The Dragon at the Door - The future of Canada-China relations Also INSIDE: Macdonald-Laurier ...
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OCTOBER 2017
The Dragon
at the Door
The future of Canada-China relations
Also INSIDE :
NAFTA Canada’s struggling National security Kurdish
negotiations economy and justice reform independence 1
Published by the Macdonald-Laurier Institute
Published by
Brian
Brian Lee the Macdonald-Laurier
Lee Crowley,
Crowley, Managing
Managing Director
Director, Institute
mgdir@mli.ca
James Anderson,
David Watson, Managing Managing
Editor andEditor, Inside PolicyDirector
Communications
Brian Lee Crowley, Managing Director, mgdir@mli.ca
David
James McDonough,
Anderson, ManagingDeputy EditorPolicy
Editor, Inside
Contributing writers:
Contributing writers:
Thomas S. Axworthy Past contributors
Andrew Griffith Benjamin Perrin
Thomas S. Axworthy Andrew Griffith Benjamin Perrin
Thomas S. Axworthy
Donald Barry Philip Cross Stanley H. HarttCarin Holroyd Peggy Nash
Mike Priaro
Mary-Jane BennettDonald Barry Laura Dawson Dean Karalekas
Stanley H. Hartt Linda Nazareth
Mike Priaro
Ken
Carolyn Bennett Coates Jeremy Depow Paul Kennedy Paul Kennedy Colin Robertson
Geoff Norquay
Ken Coates Peter DeVries Paul Kennedy Colin Robertson
Massimo Bergamini Tasha Kheiriddin Benjamin Perrin
Brian Lee Crowley Brian Dijkema Audrey Laporte Roger Robinson
Ken BoessenkoolBrian Lee Crowley Jeremy Kinsman
Audrey Laporte Jeffrey Phillips
Roger Robinson
Don Drummond
Scott BrisonCarlo Dade Ian Lee Steven Langdon Robin V.Mike
SearsPriaro
Carlo Dade John Duffy Ian Lee Robin V. Sears
Derek Burney Audrey Laporte Richard Remillard
Catherine Cano
Laura Dawson Patrice Dutil Janice MacKinnon Brad Lavigne Munir Robin V. Sears
Sheikh
Laura Dawson Janice MacKinnon Munir Sheikh
Elaine Carsley Martha Hall Findlay Ian Lee Munir Sheikh
Guy Giorno Tom Flanagan Linda
Giorno
Guy Linda Nazareth
Nazareth AlexAlex Wilner
Wilner
Michael Chong Meredith MacDonald John Thompson
Dan Ciuriak Stephen GreeneChrystia Freeland Geoff Norquay Janice MacKinnon Gil Troy
Stephen Greene Geoff Norquay
Scott Clark Daniel Gagnier Velma McColl Michael Watts
Ken Coates Guy Giorno Ted Menzies Alex Wilner
Past contributors: Mary-Jane Bennett, Carolyn Bennett, Massimo Bergamini, Ken Boessenkool, Brian Bohunicky, Scott Brison,
Stephen Greene
Past contributors: Mary-Jane Bennett, Carolyn Bennett, Massimo Bergamini,
Celine Cooper Ken Boessenkool, Brian Bohunicky, Scott Brison,
Robert P. Murphy
Derek Burney, Catherine Cano, Dan Ciuriak, Scott Clark, Philip Cross, Celine Cooper, Peter DeVries, Don Drummond, John Duffy,
Derek Burney, Catherine Cano, Dan Ciuriak, Scott Clark, Philip Cross, Celine Cooper, Peter DeVries, Don Drummond, John Duffy,
Patrice Dutil, Joseph Fantino, Daniel Gagnier, Brad Lavigne, Tasha Kheiriddin, Jeremy Kinsman, Steven Langdon, Velma McColl,
Patrice Dutil, Joseph Fantino, Daniel Gagnier, BradCover
Lavigne, Tasha
photo: Kheiriddin,
Redd Angelo Jeremy Kinsman, Steven Langdon, Velma McColl,
Ted Menzies, Robert P. Murphy, Peggy Nash, Gil Troy, Michael Watts.
Ted Menzies, Robert P. Murphy,
Production Peggy Renée
designer: Nash, Depocas
Gil Troy, Michael Watts.
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its Directors views presented here.
Supporters.
The contributors to this publication have worked independently and are solely responsible for the views presented here.
The opinions are not necessarily those of the Macdonald-Laurier Institute, its Directors or Supporters.
The opinions are not necessarily those of the Macdonald-Laurier Institute, its Directors or supporters.
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From the editors Contents
T he Canada-China relationship remains a contentious subject in this
country. In the eyes of some, the government remains overly keen
to engage economically with Beijing, while China’s intentions remain
4 Skip the NAFTA blow-by-blow
Stanley H. Hartt
7 Assessing the Trudeau government’s promise of
opaque and some of its behaviour troubling. “real change”
We are happy to introduce our Dragon at the Door project, with articles Sean Speer
from leading experts exploring some of the distressing realities of 21st century 10 Criminal justice system struggling to adapt to social media
China. As Shuv Majumdar notes in his introductory essay, Canadians need Benjamin Perrin
to recognize that much of what they hear about China “occupies a narrow
11 New national security bill gets a lot of things right
space between calculated dishonesty and aggressive deception.” Scott Newark
A good case in point can be found in the government’s recent
Defence Policy Review statement. As Eric Lerhe notes, that document
12 Don’t be fooled, Canada is struggling economically
Philip Cross
has surprisingly little to say about the potential military threat of China
in the Indo-Pacific. One needs to only look at how China has approached 13 The high cost of trade barriers between provinces
India in recent years, as revealed by Harsh Pant, also in this issue. Brian Lee Crowley
The dangers posed by China are not only overseas. One can see 14 US “get-tough” agenda threatens to derail
China’s strategy at work in the behaviour of Chinese state-owned NAFTA negotiations
enterprises and how it approaches free-trade deals, issues explored by Laura Dawson
Duanjie Chen and Charles Burton. As a complement to the series, 15 How the Canadian government bungled the idea of “tax
Hugh Stephens says that Canada must trade with China but will need fairness”
to work to protect Canadian intellectual property. Sean Speer
The government also contends with a number of other global issues 16 Canada’s “do nothing” policy on North Korea
– from what to do with the North Korean threat, explored further by Jim James Fergusson
Fergusson, to what Shuv Majumdar has called the “long-delayed dream 17 The West should support Kurdish desire for independence
of a free Kurdish state.” National security and justice reform are also on Shuvaloy Majumdar
the agenda, with Scott Newark exploring the content behind Bill C-59
18 Abstinence-only policy on tobacco should
and Ben Perrin looking at the need to deal with social media crimes. give way to real harm reduction
Yet, perhaps dwarfing all these current issues, is the renegotia- Brian Lee Crowley
tion of NAFTA. Stanley Hartt, who was involved in negotiating the
19 A sly turn by Ottawa endangers Indigenous relations
Canada-US FTA advises the government against the public blow-by-
Dwight Newman
blow we’ve been getting so far. And the challenges facing the negotia-
tions are explored in more detail by Laura Dawson. 20 China: The Dragon at the Door
Shuvaloy Majumdar
Almost two years into its mandate, it seems a good time to assess
the government’s promise of “real change.” Yet, as noted by Sean 22 Why is Canada giving China a free pass?
Speer, its overall record has been generally underwhelming. Despite Eric Lerhe
recent reports on Canada’s “hot” economy, Philip Cross argues 25 Engaging China poses potential risk to Canada’s
that the country is still struggling economically. And, as Brian Lee national security
Crowley points out, the continuing high cost associated with trade Charles Burton
barriers between provinces has not helped this economic situation. 27 How China’s state-owned enterprises are
Even on Indigenous affairs, notes Dwight Newman, the government disrupting free markets
has made important missteps when it comes to its commitment to the Duanjie Chen
UN Declaration on the Rights of Indigenous Peoples. 29 Turbulence in Sino-Indian Relations
The government’s approach on tax fairness has been more ideologi- Harsh Pant
cal than effective, as pointed out by Speer. Equally ideological has been
30 Negotiating a Canada-China trade agreement:
its approach to legislating tobacco use, as noted by Crowley. Policy What about IP?
makers have tended to prioritize abstinence over real harm reduction. Hugh Stephens
INSIDE POLICY • The Magazine of The Macdonald-Laurier Institute 3
N AF TA
Renée Depocas
Skip the NAFTA blow-by-blow
Negotiators of the original Canada-US FTA knew that constant well-publicized announcements
are not the way to go. They’d also have other tips for today’s NAFTA talks.
Stanley H. Hartt invites the need to comment about participants, but not every concession to
“progress.” But negotiations don’t work that gain a desired advantage is popular with
F or those of us who participated in the
negotiations of the original Canada-
US Free Trade Agreement (FTA), the
way; they don’t advance by small increments
until a perceptible “whole” emerges; tiny,
unimportant issues can be resolved and put
every constituency back home. Speculation
about such things won’t help earn negotia-
tors the support of those affected.
serial public announcements telling us that in the bin for signed-off and agreed clauses, And that is true even when all parties are
negotiators would be meeting for various but all of the important provisions will in fact trying their best to achieve a common
of the planned seven rounds of North be discussed and debated, and consensus goal. One never knows with President
American Free Trade Agreement (NAFTA) withheld until each side gets the most of Trump, who has vigorously promised to
talks have been jarring. The whole concept what it expects or hopes to achieve. tear up the document and the relationship
of negotiating in public is inimical to the Thus, the agreement is done when it is in pursuit of a better deal for the US. But it
kind of horse trading that has to go on done and watching it in its stages of gestation is a certainty that selective “announcements”
between countries whose interests diverge, is even less useful than waiting for a pot of about the subject matters to be discussed
however friendly and united they may be in water to boil. In this case, it may actually in the first, second, third or what-have-you
their common objective of modernizing the prevent it from ever achieving that state. The round, together with speculation about the
23-year old treaty. reason for this is simple: the issues between demands of one side or the other, is the
Setting up the news media by the three amigos can be quite contentious. antithesis of how to ensure public endorse-
pre-arranged appointments to “negotiate” Yes, a good deal needs to be good for all ment for the process or the end product.
4 INSIDE POLICY • The Magazine of The Macdonald-Laurier Institute
During the FTA process, by contrast, or breakdown sound bites from what is to step up to the plate in order to enjoy the
numerous groups of industry and subject essentially a snail-like process of groping investment in plant and equipment it has
matter experts beavered away in total and towards a sensitive combination of benefitted from otherwise by maintaining a
utter discretion about vastly contentious concessions and compromises. low wage economy and third world environ-
issues with no thought whatsoever about • Read Understanding Trump, Newt mental standards. The incentives would have
feeding the media machine with regular Gingrich’s new book about how to deal with to be realistic and could be set up to increase
updates. Intensive consultations were the President’s special personality. Take away over time, so as to ease Mexico into a more
carried on with a very large variety of the lesson that confronting “The Donald” level competitive playing field. Opportunity
interested parties, from industry associa- nose to nose is a bad strategy. He loves for Mexico, modest victory for Trump, and
tions, to consumer groups and trade experts (needs) victories that he can claim are his potential benefit for Canada.
to estimate the impact of this or that idea. Help him appear to keep promises. • On the US demand that we rid
potential outcome, but absolutely outside • So, for example, if the US is ourselves of our dairy, poultry, turkey and
the glare of regular publicity. demanding that a greater proportion of the egg marketing boards by 2027, and that
In fact, back then, the only memorable content of autos and auto parts originate in we massively increase quotas for imports
departure from this sensible practice of North America and that an unsustainable on those products from the US in the
remaining under the radar was the entirely
stage-managed walk-out of Canadian
negotiators. Simon Reisman, our hard-nosed ...watching it in its stages of gestation
and time-tested chief FTA negotiator,
recommended the move when he sensed is even less useful than waiting
that Peter Murphy, the chief negotiator for for a pot of water to boil.
the Office of the US Trade Representative,
was not treating the remaining unresolved
matters with the urgency that was required proportion of these are from the United meantime, remember that we faced a
if we were to meet the deadline mandated States itself, prepare a small victory for the similar starting position in the Trans-Pacific
by the fast-track authority Congress had President by starting from the proportions Partnership (TPP) where we managed to
given to President Reagan. Simon, who satisfying the current Rules of Origin persuade our 13 partners that the expecta-
had famously once stubbed his cigar out requirements and enhance slightly the tions needed to remain within the Earth’s
on the desk of US Treasury Secretary John North American requirement, but make no gravitational pull. We ended up with a quite
Connally (the desk had originally belonged concession as to US content. acceptable concession of 3.25 percent of
to Alexander Hamilton), knew that we • Then, make it a condition that to be market share.
needed to generate some political will eligible to be counted in this newly available • Rather than respond with phrases like
behind the FTA or it would not get done. It potential space, the country of actual origin “outrageous” and “non-starter,” we should
worked. Then Vice-President George H.W. would have to meet certain criteria under be quietly assessing the benefits to Canadian
Bush was dispatched to Ottawa to assure the two supplements to NAFTA, originally consumers if a combination of enhanced
Prime Minister Brian Mulroney that the US added at the insistence of President Clinton foreign imports available in our country
would do whatever was necessary to finish as a condition of proceeding with ratification and reciprocal dismantling of price support
the job. A new team was assembled on each of the treaty negotiated under his predecessor, measures practiced by the Americans were
side, Canada’s led by the Prime Minister’s Bush 43, the North American Agreement on to be simultaneously applied. It is clear that
Office Chief of Staff Derek Burney and the Environmental Cooperation (NAAEC) and the immediate disappearance of our supply
Americans’ by Treasury Secretary Jim Baker. the North American Agreement on Labor management regimes would be a very
The rest is history. Cooperation (NAALC). difficult political sell, but remember that the
So what would Simon do in the current • This would have two effects: One, it Australians accomplished exactly such a goal
atmosphere? Here is what I believe Simon would give our current Liberal government by purchasing the quotas of dairy farmers at
would say: the ability to say that two of its priorities had fair market value. This might be impossible
• Stop negotiating in public. Stay in been given greater standing by becoming to achieve in one fell swoop given the size
continuous session and don’t lure the press incentives instead of nice-to-haves. Second, of the cheque that would be required. But
into expecting newsworthy breakthrough it would ensure that Mexico actually had adjustment measures to ease the burden
INSIDE POLICY • The Magazine of The Macdonald-Laurier Institute 5
on affected industries should always be and the Chapter 19 panels have proven
N A F T A included in our calculus of whether to their worth indescribably, which is why
F AST FA C T S offer some more modest mechanism
to increase US access while preserving
the Trump trade representative is trying
so hard to eliminate them. Not to put too
and even enhancing the efficiency of fine a point on it, the record shows that,
our industry and the profitability for its as early as 1991, the US administration
participants. had succumbed to political pressure
January 1, 1994
Date NAFTA came into effect
Think of how the wine industry
flourished after the FTA and NAFTA.
member states
• Think of how the wine industry where, in order to “encourage” three
Canada Mexico United States
flourished after the FTA and NAFTA Senate votes in favour of extending fast
and how the grain industry adapted track negotiating authority, it had agreed
to the abolition of the Canada Wheat to request an Extraordinary Challenge
Board. Above all, get something huge in Committee (a review on alleged errors
exchange for any significant concession of law and the only form of “appeal”
less than 7% on this issue, say the preservation of the from otherwise binding Chapter 19
of the world’s population or, existing regime in Chapter 19 (Dispute bi-national panels) where three retired
Resolution), on which more below. justices (two Canadian, one American)
450 million+ people
• Free Trade is meant to be free unanimously ultimately rejected the
trade, so accommodation on actually proposed countervailing duties on
enhancing the competitive access for Canadian pork.
our partners in industries like the ones • This highly-politicized interpreta-
$20.7 trillion* referred to above needs to be exchanged
for the abandonment of proposals that
tion of American law is precisely what the
panels were created to protect against and
combined GDP for Canada, actually are not free trade. Canada should insist on retaining (and
the US and Mexico (2015) • Canada should expect the even be willing to trade for, as long as the
Americans to bend on US proposals for price is freer access to markets in all three
“Buy American” protectionism for public countries, including ours).
28% works projects; a proposed sunset clause,
of the world’s gross domestic which can be used to bully partners into Stanley Herbert Hartt, OC, QC is a lawyer, lecturer,
product (GDP) generated fearful concessions if some future US businessman, and civil servant. He currently serves
by NAFTA partners (2015) Chief Executive threatens to pull the as counsel at Norton Rose Fulbright Canada.
rug out from under the entire relation- Previously Mr. Hartt was chairman of Macquarie
ship; and, above all, the demand that US Capital Markets Canada Ltd. Before this he
Courts be the place where US adherence practised law as a partner for 20 years at a leading
1 in 5 to its own trade laws be tested, rather than
the independent international dispute
Canadian business law firm and was chairman
of Citigroup Global Markets Canada and its
jobs in Canada in part linked settlement panels. The price should be predecessor Salomon Smith Barney Canada. Mr.
to international trade
our willingness to actually increase the Hartt also served as chairman, president and CEO
* in US dollars “F” and the “T” in NAFTA. of Campeau Corporation, deputy minister at the
international.gc.ca ; trade.gov; naftanow.org
• The natural protectionist instinct Department of Finance and, in the late 1980s, as
in America will never entirely dissipate chief of staff in the Office of the Prime Minister.
6 INSIDE POLICY • The Magazine of The Macdonald-Laurier Institute
T R U D EAU GO V ERN M EN T
iStock
Justin Trudeau on the campaign trail in Halifax, NS in 2015.
Assessing the Trudeau government’s
promise of “real change”
Taking stock after two years: some real accomplishments, but much left to do.
Sean Speer evidence – including positive economic Mandate for Change
growth and low unemployment on one The Liberal Party won election in October
T he Trudeau government has recently
reached the mid-point of its four-year
mandate. It seems like only yesterday that
hand, and stagnant business investment and
declining manufactured exports on other
hand – to form divergent answers to these
2015 with an ambitious message of “real
change,” including with regards to middle-
class opportunity, Indigenous empower-
the Liberals went from third-party status questions. Political verdicts are invariably in ment, refugee settlement, climate action,
to majority government and were sworn the eyes of the partisan beholder. health-care reform, pension modernization,
in to enact their “real change” agenda. This short essay does not aim to and so on. Its ambition was a virtue rather
Much has happened since those initial provide a definitive answer. But it does than a vice. Canadians seemed drawn to
days. Some expected. Some unexpected. seek to test the government against its Mr. Trudeau’s activist predisposition and
It’s a reminder that statecraft is in large own stated objectives and the attendant his positive vision. But it was clear that the
part controlled by exogenous forces and policy recommendations that the real question was whether the newly-elected
a four-year mandate can go by in a flash. Macdonald-Laurier Institute (MLI) put government could translate its impulses and
Lofty rhetoric and good intentions will out in its Mandate for Change series in the predispositions into concrete policies root-
only get a government so far. Ultimate government’s first 100 days. The outcome ed in evidence. A mandate is one step. A
judgments rest on its record and results in is a mixed bag. There has been some governing plan is another.
an uncertain and evolving world. positive progress, some disappointments, MLI’s essay series, Mandate for Change,
How is the Trudeau government doing and plenty of outstanding questions. The sought to help in this transition. The series
on this score? Has it delivered “real change”? overall picture is generally underwhelming. took as its starting point the Liberal Party’s
These types of mid-term assessments tend Rhetoric and signalling has thus far mostly objectives in key areas. We then drew on
to fall along partisan lines. There’s ample trumped positive action. the ideas and analysis of leading public
INSIDE POLICY • The Magazine of The Macdonald-Laurier Institute 7
policy thinkers including MLI Munk • A significant expansion of the and Canada Caregiver Credit are good
Senior Fellow Ken Coates, Canada Institute Working Income Tax Benefit to reduce work steps in simplifying the previous mix of
director Laura Dawson (also a Munk disincentives for low-income Canadians; child-care and caregiving-related policies
Senior Fellow), and infrastructure policy • Revisiting the government’s plan to and ensure that public resources are
expert Brian Flemming. The goal was to fully adopt the United Nations Declaration dedicated to those who need them most.
put forward clear, concrete recommenda- on the Rights of Indigenous Peoples and Yet this should not overshadow areas of
tions that would make incremental progress instead focusing on building on the current considerable disappointment as well. The
in Ottawa’s key priorities. There were legal framework to bolster Aboriginal timidity of the government’s tax reform
ultimately 14 essays, 12 authors, and more opportunity; and exercise represents a missed opportunity
than 50 recommendations to deliver on a • Maintaining the previous govern- that has only caused political conflict. An
growing economy, rising living standards, ment’s changes to the Canada Health ongoing flippancy about deficit spending
a greener environment, and a new defence Transfer and calling for “structural reform” and debt accumulation is also a major
and security agenda. to improve the Canadian health-care system. cause for concern.
Generally, the recommendations were These examples represented progress Then there is the matter of outstand-
received in the positive spirit in which they on the government’s overarching goals. ing or unfulfilled promises. Sometimes
were conceived. This was not about relitigat- But, there has been little movement on these so-called “flip flops” or cases of
ing the government’s mandate or priorities. a number of MLI recommendations. inaction should be lauded, to the extent
It was about developing a set of policies that The majority of them in fact remain that they reflect a sensible departure
would increase the chances Ottawa would incomplete and still relevant. The issues from wrong-headed campaign promises.
succeed in meeting its objectives. MLI authors on the government’s desk continue to Electoral reform is a good example.
were subsequently invited to parliamentary grow as well, in light of new and emerging Implementing the UN Declaration on the
hearings, public roundtables with Ministers challenges such as the NAFTA renegotia- Rights of Indigenous Peoples is another. We
and MPs, and private meetings with public tions, instability in the Korean peninsula, should praise cases where the government
servants and political staff. and growing numbers of asylum seekers. has rightly changed its mind in light of
The 2016 and 2017 budgets, the MLI has sought to keep up. There have compelling evidence. Lamenting it as
new Fall Economic Statement, and other been several subsequent recommenda- infidelity to past pronouncements only
government policy announcements saw tions in MLI studies including with encourages bad policy outcomes.
some of our recommendations translated
into action, including:
• Focusing on asset management plans Canadians seemed drawn to
at the local level to help ensure that public
infrastructure spending is rational and
Mr. Trudeau’s activist predisposition
productive; and his positive vision.
• Restoring Parliament’s responsibility
for approving government borrowing to regards to tax reform, foreign policy, Yet there is a growing sense that
improve the functioning of our democracy; Cancon rules, the innovation file, an high-level principles and directional
• New resources for basic infrastruc- opportunities agenda (including for statements are wearing thin in certain areas,
ture and early childhood learning in Indigenous peoples), and so on. It’s a particularly Indigenous policy. The expecta-
Indigenous communities to support target-rich environment, as we like to say tions game was always going to be a challenge
Aboriginal opportunity; at our Chapel Street offices. for this government. But it has made things
• Increasing Old Age Security/ worse by a tendency to emphasize style over
Guaranteed Income Supplement as a Real Change versus Mandate substance. The result is a growing number of
targeted policy to help low-income seniors – for Change media stories about frustration and disillu-
particularly widows – cover their living costs. How has the government performed in sionment with Ottawa’s inaction on key
• Placing an emphasis on private such an environment? files. It’s a reminder that the transition from
sponsorship in its refugee settlement policy; There have been some positive develop- an electoral mandate to a governing plan,
• An expansion of benefits for families ments. For example, the new consolidated with real-world trade-offs and exogenous
to defray the costs of raising children; and now indexed Canada Child Benefit forces, is a challenge.
8 INSIDE POLICY • The Magazine of The Macdonald-Laurier Institute
The good news is that the government (Chart 1)
still has two years left to make progress.
Year-over-year change in federal program expenses –
It ought to use the fall session to begin to
2016-17 to 2022-23 ($ billions)
move forward on several fronts. A recent
announcement on cultural policy is a
good start. Similar ambition is needed in
other areas if the Trudeau government is to
deliver on its vision of “real change.” $400.0 8.0%
$350.0 7.0%
Next Steps
The ongoing focus will likely be on (1) $300.0 6.0%
tax and fiscal policy, (2) climate change, $250.0 5.0%
(3) the Indigenous file, and (4) Canada- 4.0%
$200.0
US relations, with a particular focus on
$150.0 3.0%
the NAFTA renegotiations. I’ll just briefly
address the first one here. $100.0 2.0%
Tax policy has suddenly risen to the $50.0 1.0%
top of the federal policy agenda in light of
$0.0 0.0%
the brouhaha caused by the government’s 2016-17 2017-18 2018-19 2019-20 2020-21 2021-22 2022-23
small business tax changes. It’s counter-
Program expenses Annual growth %
intuitive but Paul Boothe’s recent idea
that it could prompt broader tax reform to
Source: Government of Canada. 2017. Progress for the Middle Class: Fall Economic Statement 2017.
balance out the controversial proposals is Available at budget.gc.ca/fes-eea/2017/docs/statement-enonce/fes-eea-2017-eng.pdf.
so crazy it may just work. The Department
of Finance conducted a review of the
federal tax system last year. The first step case since the Liberal Party platform raised – especially since the Fall Economic
ought to be releasing the findings of the this issue and promised that communities Statement announced new, off-cycle
review including which tax expenditures will not be “shortchanged.” It thus requires spending with minimal short-term costs
are worth preserving, which should be some cognitive dissonance on the part of but considerable long-term ones. There
reformed, and which should be eliminat- the government to boast about its better- is a real risk that this is a sign of things
ed outright, as MLI recommended in than-projected fiscal results and at the same to come. The more likely scenario may
February 2017. The next is designing time assure cities that the source of the therefore be that spending growth remains
a revenue-neutral “tax swap,” whereby improvement will not be “allowed to lapse.” strong or even grows due to reprofiling of
inefficient or ineffective tax expenditures The second is that the government infrastructure funding and new spending
can be eliminated in exchange for lower or has still not set out its plan to restore (to say nothing of electioneering) and in
flattened tax rates. budgetary balance. There’s good reason to turn the budgetary deficit persists and
The ongoing budgetary deficit is also believe that it will stretch out well beyond risks growing.
bound to remain a hot topic, notwithstand- its current four-year mandate. Indeed, the There will invariably be other issues
ing recent news that the 2016-17 deficit Fall Economic Statement continues to that pop up in the next two years. That’s
was lower-than-projected and the Fall anticipate a drop in year-over-year spending the nature of governing. But it’s important
Economic Statement’s positive revisions to growth over the medium term with no that the government begins to make
budget projections in other years. It will explanation (see chart 1). The yellow bars greater progress on its key priorities. MLI
persist as an issue for two reasons. represent final figures and the blue ones are will continue to provide support in the
The first is last year’s lower deficit was projections. Does anyone really believe that form of policy analysis and recommenda-
driven not by permanent savings but delays annual program spending growth will fall tions. It’s bound to remain a target-rich
in infrastructure spending and it’s not as from a two-year average of 6.1 percent to environment.
if this will produce a lasting improvement 2.3 percent in the final years of the mandate?
to the fiscal picture. This is especially the There is good reason to be skeptical Sean Speer is a Munk Senior Fellow at MLI.
INSIDE POLICY • The Magazine of The Macdonald-Laurier Institute 9
JU S TIC E S YS TEM
Criminal justice system struggling
to adapt to social media
It should not require expert evidence
to explain basic concepts such as retweets on Twitter.
Benjamin Perrin Our preliminary research has found Many judges are unfamiliar with, or
social media is increasingly relevant in lack an understanding of, social-media
O thman Ayed Hamdan’s recent
acquittal by the BC Supreme Court
on terrorism-related charges for alleged
reported judicial decisions in criminal cases,
including 1,844 cases referring to Facebook
(launched in 2004), 149 involving Twitter
networks. It’s clear from many judgments
that some judges have never stepped foot
on social media platforms. Judges should
pro-Islamic State posts on Facebook is the (launched in 2006) and 15 related to walk the streets of the communities in
latest example of the challenges of investi- Snapchat (launched in 2011). Some of these which they are adjudicating. It should not
gating and prosecuting crime committed on include charges stemming from social-media require expert evidence to explain basic
social media. activities involving sexual offences, uttering concepts such as a retweet on Twitter.
As Mr. Hamdan’s case illustrates, our threats, criminal harassment and terrorism- In addition to more judicial education,
criminal-justice system is struggling to adapt related offences. digital immersion is key. Judges should
to the social-media environment. Criminal While our analysis into these decisions sign up for a social-media account and
law can be lethargic in reacting to technolog- has only just begun as part of a new UBC explore their interests within the bounds
ical change. It took Parliament 85 years after study, we’re seeing some intriguing potential of appropriate judicial conduct.
the invention of the telephone to update the trends.
Criminal Code’s uttering-threats offence to Establishing the identity of online
ensure that death threats made by phone perpetrators continues to be a continuing
were included, as opposed to just threats issue in the prosecution of certain social- ...our criminal-
made in something quaint called a “letter.” media crimes, particularly sexual offences.
Canada is a digital country with more Many accused claim someone else made the justice system is
than 20 million people active on one or impugned postings. At times, courts have struggling to adapt
more social-media networks: 59 percent of acquitted on this basis due to a reasonable
adults are on Facebook and 25 percent have doubt, but others have rejected these claims to the social-media
a Twitter profile. The proportion of 18- to in light of common sense and circumstan- environment.
34-year-olds is even greater with 75 percent tial evidence. Proving identity is always
on Facebook and 36 percent on Twitter, required and police have used creative ways
while Snapchat is accessed by 41 percent in establishing it. Also, social-media evidence is not
of 16- to 24-year-olds. Adoption rates are A significant challenge is proving the being consistently and adequately
highest among young people. accused had the necessary mental fault or collected by police and presented by
Social media’s perceived anonymi- mens rea for their social-media postings. It’s Crown prosecutions. The technology of
ty, virtual nature and ability to amplify not enough for an uttering-threats conviction capturing social media content is steadily
communications globally present real issues to prove that someone made a threat of death improving but reported decisions show a
for national criminal laws. It promises or bodily harm. Prosecutors must also prove gulf between some police forces who use
benefits for commerce, education, political beyond a reasonable doubt that the accused modern technology to capture reams of
expression, associating with others and intended the threat to be taken seriously, or potentially relevant data related to the
advocacy. But research shows social-media to intimidate. Mental fault is an essential context of individual posts and others, as
crime is increasing, and this borderless element of every offence and tough to discern in the Hamdan case, who reportedly just
digital commons is rife with sexism, racism online. It’s a major reason why many prosecu-
and Islamophobia. tions, including Mr. Hamdan’s, fall apart. Continued on page 32
10 INSIDE POLICY • The Magazine of The Macdonald-Laurier InstituteN ATIO N AL S EC U RITY
New national security bill
gets a lot of things right
The government should be commended for Bill C-59
but the committees that review it still have important work to do.
Scott Newark descriptions, while balancing privacy and
civil rights considerations.
F ew pieces of legislation during the Harper
government years were more controver-
sial than C-51, introduced and passed after
The bill also introduces targeted actions
to improve ongoing independent oversight of
intelligence and security activities by creating
the October 2014 terrorist attacks in Ottawa the Office of the Intelligence Commissioner,
and Saint-Jean-sur-Richelieu. which will cover several Canadian security
As the Macdonald-Laurier Institute agencies. Further, C-59 acts on years of
reported at the time, C-51 did include recommendations by creating the National
some significant changes, such as authoriz- Security and Intelligence Review Agency,
ing operational “disruptive” activities for which also has a multi-agency mandate
the Canadian Security Intelligence Service and specific review and reporting responsi-
(CSIS), criminalizing terrorism ‘propagan- bilities. Both will help support the necessary
da’ that advocated or promoted terrorist balancing of interests inherent to national
offences, and a reduction in the evidentia- security activities.
ry standard for courts to subject suspects C-59 also authorizes the Communi-
to preventive terrorism peace bonds. cations Security Establishment (CSE) to
The criticism of C-51, however, was take action to eliminate a hostile entity’s
focused not so much on what these changes offensive cyber capability, rather than
would authorize as on the lack of an simply blocking attacks. This articulation
iStock
explanation for why they were needed, and of authority is appropriate to the modern
how they would be balanced against privacy environment in which the CSE operates.
Ceremony at the National War Memorial
interests and civil rights. This seemingly marking the anniversary of the October 2014 The bill modernizes how the
deliberate lack of clarity or rationale also terrorist attacks in Ottawa and Saint-Jean-sur- government approaches the ‘No Fly’ list,
fuelled controversy over the supposedly Richelieu. terrorist entity listings and information
increased degree of information-sharing sharing within government with defined
and the implied Charter violations in the While the Liberals supported C-51 purposes and required reporting. The bill
new CSIS powers. at the time, they made clear during the also will repeal the unused “investigative
C-51 also failed to deal with the subsequent 2015 election campaign that, hearings” sections of the Criminal Code
long-identified need for improved indepen- if elected, changes would be made to and require subsequent statutory review of
dent oversight and review of intelligence address the concerns raised about C-51. defined powers so that they will lapse after
activities; the Harper government flat-out This process began in June 2017 when Bill five years if they cannot be justified.
rejected the creation of a specially mandated C-59 was introduced in Parliament. While the bill gets a lot right, we should
Parliamentary Committee for that purpose. C-59 addresses many of the be very concerned that C-59 amends the
While there were significant changes – and issues surrounding C-51 and, to the “terrorism propaganda” offence section by
improvements – to the Canadian national government’s credit, it also offers a far raising the evidentiary standard to “counsel-
security system in C-51, much of the clearer description of the purpose of ling another person to commit a terrorism
controversy about the Bill was created by enhanced authorities for security agencies
the former government itself. such as CSIS, as well as clearer mandate Continued on page 32
INSIDE POLICY • The Magazine of The Macdonald-Laurier Institute 11C AN AD A’ S EC O N O M Y
Don’t be fooled, Canada is
struggling economically
Things are not as rosy as the headlines suggest.
Philip Cross and manufacturing sectors, which had of this weakness, saying in mid-June
led growth in the first half of the year. that “We have been working hard to
A s anyone who’s recently followed
the news knows, Canada’s economy
continued to surpass expectations in
Housing already is reeling from measures
taken to cool the market. Meanwhile the
auto industry implemented long-planned
understand the forces behind the data”
on exports.
The apparent recovery of business
the first half of 2017. But things are not shutdowns starting in July. investment is even more shallow than for
as rosy as the headlines suggest. Several It is worth reflecting on why the Bank exports. Investment gains in the first half
factors explain why the first-half upsurge of Canada had begun to raise interest rates of the year were concentrated in oil and
of growth does not represent a break from
Canada’s chronic slow growth of about
two percent. Transitory factors temporar-
ily boosted growth. More fundamentally, Housing already is reeling from measures
the long-hoped-for shift to business invest-
ment and manufactured exports has not taken to cool the market.
taken hold. Already exports fell a total of
10 percent in June and July, reversing all of
the gains earlier in the year. for the first time in seven years. Publicly, gas after two years of severe cuts. As well,
Growth was buttressed by inventory Governor Stephen Poloz said that rates investment was artificially inflated in the
building in the auto industry on top of were hiked because lower rates had “done third quarter of 2016 by the arrival of the
relief from cost-cutting in the oil industry. their job.” However, recall that the bank main drilling platform for the Hebron
Broadly speaking, the upturn of growth in for years had said that low interest rates offshore project. With the passing of this
the first half of 2017 was the mirror image were intended to encourage an upturn one-time event, investment spending
of the near-recession in the first half of in exports and business investment that plunged in the fourth quarter. As a result,
2015. At that time, the shutdown of auto would lay the groundwork for more much of the apparent gain in 2017 simply
plants in Canada for extensive retooling sustainable growth. While the surprise represented a return to more normal
compounded the deepening slump in the cut in interest rates early in 2015 had the levels of investment. Business investment
oil industry. The lesson of both 2015 and desired effect of lowering the exchange remains quite weak by historical
2017 is that Canada’s $2 trillion economy rate, the expected rebound in exports and standards, little changed from the level of
is still small enough to be significantly business investment remains elusive. a year ago and well below its level before
affected by the actions of one or two of Manufacturing exports continued to the boom in the oil and gas sector ended
its leading industries, which may not struggle in the first half of 2017. Virtual- late in 2014.
reflect the underlying course of the total ly all of the increase in exports originat- The housing-market bubble began
economy. ed in energy and autos, the latter driven to unwind in the second quarter after
The Macdonald-Laurier Institute’s by inventory-building in the US before the average price of a house reached
leading indicator clearly points to the production is cut. Exports of non-auto nearly $1 million in both Vancouver and
unsustainability of the upturn of growth. manufacturing goods continued to Toronto. House prices in Vancouver and
After a peak rate of increase of 0.8 percent, weaken. Declines were posted for all Toronto took off early in 2015 due to the
the index has slowed to 0.2 percent or other exports except industrial materials. confluence of three factors interrelated
less in the last three months. Most of Bank of Canada Deputy Governor
the slowdown originated in the housing Carolyn Wilkins offered no explanation Continued on page 32
12 INSIDE POLICY • The Magazine of The Macdonald-Laurier InstituteI N TERP RO VIN C IAL TRAD E
The high cost of trade barriers
between provinces
Finally we can start to put a price on the destructive barriers that threaten to impoverish Canadians.
Brian Lee Crowley
W hen I appeared before a Senate
committee last year studying
the issue of what to do about barriers to
trade erected by the provinces, there was a
distressingly common theme from many of
the other presenters. That theme was best
summed up by a gentleman from the trade
union movement who denied that such
barriers even exist and that no action was
therefore required to root them out.
By contrast I was there making the
case that such barriers exist, that they
matter a lot and that Ottawa had the
constitutional, moral and economic duty
to tear them down.
iStock
Governments have to spend some
political capital to tackle barriers, because
the barriers exist for a reason: to protect that is required because the barriers are the to trade within Canada were equivalent to
powerful provincial economic interests stuff of myth. roughly a seven percent tariff.
from competition from Canadians Statcan intelligently didn’t go looking That’s a shocking number. Just to
in other provinces. Naturally, then, to compile a list of barriers. That’s a mug’s make clear what Statcan was trying to say,
politicians want strong evidence that the game. Barriers are often subtle and buried their research says that obstacles to trade
barriers exist and are causing real harm in complex regulations. Nor is any list within the country were so great it was
before taking up the cudgels on behalf ever likely to be complete, because the equivalent to erecting customs booths at
of Canadians’ right to exercise their trade premiers are always inventing new ones, every provincial border and charging a
and sell their goods and services in every like recent claims to have the power to seven percent tax on all goods arriving at
part of Canada. stop pipelines crossing their territory. The their final destination. Naturally that’s a tax
I think I gave the senators lots of good justified fear that a successful business will that local producers wouldn’t face serving
examples of persistent and destructive cause neighbouring provincial authorities their domestic provincial market. It’s also
barriers that impoverish Canadians while to obstruct them with new barriers may be an average: Statcan estimates the effective
undermining their economic rights. But just as trade-dampening as the list of ones tariff on wine and brandy at 56 percent.
now we have new and compelling evidence already in place. What many people don’t realise is that
of the damage barriers do from one of the Instead Statcan looked for evidence that in 1867 when we created Canada there
most authoritative sources in the country. there is less trade across provincial boundar- were precisely such customs booths at the
Statistics Canada has just published a ies than one would expect given the kind of borders between colonies and Confedera-
report that offers no comfort to national economy and infrastructure and other factors tion was in large measure justified by the
leaders who think that a token nod in the we enjoy. And they found plenty of such
direction of free trade within Canada is all evidence. In fact they found that the barriers Continued on page 33
INSIDE POLICY • The Magazine of The Macdonald-Laurier Institute 13N AF TA
US “get-tough” agenda threatens
to derail NAFTA negotiations
NAFTA negotiations are being challenged by those in the US
seeking to pursue instruments of protectionism.
Laura Dawson
I n trade negotiations, the sum of polar
opposite views does not always yield a
happy medium – especially when one side
refuses to move and the other side won’t
accept a deal worse than the status quo.
This is the situation being reported by
observers of the third round of NAFTA
2.0 negotiations. PM Trudeau met with
The negotiations have split into two US President Trump
in Washington earlier
separate tracks: one that is focused on this year.
modernizing and improving areas common (pm.gc.ca/eng/photos)
interest, and one that is characterized
by differences so irreconcilable that they Some of the most problematic issues are: as take-it-or-leave-it. If so, Canada and
threaten to derail the negotiations. • The proposed NAFTA sunset clause Mexico may have no choice but to leave
The modernization track is streamlining will dissolve the agreement after four years the negotiations, opening up the possibil-
customs clearances, digital modernization, if US expectations to reduce the trade ity that President Trump will launch formal
regulatory alignment, and facilitating trade deficit are not met. This will create terrible withdrawal procedures. If this occurs,
for small and medium-sized enterprises. conditions for investors and producers officials in Canada and Mexico will work
Much of the easy consensus is the product whose livelihoods require predictability for with US allies on strategies to block or delay
of Trans Pacific Partnership text that has decision making. a full US withdrawal from the agreement.
already been approved by the three parties. • Dismantling investor protections In addition to the challenge of deliver-
Ironically, these relatively against expropriation by a foreign ing a presidential trade agenda that
non-contentious issues could deliver the government and eliminating the right of promises to leave the NAFTA shaken and
biggest competitiveness gains to the North appeal against dumping claims similarly stirred, United States Trade Representative
American economy. Border facilitation, destabilizes the North American economy. (USTR) is coping with new Congressional
e-commerce and regulatory alignment not • The US proposal on government trade promotion authority measures. These
only reduce transaction costs across the procurement offers a deal much worse are intended to create greater transparency
board, they make it easier for small traders to than the current NAFTA or WTO and encourage interagency consensus and
effectively compete in the market. (World Trade Organization) arrange- buy-in from legislators, but instead the
However, factions that seek to dismantle ments. Canada will not agree to this and process is adding sand to the gears.
the NAFTA are focused on advancing Ontario Premier Wynne may be forced to In theory, having proposed text vetted
instruments of protectionism and turning make good on her threat to impose a Buy by responsible agencies and legislators
back the clock to an era where might made Ontario rule to block US suppliers from seems like a very good idea. The reality,
right, and short term political gains were Ontario government contracts. however, is that with only a week or two
more important than investor stability, • While there is room to update and between negotiating rounds, US personnel
manufacturing efficiency, and regional improve these hot-button issues, US
comparative advantage. negotiators are positioning their offers Continued on page 33
14 INSIDE POLICY • The Magazine of The Macdonald-Laurier InstituteB U S IN ES S TAX REF O RM
How the Canadian government
bungled the idea of “tax fairness”
The government relies on superficial, class-based critiques that result
in ideological entrenchment and political divisiveness.
Sean Speer This is a mug’s game. It ignores the for taxation purposes. Never mind that
importance of economic incentives. It income splitting sought to address a
T he recent small-business
controversy in Ottawa isn’t just a
matter of tax wonkery and technicalities.
tax narrowly defines equity as between two
people with different incomes rather
than considering one’s circumstances as
structural inequity between families or that
the government’s overall tax and transfer
policies had enhanced the system’s overall
It’s rooted in deeper issues of “tax fairness,” a parent or a caregiver or an entrepre- equity and progressiveness. According to
concepts of “fair shares,” and the tensions neur. It excludes the billions of dollars of Mr. Trudeau, the Harper government was
between efficiency and equity. government programming and services that in the tank for the so-called “wealthy,”
These questions have long dominated
our politics and they’re bound to continue
doing so. This isn’t necessarily unhealthy.
Trade-offs between freedom and equality are
One could have argued against income
central political questions reflecting different splitting on various policy grounds
values and preferences. It’s natural that our
politics seek to adjudicate these matters.
but the Liberal Party didn’t bother.
A recent intellectual and political
emphasis on equity and progressiveness
over all considerations is, however, making rightly target those who need help. And it’s because one of its tax policies had sought to
it more difficult to reconcile these differenc- divisive: It creates class-based divisions for address a structural inequity and, in turn,
es. The room for compromise or a balanced ideological purposes or political gain. skewed slightly in favour of high-income
view of competing principles is diminished. The Trudeau government has regretta- earners.
The truth is, the Trudeau government is bly fallen victim to this strategy and tactics One could have argued against income
largely to blame for this state of affairs. at times. It has, in fact, contributed to its splitting on various policy grounds but the
It’s widely accepted that government growing political fecundity. Liberal Party didn’t bother. It resorted to
spending and taxation should be equitable Let me explain. The Harper government superficial, class-based critiques. This is how
and progressive. Those with abundance enacted dozens of tax and transfer-policy our capacity to reconcile political differenc-
should pay more. Scarce public resources changes over its nearly 10 years in office. es diminishes. This is a recipe for ideological
should be dedicated to those who need The totality of its policies was indisput- entrenchment and political divisiveness.
them most. No real mainstream voices ably equitable and progressive. A 2014 The same goes for the recently proposed
contend this proposition. Parliamentary Budget Office report found (and now backtracked) small-business
But in recent years this expectation that middle-low income earners (specifi- tax changes. The government’s proposal
seems to have shifted. The goalposts have cally those earning between $12,208 and may or may not have a policy basis: Some
moved. It’s no longer adequate for overall $23,261) accrued the greatest financial economists and policy commentators
spending and taxation to be equitable and benefit of the government’s tax policies. have made a compelling argument about
progressive. Now, the new test seems to be Yet, then-Opposition Leader Justin tax neutrality. But that’s not how Ottawa
that every spending and tax measure must Trudeau accused the government of a opted to sell them. It once again resorted
be equitable and progressive. The scope for “give-away to well-off families with billions to class-based formulations about so-called
compromise is increasingly nil in such a of dollars of taxpayer money” because of
zero-sum world. its policy of income splitting for families Continued on page 33
INSIDE POLICY • The Magazine of The Macdonald-Laurier Institute 15You can also read
