Will U.S. Energy Greening Stiff Canada? If It Does, U.S. Will Alienate an Ally and Probably Just Promote Self-Defeating Green Policies

By Keith Edmund White

Editor-in-Chief

When we think of Canadian energy, Keystone XL reigns supreme.  But did you know about the abundant hydropower the U.S. gets (and could get more of) from Canada?  In short, efforts to find sustainable 'green' energy alternatives are great.  But stiffing Canada in the process only alienates a partner and makes it more likely that government subsidies or other protections to green projects won't work on the global marketplace.

“Even green protectionism is protectionism nonetheless.” - Jim Prentice, former Conservative cabinet member, 2006-10 (Minister of Industry, Environment, and Indian Affairs and Northern Development)

Most Americans sympathetic to protective trade practices usually think of combating low-cost Chinese goods, not blocking our lucrative crossborder trade with Canada.

And most Americans concerned about the environment, wouldn't think that 'greening' the United States means protective trade practices.

But Jim Prentice, former Conservative three-time cabinet official from 2006-10 and now CIBC Vice President, reminded a Halifax audience of three important developments:

• North America is on the verge of being energy independent
• How the United States goes about promoting green energy could essentially lead to U.S. energy protectionism that directly affects Canada
• Canada's energy sector will rejuvenate Canada's Atlantic provinces.

From The Globe & Mail: 

“If we play our cards right, there will be profound opportunities for Atlantic Canada and for our country as a whole,” he told the Maritimes Energy Association in Halifax, according to a text of his speech.

But he said Canadians can’t take access to the U.S. market for granted.

Rather, Prentice warned that they should be vigilant about signs of protectionism coming in the form of low carbon fuel standards or regional requirements to use specific amounts of renewable energy.

“Canada must continue to fight for a continental energy marketplace that is free of national and sub-national impediments. Interventions by government, while well meaning, are nevertheless potentially damaging and counter-productive,” he said.

In short, Canada offers the United States a rich and diverse set of energy. And, frankly, both countries should to looking at a regional--not national--approach to energy.

Why? Well, because we share rich deposits of natural gas and oil along our shared border. And hydropower already links of nations.

But there's also this:  Shorting our critical energy player who can already provide abundant high and low-carbon energy sources to prop up U.S. energy production is likely to not even make the U.S. more 'green' in the long-term   

Instead, 'green' U.S. policies should incorporate the dynamics of its Canadian partner, so that both nations can focus their resources in ways that benefit both--and lead to lasting energy providers in both nations that can compete internationally.  The other option, making U.S. green energy policy in a vacuum--and ignoring the rich energy we can get from Canadian oil and hydropower--just means the policies the U.S. support just won't be the best fit for North America, or match the business dynamics of the global energy marketplace.

In short, the United States should ensure that it continues to use Canada as a partner to promote sustainable energy solutions.   The other option not only alienates a critical ally, but also makes it less likely that U.S. green initiatives will stick in the long-term. 

Colin Robertson Urges Canada to Embrace "Digital-Age Diplomacy" Towards U.S.

By Keith Edmund White

Editor-in-Chief

Can Canada magnify its influence in the United States through Blackberries, not consulates?

Colin Robertson uses the dust-up over a proposed U.S. government study on a new border fee to urge a revamp of Canada's U.S. diplomatic strategy.

Or as he puts it, "wage a permanent campaign in the United States on behalf of Canadian interests."

But how? In the face of tightening budgets, Canada has cut its consulate offices, the traditional way foreign offices advocate for their foreign policy interests and build strong bilateral ties.

Robertson's answer: ditch the office, take the blackberry.  From his The Globe and Mail editorial, whose title regrettably distracts from Robertson's main argument:

The lesson we can draw from both the DHS kerfuffle and the bridge saga is that we need to wage a permanent campaign in the United States on behalf of Canadian interests.

We need a thousand points of contact to complement our embassy and our consulates. This means taking our game to the States because by the time a problem reaches Congress we are fire-fighting.

Recent budget paring in Canada has reduced our consulates in the United States to fifteen. Yet, what we need is representation in every state. We can do it, within budget, by doing diplomacy differently.

Recruit talent from the Canadian expatriates who are already living in each state. Let them practice digital-age diplomacy. Drop the black tie for a BlackBerry and a working knowledge of new media.

With some exceptions – our embassy’s prime location on Pennsylvania Avenue is crucial, and the Los Angeles consul-general’s residence is a second home for Canada’s entertainment industry – these diplomats can work from their homes or incubator offices to spot opportunities for trade and investment.

[Note: I suspect many of these digital diplomats--Canadian or not--will be opting for iPhones over Blackberries.]

I think Robertson's editorial starts a good discussion for all world capitals on how nations can assert their interests in the 21st century. Dispatching staff to various locations, assuming that plane fare and gas reimbursements don't eat away at office savings, does seem to make sense whether its foreign subnational governments, small and medium-sized business, or ex-patriots a point of contact.

And going with Canadian expatriates makes sense as well.

But, as a biased American citizen, I would be remiss if I didn't stress the advantages of enlisting Americans in  any future Canadian digital diplomacy.

Obama Administration Won't Be Pushed on Keystone

Politico reports on the White House's refusal to "get ahead" on approving Keystone XL:

White House press secretary Jay Carney said the administration will not be pushed into making a hasty decision on whether to approve the Keystone XL pipeline.

More than half the Senate -- 53 senators -- signed a letter to President Obama on Wednesday urging quick approval.

"We appreciate input from lawmakers, but as you know, as is keeping with longstanding tradition, multi adminstrations, multi-administration tradition, these reviews are conducted by the State Department, and when the State Department concludes that process, we make, we’ll move forward," Carney said. "There will be a decision, but I'm not going to get ahead of that process.

The Globe and Mail probes today's confirmation hearing of Senator John Kerry, with Sen. Kerry likely to head the federal agency currently reviewing the Keystone XL project.  The article also focuses on environmentalists' hopes that the the inaugural address of President Obama--the ultimate decider on approving the project--signals aversion to the pipeline project:

Still, amidst the jibes and good wishes, Mr. Kerry’s views on climate change in general and Keystone XL in particular should provide a hint as to whether the President’s lofty rhetoric on cutting carbon will translate into political reality. Republican Senator John McCain, who, like Mr. Kerry, tried and failed in a bid for the presidency, joked that senators would use so-called enhanced interrogation techniques to make sure Mr. Kerry, was being forthcoming. “We will bring back, for the only time, water-boarding to get the truth out.”

Still, some expect Mr. Kerry to duck if and when he is quizzed about Keystone XL. In delaying a final decision until after the November election, the President sent the proposal back to the State Department for a revised assessment and Mr. Kerry may opt to await that outcome, expected in late March or April, rather than telegraph his views.
...
But the final Keystone decision “will be made in the White House, not by the Secretary of State,” said Daniel Kessler of 350.org. Hence the delight among Keystone XL opponents after the President’s stirring vow to take action on climate change. “A failure to do so would betray our children and future generations,” said Mr. Obama of the need to stop global warming.

Mr. Kerry’s environmental advocacy stretches back decades and he was co-sponsor of the ill-fated Senate effort to introduce a cap-and-trade effort to curb carbon emissions. Along with his wife, Teresa Heinz, heiress to the food fortune, he wrote a book in 2007 called: This Moment on Earth: Today’s New Environmentalists and Their Vision for the Future.

While the approval this week by Nebraska Governor Dave Heineman of a new pipeline routing that avoids a sensitive underground aquifer, Keystone XL is now banking on the President and Mr. Kerry to block the project.

“You cannot say the words the President did in his inaugural address and then turn around and approve the pipeline,” said Jane Kleeb, who heads Bold Nebraska, a group opposed to Keystone. “The fight continues, even though Governor Heineman sided with a foreign corporation.”

Cheetos, Canada Border Services Agency, and the Administrative Ride: Frito Lay Fixes Revenue-Neutral Clerical Error, Gets Slapped With $100Ks in Wrong-Headed Tariffs, Wins Case for Refund 5 Year Latter

By Keith Edmund White, Editor-in-Chief

When thinking about liberalized trade, some may conjure up images of presidential and prime minister press conferences, or abstract discussions among trade experts.  But, as a recent CITT case shows, maintaining free trade in practice sometimes is as simple as ensuring customs officials don't take cross-border traders for "administrative rides."

Globe and Mail Piece Highlights the Hurdles that can Throw a Wrench Even in the Canada-U.S. Trading Relationship, One of the World's Most Successful Trading Relations

The Globe and Mail reports on Frito Lay, a division of PepsiCo and makers of Cheetos, legal victory over the Canada Border Services Agency (CBSA) at the Canada International Trade Tribunal (CITT).  Unless  

The dispute:  In 2007 Frito Lay realized that it brought in Cheetos under the wrong tariff classification and fixed it.  The financial impact?  Well there shouldn't have been any.  The Cheetos went in as cardboard boxes, which incur no duties, and then were corrected to reflect cornchips, which are also duty-free under the North American Free Trade Agreement (NAFTA). 

Frito properly made the correction, but the revenue-neutral correction triggered, in the words of the CITT, "an administrative ride" that resulted in Frito Lay apparently paying hundreds of thousands in cross-border duties:

“It was Kafkaesque, and it lasted for years,” explained Peter Kirby, a Montreal trade lawyer who represented Frito-Lay in the case. “You’re guilty, but of what? What are you accused of? It kept shifting.” 

The tribunal says the Canadian government must now refund Frito-Lay hundreds of thousands of dollars in duties that should never have been collected....
“There may be political will to ease the administrative burden of trading across the border, but sometimes that message doesn’t filter down to the agencies charged with overseeing the movement of goods,” Mr. Kirby of law firm Fasken Martineau DuMoulin LLP said in an interview. 

“Perhaps politicians should be making a greater effort to get people focused on easing the flow of goods.” 

Even now, Mr. Kirby is at a loss to explain why Canadian border officials chose to play hardball with Frito Lay for so long. He doesn’t know if it was a money grab or merely an effort by the CBSA to flex its administrative muscles against a powerful U.S. multinational.

Looking at the CITT Decision

After reading the decision, I have to agree with Kirby's description of Frito Lay's experience with the CBSA.

For those of you interested in reading the opinion, I wouldn't read it in chronological order. Start with the background, and then shift to paragraphs 58 to 66 and, most importantly, read footnotes 26-29.

Barrie McKenna's summary is admirable, but the one thing that comes through in reading the decision is just how Byzantine tariff classifications, duty-impositions, and tariff re-classifications processes can be.

In short, Frito Lay corrected incorrect tariff classifications, classifications which had no impact on duty payments--both the incorrect and correct classifications were duty-free. CBSA then performed a bureaucratically elegant bob: ducking Frito Lay's correct by accepting the tariff re-classification, but denying the "amended tariff treatment... ." CBSA's supposed legal basis: Frito Lay failed to make this correction within a 1-year window.

The problem with that? It sure looks like an obvious misreading of Canadian border regulations. From the CITT decision, "[No authority was provided for such a purported 'one-year filing time limit', and the Tribunal knows of none." (Para. 61).

But the result still stood: CBSA slapped Frito Lay with hundreds of thousands of dollars in duties.

Frito Lay, in order to have CBSA review its tariff treatment rejection decision, paid the duties and then made several filings in Sept. 2007 for CBSA to review its decision. (Footnote 26).

The response? Radio silence (i.e. Frito Lay didn't get a response since CBSA took the "blanket position that none of the corrections to the tariff treatment...had any merit whatsoever" and left the matter "pending for several years."). (Footnote 29).

And this only gets to part of the administrative headache CBSA created for Frito Lay: it broke down the Cheetos shipments in five categories (even though they represented the same reclassification issue), and treated them in five different ways.

Hilariously, the first category of Cheetos "represent the manner in which the Tribunal believed that the... [other four categories] should have been treated, but unfortunately were not." (Para. 38).

Conclusion: A Successful, if Slow-Moving, Example of Free Trade Administration Oversight

Now, perhaps CBSA has a stronger case for its tariff imposition of these years-old Cheetos shipments. And it can make them in the appeal it has the right to file within 90 days of the December 21, 2011 decision.  (Note:  While the decision was issued on Dec. 21, 2011, the reasons were issued January 8, 2012.)

But this case shows that maintaining liberalized trade takes more than head-of-state consultations, treaties, and successful political votes. Liberalized trade also requires a well-functioning customs operation, and when it comes to this less-than-glamorous topic, giving cross-border traders effective legal means to challenge customs decisions is critical to a well-functioning border.

But Frito Lay is a trade juggernaut, a division of a large multi-national corporation that can absorb tariff classifications, fight them in court for years, and then even merit the national of national press. What about smaller traders?

Naturally, one case should never color the overall reputation of any agency. But the case does showcase the critical role legal mechanism have in preserving liberalized trade--not the mention the considerable impact tariffs can have on trade. The CBSA's incorrect actions resulted in Frito Lay being hit with a 11 percent duties fee, as opposed to the duty-free treatment its Cheetos should have received. (Footnote 26).

And, on the plus side, regardless of the considerable time it took, the decision represents a successful example of free trade administrative oversight.

Finally, you can read the entire decision below.

CITT Decision: Frito-Lay v. CBSA

Image of the Day: Canada-U.S. Trade

The Globe and Mail offers some interesting graphs of where Canadian business leaders think their export market heading in the near-future.

Check out all the results and related articles here, but this graph was the most surprising--showing that most  participants believing America's share of Canada's export market will stay the same or even increase: