Kaplan
Specialist in Energy and Environmental Policy
skaplan@crs.loc.gov, 7-9529
M. Lynne Corn
Specialist in Natural Resources Policy
lcorn@crs.loc.gov, 7-7267
Jane A. Leggett
Specialist in Energy and Environmental Policy
jaleggett@crs.loc.gov, 7-9525
Ian F. Fergusson
Specialist in International Trade and Finance
ifergusson@crs.loc.gov, 7-4997
Randy Schnepf
Specialist in Agricultural Policy
rschnepf@crs.loc.gov, 7-4277
Ross W. Gorte
Specialist in Natural Resources Policy
rgorte@crs.loc.gov, 7-7266
Pervaze A. Sheikh
Specialist in Natural Resources Policy
psheikh@crs.loc.gov, 7-6070
Jeanne J. Grimmett
Legislative Attorney
jgrimmett@crs.loc.gov, 7-5046
Rachel Tang
Analyst in Industrial Organization and Business
rtang@crs.loc.gov, 7-7875
Chad C. Haddal
Analyst in Immigration Policy
chaddal@crs.loc.gov, 7-3701
M. Angeles Villarreal
Specialist in International Trade and Finance
avillarreal@crs.loc.gov, 7-0321
William F. Hederman
Specialist in Energy Policy
whederman@crs.loc.gov, 7-7738
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