June 2007: Hearing on North American Security and Prosperity Partnership

CCPA Executive Director addresses Commons committee
June 1, 2007

The Commons Standing Committee on International Trade held hearings last month on Canada-U.S. relations, with a special focus on the North American Security and Prosperity Partnership (SPP) being advanced by the Canadian Council of Chief Executives, the Canadian Chamber of Commerce, and other business organizations. The CCPA’s executive director, Bruce Campbell, was invited to make a presentation to the Committee. His remarks, along with his answers to questions by some MPs on the Committee, follow.

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Good morning:

My thanks to the committee for at least beginning to investigate the Security and Prosperity Partnership. As you know, it's the umbrella for a vast array of security and economic-related initiatives underway to further integrate the North American market. It is a NAFTA-plus--a deep integration initiative. It's not a grand-bargain-type negotiation like NAFTA was, but rather an incremental step-by-step project--an executive-branch to executive-branch project. Legislative change is not expected, at least not directly; but, despite its incrementalist nature, the cumulative effect of the SPP, over time, could be profound. It could be even more significant than NAFTA, depending on how far and how fast it goes. And that's why I think it's important that your committee is focusing on this development.

I'm concerned about the process, as are many other Canadians. I'm concerned about the lack of transparency, the lack of public input. I'm concerned about the privileged access that big business has under the new body, the North American Competitiveness Council, or NACC, that was established by the SPP. We have superficial information about it, about the project, about the SPP, but not a sense of what's really going on. I'm sure there's lots of useful and important and beneficial work being done, but I'm also concerned that, hidden by the sheer size and scope of the project, there are things underway that may not be so beneficial and that may privilege private interests over the public interest. And, in any case, Parliament can't debate and Canadians can't debate this project until we have a better idea of what's going on.

I'm also concerned about substance—about the “free market” model of integration that's being pursued. All the rhetoric that we hear around the SPP is about ever-deeper market integration to increase competitiveness: the integration of energy markets, reduction of regulatory burdens—regulation is always described as a burden—and all of this to enhance business freedom. I never hear talk about any measure that say would encourage upward harmonization of labour standards, environmental standards; measures that would encourage productivity gains to be distributed fairly to workers; tax measures that would prevent corporations from engaging in transfer pricing; tax measures that would discourage shifting of profits to tax havens. So this type of cooperation is not on the SPP agenda, and it begs the question: prosperity for whom?

Finally, I'm concerned about the shrinking of Canadian policy autonomy under the SPP, a trend that began with the FTA. The SPP is a process of convergence or harmonization of policies and regulatory regimes for the purpose of reducing impediments to business. And, given the huge power imbalance between Canada and the U.S., I can't help but think that harmonization means, in most cases, Canada bending its regulations or simply adopting U.S. federal regulations, and I ask the question: at what point does the narrowing of policy room to manoeuvre fundamentally compromise democratic accountability in our political system?

Those are some of my general concerns. In the few minutes that I have left, I want to focus a bit on regulatory cooperation, which is really, as I said, about regulatory harmonization. It's proceeding on two tracks: the comprehensive track, which has been discussed, and then there's a number of sectoral regulatory initiative, from energy infrastructure to pesticides, bio-tech, pharmaceutical process, and I really hope that you will be requesting briefings on the status of these initiatives.

A couple of specific concerns: The NAFTA leaders’ statement launching the SPP in 2005, and in subsequent statements, made it clear that regulatory cooperation is mainly about cost and competitiveness considerations. The considerations of protection—I'm interested in health, safety and environmental regulation here—they're given a subordinate place. So we have the regulated industries, not the regulators, having a privileged place at the table with the NACC. That's of concern to me.

It's another manifestation, and part of a shift that's been going on in the last four years under the Smart Regulation Initiative, which is really a deregulation initiative. It involves a shift of basic approach or basic philosophy to regulation—a shift away from the precautionary principle--the primacy of protection--towards a risk-management approach, which gives equal weight to business-cost considerations. There's been a serious weakening of the precautionary approach. This has occurred over the objections of many environmental and health groups. Most recently, it's been embedded in the government's new regulatory policy that was revealed a few weeks ago (April 1), the government directive on regulations.

So now the structures are in place, and I'm concerned that they'll facilitate a regulatory harmonization process in a direction aligned with the Bush administration's aggressive deregulation agenda, and that this will further compromise the precautionary approach, and accelerate and entrench deregulation within Canada.

My other concern has to do with the outsourcing of regulatory functions to the U.S. The business Advisory Committee on Smart Regulation, in 2004, urged taking advantage of what it called “the superior scientific and regulatory capacities of the U.S. Food and Drug Administration [in effect outsourcing food and drug testing to the FDA], and focusing scarce Canadian resources on strategic priorities.

The May 2005 tri-national business report on North American integration advocated immediate adoption of a tested-once policy for bio-tech products and pharmaceuticals, whereby a product tested and approved in one country would automatically be accepted as meeting the regulatory standards of the others.

So my question is: is the SPP moving towards a tested-once policy for pharmaceuticals and bio-tech products? Does it mean a downsizing of our own testing and research capacity, and accepting those of the U.S. FDA? How wise would it be to outsource such a vital government responsibility to a U.S. body whose safety record has been widely criticized and which is seen as under the sway of the U.S. pharmaceutical lobby? It seems to me that this is tantamount to importing deregulation.

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In response to a question about chemicals by MP Serge Cardin (Sherbrooke, BQ):

As I look at the report of the NACC, which has been passed around, when it talks about regulations it talks about a North American default provision, a North American regulatory standard that should be the one that is utilized.

In the case of chemicals, the question that arises is what happens in the case that there are certain chemicals, for example, in food and in cleaning products that are illegal in Canada, which the regulators have determined to be such, and there’s a different standard in the United States: what regulatory standard then applies? Is it going to be the American one? Given the size difference, my concern is that it will always be biased in favour of the U.S. standard. Would it be a higher regulatory standard? What is the guiding principle here? There are negotiations going on, as you know, for an overall framework agreement for regulatory harmonization. Is one of the criteria that the countries will foster an upward or downward harmonization of regulatory standards?

These are really important questions. I favour cooperation with the United States, but I don’t favour capitulation, or compromising health and safety.

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In response to a question about Canada’s lack of a secure energy policy by MP Peter Julian (Burnaby-New Westminster, NDP):

I find it curious that Canada, almost alone among the oil-producing and exporting countries, has not used its oil and gas resources as a tool of diplomatic leverage, and instead seems to have pretty much surrendered that option. So we are in the precarious situation now where we don't have a strategic petroleum reserve in Canada, almost half of our oil is imported, and yet we're exporting a huge amount, almost two-thirds of our oil production, to the United States.

So we don't have energy security and we don't have anything in place to enhance energy security. We're a net exporter, but we're also a huge importer, so for developed countries that are huge importers, I think we're probably the only such country without such a reserve. The U.S. has a huge strategic reserve. East of the Ottawa River, 90% of our oil consumption is from imports, from the North Sea and a growing percentage from the Middle East, from Algeria and Iraq. So we have no contingency measures in place in the case of a disruption of supply. And, because we are locked into NAFTA and its proportionality rules, we have to maintain the proportions of oil and gas we export to the U.S., which now amounts to almost two-thirds of our oil and close to 60% of our gas. It becomes almost impossible under the proportional sharing arrangements shift production towards domestic needs during a supply disruption.. So we have an energy security problem.

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In response to questions on the softwood lumber deal and Kyoto by MP Guy André (Berthier-Maskinongé, BQ):

This committee held a lot of hearings on the softwood lumber agreement. I happen to think--and some members of the committee agreed with m--that it was not a good agreement, for a number of reasons. One of those reasons was that it would give the United States an effective veto over Canadian policies.

The Americans are now demanding meetings because they believe some of the policies on lumber that have been put in place—for example, by the Quebec government--are contrary to the agreement. These include the $436 million allocated for regional development in Quebec, $44 million of which is intended specifically for the province’s forestry workers. The objections by the U.S. indicate that it holds a veto power and will use it to determine and shape and limit the ability of our governments to apply policies in the best interest of workers and businesses in the lumber industry.

On the question of Kyoto: if, as it seems, the NACC is recommending that there be a North American default standard and that regulations should comply with that standard, it raises troubling questions. Canada has signed the Kyoto Protocol and the U.S. has not, so we have different international commitments with respect to the reduction of greenhouse gases. If a North American-wide policy were adopted, how would Canada be able to honour its Kyoto commitments? Regulation is a very critical part of implementing a protocol like that. How could we have the flexibility to apply a range of regulatory instruments that would be effective in reducing greenhouse gases if there is a North American standard is in effect that limits our flexibility? Those are real concerns.

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In response to a question by MP Peter Julian about the proposed harmonization of U.S. and Canadian regulations governing health and safety:

I think this regulatory harmonization issue is really important. Let's call it what it is and dispense with the Orwellian term of “cooperation,” because I think what this does is go well beyond cooperation. If it is about recognition, or mutual recognition of standards, let's see the mutual recognition agreements. Such agreements are incredibly difficult to negotiate.

Regulation is a vital function of parliamentarians. It's been defined as a subordinate form of legislation, or a delegated form of legislation. My concern on the sovereignty question is that, over time, the room to manoeuvre gets narrower and narrower, and at a certain point we realize that we don't have the ability to regulate or legislate in the best interest of the country.

It's doubly troubling because of who we're regulating with, especially with the current administration in Washington, which has embarked on a very aggressive deregulation initiative-- gutting a long list of air and other regulatory standards and weakening regulatory capacity. And I worry that this could result in our importing a deregulation agenda from south of the border.

And, when it comes to drug-testing deregulation, I've heard a former federal trade negotiator say this: “Just get rid of the 900 people over at Health Canada and have, maybe, a dozen people looking at what the United States is doing or what other countries are doing,” and basing their criteria for drug approvals on that basis.

Are we talking about gutting our regulatory capacity? Is this what the SPP is all about?

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In response to a question by MP Peter Julian about the U.S. drive for more access to Canada’s water:

Water has been a controversial issue on the trade front for a long time, going back to the FTA and NAFTA. Bulk water exports have not been protected adequately. There is no legislation that would do that. Once the tap is turned on, it would become a commercial good [as defined by NAFTA] and therefore become open for export.

We know from Chapter 11, the investor state provisions of NAFTA, that companies in the United States have challenged any provincial attempts to limit water exports. There are several ongoing cases of this kind. It has remained an important issue for the U.S. They see it as being in their national security interests to gain access to Canadian water, as they already have to Canadian oil. [The recent North America 2025 report of the US Centre for Security and international Studies reinforces this point] It’s true that the latest NACC report doesn’t mention water, but it’s clear from the leaked minutes of 2005 tri-national business task force that they discussed water and decided it was too controversial to be put formally on the table. But that’s not to suggest that it’s going away. It keeps reappearing on the SPP’s agenda.

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In response to a question by MP Serge Cardin about the Committee’s hearings on the SPP:

I think this is a first step. I think it’s really important that parliamentarians are focusing on this initiative, because it is such a vast project. This seems to be the committee that’s best able to look at the various aspects and interconnections in their entirety.

We haven’t talked at all about the whole security dimension, the implications for civil liberties, the implications for harmonization of immigration policies and visa policies, and what does that mean, and how that plays out in this initiative, because, as our business leaders are fond of repeating, these two issues are indivisible.

So I think it’s really important that your committee continue to monitor this process. I think that just leaving it at a couple of days’ hearings is not sufficient. I think you also have to be calling the bureaucrats who are involved in these working groups.

For example, there is have an overall framework agreement on regulatory harmonization under negotiation that is scheduled to be completed this year. What’s the status of that negotiation? What are the main guiding criteria that are being discussed? Where does the precautionary principle (protection first) fit into the agreement? How does that relate to competitiveness and cost considerations (risk management)? What does it mean for our research, our testing, and overall regulatory capacity?

All of these questions are extremely important, and it’s important that you continue to hold these hearings, that you bring civil society into the process, that there be sufficient input and information so that at least we can have a public debate about key elements of this process. Otherwise there’s a danger that private interests will be privileged over the public interest. Your responsibility as parliamentarians is to ensure that the public interest is being advanced.

(Bruce Campbell is the CCPA's Executive Director.)