Canadian CEO says "national security" hides US protectionism
From: info@indg.org (info@indg.org)
Network members -
Here is a very frank accusation by the CEO of a Canadian corporation that the US is hiding protectionist policies behind claims of "national security." But Derek Burney is more than the just head of CAE Inc. - he is also a former Canadian ambassador to the US and has extensive experience in diplomatic and military circles. Burney is stating what many commentators have said: the US is using "national security" to favour and protect domestic corporations. This protection is accorded to US corporations because of security exceptions built into every free trade agreement. Without these exceptions, the Canadian government could challenge the US government over protectionist polices through the WTO. And given the additional powers in NAFTA (Chapter 11 investor-state suits), CAE could sue the US government directly for lost profits.
What follows is two news reports and the text of the speech by Derek Burney to the Aerospace Industries Association of Canada on September 18 in Ottawa.
Steven Staples
***
The Globe and Mail September 19, 2000
CAE boss blasts US trade policy Defence industry hit by US protectionism, CAE chief and former ambassador says
By Keith McArthur, Aerospace reporter
Canada's defence industry is being squeezed out of the American market by protectionist US policies, a Canadian aerospace executive and former ambassador to the United States said yesterday.
Derek Burney, president and chief executive officer of CAE Inc., said his company is at a competitive disadvantage when bidding on contracts to build military flight simulators because the United States justifies protectionist policies in the name of national security.
"While restrictions can be dressed up in the cloak of national security by some, we all know what the reality is . I may not be able to define protectionism, but I know it when I see it," Mr. Burney said in notes for an address yesterday to an Ottawa meeting of the Aerospace Industries Association of Canada.
In an interview later. Mr. Burney said the blame lies with both the United States for engaging in "flagrant extraterritoriality" and Canada for not taking a tough enough stance against such controls.
He cited difficulties Toronto-based CAE has had with an order of flight simulators for the NATO training centre in Moose Jaw, Sask. He said the US International Traffic in Arms Regulations legislation, or ITAR, has made it difficult for CAE to obtain parts from Raytheon Co. of Lexington Mass., which it needs to complete the order.
"We felt long delays in getting those parts because Raytheon has to make an application to export them," Mr. Burney said. His son, also Derek Burney, is the interim chief executive officer of Ottawa software maker Corel Corp.
Canada's defence industry has also seen its competitive edge eroded as special access to US markets previously limited to Canada is being extended to other countries including Britain and Australia.
CAE announced plans yesterday to build a $60 million flight training centre at Toronto's Pearson International Airport, which will be used by Canada 3000 Inc. and Skyservice Airlines Inc, which is launching Rootsair.
A second flight training centre is also under construction at Sao Paulo, Brazil, and Mr. Burney said future centres could be built in Asia, Europe and other North American locations.
He said operating flight training centres generates more steady revenue than CAE's traditional line of business - building flight simulators and forestry software.
CAE stock gained 60 cents yesterday to close at a 52-week closing high of $20.40 on the Toronto Stock Exchange.
*** CBC News September 19, 2000-09-19 http://cbc.ca/cp/business/000918/b091841.html
Open Canada-U.S. border further,ex-ambassador Burney advises
OTTAWA (CP) - It's time to think about deepening the North American FreeTrade Agreement, or Mexico may do it first and replace Canada as America'sbiggest trade partner, says a former Canadian ambassador to Washington.
"I do not know whether all the elements of a common market are desirable orattainable," Derek Burney, who also served as chief of staff to former PrimeMinister Brian Mulroney, said in speech Monday to the Aerospace IndustryAssociation of Canada.
"I do believe there would be merit in an honest exploration of ways to removefetters and frictions at the border - and probably more to be gained from such apolicy initiative than yet another series of Team Canada missions."
Burney - now chief executive officer of CAE Inc., a maker of flight simulatorswhich does 40 per cent of its business in the United States - noted that Canadatrades more with America in a month than with the rest of the world combined ina year - $1.5 billion a day, or $1 million a minute.
However, Mexico "has supplanted Japan as America's No. 2 trading partner andmay soon give us a run for the No. 1 position," Burney said.
"The recent election in Mexico may transform political and economic thinking onAmerica's other border - a border which, for many reasons, generally commandshigher attention in Washington than the one up north," he said.
"President-elect (Vicente) Fox seems determined to move beyond NAFTAtowards what sounds very much like a common market - the precise dimensionand timing of which remains to be articulated," Burney added.
"What was unthinkable for Mexico in the past is now being advocated bypresident-elect Fox."
Canada, he said, need to do more to preserve and enhance its access to the.S. market.
"The Americans like to think their market is the most open in the world," Burneysaid. "But the church of free trade houses many sinners, no matter how ferventlythe faith is proclaimed, and the U.S. has a powerful protectionist congregation."
Defence procurement is perhaps America's most fiercely protected sector, andthis affects, among others, CAE, which needs current information on U.S.military aircraft to make simulators for those planes, and also to help keep itscivilian simulators state-of-the-art.
"While restrictions can be dressed up in the cloak of 'national security' by some,we all know what the reality is," Burney said.
"Even if the restrictions are not targeted specifically at Canada, we get caught inthe larger net, or sideswiped in the sweep."
The ex-ambassador - a key player in the Mulroney government's free-trade moves- observed that "because of the huge power imbalance and some deeperpsychological factors, a compromise agreement by Canada with the U.S. risksbeing perceived here at home as a sellout or worse. It can also make ourpoliticians wary of striking any deal with Americans. That reluctance may beunderstandable but it can also be counterproductive."
And, he said: "Would it not be ironic if Mexico moved ahead of Canada in thisdirection?"
c The Canadian Press, 2000 ***
Accessing the U.S. Market
Notes for Remarks by
D.H. Burney President and Chief Executive Officer CAE Inc.
AIAC 39th Annual General Meeting Ottawa, September 18, 2000
[Check against delivery]
This is my first AIAC meeting and I would like, at the outset, to express my appreciation to Peter Smith and his associates for the excellent representation they provide for our association. As one who was previously on the receiving end of representations from many different interest groups in Ottawa, I can say that AIAC is well known and well regarded for the serious and constructive nature of its activities.
When I received the invitation to speak to this Conference my first reaction was to ask "What would I speak about?" "Just simulate it", came the answer from a "former" CAE employee. So here I am. I could, of course, regale you about the quality of our Simulators, our position as a global leader, or some of our new growth initiatives such as our announcement today of a new pilot training centre we are building in Toronto - but that would be self-serving.
So I thought I would talk instead about something I know about from a variety of experiences - in the private and public sector - and which may well be of broader interest to you.
My topic is "Accessing the U.S. market". I have spent a good deal of time on this issue - and not just with the interest of one company or one sector in mind.
The American market has huge potential for almost any Canadian exporter - many of whom cannot expect to succeed globally unless they first establish a niche in the U.S.
It is a huge market for Canada. In fact, we do more trade in one month with the U.S. than we do all year with the rest of the global market combined. Think about that for a moment. More than $1.5B each and every day of the year - more than $1 million per minute and much of it, the vast majority in fact, of Canadian exports to the U.S. are high value-added, end-use products, like simulators. (And, for the history buffs, let me add that our 2-way trade has almost doubled since 1988; the first year of free trade!)
For CAE, the U.S.A. is a vital market for our full product range and, in the most recent year, generated almost 40% of our total sales.
The Americans like to think their market is the most open in the world and they point persistently to growing trade deficits, including that with Canada, as proof of just how open it is, relative to others. A good debating point perhaps, but it conceals as much as it exposes. Some segments of the U.S. market are more open than others - as is the case for many WTO members - including Canada - but the church of free trade houses many sinners, no matter how fervently the faith is proclaimed, and the U.S. has a powerful, protectionist congregation.
Defence procurement is, by its nature, one of the most fiercely protected of all sectors and in virtually all countries. While restrictions can be dressed up in the cloak of "national security" by some, we all know what the reality is. As was once said about a definition for pornography, 'I may not be able to define protectionism but I know it when I see it.' Well, so it goes for defence procurement. I was reminded of this not too long ago when a former colleague, Paul Tellier, was testifying before a U.S. Committee on his proposed rail merger. A distinguished U.S. general appeared before the same committee to express concern about the implications of a merger involving a Canadian and a U.S. railway for America's "national security"! It had a familiar ring. The border may be undefended but is not free of barriers, real and rhetorical. And, of course, as we all now know, Paul Tellier's planned merger did not go forward.
We at CAE depend on access not just to markets but to the avionics and databases which are integral to the effectiveness of one of our best products -- our Full Flight Simulators. After all, because we simulate what others manufacture, we need to know exactly what it is. If we cannot get the data, we cannot simulate the environment or the equipment for training, even for training here in Canada. It is that simple and, by denying or just by delaying access to the data - on grounds of national security or export controls - we can be shut out of the market or frustrated in terms of competitive cost, notwithstanding the Special Security Arrangement that we and others have which was intended to qualify us to participate fully and equally in the U.S. defence market. More generally, if we cannot get access to state-of-the-art data, we cannot sustain a leadership position in simulation and control technologies. Because, let's face it, much of the state-of-the-art technology in the defence sector reposes in the U.S.
That is, of course, a major problem we and others face as a result of the ITARs dispute. Is it a case of flagrant extra-territoriality on the part of the U.S. or lax discipline on export controls by Canada? Probably a bit of oth but, because I am no longer in government, I don't really care about the cause. I simply want the problem resolved so that our competitive advantage is back on a level playing field. For us at CAE this poses a particular problem in our efforts to get data from Raytheon to produce simulators for the NATO Flying Training Centre in Moose Jaw. We were told, earlier this year, that the problem was being resolved, or "80% resolved". Some progress is being made but a lot of damage happened before the governments decided to forge a solution and the potential for damage persists even today.
Even if the restrictions are not targeted specifically at Canada, we get caught in the larger net, or sideswiped in the sweep. Whatever the intent, we and other Canadian companies are disadvantaged by the effect. This is a problem which only governments can resolve or, in this case, control. And pronouncements from the highest political level are only meaningful if they are fully respected at the working level.
An even bigger obstacle is the "you must build it here" proviso which governs the majority of defence expenditures, virtually everywhere.
We know that the best recourse for a niche player in defence like CAE is to join or partner with bonafide U.S. players in order to gain access, some access, for what we do best. And we are exploring ways to do just that. We are also prepared to invest in a joint venture with U.S. companies in order to strengthen our credentials for access.
Outside the defence sector, the business we do in the U.S. market is relatively unfettered. Quality, price and customer service are pre-requisites for success for commercial simulators and for our forestry equipment - as they should be. But defence trade is special... restricted even more than agricultural trade - and that takes some doing.
Those of us in the defence sector must rely on governments to keep the trade channels as open as possible so that things like quality, price and customer service will count.
We operate in the defence sector primarily because that is the top end of the technology pyramid for us. By sustaining our edge in simulation technology for defence, we can also sustain our global leadership in the Commercial flight simulation sector. We cannot depend on the needs of our defence sector here in Canada to meet that challenge. We need access to what is not only the largest, but also the most advanced, defence market - so that we can remain in the front rank technologically. Canadians are understandably uncomfortable when the Americans insist that we do things "their way" in order to resolve a problem - whether it is the way our lumber industry pays for stumpage or the manner in which we each police export controls.
It is always preferable to chart a middle course - an honest compromise requiring political will and a readiness to give a little on both sides. That is the essence of every agreement we have with the U.S. from the FTA, to the Acid Rain Accord and the almost century-old Boundary Waters Treaty. Each is working very well and each represented, above all, the will to negotiate a mutually beneficial agreement.
Is there more that might be done to alleviate some of the barriers or at least give greater certainty to our export effort? I have already mentioned the adage - "if you can't beat them, join them" and that may be the ultimate route to success. But, since governments have a role in erecting and maintaining the policy and procedural barriers at the border, governments have a distinct, even determinant responsibility for solutions.
I learned from previous experience that managing relations with the U.S. can be a complex, tedious and often thankless chore for Canadians. When it works well, no one really notices. We take it as the by-product of being good neighbours, close allies, one another's best trade partner and so on. When it breaks down, the alarm bells ring... particularly in Canada.
Canadians usually want their government to get things right with the Americans even though a consensus on what is right can be difficult to define at any given moment.
In Washington, I can assure you that it is definitely easier to prevent or contain accidents in Congress or with the Administration than to repair them after the fact. That is even more valid as the axis of political power in America shifts southward and away from regions where Canadian interests and issues are better understood.
Agreements with the U.S. inevitably involve compromise and compromise is in fact the hallmark of diplomacy. But, because of the huge power imbalance and some deeper psychological factors, a compromise agreement by Canada with the U.S. risks being perceived here at home as a sellout or worse. It can also make our politicians wary of striking any deal with Americans. That reluctance may be understandable but it can also be counter-productive.
Benign neglect of Canada by the U.S. can be aggravating but it is not necessarily a bad thing because the "attention" foreign countries get in Washington is not always health inducing. Cuba, for instance, gets a lot of attention.
But benign neglect of the USA by Canada can be very damaging to our well being. Managing this complex relationship has to be a top priority for our government, whether they like it or not.
In trade and defence policy generally the most precarious position for any country, but particularly for Canada, is irrelevance. To be relevant you need to have access when and where it counts and access these days in the U.S.A. - whether for products or data or personalities - is neither automatic nor pre-ordained. You have to work at it systematically, deliberately and with a clear sense of purpose and priority. On the government front, Washington is a busy place with a crowded agenda and many players searching for access and influence. We need to be vigilant and persistent in protecting and advancing real Canadian interests and we also need to calibrate the main lines of our foreign and defence policy against those real interests.
That does not mean we have to agree with everything Washington does or says or do things exactly as the Americans do. On the contrary, one of the advantages of being a good neighbor and close ally is that we can speak freely and forthrightly to the Americans - provided we have a solid case and are seeking to influence their position and not simply capture a quick headline. And, never forget, it is always more effective to be frank in private. Otherwise your motive can be somewhat suspect.
Peter Jennings has observed accurately, in my view, that Americans exercise power because of what they are. Canadians exercise influence.
We can even choose to be peripheral with Washington. It takes a lot less effort. We can champion causes that are similarly peripheral to Canadian interests provided we are prepared to accept the consequences. The price can be irrelevance and one of the consequences can be that access for Canadian firms will be artfully circumscribed in many ways.
I believe that history demonstrates that we can harness our proximity to the U.S. to our advantage without compromising our identity or our right to disagree. We are best served by rules, agreements, and treaties which reflect genuine compromise and help temper the enormous power imbalance and by a sense of priority and political will, which reinforce the importance of this relationship. It may not be the stuff of Nobel prizes. It can be very frustrating. It does take time, focus and commitment and yes, leadership, but it is fundamental to our well being and is something we should never take for granted. Neglect is not a constructive option and it is hard to gain advantage at the centre of global power if you choose to emphasize policies and positions that place you on the periphery.
Those of us who depend heavily on access to the U.S. market for much of our export success have a direct stake in ensuring that our government maintains the highest priority possible and a coherent sense of priorities in managing this complex relationship.
Does Canada need to do more to preserve and enhance its access to the U.S. market? My answer is yes. This should be a consistent priority for any Canadian government and the prescription begins with prudent, high priority management of existing agreements from the top down.
One of the hard facts of the post Cold War period is that good bilateral relations, whether with Canada or any other country, are not as vital to the U.S. as they once were. This means that we have to work even harder and with more discipline to get attention when we have concerns and to develop positions and proposals which serve a mutual purpose. (It also means greater prudence with initiatives and pronouncements which are peripheral to our interests, yet somewhat allergic in Washington).
If one key objective for any government is to provide an infrastructure for economies to grow, suffice it to say that the Canada - U.S. border offers ample scope for honest work - for officials and politicians.
I suggest that we - Canada and the U.S.A. - have a mutual interest today in coping with problems involving illegal movements of people and goods into and between our countries. Instead of mutual finger pointing, these problems - and the organized crime associated with them - require a high level mutual response. That might help reduce some of the hassle at the border which currently affects legal transit of people and goods.
There is also scope for bold examination and analysis of new policy options for broader cooperation.
The recent election in Mexico may transform political and economic thinking on America's other border - a border which, for many reasons, generally commands higher attention in Washington than the one "up north". President-elect Fox seems determined to move beyond NAFTA towards what sounds very much like a Common Market - the precise dimension and timing of which remains to be articulated. It is an ambitious agenda, reflecting the courage of a newly elected, one-term President as well as the success Mexico is experiencing from the implementation of NAFTA.
It did not seem to arouse much enthusiasm here last month when President Fox visited Canada. But, later this year, there will be a change at the top in Washington and whatever new Administration emerges may well be looking for bold policy initiatives. Arguably, there may be no better time for a new North American partnership, inspired by the economic success of the past decade, and resolved to ensure more secure and more open access for legitimate Commerce across the board.
I do not know whether all the elements of a common market are desirable or attainable. I do believe there would be merit in an honest exploration of ways to remove fetters and frictions at the border (and probably more to be gained from such a policy initiative than yet another series of Team Canada missions!)
Would it not be ironic if Mexico moved ahead of Canada in this direction?
What was unthinkable for Mexico in the past is now being advocated by President-elect Fox. Remember too that Mexico has supplanted Japan as America's #2 trading partner and may soon give us a run for the #1 position. That alone is a compelling reason why we cannot be complacent:
