It gives me great pleasure to address the Economic Club of New York tonight.

October 06, 2005
New York City, New York

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It gives me great pleasure to address the Economic Club of New York tonight.

I’m actually the second Paul Martin who’s had the pleasure. My father addressed your members in 1954, as vice-chairman of Canada’s delegation to the United Nations.

That year was a time of new configurations of power around the globe; a time of a rising threat – communism; and of the emergence into prominence of new economies, such as Japan’s. I am sure we would all agree that today we face opportunities – and challenges – that are equally as great.

In the face of these global trends, now as then, the United States and Canada share an uncommon bond. It is an alliance, not only of strategic interest, but of friendship. We have had ample demonstration of this in recent weeks, with the outpouring of sympathy and support across Canada in the wake of hurricanes Katrina and Rita.

So it seems natural for me to talk to you tonight about a stronger North America – about our mutual security, and our common prosperity.

The Canada of the 21st Century is a confident country, with a record of success.

We are the only nation in the G-7 not in deficit. Our public pension system is actuarially sound for generations to come. Our population is well educated. We have unique strengths in research and manufacturing – if you own a blackberry, you’ll know what I mean. We have an extraordinary resource endowment in mining, forestry, and energy.

Over the last five years we’ve brought in the largest cumulative tax cut in Canadian history, and the OECD ranks our regulatory regime as one of the world’s most efficient and effective. “Smart regulation” is a priority for our government, and a key target of ours is the so-called “tyranny of small differences” between the regulatory regimes of our two countries. We aim to decrease the cost of doing business while enhancing health, safety, and security.

In short, our house is in order, and we’re going to keep it that way. In eight years we have brought our debt-to-GDP ratio down from 70% to about 38%, and within another eight years we’ll have it down to 25%. At the same time, we’ve decreased the percentage of our debt in foreign hands –from a high of 40%, a little over ten years ago, to less than 15% today.

I’m telling you this to emphasize, as many of you in the business community already understand, that Canada is a good place for business, and that Canadians and Americans are good business partners. All of which is significant, and worth valuing, because quite frankly there have been few times in our history when it’s been more important that we stand together.

The first reason for this is the threat to our security – the rise of global terrorism, which was brought home to you, us and to the world with 9/11; followed by the bombings last summer in London; and just days ago, once more, in Bali. The threat is grave and ongoing. It has changed the calculus of national and international security.

And it is a challenge that is testing – and I believe strengthening – our bond in North America. Canada is spending heavily to enhance the security of our borders, with emphasis on the highest-volume crossings, such as Windsor-Detroit, which is in fact the busiest border crossing in the world. Right across the Hudson River, in Newark, we’re establishing, in partnership with the Department of Homeland Security, joint teams of customs officials to monitor containers bound for Canada, and we are doing the same for U.S.-bound containers in the ports of Halifax, Montreal, and Vancouver. Our Smart Borders initiative represents an investment in manpower, infrastructure and modern technology to help ensure the free flow of trade, while we focus our resources on outside threats.

We also define threats to our national security in the widest possible way. We are the first country in the world to plan for a secure pandemic vaccine supply, through the contracting of a domestic supplier. At the end of this month, we are convening in Ottawa a meeting of health ministers from more than 20 developed and developing nations, to work on global preparedness for the threat of pandemic influenza.

We in Canada also recognize that stability and peace in the world isn’t someone else’s responsibility. That is why we have set in motion the largest investments in our Armed Forces in some two decades. Today, Canada’s military is training for modern conflicts in fragile states: theatres of war which require the tools of combat, stabilization, and relief. Canada is in Afghanistan, and will soon take command of a multinational brigade in Kandahar, confronting terrorism in one of its prime breeding grounds. In this state, as in others – such as Darfur and Haiti – we are supporting, with expertise and aid, fledgling democracies as they find their footing.

These actions represent Canada’s response to a world that has fundamentally changed – in which Canada’s traditional conception of itself – that of the middle power and mediator, that took root in my father’s era – has adapted to new realities.

The second reason why it’s important that Canada and the United States stand together is the rise of China and India, and other emerging market powers. Today – just as fifty years ago – we are in the infancy of a fundamental reordering of the world’s economy. A brand new consumer society, at least two billion strong, is coming into being in the historical equivalent of a snap of the fingers. The emergence of these new powers is a double-edged sword of promise and predicament.

For Canada, the competitive challenge is real. But given our small domestic market, our significant export capacity and our wealth of resources, human and natural, this changing world places within our grasp tremendous potential. For China and Japan, the closest major deep-water ports and the closest major international airport in North America are located in British Columbia. Our west coast is in the process of becoming a key nexus in trans-Pacific trade, North America’s gateway to Asia. Countless dollars from the private and public sectors are being invested in new infrastructure, rail-lines, and expanded port capacity. Clearly, China and India represent for us an exciting new opportunity that we intend to take advantage of.

Your economy is responding in similar ways. But if we are to take full advantage of these emerging markets, we should recognize that we’re so much stronger together. That’s why we have to make our partnership work. A strong north America is not a geopolitical agenda. It’s a people’s agenda.

This was the rationale behind the Security and Prosperity Partnership signed last March, in Texas, by President Bush, President Fox, and me. This agreement recognizes that the stronger North America is, the stronger each of our countries will be. It was in every way an affirmation of the abiding value of NAFTA.

Representing nearly one-third of the world’s Gross Domestic Product, North America has become the largest trading bloc on the planet. And at last count, Canada was the number one export destination for thirty-nine of the fifty United States. Last year’s trade between Canada and the State of New York alone was worth more than $30 billion. Canada is also the number one export market for states as far south as Georgia and Alabama. That is why so many U.S. governors pay close attention to our trade arrangements. NAFTA has enabled our two countries to integrate our economies with uncommon precision. Our north-south trade corridors are reliable and secure, and have created opportunities for growth in just about every region and every sector of our economies. In short, our partnership has presented us with enormous opportunities.

But, speaking frankly, it has also presented us with challenges. Over the years we have met these with open and constructive dialogue. This is how friends talk to each other. So as well as talking about the ways our partnership is working, I would like to highlight two concerns tonight. First, the softwood lumber dispute, what it symbolizes about NAFTA, and our respect for the dispute settlement mechanism we have in place to protect its integrity.

The softwood lumber issue is basically a disagreement between special interests in the U.S. and your national interest. Canada provides about one-third of your softwood lumber supply. We trade this commodity fairly and within the agreed rules of NAFTA. But in the last several years our firms have been charged a total of $5-billion in tariffs.

This, in spite of the fact that Canada has won panel decision after panel decision under NAFTA’s process for the settlement of disputes. Recently, we won an unanimous decision which confirmed these findings – this, in NAFTA’s “Final court of Appeal,” which included a majority of U.S. judges. The problem is, instead of honouring this decision, the United States has decided to ignore it.

Forgive my sudden departure from the safe language of diplomacy, but this is nonsense. More than that, it’s a breach of faith. Countries must live up to their agreements. The duties must be refunded. Free trade must be fair trade.

In any business relationship, you’re going to have differences of opinion, but you establish a mechanism to settle these differences, you accept the verdict, and move on. NAFTA established such a mechanism, and ignoring it hurts not just Canadians, but Americans.

Supporting the integrity of NAFTA is in your self-interest. According to numbers cited by the Wall Street Journal, removing the tariffs on Canadian lumber would lower the cost of each new American home by $1,000 on average, and make about 300,000 more moderate-income Americans eligible for mortgages. The Journal writes, and I quote: “This whole inane scheme may very well lead to a net reduction in employment in the U.S. because for every lumber and sawmill job there are about 25 Americans working in industries that depend on low-priced Canadian lumber.” In short, these tariffs make your lumber companies happy – American consumers and workers, not so happy. When we ignore the rules, our economies suffer. I hope that is well understood - and by Congress in particular.

Let me give you another example: the border closures prompted by mad cow disease, or BSE. For many years, we have profited, both of us, from a highly integrated North American cattle market, extending from feed manufacturers to ranchers to processors. Now when BSE was first discovered in a Canadian cow, it was a Canadian problem; but long after scientific evidence demonstrated --unequivocally -- that Canadian Beef was safe, some very loud and persistent American ranchers succeeded in keeping the U.S. border closed. This is when the problem became a crisis, not just for Canadian ranchers but for a continental industry – and the President himself spoke out emphatically for the resumption of trade. I appreciated President Bush’s leadership, and the situation has improved substantially since then.

But the effect of the lengthy closing has led to a restructuring in the Canadian industry, to the detriment of its U.S. counterpart. Why? Because whereas at one time Canadian beef was shipped for processing into the United States, our industry has adapted, ramping up its own processing capacity to compete with yours. Furthermore, rather than looking only to the U.S. market, we will be your direct competitors in China, Japan and Korea. It’s the law of unintended consequences at work.

Now, to get back to lumber. It’s clear that the U.S. approach to softwood brings into question the integrity of NAFTA in general, and the efficacy of the dispute resolution mechanism in particular.

In the North American context, we have to recognize that NAFTA is a framework, not just for the trade of commodities, but for the trade of most all goods and services, investment and energy – and for this to operate smoothly we have to be able to rely on the dispute settlement mechanism.

Canada will continue to enforce its legal rights under NAFTA and before the U.S. courts. We will also take our case to the court of public opinion: in Congress, to the business community, and to the American consumer, as well as to the Administration.

But we shouldn’t have to do this. There’s already a mechanism in place – and we have a final decision. That decision should be accepted. That mechanism should be respected. If anything, it should be strengthened, to provide greater certainty and finality.

The integrity of this process is imperative. Indeed, the test of our commitment to NAFTA isn’t taken in those many instances when we agree. It is taken in those few cases when we don’t agree.

The second concern I want to discuss tonight addresses another dimension of our partnership – that of joint stewardship of the North American environment. In this context, the U.S. interest in drilling in the Arctic National Wildlife Refuge – ANWR – gives rise to great reservations on the part of Canada and Canadians.

Now, you may ask what business is it of the Canadian Prime Minister to question what the United States can do in its own territory. Fair enough. The answer is that Canada and the United States have a mutual obligation to the fragile ecosystem of the north. It must be protected and nurtured, not despoiled. Drilling in the ANWR puts both wildlife and the culture of the G'witchin people at risk. It’s our mutual obligation to ensure they are not.

And it’s not a new obligation. Some 20 years ago, we jointly agreed to protect the Porcupine River caribou herd, which each year migrates from the Yukon in Canada to the refuge’s coastal plain. Now, we can argue the limits of that specific agreement but surely the underlying principle – that of shared stewardship – is one that we should recognize.

This is not to say we don’t understand the impulse to ensure a secure supply of oil for American consumers. But even by optimistic estimates, there is only enough oil under the refuge to meet America’s energy needs for 200 days. If you’re looking for a long-term solution, this isn’t it. And in Canada’s view, it simply is not worth the risk of permanent environmental damage.

Now, you may well say, We need that oil. Our alternative sources around the world are too risky. But let’s look at the reality. Our nation is already your number one supplier of imported energy: nearly all of the electricity, nearly 85% of the natural gas, and about 16% of the refined oil and crude that you import comes from Canada. Add to this the Alberta oil sands – with at least 175 billion barrels of recoverable supply, which represents more than two-thirds of Saudi Arabia’s equivalent reserves – and our vast, unexploited hydroelectric resources, and there is no reason why, as joint stewards of the environment, we can’t cover whatever potential output might have otherwise come from ANWR.

In summary, let me say that, in terms of security, our interests are wholly aligned. How you feel about the importance of security in the United States is how we feel about it in Canada, and we’re doing everything in our power, at home and abroad, to ensure it. No-one in the United States should doubt this.

In terms of trade – in terms of our prosperity – clearly the opening of China and India present opportunities which both of us, as sovereign countries, will seek to exploit. We in Canada clearly regard these markets as attractive – but, that being said, we also recognize the degree to which we in North America have an opportunity to benefit from working together. That’s what NAFTA, and the Security and Prosperity Partnership, are all about.

The point I would make here, is that where rules are established and agreed upon, they should be followed. Both because it’s in our mutual interest, and because of the example we can set in a world that needs the rule of law. The fact is plain: the United States itself depends as much as we do – as much as any nation does – on a liberalized global economy governed by rules that everyone can rely on. And the world is watching. No-one wants the emerging economies to emulate our worst practices. They are a bounty on trade.

You may think I’ve been blunt. I have. But it’s because I believe in North America. In spite of our differences, our partnership on security and trade is working. In Canada’s view, however, it is time to strengthen the relationship – a relationship between sovereign nations – in service of our mutual interest: the security and continued prosperity of North America, and the protection of its environment, for generations to come.

Thank you.

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