Research Analyst, The Public Policy Research Initiative

Freeing up trade by lowering or removing barriers such as tariffs and quantitative restrictions usually gets support from economists and observers of international relations who see economic cooperation as conducive to broader harmony among countries. Aside from countering the political appeal of protectionism, advocates for free trade face a choice that has become especially acute in recent years: whether multilateral or bilateral arrangements are the best approach. Since the 1980s, Canada has made bilateral and regional arrangements its principal focus. Despite the practical appeal of this approach, however, evidence that bilateral arrangements can undermine multilateralism suggests that Canada should switch its focus, making completion and development of the World Trade Organization’s Doha Round its first priority.

Good trade policy is crucial for any country, due to its potential to boost the country’s economic and social development. The protectionist approach of mercantilism, founded on the premise that a country must run a trade surplus, with burgeoning exports but restricted imports, has historically held little appeal for consumers. As cross-border flows of intermediate goods and services have grown, however, its drawbacks are becoming more obvious to producers as well. The best method of boosting a country’s economy through trade is to facilitate the free flow of goods and services to the greatest possible extent, recognizing that cross-border trade today involves vast quantities of intermediate goods (Dymond & Hart, 2008). Reducing restrictions is preferable to adding concessions, and the most effective way to hasten the flow of intermediate goods is to abolish cross-border tariffs.

Since World War Two, Canada, the United States, and many other countries have actively embraced the concept of freer international trade. Their principal focus, however, has shifted over time. In the early post-war years, the multilateral negotiations under the General Agreement on Tariffs and Trade were the main event. More recently, bilateral and regional arrangements have dominated. The World Trade Organization estimates that nearly 400 regional trade agreements will be active in 2010, the vast majority of which are Free Trade Agreements (FTA) (World Trade Organisation, 2009). The question that arises is which method of free trade states should pursue. The argument for bilateral trade agreements is one of practicality. Multilateral trade is an appealing ideal, but nearly 200 countries will never be able to successfully negotiate a deal that will please everyone; the situation has parallels with the December 2009 Copenhagen conference on climate change. The Doha Round has therefore entered a state of paralysis, with participants unable to successfully work around special interests, while bilateral trade treaties continue to be negotiated across the globe.

With the Doha Round stymied, and potentially doomed to fail, Canada has rushed to establish FTAs on a smaller scale. Canada’s FTA with the European Free Trade Association came into force in July 2009 and was followed a month later by an FTA with Peru. The impetus for this can be clearly seen in the number of FTAs the United States has signed in recent years, which pose a potential threat to Canada’s importance as a trading partner. Canada has historically feared a hub-and-spoke system of bilateral agreements with the United States at the centre and Canada as one of many spokes; this was a driving factor in the Canadian push for a trilateral free trade agreement with Mexico after the U.S. and Canada had already ratified a bilateral deal, instead of the bilateral negotiations underway between Canada’s continental neighbours. Canada’s trading position is not diverse and strong enough to avoid some degree of isolation if the U.S. establishes many bilateral arrangements with other countries (Robson, 2007).

In the past two decades Canada and the U.S. have each pursued numerous bilateral deals. Some of the American ones have jeopardized Canada’s importance to the U.S. economy – such as the 2004 FTA with Australia. Thus, it is important for Canada to encourage multilateral negotiations, particularly including the United States, rather than standing by while its most important trading partner negotiates bilateral agreements with other countries.

In addition to the potentially isolating effects of bilateral agreements for any country that is not privy to them, such agreements can impede broader, multilateral negotiations. In his 2006 study for the American Economic Review, Nuno Limão found American preferential trade agreements in the 1980s and 1990s to have been detrimental to the United States’ efforts at multilateral trade. The study provides empirical evidence that the United States, when reducing tariffs in accordance with multilateral agreements, tends to make smaller reductions for goods that are already included in its bilateral preferential agreements (Limão, 2006).Thus, some countries are already paying lower tariffs for these goods when they export them to the U.S., but the other countries involved in the multilateral negotiations will not receive the same level of reduction. This finding also holds true for Canada. In a 2007 study, Matthew Adler found similar results for Canadian tariff reductions, concluding Canada’s reductions in the Uruguay Round on goods encompassed by NAFTA would have been greater without the trilateral arrangement (Adler, 2008).

Advocates of freer trade would justifiably argue that Canada is better off engaging in bilateral negotiations than no negotiations at all. As long as there is potential for substantial multilateral negotiations, bilateral and regional talks pose important risks. Canada has only so many trade negotiators and only so much attention its leaders can give trade negotiations, so focusing on bilateral and regional arrangements inevitably means neglecting the multilateral alternative. As emphasized by Adler, moreover, for Canada as for the United States, FTAs may impede the viability of prospective future multilateral agreements (2008).The practicality argument is compelling; with globalization and increasingly integrated cross-border production, facilitating trade, even on a bilateral basis, has clear economic benefits. However, successful multilateral trade deals are the best means of ensuring substantial trading benefits for all countries involved.

References

1. Dymond, Bill and Michael Hart. (2008, March). Navigating New Trade Routes: The Rise of Value Chains, and the Challenges for Canadian Trade Policy. C.D. Howe Institute Border Papers Series, No. 259. Retrieved December 15, 2009 from http://www.cdhowe.org/pdf/commentary_259.pdf.

2. World Trade Organization. (2009). Regional Trade Agreements. Retrieved December 20, 2009 from http://www.wto.org/english/tratop_e/region_e/region_e.htm.

3. Robson, William. (2007, August 16). Stuck on a Spoke: Proliferating Bilateral Trade Deals are a Dangerous Game for Canada. C.D. Howe Institute e-brief. Retrieved December 15, 2009 from http://www.cdhowe.org/pdf/ebrief_47.pdf.

4. Limão, Nuno. (2006, June). Preferential Trade Agreements as Stumbling Blocks for Multilateral Trade Liberalization: Evidence for the United States. The American Economic Review, 96 (3). 897.

5. Adler, Matthew. (2008, October 15). Stumbling Forward on Trade: The Doha Round, Free Trade Agreements, and Canada. C.D. Howe Institute e-brief. Retrieved December 15, 2009 from http://www.cdhowe.org/pdf/ebrief_65.pdf.

Research Analyst, The Public Policy Research Initiative

The Canadian government’s approach to climate change has neither been pragmatic nor opportunistic.  In fact, despite ratifying the Kyoto Protocol, Canada has not taken any considerable action on the issue of climate change.  The current environmental policy regarding climate change is ambiguous at best; the goals are weak and unclear.  In order to take action against climate change, the government must acknowledge that climate change poses a legitimate risk to all Canadians. Furthermore, the government must also recognize the risks that climate change poses to the economy, the environment, and to intergovernmental relations.  Currently, the Canadian government is failing to follow its obligations under the Kyoto Protocol, and the Harper government’s new “Turning the Corner” plan sets weak targets for combating Greenhouse Gas Emissions (GHGs).  The plan only aims to reduce 1990 levels by 3% in 2020, while Kyoto would have obliged Canada to reduce 1990 levels by 6% for 2012.  The Canadian government’s policy appears to be reactive, waiting to align with the policies of the Obama administration.  Canada should be a leader and establish policies at home that will be an example for other countries.

Stephen Harper’s government believes that attempting to reach the targets set out in the Kyoto Protocol would cause irreparable damage to the Canadian economy.  Canada’s reluctance to take action has been excused by Harper as a cost issue, believing that even if Canada were to reduce emissions, the costs would be astronomical because there are still other nations who are not attempting to decrease their emissions (Cobb, 2009).  While this is a legitimate concern, it does not excuse Canada’s total lack of leadership on the issue of climate change, especially as the Copenhagen Summit begins.  Former World Bank Chief Economist Nicholas Stern estimated that the overall costs associated with climate change will be the equivalent to losing at least 5% of global GDP each year, and if a wider range of risks and impacts were taken into account, this number could reach 20% of global GDP or more.  More importantly, the cost of immediate action to reduce GHGs, and avoid the worst impacts of climate change, could be limited to only 1% of global GDP each year (Stern, 2006).

The Canadian government’s best efforts at preventing climate change involve intensity-based targets for Greenhouse Gas emissions (GHGs), and a cap-and-trade system that would exclude Alberta’s tar sands. The first issue with this is that intensity-based reductions cannot be integrated into carbon markets because carbon markets are set up to buy and sell true reductions.  Intensity-based targets are not necessarily true reductions because if production increases over a certain amount, then emissions will increase as well.  Using these intensity-based targets will prevent Canada from joining the EU emission trading system, or any international carbon market.  Nationally, intensity-based targets are equally questionable.  Using intensity-based targets would require companies to disclose production data, but in ongoing discussions (since 2004), industry representatives have argued that production data is confidential, and therefore, they would not be willing to release the data (Marshall, 2007).  Environment Minister Jim Prentice said a U.S. cap-and-trade system could coexist with a Canadian intensity-based system (Ljunggren, 2008).  However, many academics and environmentalists believe that Canada will simply be forced to go along with whatever policy the US administration adopts as their economies are so heavily intertwined.  The Harper government has adopted a wait-and-see approach to implementing any serious system that would regulate GHGs and carbon pricing, hoping that the Obama administration will do most of the work for them (Hampson, 2009).  If the US government goes ahead with the American Clean Energy and Security Act, introducing a cap-and-trade system amongst other things, Canada will follow their guidelines, targets, and their industry exclusions.  Canada is a signatory on the Kyoto Protocol, and the US is not, so only Canada will suffer the shame of breaking an internationally binding agreement.  Canada could easily set up its own cap-and-trade system, setting guidelines within the framework of the Kyoto Protocol that would work with the US system, regardless of US emissions targets.

Canada’s federal government does not have a cohesive plan of action for climate change, while some provinces have already set their own guidelines and targets to deal with GHGs and low-carbon technology investments.  Canada’s current target under the “Turning the Corner” plan, calls for a 20% reduction on 2006 levels by 2020, this would equate to about 3% reduction on 1990 (Environment Canada, 2008).  The federal plan on climate change should be a model to which all provinces aspire; it should be a beacon of progressiveness.  Currently, however, many provinces are outdoing the federal governments in their policies and targets.  Four provinces have already joined the International Carbon Action Partnership set up by the European Union, and the Western Climate Initiative.  By 2012, Manitoba and Quebec aim to meet their share of Canada’s Kyoto Protocol agreement, while 6 provinces aim for better targets than the federal government’s by 2020 (Marshall, 2007).  The two provinces who continue to lag in their initiatives are Saskatchewan and Alberta.  Harper calls on all nations to fight climate change together, with equal effort and resources, while his lack of governance allows an uneven effort amongst provinces.  Furthermore, Environment Minister Jim Prentice has already hinted at exclusions from cap-and-trade system regulations for Alberta’s Tar Sands (Rennie, 2009).  Prior to the November 2008 election in the United States, Prime Minister Harper called for a North American cap-and-trade system that would exclude the tar sands, while current projections estimate that the production in the tar sands will increase by 300% by 2020 (McCarthy & Clark, 2008).  This exclusion would make a mockery out of the entire (proposed) cap-and-trade system, and would be unfair to other industries and provinces.

Canada can make a comeback but this will only happen if the Harper government creates clear and strict policies that outline Canada’s targets and methods to deal with climate change.  A national system for pricing carbon, using a tax, trade or regulatory system must be put into place.  A conference with premiers may be appropriate to consider the goals and obstacles faced across the nation.  A cap-and-trade system would be ideal for Canada, with aggressive caps aiming towards a national reduction target.  Penalties for failing to comply with targets should be enforced to deter industry for ignoring their GHG limits.  Funding support for green technology and innovation should take a primary role in Canada’s climate change policy.  This will have two positive results: home-grown technology will not need to relocate to other countries, and a low-carbon industry will create more jobs and boost the economy.  The last step is education.  The government must educate businesses, and the public about what they can do to respond to climate change.  Education programs and advertising would ensure that people are informed and can do their bit for the environment; and people would be more accepting of higher prices, and increased taxes, if they know the money is supporting Canada’s initiative against climate change.  Aggressive policies against climate change may cost industry and the public in the short term but it is better for Canada to create policies that fight climate change now, instead of dealing with the higher costs in the long term.

References

1. Cobb, C. (2009, November 29^th). Canada offers ‘minor adjustment’ to fight climate change. Ottawa Citizen,     Canwest News Service. Retrieved December 15^th, 2009 from http://www.canada.com/technology/Canada+offers+minor+adjustments+fight+climate+change/2282866/story.html.

2. Stern, N. (2006, October 30th). Stern review on the economics of climate change. Retrieved December 15^th, 2009 from http://www.hm-treasury.gov.uk/sternreview_index.htm.

3. Marshall, D. (2007, February 26th). Intensity-based targets not the solution to climate change. Retreived December 16^th, 2009 from http://www.davidsuzuki.org/files/climate/Intensity_Targets_Not_The_Solution.pdf.

4. Ljunggren, D. (2008, November 19th).  Canada wants North-American cap-and-trade system.  Reuters, Ottawa. Retrieved December 16^th from http://www.reuters.com/article/idUSTRE4AI70120081119.

5. Hampson, F.O., and W. Zartman. (2009, December 12^th).  How to break the climate impasse.  The Globe and Mail. Retrieved December 15^th, 2009 from http://www.theglobeandmail.com/news/opinions/how-to-break-the-climate-impasse/article1396354/.

6. Environment Canada. (2008, May 21). Turning the corner. Retrieved December 15^th, 2009 from http://www.ec.gc.ca/EnviroZine/default.asp?lang=En&n=9A8BA8EA-1.

7. Rennie, S. (2009, December 16th). Tar sands to get emission break.  The Toronto Star. Retrieved December 17^th, 2009 from http://www.thestar.com/news/sciencetech/environment/copenhagensummit/article/739429–tar-sands-to-get-emissions-break.

8. McCarthy, S., and C. Clark. (2008, November 5^th).  Ottawa swoops in with climate change offer.  The Globe and Mail. Retrieved December 17^th, 2009 from http://www.theglobeandmail.com/news/national/article721236.ece.

by Alex Ognibene, University of Toronto

While many nations face constant water shortages, Canadians are privileged to have access to roughly 20% of the world’s fresh water. However, for a nation so generously endowed, Canada has a rather poor track record of water management. Canada’s outdated and limited water policy was even called “shocking” and “unacceptable” by a recent Senate Standing Committee report on Energy, Environment, and Natural Resources. Water, managed on the assumption of unlimited abundance, often takes a back seat to other issues on the political agenda. In fact, Canada possesses only about 6% of the world’s renewable freshwater – much less, for instance, than Brazil and Russia. Canada, however, uses more water per-capita than any nation except the United States. Even more alarming is that Canadian water use has grown by 25% over the past two decades, despite reports of water shortages by approximately one quarter of Canadian communities each year. Experts agree that Canada is in the midst of a potentially catastrophic water crisis that requires immediate attention – and action – in the form of a pan-Canadian water policy that emphasizes intergovernmental coordination. Existing policy will need to be applied and strengthened, and new legislation will need to be introduced to bring Canada’s water strategy into the 21st century. The new policy should support sustainable water management approaches that encourage conservation and environmental protection as a means of achieving water security. Finally, bulk-water exports must be banned indefinitely to reaffirm Canada’s control of its own water supply.

The objectives of Canadian water policy reform may be clear, but the means of pursuing them remain somewhat murky. The first step to formulating a comprehensive national strategy will be identifying the problems with Canada’s current policy. First, Canada’s Federal Water Policy has been poorly enforced, and has not been updated since 1987, long before many of today’s water-related concerns were widely understood. Second, jurisdictional overlap between the federal and provincial governments on resource management has caused redundancy and disorganization. Fisheries, navigation, and international waters are federal responsibilities, while water resources and supply fall into the hands of provincial governments. Without adequate intergovernmental coordination, it is impossible to effectively assess the state and extent of Canada’s water supply. Research and data collection have decreased so sharply in recent years that Canada’s aquifers and groundwater reserves aren’t even completely mapped.

Water supports many of the industries that contribute to Canada’s GDP, including the natural resource sector, which accounts for 15% of the GDP and employs one million Canadians. Without water these industries cannot hew wood, mine coal, drill oil, or grow crops. However, the natural resource sector also accounts for 22% of Canada’s water consumption. The oil and gas industry, in particular, uses large quantities of water. It takes 2-4 barrels of water to extract 1 barrel of oil, which makes it difficult to fathom the quantity of water that will be required by 2015, when estimates suggest 3 million barrels will be extracted from Canada’s oil sands every day. As part of the new water strategy, the Canadian government will need to offer incentives to industries and businesses that are willing to trade old practices for more environmentally sound approaches.

In addition to encouraging industries to minimize water consumption, Canada will need to address strained water relations with the United States in a way that affirms the importance of water to Canadian sovereignty and outright bans bulk-water exports. In the past Canadian policy makers have avoided passing a federal law forbidding bulk water exports out of fear that it would violate the terms of the North American Free Trade Agreement (NAFTA). NAFTA defines water as a “service” and “investment”, which leaves the door wide-open to trade disputes. With the American government projecting that 36 states could face water shortages by 2013, it’s obvious that swift action needs to be taken to ensure that water is removed indefinitely from the bargaining table. An ideal first step might be an attempt at negotiating a specific exemption to NAFTA for freshwater as was done for raw logs and unprocessed fish.

Of more urgency than international trade, and primary concern to Canadians, is the issue of drinking water quality. Twenty Canadian and American cities flush 90 billion litres of untreated sewage into the Great Lakes every year. These very same lakes supply millions of families with drinking water. In 2008 alone there were 1,760 boil-water advisories issued in towns across Canada, a majority of them in Ontario. This figure doesn’t include aboriginal reserves, which are infamous for atrocious drinking water quality. The primary reason for these advisories is the absence of legally enforceable drinking water quality standards. Such standards exist in most of the world’s industrialized nations and seek to prevent events like the E. coli outbreak in Walkerton nine years ago. This issue is perhaps the most likely to excite the indignation of Canadians and the recent explosion of interest in water management among citizens, NGOs, and think tanks suggests it has. A poll conducted by the Institute for Research on Public Policy found that 62% of Canadians believe water is Canada’s most important natural resource. Even in petroleum-rich regions of Eastern and Western Canada, water was selected at a 3-1 margin over oil and gas. These statistics prove that Canadians recognize the importance of water to Canada’s future and are ready to embrace a new national water policy.

Canada has the capacity to solve its water crisis, but action should be taken in the immediate future.  Water management innovations at the provincial level such as Alberta’s Water for Life strategy, Ontario’s Clean Water Act, Quebec’s National Water Policy, and Nova Scotia’s Drinking Water Strategy are instructive. These initiatives share three common goals; a secure and safe drinking water supply; the reconstruction of healthy aquatic ecosystems; and maintenance of the water supply for a sustainable economy. Several have established funding programs to assist in the development of municipal planning strategies or intake protection zones to ensure the protection of water as a valuable Canadian resource. Such plans include incorporating water-source protection in highway designs and improving databases and information management systems. Nova Scotia in particular has instituted a policy for the accreditation of all drinking water testing laboratories and regular testing of all public drinking water supplies. All of these are examples of measures contributing to a progressive movement for a modern Canadian water policy.

In reforming its national water policy, Canada would be following the example of other jurisdictions like New Zealand, Australia, South Africa, Brazil, and the European Union. Reforms will allow Canada to respond efficiently to domestic priorities, while strengthening Canada’s ability to meet growing international expectations and obligations for water management and conservation. To create a pan-Canadian water policy would be beginning to conserve the world’s water resources, and firmly establish Canada as a major international resource holder.