July 7, 2004 Idaho, United States The one thing I want to do is just to tell you a little bit about Canada’s relationship with Bill Bradley, something that I’m not sure he himself remembered. But one of the items I’m going to be referring to in my conversation this morning is the need for a dispute settlement mechanism in the North American Free Trade Agreement. It sounds very complex, but it just simply is... it’s a way of settling disputes that occur between our two countries, or between industries in our two countries. At the time that the agreement was negotiated under the administration of President Reagan, the dispute settlement mechanism was actually the make or break demand. And it looked like the demand was not going to be met -- it was going to go down the drain. One of the Canadian negotiators called Senator, the then-Senator Bradley, because the President had said: >look, if it can’t get through the Senate it’s not going to happen’, called the then-Senator Bradley and said: >look, the agreement is not going to happen unless you can tell us that the Senate Finance Committee is going to pass this.’ And he said: >well, look, give me the day.’ And that night, our understanding is that he called the President and said it’s going to pass. As a result of that we got it, the North American Free Trade, then the Free Trade Agreement, which has been of tremendous, tremendous benefit to our two countries. So I’m really glad to recognize Bill Bradley on that basis. I think, somebody told me that it’s called a 50-footer through the hoop when the final buzzer is about to sound. Now, it is my understanding that we’re to have a discussion this morning. It is my job to set the table for that discussion by focusing. I was asked to do so, on two of the highest priorities for our respective countries, that is to say our prosperity and our security. So I’ll break the speech up into those two components. The point that I would make really under both cases, is how just a very small shift in perspective could mean an enormous gain in both our prosperity and our relative security. Fundamentally, I think that Canada and the United States should see each other as more than simply important partners, more than simply friendly neighbours, but I really do think that it’s time that we understood our responsibilities as joint stewards of North America and those areas where, at least, our common interests intersect. For instance, I’ll give you a couple of examples. Underpinning the North American economy is an increasingly integrated infrastructure of which our common electricity grid is but one example. And we share a responsibility for maintaining what is, in fact, the continental backbone of our economy. That is to say the common electricity grid. And while each of us has to maintain independent decision-making, we have to do a better job between our two countries of maintaining our collective interest here, including the strength and weaknesses of this system. The best example I can give you, is, of course, last August when the lights went out from New York all the way to Ottawa. That was a management failure between the two countries. Simply not making sure that the system was up-to-date and making sure that it was properly monitored. It’s also, as somebody has said, one way of reversing our declining population, but I think it’s a very expensive way of doing it. The other issue, to give you an example, of ways in which I think that we have got to, I think, be much more sophisticated in our relationship is the fact that we are joint stewards of the environment. The various eco-systems of this continent transcend our borders. The Red River flows into Canada from the United States. The Columbia River flows into the United States from Canada and in both cases they are environmental challenges that we have got to deal with in a much more sophisticated way. Air currents carry particular matter in both directions across the border. We share in major fisheries. We share the Great Lakes, and we have even been known to ship garbage to each other. At least that’s what I’m told. The same comment about the need to do a better job on our common infrastructure applies to the way in which we deal with the environment. But we have to cooperate much more extensively than we have on water quality, on air quality and on the protection of migratory species, to simply give you a couple of examples. Now, the third example where I believe we must do a better job of managing our joint and North American responsibilities has to do with our trading relationships. And this one and security are the two that I’d like to spend a bit more time on. Let me begin with a few words of background on Canada. As many of you may know, and you certainly do now that you heard Bill, the Canadian economy is in very, very good shape. We tamed our budget deficit several years ago. We have now run surpluses -- you talked five -- we have now done it seven years. And furthermore, we intend to run surpluses every year for the foreseeable future. Our debt-to-GDP ratio -- which was the second highest not that long ago in the G7 -- is now the second lowest. And within five years it will be the lowest of any of the major industrial countries. In most cases, our corporate tax rates are lower than yours. Our inflation rates are low and stable. Our investment is strong. And we have posted the strongest growth in living standards of any of the G7 countries since 1995. You’re all aware, I’m sure, that Canada is the United States’ largest trading partner. For instance, Canada exports more to Home Depot, than we do to France. But many do not realize that Canada, in turn, is the United States’ biggest export market. In fact, we are the biggest export market for 37 of the 50 US States. And that, I think, is an important reason why, often, there is much more understanding of the Canadian trading relationship with governors than there is in Congress. What’s also striking is 40 per cent of Canadian-US trade is infra-firm, and that means it’s between units of the same company operating on the same side or on opposite sides of the border. Increasingly our companies, whether they are Canadian or American or indeed, even Mexican, are operating continent-wide supply chains and distribution systems. The same is true with investment. I think that most people know that the American investment in Canada is significant. Roughly 10 per cent of all US direct investment is in Canada. It is about $225 billion. But few know that Canadian companies, now this does include portfolio investment, but that Canadian companies own over $435 billion of assets in the United States. This generates about $168 billion in sales, employs close to 700,000 people. In sum, we have an immense share in each other’s prosperity. And it is in our mutual interest as countries to improve the efficiency of the North American economy. And herein lies the problem that I would like to put to you, and that is the lack of commitment, the lack of leadership to respecting the results of the NAFTA dispute settlements, once requisite decisions have been arrived at. Bill Bradley built well. The time has come for a new Senator Bradley to come forth in Congress to speak for the public interest and the North American economy. You cannot have, I mean, essentially, there has to be a way in which when there is a dispute between two countries that you can come to a final solution. And we thought that we had that. But as Bill Bradley has said, you are an extremely litigious society, and you seem to be able to find ways around what were supposed to be binding settlements. And I can tell you it is beginning to grind and it’s going to hurt the North American economy if we don’t deal with it. Let me put this in a broader context. The answer to outsourcing, the answer to the cheaper labour costs in places like China and India is not protectionism. It is greater competitiveness here in North America in those areas where we think we can be world leaders. And this means that we have got to make our continent more efficient, and that, in turn, requires a concerted effort on the part of all three North American countries to promote the freer movement of goods, services and capital within the NAFTA market. Now the key to this is to come up with a better dispute settlement mechanism. A better trade settlement mechanism to offset the inevitable protectionist pressures which arise when, in fact, an individual company suddenly finds its profits being gouged by a competitor outside of its borders. Essentially, the view in Canada is that at any point, when we get to a point where we really are beginning to have a substantial impact in the American market, we suddenly find ourselves facing trade disputes that essentially, obviously, have a huge inhibiting effect on investment and the ability to expand. And this should be of interest to you in the United States, in fact, businesses in all three countries, because it goes to the heart of whether or not we can have confidence in the benefits of an open North American market. I am going to give you a couple of examples of what I mean. They are not examples that necessarily apply to the high tech industries or to the media industries that you are here, but they are two issues that are now uppermost in Canadian minds. For years, we have had -- and they are very important, by the way, here in Idaho -- for years, we have had an integrated North American cattle market. Feed and live animals are being shipped, were being shipped, back and forth across our borders as if the borders did not exist. When BSE, or mad cow, was discovered in a Canadian cow, some chose to ignore the fact that in all probability, the feed that gave it the disease came from the United States and consequently, the border was closed. Now, the fact is this is an integrated North American industry, right from the feed manufacturers through to the processors and we have virtually identical science-based regulation to protect consumers and to protect the market. But what’s happening is special interests in the United States are blocking your government from a joint solution, and it’s very interesting. These are small cattle producers. Beef prices are at an all-time high because Canadian beef is no longer coming in and they are enjoying very high profits, and obviously, in a year in which there is a US election, there is huge pressure being brought to essentially keep that border closed. The problem is if this persists, decades of investment in an integrated industry will simply unwind. In the long run, it’s the US industry that is going to suffer, and let me just give you the reason why. What’s happened is the Canadian industry has grown tremendously. It has grown tremendously by exporting to the United States but with some exceptions. We did not build processing capacity. So all of a sudden, all this cattle comes into the United States, goes to US processors, and then goes out to the wider North American market. What Canada is going to have to do pretty soon if that market does not open is start to build massive processing capacity in Canada and then when the market opens, you’re going to have huge overcapacity in processing, a lot of it north of the border competing with you here. If the border does not open, then that processing capacity is going to go and start direct shipments to Japan and Korea, who are your major markets. In other words, the advantage of the North American market is that we have a rational system and when you begin to tamper with that market, what you then do is effectively hurt both of us. So it simply seems to me to be common sense and good public policy to adopt a continental perspective when dealing with BSE and the sooner the better. Now, the second example, which is also very, very much the stuff of headlines in Canada, has to do with softwood lumber. The Canadian industry has over many years invested in modernization and consolidation that makes us very efficient producers. We're probably the most efficient producers of lumber in the world, primarily because, not because of our wood supply because it takes so long to grow, but because we have got these incredibly efficient mills. We supply over one third of the US market. But a small group of US producers continues to use US trade law to prevent an integrated industry from functioning effectively, and needless to say, the effect on smaller Canadian communities is traumatic. But neither is the US exempt. It’s estimated that this trade dispute between our two countries is adding $4,000 to the cost of every single US home that is being built. So again, the only point that I make is that we have to come up with a solution that has agreed rules between us and a dispute settlement mechanism that cannot be overturned by special interests. The bottom line is that North American trade issues require North American solutions, solutions that respect the differences in our sovereign countries that also recognize the huge common interest and our profound interdependence as neighbours on this continent. There is no doubt in my mind that over the course of the next 20 to 30 years, as the European market finally begins to get its act together, and as China and as India come on, as the Asian common markets develop more and more, that the degree to which we are efficient in North America, is going to have an enormous amount to say on our standards of living. And it makes no sense, as far as I'm concerned, for us to be putting blockages in the way. Now, the last example that I would give you, where we should be constantly examining our common interests, extends beyond North America, and that is the security of our respective populations, which is being tested day by day by an array of threats that is simply unprecedented in our times. Rogue states, failing and failed states, international criminal syndicates, weapons proliferation and terrorists who are prepared to act with no concern for human lives, including their own. Once protected by our oceans, today's front lines stretch, as you know even better than I, from the streets of Kabul to the cities in the United States and from the streets of Madrid to cities in Canada. Our adversary could be operating in the mountains of Afghanistan and the cities of Europe but our adversary could easily exist right now within our borders. There’s no home front. The conflict is not over there, and that means that threats by land, by sea or air, can enter North America at any point and threaten us all. Now, in Canada, we are working in three related areas to deal with the physical, with our own security -- steps within our borders, measures we are implementing with the United States and then the global policies to build international security. And I understand that George Tenet is coming here. I think Bill, you told me, later this week, and I’m sure will be picking up on some of these points. Within Canada, we have just published our first national security policy, which details a number of the measures that we have taken since September 11th, which have been massive. Most countries have gone through a huge revolution since September 11, in intelligence, in transportation, in public health, in emergency planning. We are improving coordination among the different departments of government. It is interesting that the United States has obviously had huge problems. So have we. Almost every country had a series of different security agencies, none of whom had it seemed to ever occurred that they should talk to each other, and so essentially what one of the major revolutions that have occurred is simply getting them compatible, with compatible systems, the ability to exchange information. We have done that. We are also establishing a much greater coordination between the different levels of government in Canada because as a federal state, quite clearly the need to do that extends beyond the federal government. With the United States, we're working closely with Tom Ridge to keep our border open to legitimate commerce and travel while at the same time, remaining secure. We have developed a major action plan between our two countries to make the border impermeable to those who would threaten us and yet open in terms of trade. And essentially what we want to do, and we have talked to the Governor about this, is we would like to take what has now become the Canadian-American plan, which is now working very, very well, and we want to extend it as far as we possibly can. Then we would like to take that plan, extend it to Mexico and then take it beyond that to the rest of the world. Because what we think we have got is the basis of the way in which trading nations, because that’s where the real threat lies in terms of ships coming in, containers, cargo planes coming in, which trading nations can assure their mutual security. We want to take it into biosecurity, food safety and marine security. The next area that we want to work with you on much more than we have is the defence of North America. Some of you may know we have shared responsibility with the United States in the NORAD agreement, which is essentially the shared responsibility for airspace. We believe that this is now extended to land and to sea, and thus, we have established the Bi-National Defence Planning Group with you to consider possible next steps towards joint command arrangements, for marine security and for joint military assistance to civil authorities in times of emergency. Some of you may know that on September 11th, in fact, most of the planes that were in North America then landed, landed within Canadian airspace at Canadian airports. That kind of cooperation became absolutely essential going forward. Finally, while effective defence is critical to security, it’s not the whole story. If we are really going to protect Canada and the United States over the long-term, we are going to have to come to grips with the world's insecurity, and here too, we believe that our common experience in North America will serve us well. The motives of terrorist leaders are complex. There’s no one set of causes that we can point to as the reason for their ruthlessness and their hatred of the West. But we do know that their appeal is often strongest in countries that are unable or unwilling to provide the most basic needs. These are normally identified as health care, education, food and shelter. But there is another, and another that I believe is becoming more and more problematic in the light of the unfolding of the world and that is the need for political participation of citizens in these states in the affairs of their country. In short, just as companies have to improve their governance, so do countries. Better governance within fragile, failing or failed states means building effective public institutions. It is true that fragile states often require military intervention to restore stability. You in the United States know this well and so does Canada. Foreign aid is also crucial. But in both cases, the benefits are clearly circumscribed when functional and accountable public institutions are not in place. We saw this in Haiti. Almost 10 years ago Canada, the United States and some other countries intervened to help restore the then-democratically elected president back into office who had been overthrown in a coup. We sent in troops, we poured in all kinds of aid and we made solid commitments to stay the course. The problem was that we left before the institutional structures were put in place, and the institutional structures that were required if Haiti was to have any chance of standing on its own two feet. The country needed functioning government ministries, a system of laws, honest policing and independent courts. It needed most of all the rule of law and the accountability of a political system. The problem is that none of us, neither the States nor Canada nor France, though all of us were involved, stayed long enough nor did we make the time and the effort that was required to build these institutions. So 10 years later, here we are, back with the same problem and the same mess, but this time, we have got to stay until the job is done properly. In short, the common thread to the successful rehabilitation of a failing state is the same as that which brought about the stability of a successful state. It is public institutions that work. There are 183 nations that are part of the IMF. There are close to 50 which are deemed to be failed or failing. This is an enormous international effort that is required and it is one, to be quite honest, which I don’t think that we, as nations, have begun to face up to. The other condition which is, I think, very important if failing or failed states are going to turn around or in fact if any poor country is going to turn around, is the presence of a vibrant private sector. Last year, the former Mexican President Ernesto Zedillo and I co-chaired a United Nations commission on private sector and development, which Carly Fiorina was on. In fact, the example -- you may have seen the example that she gave in India -- is a classic example of the kind of thing that we in our commission said should be done. The report recommends a number of issues, but running through our thinking were two clear messages. First, although foreign investment is required, certainly in the early stages, an economy will not fly until and unless domestic investment and domestic demand becomes the driver. Second, the sine qua non of domestic investment is the same as it is for foreign investment and that is confidence in the structures of public institutions, private property rights, the rule of law that ensures stability and freedom from corruption. It is estimated that the property held by the poorest of the poor in the world exceeds by a factor by 200 to 1 all the foreign aid that can be provided. The problem is that nobody has property rights. Some of you may have heard of the (inaudible) economist Hernando De Soto. What Hernando De Soto has essentially said is if you could give property rights to the people living in the (inaudible) to their property so that they could mortgage it. In fact, what you would be getting, you’d get the beginnings of an entrepreneurial society. These are the kinds of changes which we believe that we’re going to have to bring in. There’s another something that flowed from it which is really very interesting -- the introduction of high tech into poor rural areas. One of the things that we found in our commission is that there is rampant corruption. I think we all understand that, in many of these countries, certainly in rural India. The introduction of high tech eliminates all of those middle men who in fact have got their hand out, so that a farmer in one of those areas wants to get their land, wants to get the title deeds to their property, they can now do it by computer and all of those middle men who in fact were charging them on the way through for that are cut out. A rural farmer now using, probably, HP’s technology can now get daily quotes from the Chicago market for their product and this is having a huge change on the way in which these countries operate. And I have got to say that I think that Canada and the United States, if indeed we're going to deal with the changes in the institutional structures that these countries need, we have got to be far more present and far, far more active. Then the last area that I would deal with, in terms of international governance, is the need to improve the way in which our huge international institutions operate. There are many examples of this. The best known, of course, is the current attempt, not going very well, to reform the United Nations, but I think we now can begin to see some signs of optimism. But there are other examples where reforms are needed. Most of our countries look upon our health care systems as silos within which we all operate. The fact is that when you look at things like avian flu or SARS or any of the infectious diseases that are now running rampant. Of course, no country can operate within a silo. If you can get SARS on a Monday morning in some rural village in Asia and then get on a plane on Tuesday, then you have got a pandemic in New York or in Toronto on Thursday. We no longer can allow the health care systems of the rest of the world not to be the same level as our health care standards if indeed we’re going to protect the security of our own population. And so there are a number of areas which we think we can, there are areas in which we can operate. For instance, Canada has just become the first country to pass legislation allowing for the export of low-cost, generic drugs in terms of dealing with AIDS and malaria in Africa. This is the kind of thing that I believe, again, as countries, we’re going to have to come to grips with. In other words, we can no longer operate within the kinds of silos within which we have all operated and still think that we can protect the security of our people. Clearly, we need multilateral approaches in institutions that work but our reform efforts are constantly being bogged down by bureaucratic lethargy and essentially, by international leadership that is failing. It is within that context that I’d like to simply put a suggestion to you, one that Bill Bradley again referred to in his introduction. The main limitation of the G8 is that it’s mainly a rich country’s club. The main limitation of comparable groupings of developing countries, such as the group of 77 poor countries, is just that. They exclude the main drivers of the international economy. The main drawback of the huge multilateral organizations where you bring all of the rich and the poor together is just that, and that is that everybody is there and the leaders do nothing else except read set speeches and there is no dialogue, no conversation, no clash of ideas. So what’s the solution? Well, we think it might be a leaders’ G20. That is to say 20 major nations, along the lines of the G8, except extended, extended to 20, along the lines again of the group of G20 Finance Ministers that was established at the time of the Asian crisis. Let me just give you the background. What happened, this was the time when Bob Rubin and Larry Summers were representing Treasury, and we as Finance Ministers suddenly found ourselves with, you may remember, there was the Malaysian default, the Indonesian default, the Russian default, the Brazilian default and essentially, we felt, and the Mexican, a revival of the Mexican peso crisis, the answer was pretty clear. It was transparency in financial statements. It was far more openness and it was much better banking regulations. So we thought we had the answer and to the greater glory of the G7 Finance Ministers, we simply told these countries this is exactly what they had to do and they told us where we had to go, because they had no part of the solution. They simply said, “We’re not going to listen to you. You come up with a solution for us. We want to be at the table when that is being debated.” So what we did is we formed the G20 Finance Ministers, and essentially, that, and along with some quite astute monetary policy coming out of Allan Greenspan, essentially brought the Asian financial crisis to an end and has now given us a much stronger financial system in terms of the kinds of regulations which are required. It is our belief that what we need to do is to reconstitute the G20 at the leaders level, and that is to say bring together the regional powers representing the different regions, South Africa and Nigeria, as an example from Africa, the United States, Canada and Mexico, Brazil from this hemisphere, the G8, Turkey, countries such as this. Countries who are able to speak for their regions so that, in fact, on a smaller basis, the leadership are able to make the leap of faith which is required to deal with these kinds of problems. Essentially what happens at an international meeting is that bureaucratic papers are provided to you. You go there and you basically operate within a very narrow set of limits and you’ve got to break out of those limits. The only way in which you’re going to do it is if leadership, who can take the responsibility for any decision that has to be made, is able to do it. What we’re suggesting is that this worked well at the Finance Ministers level and it ought to work well at the leaders’ level. Now, I have had the opportunity to discuss this with President Bush and he has shown interest. I have had the opportunity of discussing it with the Prime Minister of Great Britain, with the Prime Minister of China, Presidents of Russia, Brazil, Mexico, all of whom have shown considerable interest, and the reason that I raise it here is that it seems to me that if the American business community, in addition to dealing with the dispute settlement mechanism, which I’d like you to do as soon as you leave this room, were able to get behind the idea that the major emerging markets and the major developing countries have got to come together to begin to provide some of the solutions to which the world requires, if in fact we’re going to make further progress, then I believe that there would be sufficient momentum to see the idea take off. The point is simply to get it started, to get it going, to develop the habits of a pragmatic north-south kind of cooperation that is so essential if the future of the world is to be as brilliant as some of us hope and expect that is can be. Well, that’s it. I began with the need to strengthen the stewardship of North America, and I end with the need to strengthen the stewardship globally. Just as when we talk about North American prosperity and security, we point to the need for greater flexibility, newer approaches, if we’re going to advance the yardsticks, I think that when we talk of global prosperity and security, we have to do the same. There is not a single great blueprint here, but there is a growing consensus on the need for greater flexibility and new approaches internationally that reinforce each other. All of this is part of the increasing connection between human rights and rule of law on the one hand, and entrepreneurship on the other, between education and women’s rights -- again flowing from the example that Carly Fiorina gave you this morning -- between political stability and public institutions, between security for the individual, and security for the state. None of us in North America is going to be secure in a world when virtually one-third of the countries out there are failed or failing. Making these connections is how we developed our own countries. It’ll work for other countries in the international system as well. The same reasoning, I must say, and on this I will close, applies in this room. We have achieved great things in our countries, the United States and Canada, because of the cooperation between the public sector and the private sector. We harnessed the energies. We saw solved some of the greatest challenges we’ve ever seen. We’re living through a period of tremendous transformation. And we, government and the private sector, need to work together wherever possible to promote the common good around the world. And obviously, the best way, we begin at home, but it’s got to be extended. When I look at the tremendous talent and experience represented by the people in this room, it is impossible not to feel a great surge of confidence that we can get there. And on that basis, I turn it over to you, but I thank you very much for giving me this opportunity.
