Canada, United States & Cyber-Security: With National Efforts Faltering, Will Cross-Border Cooperation Propel Both Nations Cyber-Security Strategies?

By Keith Edmund White

Editor-in-Chief

Has the Beyond the Border Initiative become the best hope for the United States and Canada to craft effective cyber-security strategies?

On Friday the U.S. Department of Homeland Security (DHS) and Public Safety Canada (PS) announced a Cyber Security Action Plan, a 4-page document that fleshes out the security-cyber objectives of the Beyond the Border Initiative, a bi-national effort to cooperate on security and border management.

Cyber-Security:  An Important, Cross-Border Issue

First, before delving into the Action Plan and cyber-security in Canada and the United States, it’s important to emphasize the importance of cyber-security to both Canada and the United States.  Whether it’s food supply systems, financial institutions, or energy distribution facilities, all these vital pieces of critical infrastructure are vulnerable to cyber attacks. And, whether through shared fiber optic cable networks or America's extensive use of Canadian-generated electricity, Canada and the United States can’t tackle cyber-security alone.

Cooperation Without Substance?

The Action Plan represents a still early, light-on-details step in DHS and PS coordination—but does show that the two agencies have, at least, identified the goals they wish to accomplish.  Perhaps the two most challenging goals can be found on page 3 of the Action Plan:

1.4 Align and standardize cyber incident management processes and escalation procedures; and

1.5 Enhance technical and operational information sharing in the area of industrial control systems security.

 Why are these goals unlikely to be met anytime soon?  Well, Canada and America seem MIA on even having a national approach to cyber-security.  As pointed out at CUSLI’s 2012 March Conference, the United States really doesn’t have a cyber-security strategy on the national level—with comprehensive cyber-security legislation unlikely to pass Congress this year.  And Canada’s Auditor General, while noting improvement, still hit the nation’s cyber security nerve centre for only running during daytime hours and not being kept in the loop with the most pressing cyber-security threats. 

Just to illustrate how much work still needs to be done, DHS’s National Cyber Security Division—which offers a link to a 2003 National Strategy Report—still, as of today, lists “build[ing] and maintain[ing] an effective national cyber response system” as one of its two objectives.  And, when it comes to Canada, a 2012 article by cyber-security expert Ron Deibert, published by Queen’s University Centre for International and Defence Policy, states “the Canadian government is late to the cyber-security arena…and only barely nods at the importance of a foreign policy for cyberspace.” 

Will Beyond the Border Propel Comprehensive Cyber-Security Strategies in Canada and the United States? 

So, how do two nations do cyber-security coordination when both have lackluster national cyber-security strategies?  Though, a fair counter-argument could be made—taking up a theme pushed in today’s Globe and Mail—that exactly because both nations are only beginning to hammer out their cyber-security strategies, there's greater likelihood that both nations will work together to tackle this pressing issue, unimpeded by entrenched institutional practices and regulations.

Perhaps Canada and America’s individual difficulties on cyber-security will make the Beyond the Border framework the main hub for both nations emerging cyber-security strategies.  Not only is this good news for protecting both nations critical infrastructure, it could also show the value of bilateral approaches to more effectively--and efficiently--solve pressing public policy issues in Canada and the United States.

Will the Trans-Pacific Partnership Jump-Start a Stalled WTO? Richard Cunningham's CUSLI Distinguished Lecture

By Keith Edmund White

Editor-in-Chief, CUSLI-Nexus

Not heard much about the Trans-Pacific Partnership (TPP)?  The TPP is a U.S.-led push to liberalize trade among 11 countries that is entering its 15th round of deliberations next month.   It's also, according to Salon, "the biggest trade deal you've never heard of," like a hush-hush, super-sized NAFTA in the Pacific region.

Richard O. Cunningham

But, according to Richard O. Cunningham, the TPP is much more than a long-running series of trade talks.  The TPP may not only determine the WTO's future, but set the trend lines of the Sino-American relationship in the 21st century.  And Canada may play a critical role in whether the TPP revitalizes or cripples multilateral trade liberalization efforts.

Richard Cunningham, Senior Partner at Steptoe & Johnson LLP in Washington D.C., spoke on the Doha tragedy and sized-up America’s TPP gambit at the Sixth Annual Canada-United States Law Institute Distinguished Lecture.  Cunningham delivered his speech, Trade After Doha:  The Growing Divide Between the Emerging Nations and the Developing World, last week at the University of Western Ontario Faculty of Law in London, Ontario.

Watch Cunningham's speech at Western Law's Vimeo page, or at the bottom of this post.  Below is a summary of the Cunningham's speech, accompanied with some key quotes. 

• International Trade Talks Stalled From 3-Pronged WTO Dilemma:  (1) the ‘old guard’ of the WTO (i.e. developed nations like America and leading EU member-states) need export-led growth, but are finding further multilateral trade concessions tough to swallow; (2) emerging developed nations, like India and China, have little interest in forging a new trade consensus; and (3) developing countries—whose economies are heavily hampered by remaining textile and agricultural trade barriers—believe all trade negotiations should be viewed in the greater, and far more murky, context of development.

Key Quotes: 

“[M]any people regard [the GATT and WTO] as probably, until this juncture, as the most successful of mankind’s efforts at a truly international organization on a truly international issue—that is trade.”

“Fundamental misconception of how a trade negotiation is conducted.  Trade negotiations are about doing a deal.  Yes, there can be an emphasis on greater benefits to the developing world, but to have a deal it has to go both ways.  Otherwise, look at your Parliament in Canada, look at the Congress of the United States, can you imagine the ratification of an international deal that further lowered tariff barriers and made other concessions by the United States and Canada that gets nothing in return?  Can you imagine that being ratified?” 

• America’s Trade Gambit: The TPP Plan Could Resuscitate or Cripple Multilateral Trade Liberalization Efforts.  The Trans-Pacific Partnership (TPP) is a U.S.-led effort to conclude a 11-nation trade liberalization pact.  Why does the TPP merit our attention, even though it includes a nation most readers probably have never heard of (Brunei Darussalam) and does not include Japan, India, or China?  Because America is hoping that the diverse TPP group can reach a model trade agreement that will break the Doha logjam.  But real pitfalls exist:  (1) Pressure to include more nations in the TPP—especially Japan—risks turning the TPP into a Doha Disaster 2.0;  and (2) the desire of some U.S. officials to use the TPP as a diplomatic tool to ‘box in’ China:  a strategy that risks creating two competing trade blocs, not to mention increased tensions between the world’s two top economies.

Key Quotes:

“To the curious case of the Trans-Pacific Partnership.  It is the Obama administration trade policy.  There is no Obama administration trade policy other than the trans-pacific partnership…but it’s not clear…what [the United States] is doing with it.”

“But trade gets involved with politics and geo-politics.  And if you ask…a government official who is not a trade official…they’ll say TPP sounds great for an entirely different reason.  A geo-political reason.  They will say the big issue today is China…China [has] embarked upon bringing Asian under its wing, [and] we need to setup a counter-balance to China, and therefore we’re going to use TPP to do that."

• Canada’s Key TPP Role.  So what's Canada's TPP role?  Well, Canada—along with Mexico—recently joined the TPP talks, with Canada firmly supporting America’s TPP push.  And, according to Cunningham, “Canada is viewed as a voice of moderation, a voice to be listened to” even if not always followed by the United States.  Thus, it may be Canadian nudging that ensures the TPP remains a tool to jump-start multilateral trade talks, and not let the TPP morph into a anti-China trading bloc, or--worst yet--repeat Doha's failure.

Key Quotes:

Is it in Canada’s interest to pick up the TPP banner?  “Canada, I submit, has an even greater interest than the United States to [gain] access to the emerging markets, particularly in minerals, energy, and in agricultural.  Secondly, Canada has more flexibility than the U.S. politically to seek trade accommodations with China, India, countries like that.”

“So I will leave it to you, I leave the fate of the world’s trading system where it deserves to be, namely in the hands of Canada.  And I will leave it to you to pressure your government to pressure the U.S. and our trading partners to do the right thing and get things back moving.  Otherwise, the report I gave you today has grim implications that couldn't come at a worse time for the world economy…You don’t want Balkanization of trade in a time like this.  Maybe we can do something constructive instead.” 

More On the Other Side of Mapping Out a Canadian Energy Strategy: The Shifting Landscape of Canadian Environmental Regulation

By Keith Edmund White
Editor-in-Chief 

Courtesy of this morning’s Mondaq news-update, we get a view of another challenge to Canada crafting a national energy strategy:  environmental regulation.

On this issue, Dianne Saxe—of the Saxe Law Office and the Environmental Law and Litigation website—offers some excellent analysis* on the three-layered cake of Canadian federalism re:  environmental regulation. 

For a recap of her environmental regulation presentation, I'll just re-post Mondaq's summary:

What happens when municipal bylaws try to control energy or resource projects authorized by the federal or provincial governments? (They have some scope). How far will the Spraytech precedent take them? Can corporations use federal insolvency laws to cleanse themselves of irksome environmental liabilities, such as contaminated sites? (sometimes). These are the type of jurisdictional conflicts that Dianne discussed during her keynote address at last week's Hazmat West Conference in Saskatoon. She also discussed shared responsibilities for waste, as in Enviro West v Copper Mountain Mining.

Here is the presentation: Shared Authority, Shared Risks

The Big Insights:

• Limited, But Still Real, Role in Environmental Regulation.  Municipalities, as political creations of Canada’s provinces, have no constitutional status—so they have limited room to maneuver when it comes to environmental regulation. So, according to Saxe’s presentation, a municipality can’t band fracking through a bylaw, but can probably limit toxic substances especially in certain areas (Presentation Page 8). 
• The New CEAA Scales Back Federal Environmental Assessments.  Federal Environmental Assessments are leaner, faster, and perhaps lesser ‘meaner’? The Harper government in Ottawa reworked the federal government’s role in environment assessment this summer by passing a new Canadian Environmental Assessment Act (CEAA). A May 2012 Ecojustice Legal Backgrounder blasted the new legislation: 

Ecojustice believes that improvements to CEAA are achievable, but not by eviscerating the federal role in environmental assessment, devolving reviews to provincial/territorial governments, and by imposing artificial timelines on a much small number of projects.

• Constitutional Showdown.  There’s a tension between the federal government regulation of bankruptcy (and, from that, the discharge of debt) and the provinces wanting companies to pay for environmental damages. So is letting provinces bill bankrupt companies for environmental clean-up costs counter Canada’s constitutional division of powers? We’ll have to wait and see. (Presentation Pages 29-31; And if you like graphs, check out Saxe's helpful Page 11 Presentation graphic). 
• Sum-Up.  Could the Harper's government-spurred CEAA reform come back to bite them by pushing provinces to step-up their regulation--delaying the energy projects so critical to Canada's near-term economic success?  Maybe.  But, then again, will provinces really step on their own energy futures? 
• *Key Caveat:  And, just in case you don’t see if on the Mondaq page, Saxe's presentation is legal research and analysis—not legal advice. 

Canada Energy Strategy MIA?

By Keith Edmund White

Editor-in-Chief

From today's Hill Times report on how regionalization may be hurting Canada's energy strategy.

The key criticism of Canada energy strategy according to the out-of-power Liberals:

Liberal natural resources critic David McGuinty (Ottawa South, Ont.) said that regional divisions will continue to emerge with each new mega project without a national energy strategy in place.

“I don’t care if it’s Keystone, Northern Gateway, Nexen, or a West-East pipeline. These are flashpoints that will continue to arise, issue by issue. Because we don’t have a serious roadmap and strategy on Canada’s energy future, we’re going to continue to flip flop around like fish on a dock,” said Mr. McGuinty. “This is not going to stop. We’re going to jump from ice flow to ice flow because the Harper government doesn’t want to have an adult conversation about choices.”

What Canada may be jeopardizing:

[Natural Resources Minister Joe] Oliver has stated that resource development could generate $500-billion in investment over the next decade, contributing to the revenue base for social programs, health, and education, but Prof. Arvai said that it’s impossible to make sound policy decisions unless the goals and objectives of the development are clear.

But I find three wrinkles of the story more interesting than its overall thrust:

• NDP Moving to the Center?  Note the NDP critic carefully positioning the paty as both the pro-energy & pro-environment party.
• Liberals Trying to Out Pro-Energy Both Harper and the NDP?  Note Liberal natural resources critic David McGuinty hard take against what he portrays as the Harper government's failure to coordinate energy projects in Canada
• The Missing Link?  Isn't the real problem here Canada's constitutional division of powers?  Section 92 of the the Constitution Act assigns exclusive law-making powers to Canada's provinces when it comes to (1) natural resource exploration and (2) the "development, conservation and management of non-renewable natural resources...in the province..."
• Why Hit On This Now?  And, wait for it, aren't all these projects on a bumpy course to approval over the next 1-3 years?  If so, isn't this a losing issue for a parliamentary election 4 years off?

Canada Finance Minister Floats Privatizing Canada Mortgage and Housing Corporation

The Globe and Mail reports on Canada's Finance Minister floating the privatization of Canada's Mortgage and Housing Corporation (CMHC). Granted, nothing will be finalized until the next Parliamentary election. But will concerns over a Canadian housing bubble, it's an interesting move--both on policy and politically--for the Harper's government to make now.

Maclean's is posting instant Twitter reactions. We'll see over the week how much noise Canada's opposition parties, and the Canadian public, make over the proposal.

Learn more about the CMHC here.

And will it be something the either a Obama or Romney administration will pick-up on re: Freddie Mac, or even more boldly, HUD?

Canadians Gaga for Obama on Energy; Americans Not So Much

On energy policy, it turns out Canadians and Americans have very different views of the U.S. presidential candidates.  Given the importance of the U.S.-Canada energy relationship, along with the recent candidate kerfuffle at the second presidential debate when it came to energy policy, this difference seems more than just an interesting polling side-note.

• A recent poll finds U.S. voters support President Obama on energy policy over Governor Romney by a 37% - 28% margin.  But that means 35% of U.S. voters are either unsure or undecided.  (Source:  University of Texas on-line poll of ~2,000 individuals)

• But when you look at Canadians, when asked specifically on which presidential candidate would do more to spur Canadian energy imports, 49% favor Obama, 26% favor Romney, and only 26% of Canadians either not knowing or finding no difference between the candidates.  (Source:  Sept. 29, 2012 Forum Research poll of 1,000 Canadian adults) 

Sure, this difference if just polling fluff, Canadians favoring consistency over change, or--perhaps--just the echo of Canada's more left-leaning political scene.  Or, most likely, the lack of coal being a big issue in the Canada-U.S. energy relationship.

Canada-China Bilateral Investment Treaty: Smart Stepping Stone, or Bad Deal for Canada?

By Keith Edmund White 

Editor-in-Chief

Two reports on iPolitics show the interesting tug-of-war over the policy wisdom of the Canada-China Bilateral Investment Treaty (BIT).  (Note:  These type of treaties are also called Foreign Investment Promotion and Protection Agreements or FIPAs.)  In short, it's clear Canada is not getting an even deal with China on investor protections.  But, in return, Canadian businesses may be rewarded with greater access to the Chinese market in the future.  And in a time where international competition for China is stiff, and the strong role of the Chinese government in the Chinese economy, Canada may (1) have gotten the best deal it could and (2) be effectively playing the trade long-game.

iPolitics brings out Scott Sinclair’s concerns over the Canada-China BIT.  Summed up, Sinclair laments the lack of debate over—let alone public knowledge—the deal.   Here are Sinclair’s concerns, boiled down:

• Not Reciprocal on its Face. The big trade-off?  Performance requirements on foreign investments.  China “can continue to impose conditions on foreign investors, such as requirements to use local suppliers, take local business partners, train local workers and management, and transfer technology.”  Under NAFTA, Canada is already boxed out of this.   The lingering question?  Why would Canada negotiators give China such a considerable gimme? 

• Is investor-state arbitration really an equal benefit to Canadian investors in China and Chinese investors in Canada?  With “the persuasive role…of the Chinese government in all facets of its economy, it would be a brave or foolhardy Canadian investor would invoke investor-state arbitration against the Chinese government.” 

• Chinese investors could take Canadian environmental regulations to arbitration.

• Weaker transparency requirements for arbitration rulings. 

So, the big question:  Why is the Harper government so pumped to push the deal through?   It may be the first step to a bigger deal between Canada and China.  iPolitics gets some great China-Canada BIT context from John Bosariol, one of the authors of a great primer on the deal.   In short, Bosariol talks up just getting China to agree to arbitral tribunals and suggests that the China-Canada BIT could open the door to a larger agreement down-the-road:

In other words, the investment treaty is really just a stepping stone to something larger — potentially dealt with in a free trade agreement — though Minister Fast said on Monday that it’s a little early to start talking about that.

“When that happens, you’ll see that we’ll have an investment chapter in that agreement and that’ll supersede this. But still the principle here that China has opened itself up to being sued in front of an independent arbitral tribunal — I think is a big step for Canada.” 

Unsolicited and perhaps simple insight on trade negotiations with China:   with China’s market is so much bigger, and sought-over by other nations, it seems clear any trade deal—whether on investments only or on bigger trade deals—will always be slightly titled in China’s favor. 

But the DeSmogBlog.com does show the regional aspect of this investment deal in Canadian politics.  Osgoode Law Faculty member Gus Van Harten notes that this deal isn't really designed for Canadian manufacturers (read:  think Ontario and Quebec), but rather for Canadian energy producers (read:  Alberta).  Naturally, the Conservative Party finds its greatest strength in Canada's central region--so it's no surprise that the party's economic growth plan would be pegged to the energy economy, which can often be at odds with pro-manufacturing policies.  From Carol Linnet's excellent series of interviews with Gus Van Harten:

Yes, I mean, it’s pretty clear that the Harper government does not have as its priority support for the established manufacturing sector, and that its higher priority is to get investments into the resource sector to get the resources out of the ground and generate economic activity in that way. It’s not a bad short-term strategy if you want to create some growth, but as a long term strategy it’s not good because it puts too many of our eggs in one basket. And because resource prices are notoriously unreliable, and finally because if the resource extraction activities are owned by foreign companies, then over the long term they will be earning the profits from the exploitation of our resources rather than Canadian companies. (Note:  Emphasis taken from the original posting.)

But, then again, there's another way to look at this.  Canada wants access to China's market.  What does Canada offer China?  Energy.  So Harper is opening the door with the carrot, in hopes of getting a more balanced deal in the future.  Is this the right way to go?  For a middle power like Canada it seems like, overall, yes.  Now on the particulars of the deal, could Canada have gotten a better deal?  Well, that's for a post-Harper government policy book that explores, with the actual decision-makers, the Harper government's trade and economic strategy.  (Shameless plug:  I, for one, would be thrilled to help put together such a work!)

In any case, CUSLI-Nexus gives props to iPolitics and DeSmogBlog.com for bringing some needed attention to the China-Canada BIT/FIPA.

Friday Morning News Wrap

By Keith Edmund White, Editor-in-Chief 

Liberals Can’t ‘Centerize’ Themselves To Victory. Paul Wells at Maclean’s gives some sober advice to a Canadian Liberal Party still on the ropes: 

In fact, if the country’s assorted Liberal parties are in the mood for advice from the “department of easier said than done,” they should waste no more time seeking to present themselves as the middle ground between extremes. Instead they should find some extreme worth defending. What social end is so important that it’s worth taxing to achieve? What fights are worth fighting?

The decline of Liberal parties in Canada produces a kind of optical illusion. The centre isn’t disappearing, it is becoming crowded. Nothing about the Liberal name ensures the endurance of Liberal parties. Loyalty will not save them. Wit and heart will, or nothing will.

Two First Nations Tribes Territorial Dispute May Delay Major Canadian Wind-Energy Project.  The Anishinabek and Batchewana tribes are arguing over their territorial lines, which were set by the Robinson Huron Treaty of 1850. At risk: the 36-turbine, 80 km/~50 mile Bow Lake Wind Farm Project. Check out The Globe and Mail’s report.

Cyber Espionage Part of Doing Energy Business in China? TheStar.com reports on increased Canadian cybersecurity spending, but notes the skepticism of Queen’s University cyber-security expert David Skillicorn. And iPolitics.com reports on espionage as part of doing business in China: 

There are plenty of anecdotal examples of cyberespionage in the energy sector and some consider it part of the business.  

“One of the companies we deal with makes power plants,” said a source familiar with the Canadian energy sector. “They built a power plant in China and all the intellectual property was stolen.”

CNOOC-Nexen Deal In the Greater Canada-China Economic Context.  Conventional wisdom says that the CNOOC-Nexen deal will be approved. But the real story, at least according to Asia Pacific Foundation President and CEO Yuen Pau Woo, is what strings Canada puts on future Chinese acquisitions of Canadian companies. What I find surprising? Woo’s advocacy for ‘smart’ state economic planning in Canada. From The Globe and Mail: 

An opportunity was missed a few years ago when there was a bidding war for Inco. At the end of a convoluted series of offers and counteroffers, two bidders were left standing – Vale of Brazil and Teck Resources of Vancouver. Vale was the much bigger player, and Teck’s offer came as a surprise. Since the acquisition was subject to government review, Ottawa had a chance to weigh in. Support for Teck would have resulted in a much enlarged Canadian company ranking in the top five of global mining giants.

But Vale prevailed, and another Canadian icon went into foreign hands. To be sure, Teck is Canada’s largest diversified mining company and still a global player, but an opportunity for a “national champion” to enter the top tier of mining companies was missed.

The point of this example is not to bemoan foreign ownership but to bring clarity to the goal of building national champions. Blocking foreign investment in and of itself won’t create globally significant Canadian companies. By the same token, a purely hands-off approach to market transactions is no guarantee of success. If this sounds complicated, it’s because economic statecraft is complicated. Beware of those who would boil it down to just a few easy rules. 

Detroit-Windsor Crossing: Harper’s Hard Press & Michigan’s Messy Ballot Battle. The Harper government, in their proposed 2013 budget, is exempting a second-planned bridge crossing between Windsor and Detroit from environmental review. We’ll see if that sticks, or if the NDP or Liberals can make political hay out of it. But, perhaps more importantly, Michigan voters may decide the pace any new international crossing is made—and it’s bringing out colorful local politics. The owner of the Ambassador Bridge, Manuel ‘Matty’ Moroun, is pushing Proposal 6, which—if passed—could create legal hurdles for the planned construction of the Detroit River International Crossing Project. And he seems happy to deal for votes from both ends of the political spectrum.  Will an international bridge crossing be tangled by an unlikely coalition of ballot voters this November?  And how is this issue, unlike the Keystone XL pipeline, not getting any national political attention?  From The Windsor Star:

Critics say Moroun already has a deal in play with the group Americans For Prosperity, buying the group’s support on Proposal 6 by bankrolling its campaign on Proposal 5 — a ballot initiative to limit taxes.

Last week, the Detroit Free Press reported on Moroun bartering with the United Auto Workers for the union’s support on Proposal 6 in exchange for Moroun financially backing Proposal 2 — the union’s ballot initiative on collective bargaining.

Reportedly under pressure, UAW leadership backed away from the deal, with union president Bob King saying the UAW would remain neutral on Proposal 6. 

The UAW’s recent hints of support for Proposal 6 were made all the more embarrassing by the revelation that earlier this summer, King wrote a letter to the U.S. federal government extolling the benefits of a new bridge crossing.

Border News Wednesday Round-Up

Some attention-grabbing Canada-U.S. border headlines.

Border Shooting.  Yesterday afternoon a Canada Border Services Agency officer was shot by an unidentified man at The Peace Arch crossing between Washington and British Columbia.  The shooter then took his own life, with the border agent reported in stable condition.  The border crossing, “the third busiest port of entry on the northern border[,]” has been closed since the shooting, but is slated for reopening at 4 p.m. today.  [Source:  WashingtonPost.com]

Cross-Border Crossings Would Be Twice as High if No 9/11, Report Finds.  A great two-day conference just wrapped up in Burlington, Ontario.  The TRANSLOG 2012 Conference explored border logistics, the cross-border talent pool, and border transportation issues.  One attention-grabbing tagline from the conference:  Meredith MacLeod at thespec.com reports “[i]f the 9/11 attacks hadn't happened, more than twice as many Canadians would be crossing the border to shop in the United States each year.”  Her source:  University of Windsor’s William Anderson, the first presenter at TRANSLOG 2012—an event hosted by the McMaster Institute for Transportation and Logistics (MITL) and Supply Chain and Logistics Association Canada (SCL). 

But Canadians Are Filling Up Border City Hotels.  HotelNewsNow.com reports that Canadians who shop in the U.S. are filling up U.S. hotels.  One interesting wrinkle to the story: Canadian shoppers who spend 24 hours or more get to bring back to Canada up to $200 in goods without a Canadian duty or taxed imposed.  If a Canadian shopper ups his or her U.S. visit to 48 hours or more, that duty/tax free credit goes up to $800.  (Note:  Both amounts are in Canadian dollars, naturally.)

The Coming North American Union? Beyond the Border Regulatory Gears Are Turning.  Lamenting America’s loss of sovereignty, Dana Gabriel—for Dissident Voice—does write on some interesting developments in the Dec. 2011 Beyond the Border Initiative:  (1) The Transportation Security Administration’s extension of TSA Pre, an expedited screening initiative at 27 U.S. airports; (2) the United States Department of Agriculture has launched a pilot program for a pre-clearance screening process for Canadian fresh meat; and (3) greater cooperation between Canada and the United States when it comes to ship inspections on the St. Lawrence River.   The impact: while some have criticized the slow-moving Beyond the Border Initiative, it’s clear that U.S. officials are beginning to streamline regulatory hurdles on the U.S.-Canada border.  I wonder how many of Gabriel’s updates came courtesy of Woodrow Wilson Canada Institute’s Beyond the Border Observer: which blogs today on the United States Coast Guard and Transport Canada launching a pilot program for the joint inspection of certain ships in the St. Lawrence Seaway.

Is Income-Based Repayment Obama's Stand-In for a Student Loan Bail Out? And Is it Smart Policy?

By Keith Edmund White

Editor-in Chief

Last week, CUSLI-Nexus Senior Editor Justin McNeil explored the provocative differences between the discharge of student loan debt in Canada and the United States. But is the White House using Income-Based Repayment as a stand in for bailing out those burdened with student loan debt?

Today the New America Foundation releases Safety Net or Windfall?, a report looking at soon-to-be finalized regulatory changes to 2010 legislation that reformed the Income-Based Repayment plan for federal student loans. 

The attention-getting talking point:

But contrary to benefitting [sic] low-income borrowers, the pending changes to IBR will actually provide generous benefits to borrowers with higher federal loan balances – those with graduate or professional degrees. A borrower with an MBA or a law degree can easily have a six-figure loan balance forgiven, even if his income exceeds $100,000 for much of his repayment term. 

And let’s not forget the U.S. fiscal backdrop all U.S. domestic spending (or in this case, forgiveness of federally issued debt) faces: With U.S. law-makers facing a fiscal crisis, any changes to student-loan repayment plans—especially those made in the executive branch via regulation—can’t be considered permanent.

So this brings us back to Justin’s piece:  Should U.S. law-makers, at the very least, revisit the legal rules for students looking to discharge their student debt?

Finally, here's a July 2011 article (updated in Sept. 2012) from The Globe and Mail about Canada's  growing difficulties with student debt.

Colbert Talks Declining Arctic Ice, Arctic Resource Race, and Russia's Consecration of the North Pole

Don't believe China wants to be considered a 'near-Arctic' nation?  Check out Colbert's latest Smokin' Pole installment, a running 'news' segment that explores the Arctic resource race, and the silly geo-political nationalism it has inspired.

Oh, and Arctic ice is melting fast.

Key Colbert-esque turn of phrase:  "moo moo gai panning it."

And, yes, Russia really did consecrate the North Pole via a "holy memorial capsule."

Thanks to staff writer Gene Puerta for the catch.  Check out his recent post on the Arctic race.

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Should the U.S. Consider Emulating Canada’s Less Harsh Treatment of Student Loan Debt in Consumer Bankruptcy Cases?

By Justin McNeil, Senior Editor

CC-BY-SA 2009 Sagie/n0nick, http://www.flickr.com/photos/n0thing/3775488150/

Concerns over the total student loan debt in the United States, which recently hit the $1 trillion mark, continue to grow amidst projections that this is the next bubble to burst in the U.S. economy, possibly derailing a still weak recovery from the 2008 financial crisis.  But Ben Bernanke, the U.S. Federal Reserve Chairman, sees no such problems with student loans.  He points to the U.S. government’s ownership of nearly 85 percent of those loans, with the remaining 15 percent belonging to private lenders, as proof of their future stability. 

Unfortunately, Bernanke may be underestimating the dangers of having an economy with $1 trillion in student loan debt and unable to provide opportunities to graduates for full-time work.  Tie this to ballooning tuition costs and a U.S. legal system that makes it incredibly onerous for students to discharge their debt, and suddenly America’s student loan system changes from one offering a “ladder of opportunity” to one promising long-term financial dead weight.  This not only harms today’s graduates, it also puts America’s future economic growth at risk.   

Part of dealing with (or better yet preventing) a student loan bubble burst is to have a workable and fair approach to discharging student loans in bankruptcy.  Yes, this is a large, multifaceted topic, and this post will not delve deeply into the legal theories behind bankruptcy or why we treat educational debt differently than others.  But U.S. policy makers have an obvious starting point: Canada’s far more balanced legal approach to addressing the discharge of education debt in bankruptcy.

The American Approach

In the U.S., the current bankruptcy laws are very clear when it comes to student loan debt: there is no discharge of such debt through bankruptcy proceedings unless a showing of undue hardship can be made.  (See 2005 Bankruptcy Abuse Prevention and Consumer Protection Act).  In theory, such a limitation sounds reasonable to deter frivolous claims, but in practice the language essentially denies relief to all but a handful of the most financially strapped individuals.  While “undue hardship” is not defined in the statute, a definitive three-prong test was crafted in Brunner v. New York State Higher Education Services Corp. There, the court determined that prospective student bankrupts must establish:

(1)   that the debtor cannot maintain, based on current income and expenses, a “minimal” standard of living for herself and her dependents if forced to repay the loans;

(2)   that additional circumstances exist indicating that this state of affairs is likely to persist for a significant portion of the repayment period of the student loans; and

(3)   that the debtor has made good faith efforts to repay the loans.

The use of vague, qualifying language including: minimal standard of living, likely to persist for a significant portion of the repayment period, and good faith efforts, has helped set an impossibly high hurdle for any American hoping to shed student loan debt through bankruptcy.  As an example, the standard was actually met recently when a former law student showed that her diagnosis of Asperger Syndrome prevented her from obtaining meaningful employment to repay her $339,361 of student loan debt.  Without such extreme circumstances though, U.S. bankruptcy courts rarely allow for a discharge.  What’s more egregious is that in the rare instance that this type of discharge is granted, the debtor immediately owes the IRS, and possibly others, for taxes on Cancellation of Debt Income.

The Canadian Model

In Canada, the process for gaining relief from student loans through bankruptcy, as set forth in § 178 of the Canada Bankruptcy and Insolvency Act, is more forgiving to debtors.  The Canadian Student Loan Bankruptcy Blog conveniently distills the statutory requirements north of the border and explains how cases have normally proceeded, while also tracking proposed legislation in this area.  Essentially, a debtor may enter bankruptcy to fully discharge student loan debt 7 years after she was last enrolled as a student and the loans may then be automatically discharged.  The Canadian government or a private creditor can challenge the discharge though (even if 7 years have passed since the debtor was a student), which then requires the debtor to meet the requirements of a two-part test consisting of: 1) whether the debtor has shown good faith with their actions toward the student loans; and 2) whether the debtor will experience financial difficulty if forced to repay the loans. 

The court in the Ontario bankruptcy case of Giera (Re) set forth four factors to determine whether a debtor has acted in good faith:

[1] whether the money was used for the purpose loaned and if the education was completed, [2] whether the Bankrupt is deriving economic benefit from the education, [3] whether there were any reasonable efforts to repay the loans and [4] whether there was any effort by the Bankrupt to take advantage of interest relief or remission options offered by the lenders

Whether a bankrupt will experience financial difficulty in repaying the loans is determined through the court examining the debtor’s income, assets, and expenses to gauge the potential that the obligations can be met.  The court will also look to how much effort the debtor has put towards finding employment, if she is unemployed or underemployed.  Additionally, there is a special hardship provision through which a former student can apply for a loan discharge after only 5 years, but will have to immediately satisfy the same two-part test as above.   

In the last 20 years, the U.S. has systematically toughened its laws on discharging student loan debt to coincide with the increasing prevalence of student loans.  Before 1998, dischargeability in this area was not always based on the undue hardship standard and the process more closely resembled Canada’s, with the possibility of discharge available 5 years after ceasing to be a student.  Similarly, even private student loans remained dischargeable according to a lesser standard until the 2005 legislation mentioned above was passed to curb a perceived widespread abuse of the bankruptcy process.  Though student debtors have lately been subject to more restrictions in all of the Western common law jurisdictions, Canada has on balance seemed more sympathetic to student debtors than the U.S.  Furthermore, Canadian legislation continues to point in the more positive direction of lessening the burden of proof for prospective bankrupts.  See the recommendations in the Final Report of the Personal Insolvency Task Force.

Aggravating Factors

The astronomical rise of college tuition, and the overall economic climate mean that the U.S. may be forced to reexamine its policy toward student loan debt when it comes to bankruptcy in the near future.  Traditionally at common law, the bankruptcy process was a means through which a creditor was able to exercise his rights, with possible results being that debtors could be imprisoned or hanged.  But the modern conception of bankruptcy does not contemplate criminal punishment and seeks to balance creditor’s rights against debtor’s rights in a more equal fashion than was originally conceived.  Western common law jurisdictions have recognized that to better foster an entrepreneurial environment, a fresh start must be available for debtors whose economic ventures don’t always succeed.  Shouldn’t students be afforded the same relief? And what future costs will the American economy pay if students don’t get relief?

As of now, college tuition remains substantially lower in Canada than in the U.S.  And though recent efforts from the Obama administration have made the student loan repayment process more manageable, a confluence of factors mean that this may not be enough.  First, the President has made it a primary goal to further increase the availability of student loans to ensure greater access to higher education for Americans who may not be otherwise able to afford the costs of a college education.  Second, the federal government has now taken over the administration of student loans.  Though it backed many of these loans previously, it now has even more at stake when enforcing repayment and cannot afford mass defaults.  Finally, the economic downturn has magnified the difficulties that former students face in paying back their loans; without some further action to mitigate current circumstances, defaults are likely to increase in short order.

Conclusion

Considering how many talking points during the U.S. Presidential election have revolved around job creation, small business owners, entrepreneurship, and consumer spending, the increasing student debt should be getting more attention than it is.  There have been some commendable efforts to address this issue: the Student Loan Forgiveness Act proposed in the House of Representatives earlier this year.  However, a comprehensive reconsideration of American bankruptcy policy and, more specifically, easing the path to dischargeability of student loans may be necessary very soon.  A good place to start would be with Canada’s current policy.

Snap Shot: Canada Healthcare Costs; International Healthcare Costs

Canada's healthcare is anything but free; but, the cost of Canada's public healthcare system is still considerably lower, on a per capita basis, than the cost of healthcare spending in the United States.

The Fraser Institute last month released The Price of Public Health Care Insurance.  The short report estimates 2012 Canadian health spending and then breaks that spending down by different family types.  The report also shows the steep increase in Canadian healthcare spending witnessed between 2002 and the reports estimated 2012 figure.

Per Capita Cost.  The report also estimates that the 2012 per capita cost, or "the cost of the public health care insurance plan if every Canadian resident paid an equal share," of healthcare at approximately $3,779 CAD per Canadian (or roughly $3,859.00 USA).

Per Capita Country Comparison.  For a sense of how that compares to other nations' healthcare spending, check out this National Geographic (NG) graph using 2007 data.  Note:  This  chart pegs Canadian per capita spending at $3,895 USA.  I suspect the higher 2007 figure is more a reflection of the two countries considerable difference in exchange rates between 2007 and 2012.  This cross-graph comparison quirk notwithstanding, the NG graph still gives a sense of the difference between U.S. and Canadian spending on healthcare.

The Race for Arctic Resources: American Ambivalence, Russian Rhetoric, and a Canadian Comeback

By Gene Puerta, Staff Writer

The layer of ice that covers the Arctic Circle is melting, causing the nations that border it (Canada, Russia, Norway, Denmark, United States, Iceland, Sweden and Finland; all members of the Arctic Council) to tap the Arctic’s natural resources. But there are other factors at play: For some, this race is partly fueled by national security concerns; and for others, a chance to stake long held territorial claims.  In a race for resources, all of these Arctic nations are doing their best to achieve the pole position by granting companies’ rights in territory already claimed, advancing scientific findings, or by conducting military operations in the Arctic Ocean region. Even China, a nation that does not even border the Arctic, wishes to participate in this race, arguing that the resources under the North Pole are “the inherited wealth of all humankind.”

The race begins. A recent search for “Winning the Arctic Race” on Google (as of 20 September, 2012) offered just over 68 million results.  Upon investigation, this plethora of search results indicates that there is a race for resources under way in the Arctic Ocean and that, depending on the nationality of the information source, Canada is either in the Arctic Race to win it (by annual displays of military strength) or lags behind Russia and the United States.  The articles vary widely on the state of the race for resources in the Arctic, with Der Spiegel (quoting a USCG Admiral) that the United States is dead last in the Arctic race; while other sources like Forbes's Matthew Hubert, think that the U.S. is in a better position than Russia because U.S. oil companies are “sitting pretty” when the time comes for natural resource extraction.  Moreover, various news articles report that even China, a non-Arctic nation, is clamoring for a spot before the starting gun goes off.

According to a 2011 report by the Wall Street Journal, Canada is warming up for an aggressive display of control over the Arctic Circle.  Canada’s Arctic push, propelled by displays of military capability, is feasible only as long as Canada can back up its intent with the considerable financial resources needed to build infrastructure in the Arctic’s remote and challenging environment.  The economic value of the Arctic Circle can be found by companies willing to venture into an area that requires not only a particular technical know-how, but extensive financial investment as well.  Companies that are willing to undertake such investment have a losing track record when it comes to extracting the various non-renewable resources under those cold waters (just ask Russia’s nationally-owned Gazprom or publicly-traded Shell Oil).  But the Arctic's harsh environment, which offers up polar ice caps that shift dramatically with the changing seasons, sheets of ice that drift along with the tides, and extreme operating temperatures, mean the costs of merely preparing to tap the Arctic's energy resources can go into the billions.  And then there are concerns over the region lacking the major seaports necessary to both spur further Arctic development and contain spills similar in scope to Deepwater Horizon (the most recent oil leak off the coast of Louisiana).

US takes the lead and stumbles.  As of September 2012 the current US efforts have been stalled by ice floes, fall whale hunts, and underwater dome repairs.  Shell Oil has invested a total of U.S. $4.5 billion into developing the Chukchi Sea region (just north of Alaska).  Shell's investment in the American Arctic shows that the United States plans to use corporate partners to take the lead in the Arctic race, even though not one drop of oil has been extracted.

The Russian and Canadian long game.  The view of the Russian Foreign Ministry, U.S. oil companies and the expanding domestic American shale oil market may be beating Russian nationally-owned corporations in the Arctic race.  But Russian claims to significant swaths of Arctic territory matter most, in the long run, to the success of Russia’s Arctic strategy. Russia believes that territorial claims are more valuable than a company exerting its economic actions over an area.  Canada seems to be, literally, left out in the cold with regards to its efforts to develop the Arctic’s remote and challenging climate, efforts which require major infrastructure upkeep costs.  But Canada is trying to make up for this through a beefed up military presence, a noticeable omission from a recent Forbes article written by Matthew Hulbert.  Mr. Hulbert concludes that because the big oil corporations (like Italy’s ENI making its presence known north of Norway) and nationally owned companies (owned primarily by China and Russia) are doing their best to position themselves in the Arctic, the U.S. has the gold, Europe the distant silver, and Asia the bronze in the Arctic race.  Russian claims to the Arctic and Russian Tu-95 bomber flights aside, it seems that Russia owning a bigger share of the circle will not be enough for Putin and Co. to compete in the Arctic race.  Though, in the long run, Canada and Russia may actually have the upper hand.  Russia's icebreakers and territorial claims will likely serve as a force multiplier.  And Canada’s increased military presence will protect any investments in their vast territory of Nunavut.

An uncertain Arctic finish.  There are several opinions (stretching back to 2009) that predict that the end result in the Arctic has already been decided:  big Arctic players (the United States, Canada, and Russia) have “agree[d] to disagree” about certain boundaries in the Northwest Passage, while the smaller players (Denmark, Norway, and economically, Russia) stake their continental shelve claims to the United Nation’s Convention on the Law of the Sea:

There is no ‘endgame’ in the Arctic. Cooperation – not conflict – is the more accurate paradigm. With the exception of Hans Island, there are no sovereignty disputes over land in the Arctic. The unresolved differences concern a) coastal state jurisdiction over shipping in the Northwest Passage, b) the delimitation of maritime boundaries in the Barents, Beaufort and Lincoln Seas, and c) the extent to which each of the five Arctic Ocean countries has sovereign rights over the continental shelf more than 200 nautical miles from its shore.

There is no great cause for concern. Canada and the US have “agreed to disagree” over the Northwest Passage while cooperating on maritime surveillance and pollution prevention. They – along with Denmark, Norway and Russia – have also agreed that overlapping continental shelf claims will be resolved according to the rules in the UN Convention on the Law of the Sea.

Canadian resolve pushes forth a militaristic footing.  Does Ottawa have what it takes to secure its Arctic claims?  Canadian Prime Minister Stephen Harper thinks so.  His three day “arctic sovereignty tour” is aimed at quelling any Russian claims in the Arctic Ocean.  And just last month, Canadian Foreign Minister Peter Mackay stated Canada's intent to placed in the Arctic race's pole position:

"There is no question over Canadian sovereignty in the Arctic. We have made that very clear. We have established, a long time ago, that these are Canadian waters and this is Canadian property," said Mackay. The Canadian prime minister's trip, which involves stops in half a dozen communities in Canada's far north, is intended to reinforce Ottawa's claim to more than 1.2 million square kilometers of Arctic seabed.

Prime Minister Harper does not intend to lose the Arctic race; rather, he intends to win the Arctic race by using a three prong approach:  (1) making territorial claims according to the UN Convention on the Law of the Sea, (2) highlighting scientific findings that find Canada’s continental shelf extends far into the Arctic Circle and (3) launching Canadian expeditions such as Operation Nanook.  Since 2010, Canada has been participating in annual “sovereignty operations” such as Operation Nanook in the Arctic to show the international community that Canada has an interest in maintaining control over the Arctic Circle, an interest Ottawa has also expressed by not placing a moratorium on oil exploration.

A lumbering start.  For an area of the world that is literally heating up, the marathon race for Arctic resources is off to a slow start.  With non-renewable energy sources becoming more scarce and subject to hikes due to war, demand, and natural disasters, the Arctic Circle has become a focal point for resource hungry nations.  However, the race for natural resources is not without projected environmental risk.  Furthermore, only the nations that are willing to put forth the considerable military, infrastructure, and other financial investments can hope to win the Arctic resources race.  The Russian and Canadian Arctic strategies seem to rest upon how far their continental shelf extends and how many military operations they can execute until they have the capital necessary to fortify their Arctic infrastructure.  This is especially true of Russia, where companies are either experiencing cost overruns or simply waiting to see how Shell performs north of Alaska.  Despite the setbacks experienced by Shell Oil, the U.S. is currently leading the way, albeit by nary a hair, for not one well has been tapped by the U.S.-based subsidiary in the cold waters of the Northwest Passage.