DECEMBER 2018

2018 Policy-Maker of the Year CHRYSTIA FREELAND ’s Negotiator

Also INSIDE: Consulting Perpetual Real Jobs for ’s First Nations Deficits Real People Sharp Power 1 PublishedPublished by by the the Macdonald-Laurier Macdonald-Laurier Institute Institute

PublishedBrianBrian Lee LeeBrianby Crowley, Crowley,the Lee Macdonald-Laurier Crowley,Managing Managing Managing Director, Director, Director [email protected] [email protected] Institute David Watson,JamesJames Anderson, ManagingAnderson, Managing Editor Managing and Editor, CommunicationsEditor, Inside Inside Policy Policy Director Brian Lee Crowley, Managing Director, [email protected] David McDonough, Deputy Editor James Anderson,ContributingContributing Managing writers:Editor, writers: Inside Policy Contributing writers: ThomasThomas S. S.Axworthy Axworthy PastAndrewAndrew contributors Griffith Griffith BenjaminBenjamin Perrin Perrin Thomas S. Axworthy Andrew Griffith Benjamin Perrin Mary-Jane BennettDonaldDonald Barry Barry Jeremy DepowStanleyStanley H. H. Hartt HarttMarcus Kolga MikeMike RobertPriaro Priaro P. Murphy Massimo BergaminiDonald Barry Peter DeVries Stanley H. HarttAudrey Laporte Mike PriaroDwight Newman Derek BurneyKenKen Coates Coates Brian Dijkema PaulPaul Kennedy KennedyPeter Layton ColinColin Robertson RobertsonGeoff Norquay Ken Coates Paul Kennedy Colin Robertson Charles Burton Ujjal Dosanjh Brad Lavigne Benjamin Perrin BrianBrian Lee Lee Crowley Crowley AudreyAudrey Laporte Laporte RogerRoger Robinson Robinson Catherine CanoBrian Lee CrowleyDon Drummond Audrey Laporte Ian Lee Roger RobinsonJeffrey Phillips Elaine CarsleyCarloCarlo Dade Dade Patrice Dutil IanIan Lee LeeChristian Leuprecht RobinRobin V. V.SearsMike Sears Priaro Carlo Dade Ian Lee Robin V. Sears Duanjie Chen James Fergusson Edward Luttwak Richard Remillard Michael ChongLauraLauraLaura Dawson Dawson DawsonMartha Hall FindlayJaniceJaniceJanice MacKinnon MacKinnon MacKinnonMeredith MacDonald MunirMunirMunir SheikhPhilip Sheikh Sheikh Carl Salzman Dan Ciuriak Chrystia Freeland Janice MacKinnon Munir Sheikh Scott ClarkGuyGuy GuyGiorno Giorno Giorno Stephen Greene LindaLindaLinda Nazareth Nazareth NazarethVelma McColl AlexAlex WilnerAlex Wilner WilnerSean Speer Ken Coates Stanley Hartt David McDonough John Thompson StephenStephenStephen Greene Greene Greene GeoffGeoffGeoff NorquayNorquay Norquay Celine Cooper Carin Holroyd Shuvaloy Majumdar Gil Troy Philip Cross Dean Karalekas Michael Watts Past contributors: Mary-Jane Bennett, , Massimo Bergamini, Ken Boessenkool, Brian Bohunicky, , PastPast contributors: contributors:Laura Dawson Mary-Jane Mary-Jane Bennett, Bennett, CarolynPaul Carolyn Kennedy Bennett, Bennett, Massimo Massimo Bergamini, Bergamini,Ted Menzies Ken Ken Boessenkool, Boessenkool, Brian BrianAlex Bohunicky, Bohunicky, Wilner Scott Scott Brison, Brison, Derek Burney, Catherine Cano, Dan Ciuriak, Scott Clark, Philip Cross, Celine Cooper, Peter DeVries, Don Drummond, John Duffy, DerekDerek Burney, Burney, Catherine Catherine Cano, Cano, Dan Dan Ciuriak, Ciuriak, Scott Scott Clark, Clark, Philip Philip Cross, Cross, Celine Celine Cooper, Cooper, Peter Peter DeVries, DeVries, Don Don Drummond, Drummond, John John Duffy, Duffy, Patrice Dutil, Joseph Fantino, Daniel Gagnier, Brad Lavigne, Tasha Kheiriddin, Jeremy Kinsman, Steven Langdon, Velma McColl, PatricePatrice Dutil, Dutil, Joseph Joseph Fantino, Fantino, Daniel Daniel Gagnier, Gagnier, BradCover Brad Lavigne, photo:Lavigne, Tasha Adam Tasha Kheiriddin, Scotti Kheiriddin, (PMO) Jeremy Jeremy Kinsman, Kinsman, Steven Steven Langdon, Langdon, Velma Velma McColl, McColl, Ted Menzies, Robert P. Murphy, Peggy Nash, Gil Troy, Michael Watts. TedTed Menzies, Menzies, Robert RobertProduction P. Murphy,P. Murphy, designer: Peggy Peggy Nash,Renée Nash, GilDepocas Gil Troy, Troy, Michael Michael Watts. Watts. The contributors to this publication have worked independently and are solely responsible for the views presented here. TheThe contributors contributorsThe toopinions thisto this publication arepublication not necessarily have have worked those worked ofindependently the independently Macdonald-Laurier and and are areInstitute,solely solely responsible itsresponsible Directors for for orthe Supporters. the views views presented presented here. here. The contributors to this publication have worked independently and are solely responsible for the views presented here. 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insidepolicyinsidepolicy [march].indd [march].indd 2 2 14-04-0114-04-01 10:00 10:00 AM AM From the editors Contents

elcome to MLI’s annual Policy-Maker of the Year issue. Past 4 Government must consult First Nations who support development Stephen Buffalo Wrecipients have included: Minister of Justice Jody Wilson- Raybould, Truth and Reconciliation Commission chair Murray 5 The Supreme Court’s duty to consult ruling will Sinclair, former Foreign Minister John Baird and former Bank of create immense uncertainty Dwight Newman Canada Governor Mark Carney. This year, we are pleased to name Chrystia Freeland, Minister 6 LNG deal shows benefits of working with of Foreign Affairs, as our Policy-Maker of the Year. As documented First Nations Sharleen Gale and Ken Coates by Jennifer Campbell, Minister Freeland has taken on a troubled world in 2018 and come out on top. Her impact is particularly 7 Policy-Maker of the Year: Chrystia Freeland notable when it comes to negotiating the new US-Mexico-Canada Jennifer Campbell trade agreement (USMCA) and responding to Russian aggression, 10 Chrystia Freeland and the return of a principled as outlined by Christopher Sands and Marcus Kolga, respectively. Canadian foreign policy Marcus Kolga Yet there is still plenty that needs to be done on Canada’s foreign 12 In Freeland we trust Christopher Sands policy file. J. Michael Cole provides a sobering warning on the danger posed by China’s “sharp power” operations against the West – 14 On Huawei and 5G, Canada must pursue our national interest a point reiterated by Duanjie Chen. Richard Fadden and Brian Lee Crowley Of concern has been the spectre of the Chinese telecommunica- tions giant Huawei’s involvement in 5G mobile networks. Richard 15 China threatens the democratic world order and Canada can’t be a weak link J. Michael Cole Fadden and Brian Lee Crowley are very clear on the need for Canada to join most of our Five Eyes partners in denying Huawei 17 Resisting the Chinese Communist Party’s silent entry to our own 5G network. invasion Duanjie Chen As noted by Scott Simon, Canada would also do well to improve 19 Learning from Taiwan’s push to diversify trade trade with our fellow democracy Taiwan rather than being fixated away from China on China. Laura Dawson suggests that Canada use the opportunity Scott Simon provided by the recent signing of USMCA to embrace the United 21 Now that the USMCA dust has settled, Canada States. It would help if Canada improved its defence procurement should join Team America process too, as pointed out by Richard Shimooka. Laura Dawson Beyond foreign policy, Sean Speer warns about the need for 22 should be concerned about the fighter Ottawa to make tough choices when it comes to its fiscal deficits – jet replacement process although, in a separate article, he gives Finance Minister Bill Morneau Richard Shimooka credit when it comes to his stance on reforming on pharmacare. He 23 Mr. Morneau’s “gap filling” approach on also joins Crowley in offering thoughts on how to create conditions Pharmacare is the right course for a more dynamic Canadian economy. Sean Speer Linda Nazareth warns about some worrying wage trends in the 24 Creating the conditions for a dynamic, growing, modern economy. Another concern is Ottawa’s use of carbon taxes, and inclusive economy as noted by Philip Cross. In a separate article, Cross also points Sean Speer and Brian Lee Crowley to some good economic news with the recent liquified natural gas 26 Regaining trust among investors through LNG (LNG) projects in BC. Philip Cross We will need to work with First Nations to maximize the benefits 27 Perpetual deficits and the failure to make tough for everyone in these natural resource projects, as noted by Sharleen choices Sean Speer Gale and Ken Coates. That will require greater clarity on consulta- tions with First Nations – a point raised by both Dwight Newman 29 Superstar sectors, superstar workers, and worrying wage trends Linda Nazareth and Stephen Buffalo. As this is the last issue of the year, Merry Christmas and happy 30 Carbon taxes are just another futile government holidays from MLI! plan to change society Philip Cross

INSIDE POLICY • The Magazine of The Macdonald-Laurier Institute 3 CONSULTING FIRST NATIONS Government must consult First Nations who support development

Bill C-69 will undercut Indigenous autonomy while shifting more authority to environmental interveners.

possibility of becoming part-owners of the pipeline. Bill C-69, if implemented in its current form, would create a much slower and more burdensome assessment and evaluation process, adding complicated impact-assessment requirements that would significantly broaden the scope and reach of the required evaluations. This would serve, in our view, as a major disincentive to investment and could bring grievous harm to our economic plans.

Bill C-69, if Dominik Vanyi implemented in its Stephen Buffalo commitment to a new relationship with current form, would Indigenous people in Canada. In action, he federal government’s sweeping however, he has clearly privileged those create a much slower Tenvironmental legislation, which is Indigenous peoples, our friends and and more burdensome now before the Senate, has the potential relatives, whose perspective aligns with the to undermine the hard-won gains of more radical environmental movement. assessment and Indigenous people in the natural-resource The Liberal government cancelled evaluation process. economy. But Bill C-69 is being rushed the Northern Gateway Pipeline without through by a government that does not consulting properly with Indigenous seem to understand its obligations to consult peoples in the region. The government The First Nations who share my comprehensively with Indigenous peoples. unilaterally imposed a ban on tankers along concerns care deeply about the environment, As we have seen repeatedly in recent the West Coast, again without discussing and we resent the implication of statements years, the government of Canada appears to the economy-destroying impact of this by the government of Canada and consult primarily with people and organiza- decision on Indigenous peoples. The same the environmental movement that tions that share its views on environmental is true of the moratorium on oil and gas local Indigenous peoples require additional issues. It pays much less attention to other exploration in Arctic waters. And Ottawa’s oversight over the development process. We Indigenous groups, equally concerned management of the Trans Mountain work more closely than ever with resource about environmental sustainability, who Pipeline, again, has privileged the views companies and are pleased, in general, with seek a more balanced approach to resource of environmental groups much more than the development plans and environmen- development. oil- and gas-producing nations, putting tal protections that we have negotiated in Since his government was elected at risk a project that had the potential to recent years. in 2015, Prime Minister bring great benefits to our communities. has repeatedly spoken about his personal Many of us are in fact eager to explore the Continued on page 31

4 INSIDE POLICY • The Magazine of The Macdonald-Laurier Institute CONSULTING FIRST NATIONS The Supreme Court’s duty to consult ruling will create immense uncertainty The Mikisew Cree ruling fails to make a clear decision on the issue of Indigenous rights.

Dwight Newman

anadians have now taken in the Cheadlines: The Supreme Court of Canada has said governments do not have a duty to consult Indigenous communi- ties when considering, drafting or passing laws. The Mikisew Cree, who had taken a case on the issue to the Supreme Court of Canada after some initial success in the Federal Court, have expressed profound disappointment in the result. But there is another reason to be disappointed. This is a much more complicated ruling than many might first realize. And while courts are meant to decide legal issues and to make the law clear so it guides conduct, a closer look shows that this ruling has actually perpetu- ated uncertainties and possibly created Courtesy Court Supreme Landreville of Canada | P. new ones. The Mikisew Cree First Nation in Alberta went to the Federal Court after Ottawa introduced two bills in 2012 that The honour of the Crown is an overarching altered environmental laws. The Mikisew legal principle requiring governments to Cree said the changes could affect their treaty rights and sought a judicial review engage fairly with Indigenous communities. of the drafting process. They said Ottawa’s duty to consult with them under what is known as the honour of the Crown should duty to consult Indigenous communi- beyond that point, Justice Rosalie Abella have applied. They won, but the Federal ties on contemplated actions and Justice Sheilah Martin indicate in their Court of Appeal ruled in December that could negatively affect their Aborigi- written opinion that, although they agree 2016 that the Federal Court did not have nal or treaty rights is derived from it. the Federal Court could not intervene as jurisdiction to carry out a judicial review Although the Supreme Court was requested, governments do have a duty to of legislative action and that the duty-to- unanimous in ruling against the Mikisew consult with potentially affected Indigenous consult doctrine could not apply. Cree, it split four ways on the reasons. All communities before passing laws. The honour of the Crown is an the judges agreed on a technical point that However, it is the judgment of Justice overarching legal principle requiring the statute establishing the Federal Court Andromache Karakatsanis writing for governments to engage fairly with does not grant it the jurisdiction to review Indigenous communities. Governments’ acts within the legislative process. But Continued on page 31

INSIDE POLICY • The Magazine of The Macdonald-Laurier Institute 5 NATURAL RESOURCE ECONOMY LNG deal shows benefits of working with First Nations Many First Nations communities want the opportunity to get more involved in the natural resource economy.

Sharleen Gale Ken Coates

t is important to recall all the stories Iattributing the delays in the Trans Mountain Pipeline, the collapse of the Enbridge Northern Gateway project, and the general malaise in the natural resource economy to Indigenous resistance. The symbolism of Indigenous protest has been too powerful for most commentators to pass up. It suited urban assumptions about

Indigenous attitudes to development. ofGovernment BC via flickr.com/photos/bcgovphotos But it was not uniformly true in the BC Premier , Prime Minister Justin Trudeau and Haisla First Nation Chief Councillor Crystal Smith at the signing of the LNG Canada agreement to build a $40 billion LNG facility in past. And it is far from true now. northern , October 2, 2018. Witness the recent announcement that the consortium LNG Canada will In the absence of resource and proceed with construction of its $40 infrastructure development, there are billion pipeline and processing facility precious few opportunities for wealth and in northern British Columbia. The loud job creation in Indigenous communities. All of the Indigenous rumbling from out West is the sound of The only alternative on offer – a continua- an embattled energy sector celebrating tion of the intrusive and unreliable welfare communities along the first bold sign in a few years that the economy the Government of Canada has the pipeline route country is willing to further unlock its constructed and maintained over the past natural resource wealth. 60 years – is simply not acceptable. have agreed to LNG Canada is not going it alone. Indigenous people are not slavish or the project. They have been working, with little uncritical supporters of resource develop- fanfare, to bring Indigenous communities ment. Negotiators for governments and on board. And they are there. All of the major companies can attest that Indigenous LNG Canada project will proceed without Indigenous communities along the pipeline peoples drive a hard bargain, with firm criticism. Environmentalists have already route have agreed to the project, with the requirements for environmental protection challenged the corporate and government now-standard assurances of employment, and appropriate assurances of a decent decisions and have threatened legal action and business and other opportunities in return return to the communities. They pushed demanded more environmental assessments. for their support and collaboration. The back against Northern Gateway and looked First Nations and non-Indigenous leaders in Haisla, in whose homeland the Kitimat cautiously at earlier plans for LNG projects. northern British Columbia have asked them terminal will be built, have long advocated But the First Nations kept listening and they to back off and to trust the local communities for the natural gas pipeline and refinery kept talking. to look after the region’s best interests. Some project, and stand to benefit substantially That so many First Nations have signed from the economic activity. on with the pipeline does not mean that the Continued on page 32

6 INSIDE POLICY • The Magazine of The Macdonald-Laurier Institute COVER FEATURE

Tough, calm, smart. Whether it’s taking on Trump and his hard-nosed negotiators or standing up for human rights in Russia, Canada’s foreign minister has taken on a troubled world and come out on top in 2018. Policy-Maker of the Year:

Chrystia Freeland via flickr.com/photos/pmtrudeau (PMO) Scotti Adam

Jennifer Campbell ne week after Canada and the US signed a deal that would save the North OAmerican Free Trade Agreement, Canadian Foreign Minister Chrystia Freeland invited her American counterpart, US Trade Representative Robert Lighthizer and his deputy, C.J. Mahoney, to her home in Toronto’s well-heeled Summerhill neighbourhood for dinner. Also invited was Canada’s ambassador to the US, David MacNaughton. When the trio of powerful guests walked in, Halyna and Ivan, she was also cooking the dinner. they were greeted by an apron-clad Freeland, who On the menu? Alberta beef, of course, cooked was not only entertaining them in the home she by a native of Peace River, Alberta. No reports shares with her husband, New York Times writer on whether there was any now-less-protected Graham Bowley, and their three children, Natalka, Canadian dairy on the plate.

INSIDE POLICY • The Magazine of The Macdonald-Laurier Institute 7 “She certainly doesn’t put on airs or Guajardo, according to MacNaughton. Not ers – original equipment manufacturers anything,” says MacNaughton, of his visit to say there weren’t rocky moments. (OEMs), auto parts and dairy interests, to Freeland’s busy family home. “It was just “That negotiation was a real grind for provincial representatives and her NAFTA the two of us [MacNaughton and Freeland] 18 months,” MacNaughton says, adding advisory board – was remarkable and her and the two of them [the American officials], that it’s rare for Freeland to lose her temper. energy level is “phenomenal.” her kids, her aunt and her husband. And Most politicians he’s known shout and “use He calls her a woman of strong – always she cooked.” bad language,” whereas Freeland’s reaction informed – opinion, but he says she’s a good Asked whether the Mexican officials is more of a “slow burn.” Referring to a late listener who’s open to other, even opposing, were invited, MacNaughton candidly replies, summer conversation with the Mexicans opinions. “I think their invitation got lost in the mail.” after they threw Canada to the wolves, he Equally comfortable at state dinners and The new NAFTA, the US-Mexico- says she was “extraordinarily direct.” camping with her family in the Rockies, the Canada Agreement, is Freeland’s crown “She was calm; she didn’t raise her minister travels by bike between her home jewel in a policy portfolio that also includes: voice, but they had no doubt at the end of it and her Toronto office. She’s unassuming but calling Venezuela to account for its crumbling that they’d just been given quite the lecture. also unabashed in her brand of principled

Sometimes you hear the phrase, the world needs more Canada; I think the world needs more Chrystia Freeland.” – retired MP and human rights activist democracy and applying sanctions against She’s forceful. She doesn’t hold a grudge, foreign policy, something retired MP and Maduro supporters; spearheading, adopting but she doesn’t forget.” human rights activist Irwin Cotler lauds. and using the Sergei Magnitsky law, which MacNaughton says during the negotia- “She’s been an exemplary foreign authorizes the government to impose asset tions, there was a lot of cross-pressure on minister and a leading global voice for a freezes and travel bans on human-rights the Canadians. rules-based liberal international democratic abusers around the world; saving and The Americans were hard bargain- order,” Cotler says. “Not only in her words, resettling some of Syria’s White Helmets, ers, and there was plenty of rhetoric about but in her deeds.” a Western-backed volunteer organization Freeland and why she was being so tough. He credits her with passing the credited with saving hundreds of thousands “She didn’t let any of that get to her. We had Magnitsky legislation, which he introduced of lives in the Syrian civil war; advocating a game plan we’d agreed to and we stuck as a Liberal MP in opposition, named and practising a feminist foreign policy in to it. She was very focused and disciplined.” after murdered Russian lawyer, Sergei practical, non-rhetorical ways; being the first Regarding US President Donald Trump’s Magnitsky. “It was her moving it through Western leader to call what’s happening to the tweets about her, MacNaughton said they Parliament that resulted in us adopting it, Rohingya in Myanmar a “genocide”; carefully expected that distraction and she “just let it then sanctioning Russians, Venezuelans balancing the Israel-Palestinian file such that roll off her back. That’s part of [her] style. and South Sudanese,” he says. At the G20 both parties respect her; and making it clear You can’t let that sort of thing get to you.” in early December, she announced that 17 to Saudi Arabia that Canada isn’t going to MacNaughton also said he admires her Saudi Arabians would be sanctioned, too. pussyfoot around when it jails Canadians for intellect and that she’s not content to just Marcus Kolga, a filmmaker, human political reasons and allegedly kills dissidents. understand policy issues at the 30,000-foot rights advocate and Canadian expert on And she’s done all of this with an level. In the trade deal, she dug deeply on Russian and Central and Eastern European uncommon steadiness, her fans attest. While complex issues such as rules of origin and issues, agrees the legislation, which he’d she was deeply angry with the Mexicans, who intellectual property. been pushing for years, wouldn’t have negotiated a side deal with the US that could “One of our top negotiators said they’d been passed without her. “In the current have cut Canada out of NAFTA, Minister never worked with a minister who actually geopolitical environment, Canada couldn’t Freeland has maintained a good relationship understood all the details,” MacNaughton ask for a better foreign minister,” Kolga with Mexican Economy Minister Ildefonso says, adding that her outreach to stakehold- says. But Kolga adds that he’d like to

8 INSIDE POLICY • The Magazine of The Macdonald-Laurier Institute see faster movement on using the law to “It was fine that she tweeted her disdain democratic wheels came off, gives Freeland implement sanctions, and he thinks the in English,” Majumdar says. It was not fine credit for the directness with which she government needs to make a bigger priority that [she] doubled-down in Arabic and approached this challenge. of co-ordinating responses to Russian tried to look like the government of Canada In 2017, the Maduro government disinformation campaigns. was destabilizing a G20 partner.” threatened to shut down the legislative Not everyone agrees she’s spreading Around the corner from Saudi Arabia, assembly and Venezuelans took to the streets. liberalism globally, however. David in Israel, most agree Freeland has done a Rowswell says they debated what to advise Carment, professor at the Norman Paterson good job. the minister to say. School of International Affairs, issues “On March 31, 2017, the communi- annual report cards on foreign policy and qué comes out from Chrystia Freeland’s he gave Freeland a B- last year, arguing she office saying ‘Canada calls on Venezuela to doesn’t “represent liberal values” and calling restore democracy,’” Rowswell recalls. “That her “deeply conservative.” He had yet to She’s openly made her one of the first world leaders to assign her a grade for 2018. criticized Russia call a spade a spade in Venezuela. It was a On the Saudi file, Freeland has been watershed moment. Very quickly many other criticized for executing foreign policy “by over its invasion of countries started using the same language.” tweet,” but Cotler says her tweet calling Ukraine, and its The other file on which Freeland has for the release of political prisoners Raif distinguished herself, says Rowswell, is and Samar Badawi was the culmination of latest moves in the Russia and Ukraine. She’s openly criticized ongoing advocacy. Sea of Azov. Russia over its invasion of Ukraine, and its “She stays with these cases,” he says. latest moves in the Sea of Azov. “Sometimes you hear the phrase, the world Kolga remembers when Freeland’s needs more Canada; I think the world needs “What can Canada do as a friend to predecessor Stéphane Dion announced more Chrystia Freeland.” Israel?” Majumdar asks. “Bilaterally, there are Canada would re-engage with Russia, but Retired Canadian ambassador Larry things that aren’t necessarily sexy – science that all changed when Freeland took over. Lederman agrees she should be pushing the collaboration, co-operation between security “She clearly understands the Putin Saudis, but he doesn’t agree with announc- officials, working to counter the boycott regime,” he says. “It’s not the kind of regime ing “foreign policy by tweets.” The tweet, divestment sanctions movement – all of with which you can engage in any formal he says, caused trade interruptions and which this government has maintained.” way, and I think Dion believed he could. He problems with other Gulf countries that The Centre for Israel and Jewish was completely naïve about the situation; “don’t agree with embarrassing the Saudis.” Affairs CEO Shimon Koffler Fogel says his Chrystia is not. She understands eastern Ben Rowswell, Canada’s one-time organization has been impressed. European politics very well.” ambassador to Venezuela, argues, however, “On the files we follow most closely, Lederman, who says overall her that tweeting is common practice in Minister Freeland has been strong, performance is “okay,” isn’t sure she’s diplomacy. “The story is not about us as a consistent and principled,” Koffler Fogel performing ideally on Russia, however. country using an inappropriate method, it says. “She has demonstrated herself to be “Why isn’t she sitting down with [Sergey] was a massive overreaction by Saudi Arabia. an engaged and committed friend of Israel, Lavrov?” he asks. They really quite embarrassed themselves as appreciative of Israel’s serious security Prime Minister Justin Trudeau’s mandate a country with their reaction.” challenges and enthusiastic about shared letter to Minister Freeland in early 2017 Recent revelations from Global Affairs values between Canada and Israel. “ asked her to “restore constructive Canadian Canada documents released to Global News During her October visit to Israel, she leadership in the world” and “promote also show that the tweet was the culmination struck a good balance, says Cotler, who was Canada’s interests and values.” She has her of months of failed diplomacy, including there at the same time. detractors, but the hard-earned medals in high level meetings and communications. “She got praise in Ramallah and her stoic, principled war chest make it hard Shuvaloy Majumdar, Munk Senior Jerusalem,” he says. “She didn’t change what to deny she’s working toward that goal. Fellow with the Macdonald-Laurier she had to say in either place.” Institute, thinks she could have approached Rowswell, who was Canada’s ambassa- Jennifer Campbell is editor of Diplomat & the file differently. dor to Venezuela when the country’s International Canada magazine.

INSIDE POLICY • The Magazine of The Macdonald-Laurier Institute 9 COVER FEATURE Adam Scotti (PMO) via flickr.com/photos/pmtrudeau (PMO) Adam Scotti Chrystia Freeland and the return of a principled Canadian foreign policy

Freeland’s leadership on human rights and security has made it easy to select her as MLI’s Policy-Maker of the Year.

Marcus Kolga interests-based with little attention paid human rights record is well known. to human rights. Among the most tragic On the eve of the 2015 federal election, hrystia Freeland has put Canadian example, was the Chrétien government’s the Liberal Party made a commitment Cforeign policy back on track, making refusal to send Canadian troops or even regarding the direction of their foreign Canada a leader on several foreign policy intervene within the UN in order to stop policy on human rights under a Trudeau fronts like human rights, security, and the 1994 genocide of Tutsis in Rwanda. government. If elected, they promised working with Canada’s allies to maintain The shift towards a value-based foreign to continue their “support for Ukraine’s the rule-based order. Despite Canadians policy began with Paul Martin and became Euro-Atlantic integration and in particu- self-identifying their government as promot- dominant under , whose lar, Ukraine’s admission into NATO,” ing human rights and democratic freedoms, stand against the Kremlin’s aggression in and promised to “continue to strongly principled foreign policy has not always been Ukraine and Russia’s appalling domestic condemn Russia’s belligerent actions a priority for previous governments. Throughout the 1990s and early 2000s, ABOVE: Minister Freeland takes part in a panel discussion at the Council on Foreign Relations in Canada’s foreign policy was primarily New York City, September 25, 2018.

10 INSIDE POLICY • The Magazine of The Macdonald-Laurier Institute against Ukraine.” Russian human rights For Kremlin watchers, it came as no that Canada can continue to grow in this abusers were also put on notice by a Liberal surprise that she was quickly and viciously role and take up the leadership that’s been commitment to adopt US-style Magnitsky attacked by Kremlin propagandists when forfeited by the US.” legislation to place targeted sanctions – the change was made public. Shortly after Former Estonian President Toomas asset freezes and visa bans – on corrupt the announcement, a Moscow-based, Hendrik Ilves says that Freeland “is Kremlin officials and oligarchs. pro-Putin conspiracy theory website with considered one of the few foreign ministers After taking power, Liberal alleged links to the KGB published an who both knows something – indeed a lot commitments towards a continued, article intended to smear Freeland as a – about foreign affairs and has the courage robust, values-based foreign policy towards Nazi apologist – a classic Soviet-era tactic to take a principled stand.” Eastern and Central Europe and Russia that has been re-adopted by the Kremlin The Minister’s latest announcement, wavered. A policy of re-engagement with with renewed venom. The Kremlin’s to apply Canadian Magnitsky sanctions on the Putin regime was undertaken by then disinformation attack was briefly amplified the 17 Saudi nationals who are suspected Minister Stéphane Dion, causing concern by Canadian media before being identified of murdering journalist Jamal Khashoggi among allies and outright alarm among and quickly condemned as a disinforma- in their embassy in Istanbul, was welcomed Russian human rights activists. tion campaign cooked up by Moscow. by international human rights advocates and media. Yet there is always room for improve- ment. The 17 Saudis are only the third Thanks to Chrystia Freeland, Canada has group of names to be added to Canada’s become a great spokesperson for the free world.” Magnitsky list since the legislation was adopted in late 2017; 52 were initially – Garry Kasparov added and one was added in February 2018, bringing the total to 70. Many obvious candidates are missing from our In March 2016, the Kremlin Much to the chagrin of the Kremlin lists, including Vladimir Yakunin, the immediately responded to the new and other repressive, authoritarian regimes ultra-corrupt former head of Russian approach “as outlined by Minister Dion, around the world, Chrystia Freeland Railways who continues to elude Canada’s to end Canada’s self-isolation from Russia worked with both Conservatives and the sanctions, despite being specifically … [as] a timely and welcome develop- NDP in late 2017 to help Parliament named by the Liberals in a 2015 election ment.” During Dion’s tenure, Canada unanimously pass Magnitsky human commitment document as someone who would dial back criticism and reestablish rights sanctions legislation. This legislation should be sanctioned. relations with the Putin regime, and the was introduced as a Conservative private Monitoring and enforcement, both Magnitsky legislation promised by the members bill in the Senate by Raynell of which are as important to the deterrent Liberal government would be shelved. Andreychuk and James Bezan in the House effect of sanctions, have not been updated, Former US Ambassador to Russia, of Commons. and a broader implementation strategy and architect of Obama’s failed reset with Canada’s Sergei Magnitsky Law made is still “in the works.” It should be noted Russia, Mike McFaul, publicly expressed international headlines and inspired many that the 2018 federal budget included $22 his disappointment with Dion’s rejection Canadian allies to consider adopting their million “for the development of sanctions of Magnitsky legislation. As he went on own Magnitsky legislation. Expectations policy, coordination with internation- to say, “do you stand for human rights or for Canada to take a greater international al partners, and providing guidance to not? If this is an important value then this leadership role have grown ever since. Canadians on sanctions obligations.” is something that should be done.” Russian opposition activist and former Canada must also do more to help As domestic and foreign criticism of chess grandmaster and world champion, activists, like Huseyincan Celil who has the government’s foreign policy mounted, Garry Kasparov, told me that “thanks to languished in Chinese prisons since 2006. a decision was made in January 2017 to Chrystia Freeland, Canada has become An ethnic Uighur, Celil’s arrest on trumped reset Canada’s foreign policy when Justin a great spokesperson for the free world, Trudeau appointed Chrystia Freeland as which is currently without a real leader.” Minister of Foreign Affairs. He continued, saying that he’s “confident Continued on page 32

INSIDE POLICY • The Magazine of The Macdonald-Laurier Institute 11 COVER FEATURE In Freeland we trust

Foreign Minister Chrystia Freeland’s hard work and social virtues proved instrumental in Canada being able to reach an agreement on USMCA.

Christopher Sands

he first time that I met Chrystia TFreeland was at the US Department of State in March 2016. The occasion was Canadian Prime Minister Justin Trudeau’s visit to Washington, where he was so warmly greeted by US President Barack Obama that the media in both countries characterized the relationship as a “bromance.” Freeland was Canada’s Minister for International Trade then and joined the prime minister for a luncheon hosted by Secretary of State John Kerry. The “State Lunch” was the more wonkish alterna- tive to the state dinner hosted for celebri- ties, party donors, and senior adminis- tration officials at the White House. It drew a crowd of foreign policy establish- ment figures and since the guest of honor US State Department photo/ Public Domain Department photo/ Public State US was Canadian, the Canada-watchers in Foreign Minister Chrystia Freeland meets US Secretary of State Mike Pompeo at the Department Washington were invited. of State, in Washington, D.C., May 11, 2018. Trudeau was poised and dignified, carrying off the occasion with aplomb. Freeland was not the centre of attention, but she nonetheless made an impression on me. Perhaps even more than her boss, she was at ease in this room. One moment, she gave rapt attention to Kerry, who at six-foot-four-inches towered over Freeland’s five-foot-two-inches frame, with her intensity keeping other well-wishers respectfully at bay. In another moment, she embraced the seated Henry Kissinger in a bear hug before chatting affectionately with him for several minutes. Freeland was well-known to the internationalist establishment in Washing- Adam Scotti (PMO) via twitter.com/CanadianPM (PMO) Scotti Adam ton, friendly with Democrats and Republi- Foreign Minister Freeland stands behind Prime Minister Justin Trudeau as he signs USMCA with cans alike. This is one reason why Freeland the President of the United States, Donald J. Trump, and the President of Mexico, Enrique Peña is one of very few Canadian foreign Nieto, November 30, 2018 during the G20 Summit in Buenos Aires, Argentina.

12 INSIDE POLICY • The Magazine of The Macdonald-Laurier Institute ministers who people in Washington could with Freeland herself burst into the open global markets. Freeland understands this name from memory. in a sharp rebuke of Trudeau by Trump better than many members of the Trudeau The 2016 election of Donald Trump following the June G7 Summit in Charlev- government, and has been able to articulate as the 45th US president was a repudia- oix. Then Freeland accepted an award from this to Canadians from Bay Street to main tion of the US establishment and leaders the editors of the Carnegie Endowment street. It was this expertise and talent for of both US political parties by disgrun- for International Peace’s magazine, Foreign communication that Trudeau needed to tled voters. The Trump administration Policy, as “diplomat of the year” with a keep Canadians on his side as Canada’s translated its anti-establishment mandate speech that cemented her role as a fighter economic future was called into question into a campaign to revise the bargains that for Canadian values, doyenne of the by Trump’s revisionist worldview. underlay the postwar liberal international- American establishment, and one of the In his 1995 book, Trust: The Social ist order that the United States built and most vocal and articulate foreign critics of Virtues and the Creation of Prosperity maintained. Trump pledged to negotiate Trump’s foreign policy. Francis Fukuyama identified trust as the better deals that benefited the United For several weeks in August and essential ingredient for achieving a prosper- States more, from NATO collective security September, it appeared that Trudeau and ous economy and for advancing economic guarantees to trade liberalization via the Freeland might have lost so much goodwill integration. President Trump has won the World Trade Organization and NAFTA. in the White House that the United States trust of many alienated US citizens who believe that on trade policy and other issues, Trump fights for them. Chrystia Freeland’s capacity to build Former Governor General David a bond of trust across national and Johnston has a new book, Trust: Twenty Ways to Build a Better Country, in which he partisan divisions is remarkable. makes a similar point in a more personal way. Fukuyama sees trust as necessary for capitalism and democracy to function; The renegotiation of NAFTA was the would negotiate a bilateral deal with Mexico Johnston argues that leaders and citizens element of President Trump’s agenda that instead. Yet Freeland had cultivated a relation- must demonstrate that they are worthy of most threatened Canada. The United States ship with Mexico’s Idelfonso Guajardo that trust, because there are risks in trying to is Canada’s largest export market but also its proved its value by giving Canada insight achieve anything worthwhile, and we will gateway to global markets via participation into what was happening when Canada follow leaders we trust even when we are in US-managed supply chains and utilizing was out of the talks. It was also under her not confident that things will work out for US ports and infrastructure in some cases. leadership that Canada had undertaken the best. First as trade minister, then as foreign an unprecedented outreach campaign – As I saw when we first met, Chrystia minister and Trudeau’s lead minister coordinated by Canada’s ambassador David Freeland’s capacity to build a bond of trust for relations with the United States, MacNaughton and supported by provincial across national and partisan divisions is Chrystia Freeland championed free trade premiers of all political stripes – with state remarkable. Her defence of Canada’s interest and collective security as the American governors and members of the US Congress, in free trade and continued economic principles that had sustained global peace who had in turn demonstrated vocal support integration with the United States, issues and prosperity for more than half a century. for Canada’s inclusion in the negotiations. By that bitterly divided Canadians just 30 years She expressed the ideals once common to the end of September, Canada was back at the ago, was inspiring. That Freeland prevailed members of the Washington establishment table as the United States-Mexico-Canada even as the United States imposed tariffs on when no one in Congress or the White Agreement (USMCA) was announced as a Canadian softwood, steel, and aluminum House dared to do so. It was this steadfast- proposed replacement for NAFTA. and at a time when the White House is ness (or sanctimony) that often annoyed the Thirty years ago, enhanced market access occupied by someone many Canadians Trump administration, from the president to the United States was a risk worth taking dislike was historic. to Secretary of Commerce Wilbur Ross to for Prime Minster Brian Mulroney. Today, Freeland kept the prime minister and her US Trade Representative Robert Lighthizer. it is a lifeline for the Canadian economy caucus colleagues behind her policy approach In the summer of 2018, the Trump which increasingly relies on supply chain administration’s anger with Canada and linkages through the United States to reach Continued on page 33

INSIDE POLICY • The Magazine of The Macdonald-Laurier Institute 13 HUAWEI AND 5G On Huawei and 5G, Canada must pursue our national interest The close relationship between Huawei and a Chinese government with a history of cyberespionage should be worrisome. huawei.com/ca/press-events/media-kit/gallery

Richard Fadden ly close to the upper echelons of the People’s Brian Lee Crowley Republic of China (PRC). Indeed, Huawei There are plenty operates in what the PRC calls a strategic n November 28, New Zealand joined of reasons why sector, a core of their domestic security OAustralia and the United States in interests. The company supplies the PLA banning Chinese telecom giant Huawei intelligence itself and is officially referred to as a national from participating in the next-genera- professionals are champion. tion mobile data networks. One of New China has a long history of conducting Zealand’s largest telecommunications alarmed by Huawei’s extensive cyberespionage operations against networks had proposed using Huawei’s involvement in the West. Canada is not immune: There equipment in its 5G networks, but the is evidence of the Chinese hacking Nortel government rejected it on the grounds that our 5G networks. (before its demise in 2009), the National it posed “significant national security risks.” Research Council and the potash industry. This decision has now placed Canada There are plenty of reasons why intelli- Ottawa has experienced breaches in energy, in the uncomfortable position of being a gence professionals are alarmed by Huawei’s natural resources and the environment, and minority among its partners in the Five Eyes involvement in our 5G networks. China is widely thought to be the culprit. intelligence-sharing community. While the When we hear the name Huawei, The close relationship between Huawei United Kingdom has not yet formally the company wants us to picture slick and a Chinese government with a history of banned Huawei, Britain’s main telecom smartphones and a normal telecommunica- cyberespionage should be worrisome. Add company, BT Group Plc, has announced tions firm endowed with what its advertis- the fact that China’s 2017 National Intelli- they will not use Huawei 5G equipment. ing calls a “higher intelligence.” gence Law gives Beijing the power to compel Now Washington has begun a campaign to Yet, it is not a normal telecom company. Huawei’s support for its intelligence work, dissuade its allies from doing 5G business Founded by a former officer of the People’s with Huawei on security grounds. Liberation Army (PLA), Huawei is extreme- Continued on page 33

14 INSIDE POLICY • The Magazine of The Macdonald-Laurier Institute CHINA’S SHARP POWER China threatens the democratic world order and Canada can’t be a weak link Despite the warnings of our allies, Ottawa isn’t taking the threat of authoritarian China seriously.

J. Michael Cole Today, we know those attitudes have ture investment and whose leaders were been instrumental in helping China develop looking for alternatives to the IMF and or many years, experts warned its economy and lift millions of people World Bank, and so the “China model” Fthat China would threaten the system out of poverty. But those same attitudes took off across Africa, Southeast Asia, and values that define Western civiliza- have also allowed the Chinese Communist and elsewhere, growing China’s influence tion. Analysts in Taiwan, Hong Kong and a Party to avoid modernizing in line with in those countries one project at a time. handful of democracies on China’s periph- Western ideals. Instead, the most success- We’ve even begun to see censorship of any eries, as well as a number of intelligence ful communist party in world history has criticism about China in these African agencies worldwide, saw signs – especially ramped up a Chinese nationalism that has countries. after Chinese President Xi Jinping came to reached an alarming pitch. Meanwhile, it However, that strategy can only go so power – that China’s long-standing strate- has tightened its controls on all aspects of far. It was one thing for China to conduct gy of “lying low” was coming to an end. Chinese society, cracking down on dissidents, business with autocrats, but democracies Beijing was now keen to challenge the rules the press and intellectuals, threatening impose rules around transparency and of the game. democratic Taiwan, breaking promises leadership changes that stood in the way Indeed, China was already at it, using over Hong Kong, and launching a disturb- of Beijing’s ambitions. To undermine the various techniques that are now making ing “thought reform” campaign against the democratic firewall, Beijing needed a novel headlines in the West. Xi himself, in Uighurs in . approach to circumventing those rules. In addressing the Party Congress, has put While his predecessors wisely opted other words, the Party needed to change us much greater emphasis on, and markedly not to defy the international system, Xi has – to make our societies more like China’s.

While his predecessors wisely opted not to defy the international system, Xi has overturned that policy.

increased the capabilities of, the United overturned that policy, sensing an Front to facilitate China’s expansionist, and opportunity to use China’s new now nearly global, ambitions. But we were influence and economic might being Cassandras, critics countered. The to refashion the world order to popular view was that engagement and, better suit its ambitions, and indeed, willful ignorance of the Chinese reacting to perceived weakness Communist Party’s starkly different in the democratic world worldview would eventually make China following the 2008 financial become more like us – liberal, rule-abiding, crisis, the election of Donald and perhaps democratic. Worse, our Trump, and Brexit. The Chinese cautions were ascribed to a Cold War government realized its money mentality, or we were being “anti-China” – went further in undemocratic racist, even. countries that needed infrastruc-

INSIDE POLICY • The Magazine of The Macdonald-Laurier Institute 15 For several years, China got away with as-usual engagement against the costs to own. A bipartisan letter from two US it. It established various networks, threw the democratic values we cherish. Through senators, as well as separate warnings from money around, created dependencies with various initiatives, the United States is now the former heads of CSIS and CSE, called infrastructure investment, students, and leading the charge by assembling like-minded on the Canadian government to reconsider tourism, gained influence within distracted democracies that desire a concerted response including Huawei in Canada’s 5G infrastruc- international institutions such as the UN to the challenge posed by China. ture. The US, Australia, and New Zealand and its affiliated agencies, and co-opted Unfortunately, Ottawa does not appear have already banned the firm from their own officials, intellectuals and business- to understand the urgency of joining 5G projects because of security concerns. people. While officials from targeted that concert of democracies. Canada Even as the Canadian government countries believed they were interacting recently allowed the Sanya Institute of ignores many of the warnings and with ordinary Chinese firms, officials, Deep-sea Science and Engineering, a unit recommendations made by its intelli- journalists, and representatives – and most of the Chinese Academy of Sciences, to gence analysts and allies, China continues were, indeed, normal – little attention was install underwater Chinese monitoring to acquire Canadian firms involved in paid to possible connections to the Chinese devices with Ocean Network Canada, sensitive sectors. Perceptions that Ottawa security apparatus, the Party’s United Front in waters near an American naval base isn’t paying sufficient attention to these, and to China’s “sharp power” in general, risk undermining trust in Canada’s reliabil- In other words, the Party needed to change us – ity as a member of the “Five Eyes” intelli- gence grouping; the same threat has faced to make our societies more like China’s. New Zealand, another member, in the past year. We should not forget that breaking the bonds that unite us is also part of Beijing’s Work system, or to the pervasive ideology on the west coast. Huawei, a Chinese- strategy, all with the aim of weakening the that underpinned their activities. based multinational that is developing 5G US-led liberal-democratic world order. Gradually, China developed a constel- infrastructure in Canada, has also been Ottawa risks turning Canada into lation of media, chambers of commerce, accused by an Australian intelligence source the weak link in that alliance of democra- businesses, think tanks, cultural associa- to have hacked a foreign network and shared cies. And so we are at a crossroads: we tions and other entities that could co-opt, the information with Beijing, according must decide whether we want to be in the intimidate, confuse, and distract our to the Weekend Australian. (Huawei has democratic camp or to side with those, officials, intellectuals, business leaders, and “categorically” denied that it has ever most of them undemocratic, that are the Chinese diaspora. Unbeknownst to provided or been asked to provide customer bandwagoning with a revisionist regime many, China’s political warfare and influence information for any government or that threatens the values and traditions that operations created boosters in Western organization.) make our world safer. We have to decide if academia, silenced critics of the Party, and Within the Western intelligence markets and money are less important than helped the Chinese military, often through community, Huawei’s long-suspected ties upholding our democratic rights – and front companies, to acquire technology it to the Chinese military, and the likelihood those who would threaten to undermine needed to modernize its forces, which now that the firm could install “backdoors” in them. We have to decide if we should trust threaten stability across the Indo-Pacific. its telecommunication systems, has been integral infrastructure with a company that Revelations of odious Chinese penetra- a long-standing concern, especially as the intelligence from our own agencies and our tion in Australia, New Zealand, the Czech firm has proposed itself as the sole provider allies says to be wary about. Making the Republic and elsewhere in recent years capable of installing 5G networks in various wrong choice could be disastrous. have sparked an awakening that was long countries. Critical infrastructure, such as overdue. We’ve come to realize that the communication networks, should not be J. Michael Cole is a Taipei-based security expert threat of authoritarian China is a fact open to firms which we know are affiliated and a former analyst with the Canadian Security of global affairs. And even as we negotiate with hostile forces. Intelligence Service in Ottawa. He is the author of trade deals and our businesses look to China Canada’s decision to forge ahead with the MLI report, The Hard Edge of Sharp Power: as an alluring market, our societies need to Huawei appears to ignore the advice of Understanding China’s Influence Operations weigh the benefits of continued business- both allies’ intelligence agencies and its Abroad.

16 INSIDE POLICY • The Magazine of The Macdonald-Laurier Institute CHINA’S SHARP POWER Resisting the Chinese Communist Party’s silent invasion

We need to stop foreign governments like China’s from taking advantage of our open, free and democratic system.

Duanjie Chen

recently joined a panel discussion at the IMacdonald-Laurier Institute with Profes- sor Clive Hamilton. MLI had brought us together to discuss Hamilton’s recent book, Silent Invasion: China’s Influence in Australia. In my mind, this is the first book to provide a full-spectrum analysis on the Chinese Communist Party’s (CCP’s) mindset, strate- gy, tactics, and organizational structure for its infiltration and influence efforts abroad. No wonder the CCP desperately tried to kill its publication. Exposing and overcoming the CCP’s silent invasion of our free world is essential for preserving our way of life – one that rests iStock on three cornerstones: the protection of private property rights, freedom of speech, The answers to both are an obvious “no.” China’s dark side with undesirable aspects and the rule of law. To my observation, Then ask these same questions but replace of the US. For example, earlier this year, there are five basic points for understand- “America” with China” and “Trump” with a distinguished fellow at the Asia Pacific ing the CCP and how we can best resist the “Xi Jinping.” The answers are clearly “yes.” Foundation of Canada (APFC) rationalized CCP’s infiltration on our soil. As soon as you enter China, you immediately Xi Jinping’s removal of China’s presiden- First, under the CCP, China remains lose access to Google, Facebook, Youtube, tial term limit, saying it was simply part of an authoritarian regime that should not be Twitter, The New York Times, The Financial larger international trends concerning the confused or mistakenly conflated with any Times, The Wall Street Journal, The Economist, concentration of authority in the hands of democratic state, particularly the United Bloomberg, Reuters, and so on. These websites single rulers. Indeed, he lumped it in with States, regardless of who occupies the are blocked simply because their content the “current political red flags in China, the White House. People not convinced of this rattles officials in China. This epitomizes US, and Russia.” basic point may ask themselves two simple the fundamental difference between the Such intentional distortion of concepts questions: governments of China and the US. Freedom and facts by Canadian pundits are further • Are you afraid of openly criticizing of speech and official censorship are the two evidence of the success of China’s influence on Trump in front of the American people, most visible yardsticks for taking the measure our public discourse and its efforts to portray from ordinary folks all the way to of any authoritarian regime. the CCP party state as a benign regime. high-ranking officials? To my dismay, some prominent pundits To be sure, this APFC fellow’s views • When you travel in America, do you in Canada boldly defend and promote are not unique among Western enablers of sense any government censorship in China’s image. And when they cannot avoid China. Many prominent American pundits public or online? criticizing the obvious, they absurdly equate do the same thing. What is unique is that

INSIDE POLICY • The Magazine of The Macdonald-Laurier Institute 17 the Canadian government seems to be order and its norms. To regard the CCP Chinese government cares about its own more willing to listen to these pro-China as a trustworthy partner, we have to move people’s well-being and how ruthless it is in voices than our own security and intelli- beyond accepting its words at face value – protecting its party-state and pursuing its gence agencies, which remain wary of the and instead assess its intention by its deeds. global dominance. challenge posed by China. Third, unlike in our free democrat- Fourth, many overseas Chinese Second, China under the CCP should ic system, Xi Jinping faces no domestic communities that are controlled or not be mistaken for a benign actor. It has no constraint on spending public funds to monitored by the CCP should not be equated intention of following through on its words maintain his grip on power, both domesti- with the Chinese as a people. Criticizing the or abiding by signed contracts, even if it has cally and abroad. According to official pro-CCP actions taken by these communi- not declared open warfare on international statistics: ties should not be misconstrued as racism norms and the international order. • Government spending in 2017 on “public but rather as protecting our way of life. Consider the current trade war between order and safety,” ranging from massive Lodging accusations of “racism” to stir up China and the US. It’s unfortunate that this civil surveillance to online censorship, anger among the Chinese diaspora is the trade war is still viewed by many as arising totalled US$239 billion or US$173 per CCP’s calculated way of shaking our resolve primarily from Trump’s protectionist capita, which is more than 80 percent of to defend our values. instincts, as opposed to what should rightly its public health spending (US$200 per We also need to bear in mind that the be seen as China’s persistent violation of capita), and more than half of its social recent wave of Chinese immigrants consists World Trade Organization (WTO) rules. safety net spending (US$341 per capita). of those who have the financial means to If we see China as a better trading partner Canada’s spending on public order and land on our shores and enjoy our fresh air, than America, then it is only natural to safety might be higher on a per capita safe foods, superior education, more civilized diversify our trade towards China. But the basis, but it’s only a fifth of its spending on society, and perhaps most importantly, the Australian experience should be a wake-up either public health or a social safety net. financial security that protects their substan- tial savings. These things are all unavailable in China. Otherwise, why would people from The Australian experience should be a China leave their homeland and rebuild their lives in a cultural environment that is so alien wake-up call to those who persistently and challenging? advocate a pro-China trade policy. Here, I emphasize a mentality that has been shaped by almost 70 years of CCP rule and indoctrination; this mentality has some distinctive features that escape most call to those who persistently advocate a • Over 34 percent of the CCP govern- Westerners: pro-China trade policy. ment spending was distributed in • The CCP is the foremost authority over all Another example of China’s challenge of various “economic affairs” that totalled Chinese born in China regardless of their global norms can be seen in the South China over US$1.3 trillion for 2017. Indeed, current citizenship. Therefore, following Sea dispute. In September 2015, Xi Jinping a modest estimate of China’s multi-year the CCP’s direction, rather than abiding stated that “China does not intend to pursue Belt and Road Initiative is US$1 trillion, by the law, is a red line for self-discipline. militarization” in the South China Sea. or over US$700 per capita. • Territorial sovereignty trumps human Yet, in May 2018, China for the first-time • In 2016, there were almost 300 million rights. Therefore, topics involving Taiwan, landed bombers on a disputed territory in migrant workers from rural China who Tibet, Xinjiang, and even the South China these waters. And on September 30, 2018, cannot legally settle in urban China and Sea are off limits in public discourse. a Chinese destroyer came within 45 yards whose average monthly earning was little • The CCP’s historical doubletalk and its of a US naval vessel and compelled it to more than US$600. Given their financial eclectic approach to free-market systems change course on its freedom of navigation responsibility for family back home, it is have instilled a mindset that does not value operation near reefs and rocks that Beijing an underestimation that there are only honesty and integrity but blind patriotism has tried to turn into artificial islands. 100 million Chinese living in extreme to China and worship of money. As these facts indicate, the CCP poverty. simply does not respect the international These numbers illustrate how little the Continued on page 34

18 INSIDE POLICY • The Magazine of The Macdonald-Laurier Institute CANADA-TAIWAN RELATIONS Learning from Taiwan’s push to diversify trade away from China

Rather than cozying up to non-market economies, Canada should support Taiwan’s inclusion in the Comprehensive and Progressive Agreement for Trans-Pacific Partnership.

Scott Simon

rade diversification seems increasingly Timportant to Canada, especially after US President Donald Trump’s heavy-handed negotiations on the new US-Mexico-Canada Agreement (USMCA). In what some observ- ers called a “poison pill,” Article 32.10 requires any party to consult with the others prior to negotiating a Free Trade Agreement (FTA) with a “non-market economy.” It also permits termination of the USMCA or replacement with a bilateral agreement if needed in such cases.

Concerned that they may be the Depocas / iStock Renée illustration Photo targeted non-market economy, Chinese and a consensus for cooperation with other diplomats immediately expressed concern. countries in the Indo-Pacific. Taiwan’s NSP The Chinese Embassy condemned the Diversification from targets all the countries in the Association veto clause while Foreign Minister Wang China is a matter of of Southeast Asian Nations (ASEAN), plus Yi requested that the Canadian Foreign India, Pakistan, Bangladesh, Sri Lanka, Minister Chrystia Freeland push for “a survival for Taiwan Bhutan, Nepal, Australia and New Zealand. China-Canada free trade zone.” Inevitably, as a free and The strategy looks beyond trade to people-to- there will be Canadian voices clamouring people exchanges in education, culture, and for an agreement with China as an alterna- democratic tourism. Taiwan, which already has free trade tive to dependence on US markets. country. agreements (FTAs) with Singapore and New Zealand, is largely building on established Diversifying from China: Taiwan’s diplomatic ties. New Southbound Policy tributed to China’s economic development, Diversification from China is a matter of Economic integration with China also while removing the most polluting indus- survival for Taiwan as a free and democratic has its perils, which is why China’s closest tries from Taiwan, but they also expose Tai- country. China is quite clear in its strategy neighbour – Taiwan – is trying to extricate wanese firms to Chinese political influence of using economic incentives to entice itself from three decades of expanding For- and greater economic risk in the event of Taiwanese business leaders to support its eign Direct Investment in China. Taiwanese recession or trade war. geopolitical ambitions. Leading Taiwanese companies in such industries as consumer Taiwan is actively seeking to diversify industrialists have been coerced into making electronics and footwear use complex cross- trade. Shortly after President Tsai Ing-wen public statements in favour of “unifica- straits production chains to capture the (Democratic Progressive Party) took office tion.” Just after President Tsai was elected, relative advantages of labour-intensive pro- in May 2016, the Taiwanese government moreover, China cut off the spigot of tourist duction in China with capital-intensive launched the New Southbound Policy (NSP) groups to Taiwan. Taiwan has since replaced work in Taiwan. These practices have con- to forge a sense of economic community that business with even larger numbers

INSIDE POLICY • The Magazine of The Macdonald-Laurier Institute 19 of tourists from Japan, South Korea, and Partnership (CPTPP) and . US is the United States. Trump, immediately Southeast Asia. In turn, China has lured Environmental Protection Agency Principal after taking office, withdrew his country away some of Taiwan’s few remaining official Deputy Assistant Administrator Jane from the negotiations. diplomatic allies, forced foreign companies Nishida also shared lessons from US-Taiwan This agreement, arguably Prime Minister to identify Taiwan as part of China on collaboration under the International Justin Trudeau’s greatest diplomatic achieve- their websites, and made shows of military Environmental Partnership since 2014. ment, was even renamed after Canada strength off Taiwan’s east coast. Across the Indo-Pacific, the US-Taiwan secured a preamble that includes labour According to a report by the Brookings partnership has addressed issue of mercury rights, environmental protection, gender Institution, Taiwanese investment in the six pollution, e-waste, and air pollution. The equality and Indigenous rights. Last year, largest ASEAN economies grew by more NSB provides for a deepening of these Canada’s FTA negotiations with China failed than 25 percent over the first year of the relations, especially if it allows Taiwan and because China was not interested in signing NSP, and doubled in India. The NSP has the US to jointly assist third countries deal an FTA that included these progressive also seen increased incoming investment to with environmental problems. elements. China is simply not ready to accept Taiwan from the target countries, as well as increases in tourists and foreign students. The NSP thus deepens people-to-people ties, China’s actions are almost an while establishing Taiwan as an indispensable independent actor in the region. undeclared embargo against Taiwan.

Chinese and International Reactions to the NSP What can Canada do? such practices as freedom of association and China has strongly protested some of the bi- collective bargaining by autonomous unions. lateral initiatives of the NSP. In December In an essay published by MLI, Cmdre Eric The same cannot be said of Taiwan. 2017, after India and Taiwan signed a Mem- Lerhe recommended making Cana- Indeed, the goals of Taiwan’s NSP oranda of Understanding (MOU) on Indus- da’s “One-China” policy more flex- converge nicely with those of the CPTPP. try Cooperation, the Chinese Communist ible so as to permit closer collabora- Taiwan is already the world’s 20th largest Party mouthpiece Global Times warned that tion with Taiwan on security and other economy and the 17th largest exporter. In the move “is again testing Sino-Indian ties, issues. MLI Managing Director Brian Lee 2016, Taiwan’s trade with CPTPP economies and is harmful to both sides in the long Crowley, calling Taiwan the “Canary in the was valued at US$129 billion, over a quarter run.” Beijing also protested when the Philip- Coal Mine” in regard to the health of a free, of Taiwan’s total foreign trade. If Taiwan pines signed a bilateral investment agreement open and secure Indo-Pacific region, suggest- were a member of CPTPP, it would be the with Taiwan. China’s actions are almost an ed upgrading Canada’s relations with Taiwan 5th largest economy in the partnership, undeclared embargo against Taiwan, which in order to counter Chinese aggression. after Japan, Canada, Mexico and Singapore. already has independent trade relations Perhaps the first course of action should Welcoming Taiwanese membership in the with these and other countries as part of the be to deepen and strengthen the work that CPTPP would only solidify the gains that World Trade Organization (WTO) and the Canada has already devoted to the CPTPP. Canada sought in making the TPP both Asia-Pacific Economic Cooperation (APEC) Following passage through Parliament and comprehensive and progressive. It might Forum. China has already dissuaded Austra- Royal Assent on October 25, 2018, the even get the US back on board. lia from signing an FTA with Taiwan; and it CPTPP has become Canadian law. It creates Expanding the CPTPP, rather than is likely to also exert pressure on other coun- a major trading bloc of 11 countries with cozying up to non-market economies that tries seeking closer relations with Taiwan. 495 million people and a combined GDP threaten their neighbours militarily and Despite such pressure, Japan and the US of $13.5 trillion; while giving Canadian openly flaunt the rule of international law, remain supportive of Taiwan’s initiatives. At firms greater access to Japan (the world’s is the kind of trade diversification we need the October 2018 Yushan Forum held third-largest economy). The CPTPP now if Canada is to contribute to a free, open, in Taipei, Japanese parliamentarian Keiji includes Canada, Mexico, Peru, Chile, but secure and progressive Indo-Pacific. Furuya stated Japan’s support for Taiwan’s also Japan, four ASEAN states (Brunei, eventual participation in the Comprehensive Malaysia, Singapore, and ), Australia Scott Simon is Professor and co-holder of the Research and Progressive Agreement for Trans-Pacific and New Zealand. The most glaring omission Chair in Taiwan Studies at the .

20 INSIDE POLICY • The Magazine of The Macdonald-Laurier Institute CANADA-US RELATIONS Now that the USMCA dust has settled, Canada should join Team America No two countries are more closely aligned on security and economic issues than Canada and the United States.

Laura Dawson

ime has passed and armchair quarter- Tbacking the US midterms is no longer Canada’s favourite pastime. So what’s next? A Democratic majority in the House suggests some of the content of the final United States-Mexico-Canada Agreement (USMCA) might change but the deal as a whole will be grudgingly accepted by the House Democrats after the addition of certain custom flavours such as strengthened labour provisions. Also, most chapters of the USMCA look an awful lot like the Trans-Pacific Partnership so the pm.gc.ca/eng/photos (PMO), Scotti Adam Democrats will have a hard time justifying Prime Minister Justin Trudeau with US President Donald Trump (with Mexican President Enrique Peña Nieto) during the signing ceremony for the new NAFTA in Buenos Aires, Argentina, the rejection of a deal that is so similar to November 30, 2018. an agreement they themselves launched in 2011 and endorsed in 2016. But the reality conclusion of the USMCA talks, the new could generate real economic and security is that changes in Congress will have little White House message is that Canada and gains. Key areas for co-operation include effect on Canada-US relations. Mexico are America’s closest friends, and streamlined border procedures for passengers The biggest thing that Canada needs we are all joined together by the best trade and cargo, a 21st century approach to skills from the US right now is relief from the agreement on Earth. recognition and work force development, destabilizing effects of the US national An interesting side effect of this rebrand- a competitiveness-oriented approach to security tariffs, but the only way Congress ed relationship is that it opens the door for energy infrastructure, and e-commerce rules can provide this is through the slow process Canada to join Team America, potentially a that encourage innovation, support small- of stripping US President Donald Trump powerful new vehicle for North American and medium-sized enterprises (SMEs) and of his right to impose them – the only co-operation but one in which the Trump protect consumer rights. tariffs that are under his exclusive authority. administration is clearly in the driver’s seat. In the security realm, Canada and the Meanwhile, the Section 232 provisions will After 13 teeth-grinding months of US have real and immediate choices to make continue to be a burden to both foreign NAFTA/USMCA negotiations, Canadian about the future of NORAD in a world of allies and US businesses. officials would be forgiven for wanting to expanding threats. And whether the two Maybe Canada should take advantage take a break from more engagement with countries work together inside of NORAD of this newly rebranded, best-ever, North the US. But if Canadians are willing to put or out, there needs to be a robust, integrated American relationship. A year ago, the a smile on their faces and a proposal in their mechanism for dealing with cyberattacks. narrative from the White House maintained pockets, they could launch a number of Unlike trade agreements, which the that Canadians were cheaters, Mexicans co-operative initiatives with US departments President has made no secret of disliking, were criminals, and NAFTA was the worst and agencies at the working level (i.e., trade agreement ever negotiated. With the not requiring Congressional actions) that Continued on page 34

INSIDE POLICY • The Magazine of The Macdonald-Laurier Institute 21 DEFENCE Canadians should be concerned about the fighter jet replacement process The Liberal government’s fundamental flaw is that it has sought to oversee a fair fighter jet competition where none is possible. combatcamera.forces.gc.ca

Richard Shimooka requirements to give an opportunity for other manufacturers to compete. In doing anada’s process to replace its CF-18 Interoperability so, it undermined one of the strongest Cfighter jets stands as one of the strang- advantages of the F-35: its interoperability est in the country’s history. It has witnessed should be one of with NATO and NORAD. four major decisions on the purchase of Canada’s main Interoperability should be one of new fighter jets: in 2010, 2014, 2016 (for Canada’s main considerations when interim Super Hornets), and 2017 (for considerations when modernizing its air fleet. Furthermore, the surplus Australian jets). Notably, the first modernizing Royal Canadian Air Force expects the replace- three decisions were cancelled. ment to remain relevant in high-intensity Even as the auditor general weighs in its air fleet. operations until the 2070s. However, a less on the last episode, the current process to capable aircraft will mean that Canada will permanently replace the CF-18 fleet with industrial benefits far exceeding Canadian need to either consider costly upgrades or a 88 aircraft has avoided serious scrutiny. offset requirements. full replacement earlier than that date. Like the interim buy, the entire process Many other nations have come to The inherent industrial benefits to the is fundamentally flawed and likely to these conclusions; internationally, the F-35 F-35 program are one of its most obvious produce a significantly poorer outcome has not lost a competition. In many cases, advantages. Yet this leg of the competi- for Canada. governments simply sole-sourced in order to tion has proven the most problematic. The Liberal government’s fundamental avoid the potential expense of a competition The F-35 program has already delivered flaw is that it has sought to oversee a fair with a foregone conclusion. In Canada’s case, more than $1-billion of work to Canada. competition where none is possible. Of the the government has not sought to select the If Canada acquires the F-35, Innovation, airframes considered, the F-35 offered the right option, but rather to create a vehicle for Science, and Economic Development highest capability (by a significant margin) building political capital, using the façade of Canada predicts more than $10-billion with the lowest lifetime cost, and due to its a fair and transparent competition process. over the program’s lifetime. high international production rates (twice Upon coming to power, the Liberal as many units as any of its competitors) has government loosened the operational Continued on page 34

22 INSIDE POLICY • The Magazine of The Macdonald-Laurier Institute PHARMACARE Mr. Morneau’s “gap filling” approach on Pharmacare is the right course

Phamacare reform should be surgical and targeted rather than transformative.

Sean Speer nearly 24 million people with private coverage to help a targeted share of the here’s tremendous interest in how population strikes me as both poor policy TOttawa’s budget commitment to and bad politics – especially since the “move forward” on national pharmacare coverage would likely be narrower and less will take shape, especially since Ottawa’s flexible for many. positioning has been difficult to read. Now, this doesn’t mean that there isn’t Government members on the Health room for reform. There’s evidence that the Committee have enthusiastically endorsed a system is poorly serving some households. single-payer public prescription drug There are certainly gaps to be filled. plan. Yet Finance Minister Bill Morneau Out-of-pocket spending is up and is has said that we need a plan “that deals with regressive. Those without private or group gaps but doesn’t throw out the system that insurance are three times more likely to we currently have.” say that the medicines they need are Stakeholders, policy observers, and unaffordable. the Canadian public are understand- Harmann, Davidson and Alwani’s paper ably interested to learn whose vision will rightly considers the potential for a “gap ultimately win out in this great pharmacare filling” scenario that would be “specifi- debate between Mr. Morneau and his cally designed to address gaps in parliamentary Caucus mates. We may have populations that currently face dispropor- to wait for the Liberal Party’s 2019 election Mark me down for tionate under-coverage or high platform to fully learn the outcome. out-of-pocket expenses.” The Ontario But, in a way, today’s discussion is about Mr. Morneau’s government’s means-tested reforms to determining whose perspective and approach “gap filling” OHIP+ is a worthwhile example in this is better for Canada and Canadians. regard – though I’d even be in favour of So what does this mean in substance? approach. removing the current age restrictions and Mark me down for Mr. Morneau’s “gap consolidating other provincial drug plans. filling” approach. Reform should be surgical Another option that I’ve written and targeted rather than transformative. includes adults and dependents. And positively about is replacing the current As the recent Mowat Centre paper by a new poll by Abacus Research finds non-taxation of health and dental benefits Erich Harmann, Adrienne Davidson and that three-quarters of people believe that with a new, more generous refundable Koran Alwani shows, the mix of public and drugs are “affordable” and that the status version of the Medical Expense Tax private insurance in Canada has evolved quo is generally serving them well. Credit. It seems manifestly unfair for those since before the onset of Medicare. We now It seems sensible to me therefore that workers with employer-provided insurance have a system that while imperfect cannot any possible reforms should start with to get a $4-billion tax break while those be merely swept away. preserving the parts of the system that are without have to purchase insurance with Nearly 70 percent of Canadians working. Mandatory single-payer coverage after-tax dollars. receive prescription drug coverage through would sweep them away. an employer-sponsored private plan. This Disrupting health insurance for the Continued on page 35

INSIDE POLICY • The Magazine of The Macdonald-Laurier Institute 23 ECONOMIC POLICY Creating the conditions for a dynamic, growing, and inclusive economy Rather than a “high-tax, high-transfer agenda,” governments should focus instead on expanding work and opportunity for all Canadians.

Brian Lee Crowley scholarship has shown, headlines Sean Speer about Canada’s low unemploy- ment rate overstate the real state series of MLI studies, commentar- of the economy and opportu- A ies, op-eds, speeches, and presenta- nity therein. The utility of the A Work and Opportunity tions have long warned about the limits unemployment rate is diminished Agenda for Canada of an over-emphasis on income redistri- by our aging population and Brian Lee Crowley and Sean Speer bution and an inattention to economic longer school duration and, as a growth and opportunity. The principal result, can cause us to overlook insight of this body of work is to highlight regional, demographic, and both the economic harms of high taxation other challenges. Measuring the and the deleterious effects of government employment rate for workers dependency. in their prime years between This preoccupation is entirely compati- the ages of 25 and 54 provides ble with being in favour of progressive a better sense of our economic policy reform and responding to legitimate performance and access to public concerns about economic disloca- broad-based opportunity. The tion or the “fairness” of public spending current employment rate for September 2018 A Macdonald-Laurier Institute Publication and policies that unduly favour certain this cohort signals the risk of companies, sectors, or individuals over stagnation and the potential for others. Indeed we favour such policy economic unrest. reforms, when done right. There are nascent concerns in Canada that policy-makers must be The key is to place an emphasis on cognizant of. Forty percent of Canadians are concerned about losing their jobs enabling the conditions for growth, to automation and other technological work and opportunity. innovation. A late 2017 poll found that more than one-third think they’re doing worse compared to those 25 years ago and MLI has thus been active in thinking to help the working poor scale the “welfare nearly 60 percent expect their circumstanc- and writing about these issues as part of wall” and take on more employment hours es will only worsen. And a poll conducted what we’ve come to call our Real Jobs for Real or accept a new job without being financial- during the 2018 Ontario election showed People project. We’ve published commentar- ly penalized. And we’ve produced various that nearly three-quarters believe that ies and papers on the role for targeted reports and op-eds in favour of putting the economy is “rigged” to the advantage programming to help low-income families an end to crony capitalism and replacing of wealthy citizens and large firms. It’s and support workers affected by industry it with a more neutral economic policy irresponsible for policy-makers to neglect dislocation. We’ve also written about the framework that supports competition, these sentiments. case for expanding the Working Income entrepreneurship, and business formation This is especially so since, as MLI Tax Benefit (now Canada Workers Benefit) across the economy.

24 INSIDE POLICY • The Magazine of The Macdonald-Laurier Institute The key is to place an emphasis on Such an agenda starts first and foremost tions to expand broad-based access to work enabling the conditions for growth, work by learning the lessons from Canada’s and opportunity. They draw on the work and opportunity. We’ve started from the “redemptive decade” in the 1990s, when of MLI scholars including Ken Coates, premise that government has an essential role the federal and provincial governments Dwight Newman, Blaine Favel, Richard to play in rewarding entrepreneurship and enacted sweeping economic and fiscal Owens, Jane Londerville, Philip Cross, and innovation, encouraging investment and job reforms to reduce the size and scope of various others with different backgrounds, creation, and ultimately in promoting and government, extract fewer resources from perspectives, and expertise. These are celebrating the dignity of all work. the market economy, and in turn enable issues and topics that ought to transcend Our paper, A Work and Opportunity businesses, investors, and workers to save partisanship and ideology. Agenda for Canada, builds on these key and invest more and ultimately generate We’re cautiously optimistic that themes at a time when policy-makers seem new economic activity. we’re seeing early signs of progress on instead to emphasize equity over growth, The “redemptive decade” should be the broad contours of our “work and fairness over dynamism, and unconditional understood as a time when policy-makers opportunity agenda” from both the transfers over paid work. understood the need to shift the focus from federal and provincial governments. The

Such an agenda starts first and foremost by learning the lessons from Canada’s “redemptive decade” in the 1990s.

The paper critiques what we call the a high taxation and redistribution (including Trudeau government has recently agreed “high-tax, high-transfer agenda” and instead public employment) to fiscal discipline, to strengthen our IP regime as part of sets out an alternative agenda focused de-regulation, investment, and growth. It’s the new US-Mexico-Canada Agreement on expanding work and opportunity for a formula that gave Canada world-leading (USMCA). The Ford government has all Canadians. A “work and opportunity economic growth, investment, and job committed to reforming Ontario’s income agenda” isn’t merely a slogan or a branding creation as well as significant reductions in support programs to better promote work. exercise. It challenges the basic assumptions poverty. Present-day policy-makers would be The Pallister government in Manitoba of the current emphasis on raising taxes wise to relearn these lessons. A pro-growth, has signaled new ambitions on interpro- on high-income earners and spreading the macro-policy framework is an essential vincial trade. And the Council of the proceeds to those farther down the income ingredient for work and opportunity. Federation has talked about rational- scale in the form of large, unconditional In addition, we set out seven more izing intergovernmental activities and cash transfers. This approach, we argue, targeted policy areas to bolster a work and functions. These developments could no is not just economically harmful, but it opportunity agenda for Canada: doubt be implemented faster and bigger also misunderstands and poorly serves the • Improve Indigenous education and social but they’re at least steps in the right people it’s ostensibly aiming to help. services; direction. As an alternative, our “work and • Support resource development; It’s perhaps a sign that people are opportunity agenda” is chiefly about creating • Strengthen Canada’s intellectual property starting to realize we’ve reached the limits the conditions for a dynamic, growing regime; of a “high-tax, high-transfer agenda.” economy and giving people the tools to • Support affordable and responsible home This would be good news. Growth, participate in it. Basically, our overarch- ownership; work and opportunity are what Canada ing goal is two-fold: (1) bolster economic • Favour pro-work labour policies; needs. growth and (2) empower Canadians – • Open up internal trade; and including underrepresented groups (such • Eliminate intergovernmental overlap and Brian Lee Crowley is Managing Director and Sean as Indigenous Canadians and persons with duplication. Speer is a Munk Senior Fellow at MLI. They are disabilities) and working-class people – to These areas for reform are based on authors of the MLI study, A Work and Opportunity find and keep paid work. MLI’s inventory of analysis and prescrip- Agenda for Canada.

INSIDE POLICY • The Magazine of The Macdonald-Laurier Institute 25 NATURAL RESOURCE ECONOMY Regaining trust among investors through LNG The two LNG projects in BC are a potential turning point for Canada’s energy industry.

Philip Cross market also receive higher prices on top of underscored when the discount for Western the 10 percent increase in output. Canadian Select oil reached $40 a barrel. anada’s economy cannot prosper Higher prices in Asia than in the US Statistics do not tell the whole story Cwithout a growing and healthy market substantially raise the potential of the impact of the LNG projects. resource sector. For years the oil and gas gains from LNG exports. If the price of While important in itself, greenlighting industry has struggled with prices in North natural gas in Asia was the same as its 2014 these projects sends a broader message to America well below those elsewhere in average, the net impact would be to raise investors around the world that Canada the world. The announcement that two net exports by $564 million a year due to is able to undertake large projects in Liquified Natural Gas (LNG) projects the 10 percent hike in production if exports its resources. It may not be entirely exporting natural gas to Asia are going to Asia receive the same price as in the US. coincidental that the announcement of ahead potentially is a turning point for Canada’s energy industry. There are three major benefits from Canada definitely needs a mega project to the LNG projects: building the pipelines succeed to show investors that it can build and terminals; increasing BC’s natural gas production; and raising the price received major resource projects. for natural gas exports. The higher price for natural gas in Asia However, if the price of our natural these projects was quickly followed by than in North America is the principal gas exports to Asia rose to $10 (Canadian, the initiation of the public review process rationale for LNG projects. Higher prices well below the current price of US$11 in for Gazoduq’s $14 billion LNG proposal are needed to justify building a $6.2 Asia), then the boost to exports increases connecting Ontario to Saguenay in billion pipeline to the BC coast. Without sharply to $6.3 billion. This is because not Quebec. Before these announcements, higher prices, it would be more profitable only does the 10 percent increment in new Canada was acquiring a reputation as to simply ship natural gas to the US on production receive the higher price, but the hostile to large investments in resource existing pipelines. other 90 percent of exports to Asia that is projects, reflecting the cumulative weight Canada currently sells its oil and gas diverted from the US market also receives of delays or cancellations to projects such at a discount in North American markets nearly double the US price. This serves as a as the Trans Mountain, Energy East and because it cannot access higher prices on model for how our economy benefits from Northern Gateway pipelines or the Ring of world markets. In so doing, Canada is diversifying exports from North America Fire mining projects in Northern Ontario. deprived of billions of dollars of export where oil and gas prices are low to world Canada definitely needs a mega project revenue, money that could be used to markets where prices are higher. to succeed to show investors that it can finance other investments and fund Of course, the same rationale for selling build major resource projects under its government services. natural gas at a higher price in Asia also current political and regulatory regime. The The largest potential impact of LNG holds for the proposed pipelines connecting two LNG projects in BC may only be a first exports to Asia is raising the price rather Alberta’s oil to Asian markets. BC seems to step in regaining trust among investors, but than the volume of natural gas exports. be hypocritical in allowing its own natural they are an important step nonetheless. Currently, natural gas exports are limited gas industry to benefit from access to Asian to the US, where prices are well below the markets but denying Alberta’s oil the same Philip Cross is a Munk Senior Fellow at MLI and is the price in Asia. If prices remain higher in relief. The importance and potential benefits former Chief Economic Analyst at Statistics Canada. Asia, then exports diverted from the US of moving Alberta’s oil to world markets was This first appeared in theHill Times.

26 INSIDE POLICY • The Magazine of The Macdonald-Laurier Institute FISCAL POLICY Perpetual deficits and the failure to make tough choices In its Fall Economic Statement, the government now anticipates deficits with no return to budgetary balance on the horizon.

Sean Speer governments shouldn’t run budgetary deficits. There may be exceptions for he government’s Fall Economic extraordinary circumstances such as TStatement confirmed what some of us economic downturns, war, or similar have suspected for some time. The Trudeau unplanned scenarios. But few voices – and government’s deficit spending isn’t informed the Liberal Party in the 2015 campaign was by theory or facts. It isn’t about infrastructure no exception – tend to argue in favour of or growth-enhancing “investments.” It isn’t perpetual deficit financing. It’s notable for temporary. And it’s likely to climb further. Notwithstanding its commitment to run “modest short-term deficits,” the government is now poised to end its Minister Morneau four-year mandate with a higher deficit and others are now than it recorded in its first full year in office (see Table 1). insisting that Talk of “return[ing] Canada to a “chronic deficits” aren’t balanced budget in 2019” has been conspicuously discarded. It’s since been a cause for concern. replaced with vague promises of “carefully managing deficits over the medium term,” as columnist Andrew Coyne rightly picked up on for its unseriousness. (Table 1) Still, the government’s supporters Annual Budgetary Deficit – Actual and Projected ($Billions) point to the debt-to-GDP ratio and other proof-points as evidence that criticism is 2016-17 2017-18 2018-19 2019-20 overstated. Are they correct? I don’t think so. Others can debate the politics of the -19.0 -18.9 -18.1 -19.6 Liberal Party’s broken promises on the magnitude and duration of the government’s deficit spending. That it’s now twice the instance that the Liberal platform specifi- Mr. Harper’s government, by the way, size and at least double the duration will cally committed to “end the Harper legacy ran budgetary deficits for six years in large doubtless be part of the impending election of chronic deficits.” part due to a devastating global recession. campaign. Voters will ultimately render Assuming that most agree that “chronic Mr. Trudeau’s is on track to record deficits their political judgement in October 2019. deficits” ought to be avoided, the Fall for eight years and counting during a The more important question, it seems Economic Statement moves in a decidedly period of sustained economic growth. But to me, is the fiscal implications of the opposite direction. It anticipates ongoing I digress. government’s policy choices and what they deficits including a $11.4 billion deficit Minister Morneau and others are now may mean in the short- and medium-term. for 2023-24 in the final year of the fiscal insisting that “chronic deficits” aren’t a Let me start by postulating that planning period. A return to budgetary cause for concern. They’re wrong for two most readers agree that, as a general rule, balance is indeterminate. reasons.

INSIDE POLICY • The Magazine of The Macdonald-Laurier Institute 27 The first is politics. Economists who of higher program spending in election similar to the 2008/2009 global recession diminish the risks to Ottawa’s budgetary years. This trend is known in economics would have an even more marked effect. position need to recall their lessons and political science circles as the “political And that’s before any further “stimulus” in Public Choice theory. The political business cycle.” Our research finds evidence spending that would invariably follow. economy of budgeting will invariably put of it in Canada. Pre-election spending has The result, of course, would be longer pressure on government spending and tended to increase, on average, by 7.8 and larger deficits. This is the inherent the projected deficit – particularly as we percent over a forty-year period. This risk of “carefully managing deficits.” approach the election. Think of it this way. would put considerable pressure on the Politics tend to erode the carefulness. Program spending grew, on average, by 6.3 government’s projections in 2018/19 And economics tends to undermine the percent annually in the government’s first and 2019/20. The result would be higher management. The cumulative effect is that three years. It’s currently projected to grow by spending, and, all things being equal, policy-makers can lose control of their an average of 2.8 percent in the next two (see higher deficits. fiscal choices for a time.

(Table 2) Annual Program Spending Growth (Percent)

2015-16 2016-17 2017-18 2018-19 2019-20

6.9% 5.3% 6.7% 3.1% 2.5%

Table 2). Does this seem plausible in light of The second is economics. The Make no mistake: the Trudeau the impending election and the invariable Canadian economy is near the top of government isn’t the first to think itself spending pressures such as pharmacare that the business cycle. The case for deficit- capable of “carefully managing deficits the government will face? No. financed fiscal stimulus in the current over the medium term.” Several have tried. Especially since its budgetary projections economic context is weak. But it’s worse But virtually all – including the previous in those years are already growing. The than that. Current fiscal indiscipline Trudeau government – have failed. Why? Trudeau government’s 2018 budget project- only erodes our capacity to face future The confluence of politics and economics are simply too strong. Are we facing a fiscal crisis? No, of Ongoing, perpetual deficits are the course not. But that’s the wrong question. The right one is whether Ottawa’s budget result. And they’re bound to get is well-positioned to handle the inexorable worse before they get better. political and economic pressures that it will face in the coming months and years. The answer is a lamentable no. ed program spending in 2018/19 was $312.2 challenges, including (but hardly limited The Minister’s speech remarked that billion. It’s now set for $320.2 billion and to) an economic downturn. “managing a federal budget calls for the fiscal year isn’t over yet. This amounts A recent estimate, for instance, finds some tough choices.” The sentiment is to, as my former Fraser Institute colleagues that an economic slowdown similar to the certainly correct. It’s just not clear that he have pointed out, an $8-billion spending one that Canada experienced in 2000/2001 and his government have internalized it. increase in a mere six months. would cause the deficit to hit nearly $50 Ongoing, perpetual deficits are the result. And political and special-interest billion due to lower revenues and higher And they’re bound to get worse before pressures are only going to mount as we spending on employment insurance they get better. approach the election campaign. Past MLI and other counter-cyclical benefits and research finds a consistent trend in favour programs. A major economic contraction Sean Speer is a Munk Senior Fellow at MLI.

28 INSIDE POLICY • The Magazine of The Macdonald-Laurier Institute WAGE TRENDS Superstar sectors, superstar workers, and worrying wage trends While individuals can take initiative to become superstars in key industries, the solution is going to be more complicated on an economy-wide basis.

Linda Nazareth that a huge chunk of gross value added and to “gross operating surplus,” which is to say gross operating surplus – 70 percent – has to debt- or business-holders rather than e a superstar or go home goes today’s accrued to a handful of sectors over the past to labour. That contrasts with the sectors Bmentality. Superstar athletes attain 20 years. That is not surprising: we already that are on the decline, such as manufac- stunning salaries, superstar companies know that it is increasingly a winner-take-all turing. When those traditional sectors did dominate the financial markets, superstar kind of world. What is more startling is the well, you historically saw labour’s share of CEOs raise questions about just how finding that such sectors are structured in GDP also rise sharply. As the new superstars much compensation is appropriate. To the such a way that they are less likely to share have gained ground, that relationship has superstars go the spoils, apparently, while the spoils with their workers than has histori- apparently started to fracture. As a result, everyone else gets the scraps. But perhaps cally been the case in high-flying industries. we are seeing gross operating surplus (a the influence of the superstar phenomenon goes even further than we thought. New research suggests that we now also have superstar sectors and that those sectors are changing the way that the economy functions and changing it in a way that does not favour workers. The findings come courtesy of research- Superstar sectors...are changing the way ers at the McKinsey Global Institute (MGI) who took a broad look at superstar that the economy functions. companies, cities and sectors. In the first two categories, the results are fairly predict- able. Defining a superstar firm in terms of So which are the superstar sectors? measure that includes measures of corporate revenue, they found that such firms make MGI identifies them as being in a clutch of and capital income) rise while labour’s 1.6 times more economic profit than their categories: the Internet, media and software; share of GDP declines. In many countries, equivalents did a couple of decades ago, pharmaceuticals and medical products; including Canada, Australia, Germany and and that the top 10 percent of such firms financial services; professional services; and Japan, gross operating surplus has risen by capture 80 percent of profit in companies real estate. Among other characteristics, as one to two percentage points over the past with revenues above $1-billion (hello, a group these sectors tend to be less capital- decade. In the United States, it has risen Amazon and Apple). In terms of cities, they intensive than average, but more intensive by 3.3 percentage points but even that is found that the 50 superstars they identified in terms of research and development and of dwarfed by what is happening in China (only 11 of which are in the United States skill. For example, skilled labour inputs are where the increase was 10 percentage points and none of which are in Canada), make two to three times higher in financial and over the same period. up 21 percent of world gross domestic business services than they are in general. And when you do see wage gains in product (GDP) and are pulling away from And yes, that does mean that some workers these superstar sectors, they tend to go their peers in growth of GDP per capita and within those industries receive stratospheric to already-employed workers rather than share of world GDP. salaries. toward employing new ones. So finance It is in the sector analysis though that Superstar worker compensation aside, things get really interesting. Yes, they found in superstar sectors the gains tend to accrue Continued on page 35

INSIDE POLICY • The Magazine of The Macdonald-Laurier Institute 29 CARBON TAXES Carbon taxes are just another futile government plan to change society

If our society shifts away from fossil fuels, it will be enabled by radical technological innovations, not government tinkering with the tax system.

Philip Cross

he primary justification for the TTrudeau government proceeding with its plan to impose a federal carbon tax on provinces without a provincial one is that climate change requires a government policy response. When faced with any problem or challenge, our society reflexively asks what the government intends to do. Looking back at the source of major changes in our society, one wonders where this reflex comes from? Almost all the major transformations in our economy and lifestyle have bubbled up from millions of iStock people deciding to do the same thing in the absence of any government directive or of more divorce: “No party platform or technological innovations by firms indepen- social protest spurred legislators. Neither dent of government policy. national politicians nor Congress played The story for over a The 1960s saw a monumental shift from a part in their adoption. No bureaucracy century is one of societal to individual rights, which affected or interest group promoted them,” writes everything from civil rights, divorce, the role James Wilson in his extensive analysis in governments struggling of women in the labour force and regulation The Marriage Problem. Instead, the divorce to keep up rather than in subsequent decades. The emphasis on the revolution “was produced by a quiet individual is still playing out every time you group of lawyers, judges, and legislators leading change. buy a specialty coffee in the morning on who calmly worked out, without much the way to work or a craft beer after work. controversy, the logical implications of the Demographic shifts have always The 1960s also saw the rapid secularization steadily growing view that men and women occurred when millions of people simulta- of society as religion lost its hold, especially were legally and morally equal.” neously arrive at similar decisions about in Western Europe, which encouraged the Women’s participation in the labour force having children. Every country that begins increased profanity and declining quality of essentially doubled in the post-war era, until to industrialize – irrespective of its form of culture and public discourse. by 2010 there were more women than men in government and specific family policies – These fundamental societal changes the US labour force. There are many reasons soon sees a sharp drop in its birth rate, heading revolutionized the structure of the family for this, starting with the spread of household off Malthusian predictions that prosperity and the role of women in the workplace. appliances (notably the washing machine) inevitably will create a self-defeating strain In particular, the divorce rate rose sharply and the birth control pill, to the increasing on food supplies. The major demographic in the 1960s and 1970s. Divorce laws were frequency of divorce, but none involved a event of our time was the post-war baby re-written by governments and courts in government decision targeting woman for boom (resulting in the rapid population response to the already existing reality an enhanced role in the labour force. aging currently underway). It was not the

30 INSIDE POLICY • The Magazine of The Macdonald-Laurier Institute result of policy; in fact, governments were the spread of communications and sharing climate change? Climate change requires quite unprepared for it. of information, especially via social media, a substantial reduction in greenhouse The same applies to the major changes on portable devices like smartphones. emissions around the world. The solution in our economy and the organization of our Again, this was the result of millions of is likely to be technological innovation cities. The proliferation of cars and the mass people making their own choices indepen- involving either the capture of emissions migration to the suburbs in the middle of the dent from government policy. before they are released into the atmosphere 20th century were the uncoordinated response The story for over a century is one of or a way of reducing the amount of carbon of millions of people to the development of governments struggling to keep up rather dioxide already in the air. Neither will cheap and reliable vehicle transport, not from than leading change. After travelling in result from slapping a tax on carbon and prodding by governments, which were caught the West, the prolific Japanese intellectual reducing the demand for fossil fuels. If unawares by the exodus from downtown. The Fukuzawa Yukichi, whose picture is on our society shifts away from fossil fuels, automobile itself was the necessary response to the 10,000-yen note, observed that “not a it will be enabled by radical technological the impossibility of relying on horse transport single invention in commerce or industry innovations not government tinkering with in increasingly crowded urban centres. was created by government.” the tax system. Thinking otherwise reflects a New technologies such as self-driving Given all the examples of transfor- refusal to learn the lessons of how foundat- vehicles are being developed by firms mative change driven by social and ional change occurs in our society. outside of government directives. technological forces far beyond the control The most important technological of governments, why do activists expect Philip Cross is a Munk Senior Fellow at MLI and change affecting our everyday lives today is government policy to lead the charge against former chief economic analyst at Statistics Canada.

Consulting First Nations (Buffalo) We are actually asking for less government Duty to consult ruling (Newman) Continued from page 4 intervention. Bill C-69, in its present form, Continued from page 5 will undercut our autonomy and would shift Far from being uniformly opposed to more authority to environmental interveners herself and two others, including Chief resource development, many Indigenous who do not, with some exceptions, live on Justice Richard Wagner, that stands out in nations understand that careful engagement our lands and work with our people. its indecisiveness and generates immense and effective partnerships will provide us with The Indian Resource Council, the uncertainty. Justice Karakatsanis seems to a once-in-a-century opportunity to share in organization I represent, calls on the accept that principles like the separation of Canada’s prosperity. Indigenous peoples need government of Canada to pull Bill C-69 powers between the executive and judicial an economic base, jobs and income for our from its legislative calendar and to revisit branches preclude the court’s interfer- communities. And over the past two decades, its consultations with Indigenous peoples ence, and purports to write a decisive ruling we have been creating just such an economic and organizations. We urge the government that the duty to consult does not apply to and business foundation for ourselves. Our to consider what is at stake for us. We can the law-making process. But she goes out of nations reject the permanent poverty that see before us, based on the hard work of her way in the last paragraph to say that in a generations of government policies have our ancestors, a growing recognition of our future case, the court could still develop from imposed on us. And while many Indigenous Indigenous and treaty rights and our place the honour of the Crown rules apart from peoples share some of the values and perspec- in Canadian society. We find it ironic and the duty to consult that would regulate the tive of some members of the environmental upsetting that the prime minister, who has law-making process to protect Indigenous movement, we resent the assumption that repeatedly said that the federal relation- groups. non-Indigenous environmentalists speak for ship with Indigenous peoples will be the Considering that Justice Abella and us. We can speak for ourselves – and we insist defining characteristic of his government, Justice Martin would have applied the duty on the right to do so. will be the one snatching opportunity and to consult, there is every reason to think The policies of the Trudeau government prosperity from our grasp. they might be on board with whatever are systematically constraining the freedom Justice Karakatsanis thinks the court and economic opportunities of the oil- and Stephen Buffalo is the president and CEO of the might dream up in the future. The result gas-producing Indigenous peoples of Canada. Indian Resource Council. He is an MLI author. This is that a five-judge majority has effectively We are not asking for more from government. article first appeared in theNational Post. signaled that this is not the end of the road

INSIDE POLICY • The Magazine of The Macdonald-Laurier Institute 31 for this issue. And Justice Karakatsanis’s LNG (Gale, Coates) closer collaboration between industry implied readiness to find new rules in the Continued from page 6 and Indigenous peoples, LNG Canada’s honour of the Crown may actually have critics claim that the agreements with band arrangement is going to become the “new signaled that all kinds of new Aboriginal governments do not reflect support from normal.” First Nations will ensure environ- law doctrines await. hereditary Chiefs, raising another level of mental standards are protected. They will As Justice Russell Brown points out political complexity and argument. ensure that local residents get a better in his decision – which receives the full First Nations also want the opportu- deal out of resource projects. And Canada support of Justice Malcolm Rowe and two nity to get even more involved. Many will make a fundamental shift that brings others in their judgment – Justice Karakat- communities would like to be partial Indigenous communities into positions sanis has suggested arguments that no owners of the pipeline and believe that of authority, partnership and wealth party made. She has effectively invited new an equity investment would produce generation. This is the economic future litigation, seemingly on the basis of some even better long-term returns to the that First Nations deserve. vague discomfort with rendering the legal North. Unfortunately, the Government of decision she had to make. Canada has not yet worked out financial Sharleen Gale is a Dene woman who serves on council This is not the first time the court systems that will, on a proper business case for Fort Nelson First Nation in northeastern BC. She is has evaded making a clear decision in foundation, permit Indigenous communi- chair of the First Nations Major Projects Coalition. Ken the context of Indigenous rights. Indeed, ties to expand their investments and build Coates is a Munk Senior Fellow at MLI. judges in past decisions have expressed a real wealth. Watch for further develop- preference that matters be resolved by ments in this area in the years to come. Freeland foreign policy (Kolga) negotiation, and thus would effectively It is hard to over-estimate the signifi- Continued from page 11 leave some details of Aboriginal law issues cance of this decision. The LNG Canada undecided to permit this. But we have also project is massive, promising tens of up “terrorism” charges was racially motivat- seen that this perpetuation of uncertain- thousands of jobs and flow-on business ed and is part of a broader repression being ty can actually make negotiation more opportunities that will reverberate across undertaken by the Chinese regime. The difficult. On some Aboriginal law issues, the country. LNG Canada’s commitment application of Magnitsky sanctions against different parties’ expectations of what the to the Canadian natural gas sector is those responsible for Celil’s incarceration underlying law would decide are so far invaluable for many reasons. But perhaps would be an appropriate response and apart that a negotiated outcome is not the most significant is the company’s ability could motivate Chinese officials to finally achievable. to build support among First Nations and release him. Justice Brown is quite right when the First Nations’ determination to be part Canada’s recent decision to rally more he powerfully notes that the resulting of the natural resource economy. than a dozen other countries to sign a uncertainty from Justice Karakatsanis’s First Nations have been left out of letter expressing concern about the mass indecision “would have deleterious effects their share of Canadian prosperity for internment of Uighurs in the Xinjiang on Indigenous peoples, and indeed on generations. The legal battles that resulted region is a welcome first step. But more all who rely upon the efficacy of validly in “duty to consult and accommodate” needs to be done. enacted and constitutionally compliant decisions were intended to create space for Greater focus is also required on laws.” First Nations in the Canadian economy. creating a national disinformation strategy Judges have heavy responsibilities. LNG Canada is not the first barrier- ahead of the 2019 federal elections and Foremost among them is a responsibility to busting project, but it is the largest. Even on a permanent ongoing basis to protect decide the issues put before them. Without better, particularly in the face of the Canadian democracy, our information the readiness to make the decisions their protests over Trans Mountain pipeline, spaces, and society from aggressive state- role requires, the rule of law suffers and the LNG Canada initiative makes it clear sponsored actors who seek to subvert them. Canada suffers. that First Nations are prepared, when Canada has greatly benefitted the conditions are right, to become true from Chrystia Freeland’s foreign policy Dwight Newman is a professor of law and Canada partners in charting the future of the expertise, her positive reputation among Research Chair in Indigenous Rights, University of Canadian economy. democratic global leaders and the Saskatchewan and is a Munk Senior Fellow at MLI. If the current trajectory holds, principled foreign policy she has developed This article first appeared in theGlobe and Mail. and building on some 15 years of ever and applied. Freeland’s leadership is

32 INSIDE POLICY • The Magazine of The Macdonald-Laurier Institute also readily apparent in other aspects of Christopher Sands is Senior Research Professor and technology, but Huawei may well end up Canadian foreign policy, not least the Director of the Center for Canadian Studies at the owning the patents of 5G technologies that NAFTA negotiations that have preoccu- Johns Hopkins University’s Paul H. Nitze School of arise from these research partnerships. pied Ottawa for almost two years. On this Advanced International Studies. He is also a member Curiously, Ottawa refuses to allow file, Freeland led the Canadian negotiating of the Research Advisory Board at MLI. Huawei to bid on federal contracts, a team and proved instrumental in success- strange position for a government that fully reaching an agreement that will help seems relatively sanguine about the Chinese ensure future stability for Canadian trade Huawei (Fadden, Crowley) giant’s presence in the development of a with our North American partners. Continued from page 14 wireless network that will soon transmit our Freeland’s leadership on global issues most sensitive information. was recognized by the globally influen- and the red flags become too numerous to It is not too late for Canada to reject tial Foreign Policy magazine when they ignore. the firm’s participation in 5G. Ottawa is named her “Diplomat of the Year.” Last Rather than a “higher intelligence,” a currently conducting a security review month, Freeland’s work on the trade deal better catchphrase for Huawei might be a designed to analyse cyberthreats from earned her the title of “[t]he minister of “covert intelligence” – one that is neither companies just like Huawei. It is difficult being everywhere at once,” when she was innocent nor friendly to the West. to see how such a review could conclude named Maclean’s “Hardest Working MP.” Britain has not yet banned Huawei, but that Huawei’s support in 5G doesn’t pose a It is with pleasure that MLI can now add they too are increasingly wary. serious and unacceptable security risk. our voice by naming her Policy-Maker of For instance, the UK’s Huawei Cyber We have no reason to doubt the expertise the Year. Security Evaluation Centre admits the and good faith of Canada’s cyberdefend- With the conclusion of these trade equipment it has tested might not match ers, but – and it’s a big but – they can’t negotiations, the Minister likely has a what Huawei uses, concluding that it can know what they don’t know, and that fact greater ability to make her mark on other no longer provide “long-term technical alone involves considerable risk. Allowing aspects of Canadian foreign policy – and assurance … around Huawei.” Yet Ottawa Huawei access to our 5G network means we the political capital to do so. Given her relies on the exact kind of equipment testing are giving our cyberadversaries the means to record so far, that should be something to support its claim that Huawei poses no learn how to defeat our defences. And once that we should welcome. national security threat. they have done so, it is too late. Denying Huawei participation in our Marcus Kolga is a Senior Fellow at MLI. 5G network is not a rejection of engagement with China. Rather, it is doing exactly what China is doing – unapologetically and In Freeland we trust (Sands) Denying Huawei energetically pursuing our national interest. Continued from page 13 participation in Like many Western countries, we are often to the United States even when it looked our 5G network is bedazzled by China’s economic potential to have failed. Had NAFTA been lost, the and therefore fail to ensure our national Trudeau government may well have fallen, not a rejection of interests aren’t sacrificed in the pursuit of and her political career summarily ended. engagement access to Chinese markets. Freeland’s hard work and social virtues might These two objectives must go hand in have prevented the collapse of the North with China. glove. A fruitful relationship requires that American economy. The admiration of the we gain China’s respect. The indispensable US establishment for Chrystia Freeland precondition of that respect is that we assert may have irked President Trump but might Huawei already has extensive relation- and protect our national interests – and those have renewed Canada’s relationship with the ships with Canadian institutions of higher of our allies – with vigour and clarity. United States for decades to come. Freeland learning, including a promised $50-million has earned this recognition as the 2018 to 13 universities to develop 5G technology. Richard Fadden is a former national security adviser Policy-Maker of the Year by the Macdonald- Not only would Canada be reliant, then, to the Prime Minister, and Brian Lee Crowley is the Laurier Institute. on Huawei software and hardware for its Managing Director of MLI. This article first appeared in next generation of wireless communications .

INSIDE POLICY • The Magazine of The Macdonald-Laurier Institute 33 China (Chen) Such programs need to be designed and security and economic issues than Canada Continued from page 18 implemented in both English and Chinese. and the United States. At the first sign With these grotesque views shaped In conclusion, we must stop any foreign of threat to our shared territory, our by the CCP, some Chinese immigrants government from taking advantage of our military commands are fully integrated; subconsciously place the CCP party-state open, free and democratic system for the and, despite diversification efforts, the US above all, even after they are sworn in as purpose of overtaking it. Our government still buys nearly 20 times more Canadian Canadian citizens. Therefore, when they must take action to resist China’s silent products than Canada’s second largest act at the CCP’s will while thriving in our invasion. export market. lands, they may or may not be aware that Yes, the Team America option will test their actions directly contradict the very Duanjie Chen is a Munk Senior Fellow at MLI. the patience of Canadian officials charged values we Canadians cherish, such as the with bilateral engagement, but it will rule of law, human rights, and a sense of Team America (Dawson) ultimately leave Canadians more secure and integrity. This is when our governments Continued from page 21 more prosperous during a period of escalat- need to provide clear guidelines to ing global volatility. safeguard Canadian values and national these types of co-operative initiatives interests. appeal to his stated preferences of regulato- Laura Dawson is a Munk Senior Fellow at MLI and Fifth and finally, Chinese as a ry red-tape reduction, lower-cost business is the director of the Canada Institute at the Wilson language is totally different from English; environment, and a strong military. Center in Washington. This article first appeared in the it is very difficult for any native Chinese And while we’re at it, individual projects Globe and Mail. speaker to learn English, and vice versa. are good, but institutional frameworks Regardless of their ages and education with political clout and resources to sustain Fighter jets (Shimooka) level, it is understandable for many momentum are better. The Obama-Harper Continued from page 22 first-generation Chinese immigrants to Regulatory Cooperation Council set up confine themselves in Chinese communi- to reduce unnecessary regulatory duplica- Canada joined the F-35 partnership ties, where CCP-controlled Chinese tion for traded goods has transitioned and later, in 2006, signed the follow-up media are the most readily available and well to new leadership. The Beyond the memorandum of understanding (MOU), influential in shaping their national and Border project was not so lucky. Launched largely to give national industries an opportu- international outlooks. Such Chinese in 2011, it was intended to streamline nity to compete for lucrative subcontracts in communities, including Chinese the cross-border movement of goods and the program. Notably, the 2014 Canadian student associations on our campuses, people while ensuring the security and defence procurement strategy was designed are hotbeds for the CCP to expand its integrity of the North American perimeter. to obtain similar work for other projects, overseas influence. With neither Mr. Trump nor Prime illustrating the efficacy of the approach. Chinese communities, however, like Minister Justin Trudeau recommitting to Yet the MOU stipulates that Canada all other ethnic communities in Canada, a Beyond the Border 2.0, its constituent would not receive a guarantee for these are invaluable for our nation’s growth projects such as airport preclearance and contracts, in what is known as offsets. This and development. We should not allow customs facilitation were forced to make was to ensure that contracts were awarded them to remain under, or succumb to, the their own way through the labyrinth of based on the best value and kept overall control of the CCP and its stance against government processes, hobbled by lack of costs down. This was not a practical concern our national interests. high-level leadership and resources. for Canadian industries: it was expected As such, we need to devote greater If Canada engages with the Trump to secure a disproportionately large share efforts to integrating Chinese immigrants administration on any new co-operative of Joint Strike Fighter program contracts. into our social fabric while safeguard- initiatives, Canadian officials will (as Under the post-2014 procurement system ing and propagating our national ever) have to do most of the preparatory that gives multipliers for high-tech direct values through all available venues, work for both sides. And if any of these work on a project, the F-35 would well which include but are not limited to go badly, Canadians could again be the exceed other program offerings. Neverthe- ESL classes, legal and civil aid services, subject of negative presidential tweets. less, the government has continued to national holiday celebrations, and Is it worth it? Absolutely. No two insist on guaranteed offsets that will only job and volunteer training programs. countries are more closely aligned on undermine its industrial base.

34 INSIDE POLICY • The Magazine of The Macdonald-Laurier Institute The government’s mishandling of the Pharmacare (Speer) Superstar (Nazareth) offset piece threatens to derail its entire Continued from page 23 Continued from page 29 procurement strategy. The United States government has reiterated that it cannot A reconfigured Medical Expense Tax professionals get huge bonuses and the receive guaranteed offsets under the MOU. Credit could be means-tested to provide most coveted tech workers see their wages Should the government insist on the offset a sliding scale of public support based skyrocket, but that is about it. Certainly guarantees, the only alternative is for on a household’s income. It would level there is not a huge need to aggressively Canada to leave the JSF program and the playing field between insured and hire as output rises. Take the example become a Foreign Military Sales (FMS) non-insured and expand access to federal of Alphabet (the parent of Google) as customer for the F-35. This is the “normal” support for non-insured Canadians in compared to Sears. As of 2017, Alphabet procurement process for US military exports, general and those who need help in particu- had about 88,000 employees in total, but it has a number of serious drawbacks. lar. It may also shift the insurance model which may sound like a lot. But Sears, the First, Canada’s existing contracts over time from employment-based to now-defunct retailer, had about 140,000 would be immediately put at risk, as those individual-based. employees in the United States last year. were obtained through the best-value This latter point is worth emphasizing That is despite the fact that Alphabet was approach. Canada would likely receive in light of labour market trends: a federal flying high while Sears was languishing. contracts of lesser quality and duration in policy that nudged a shift from private and None of this might seem to matter at the return. Second, the price Canada would group insurance that is tied to one’s employer moment, not when Canada and the United have to pay for each F-35 would increase to a more individualized model over time States are enjoying the lowest unemployment as would the cost of sustainment and would ensure greater portability in an era of rates they have seen in decades. There is no upgrades over the life of the program. It potential “job churn,” as Minister Morneau shortage of jobs around and, with demand would have to pay FMS administrative has described it. high, wages are starting to move higher as and research fees to the US government, This “tax swap” also has added benefit well. The problem, however, is going to come a termination cost to the JSF program, of making the tax system more progressive. when the business cycle moves down a bit, and the additional cost of guaranteed It would therefore be consistent with the the labour-intensive, non-superstar sectors offsets. Whereas Canada’s per-aircraft Trudeau government’s reforms to federal need less labour and the superstars do not flyaway cost is now about $85-million child benefits and the tax treatment of small pick up the slack. That situation could get (significantly cheaper than all the other businesses. even worse when sectors across the board options), that cost would increase to $100 Reforming federal support for increase their use of automation and demand to $115-million per aircraft. This may acquiring supplementary insurance would for labour falls even further. make other options, particularly the Super also presumably reduce the number of The trends are clear enough: things are Hornet, cost-competitive to the F-35. non-insured households and in turn shifting in a way that could leave workers The flaws of the ongoing process reduce pressure on provincial and territo- in a precarious position in the years to to replace the CF-18 should be evident rial budgets. Think of it as a way for the come. One way that individuals can protect to Canadians. In order to make the federal government to help sub-national themselves is to simply do what they need competition fair for other competitors, governments without offending federalism to do to become superstars within superstar the government has created a format that or producing another layer of intergovern- industries and reap the rewards of doing so seriously handicaps the F-35 program. It mental entanglement. (a tactic that is obviously a lot less simple will artificially drive up its costs, discount its It’s not to say that it’s the only scenario than it sounds). On an economy-wide basis, unique and important operational capbilities, worth considering. Many others will have however, the solution is going to be more and obtain poorer industrial outcomes for the other suggestions too. But it’s the type of complicated and has to at least start with an country – but even then, the F-35 may win. surgical and targeted reform that, in my acknowledgment of the way that the deck is Considering the importance of this selection view, Ottawa ought to prioritize in the being stacked. to national security, Canadians should be coming months. concerned. Linda Nazareth is a Senior Fellow at MLI. Her latest Sean Speer is a Munk Senior Fellow at MLI. This book is Work Is Not a Place: Our Lives and Our Richard Shimooka is a Senior Fellow at MLI. This article is based on his remarks at a Pharmacare panel Organizations in the Post Jobs Economy. This article article first appeared in theHill Times. hosted by the Mowat Centre on September 25, 2018. first appeared in theGlobe and Mail.

INSIDE POLICY • The Magazine of The Macdonald-Laurier Institute 35 MACDONALD-LAURIER INSTITUTE ANNUAL DINNER

BEYOND RECONCILIATION Forging a new partnership with Indigenous peoples

Confirmed speakers include: • F • • • T T • C

Tickets on sale February 20, 2019 O Canadian War Museum, Ottawa Register at macdonaldlaurier.ca