NAFTA and the Future of U.S.-Canada Relations

NAFTA and the Future of U.S.-Canada Relations

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NAFTA

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Foreign Minister Chrystia Freeland discusses the ongoing negotiations of NAFTA, and ways the future of the trade agreement will influence U.S.-Canada relations.

LEW: Good afternoon, and I’m delighted to welcome everyone here for this afternoon’s session on “NAFTA and the Future of U.S.-Canada Relations.”

I’m honored to introduce Chrystia Freeland, the foreign minister of Canada, someone with whom I worked when she was in her previous portfolio doing trade and I was at Treasury. I’m Jack Lew, and I’m delighted to be presiding here today.

I’m going to begin with a topic that is, I believe, on everybody’s mind: NAFTA. You know, last night, in the State of the Union, the rhetoric was a little bit more modulated than we’ve heard in the past year. Still, you know, some words that were a little bit different. You just concluded the latest round of negotiations with Bob Lighthizer and with your Mexican colleagues. How are things going in the NAFTA negotiations? Where do they stand right now? (Laughter.)

FREELAND: I could tell you, but I would have to kill you.

LEW: Ah. (Laughs.)

FREELAND: No.

So, first of all, let me just say, Jack, thank you very much for agreeing to do this. It’s a real honor for me. I remember interviewing you when I was a journalist, so this is really great.

And I want to say to Richard Haass—where is he?—thank you very much for hosting this. I’ve spent a lot of very useful and always hugely informative hours at the Council on Foreign Relations, and it’s great to be back.

And I also want to say to all of my American friends who are here it’s great to see you. Believe it or not, I even have a college roommate here who I didn’t know was going to be here. So I feel that I’m very close to home, and it’s great to see everybody here.

So, on NAFTA, a relationship that also speaks to the closeness of Canada and the United States, we just finished our sixth round of the negotiations. They were in Montreal. And, you know, my view, which I expressed on Monday—and I think Ambassador Lighthizer and Secretary Guajardo said the same thing—is we all felt some progress had been made, but there remain significant gaps.

In my mind, we really are seeing the negotiations as happening in two parts. One part is sort of the bread-and-butter trade issues, the sorts of issues that would be part of any trade-modernization negotiation. And those issues are going quite well, and there’s a lot of great work we can do. You know, NAFTA was first negotiated almost a quarter-century ago, and there’s a huge amount that we can do positively to update it.

And to give you guys a sense of what the opportunities there are, for Canada, when we do trade negotiations, our starting point is to do very extensive consultations across the country to find out what the people who are trading think we should do. And one thing that we learned in that preparation was that 40 percent of Canadian exporters to the United States—40 percent of our exports to the U.S. happen without the utilization of NAFTA preferences. So that contains a huge amount of information. You know, it says that the red tape involved in claiming NAFTA preferences is really onerous if four out of 10 aren’t using it. And what it also—it also says, by the way, that the difference between the WTO rates and the NAFTA rates is probably smaller than it was when NAFTA was first negotiated.

But we feel like part of our job is cut all that red tape, update the agreement. You know, things like cassette decks are still included in what we trace for cars, OK, because they were important back when NAFTA was first negotiated. We’re very excited. This shows what a boring person I have become. (Laughter.) But electronic forms—

LEW: Now you have to explain what a cassette deck is. (Laughs.)

FREELAND: No, my kids, they’re like, really? What’s a cassette deck? I told them this very excitedly.

Things like electronic forms at the border, we see that as a huge opportunity because, of course, they didn’t exist back in the day. And that part of the negotiation is going reasonably, even well, because we’re all throwing a lot of resources at it and everybody sees the value. We’ve now closed three chapters. The anti-corruption chapter was closed in this round.

And then there’s a second set of issues, which we consider to be the area where the U.S. has put unconventional proposals on the table, proposals of a kind that Canada has never seen in a free trade negotiation. And there is more distance there. And some of the distance is just about a different approach to trade.

So our government—and I would even say this speaks to sort of a broader cross-party consensus in Canada. We’re a trading nation, and we’re a country that really believes even more broadly than that in the open society. We think that Canada and Canadians will flourish when we are open to trade, when we are open to immigration. And we think that that is consistent with our values. We also think it’s the path to continued prosperity for Canadians.

And so when we approach trade agreements and trade negotiations—and we’re pretty good at them. You know, we have concluded now a trade agreement with the EU, CETA. As you know, Jack, the TPP-11 achieved an agreement in principle last week. Our objective is to make the trading relationship deeper, to trade more between the parties. And at the NAFTA table, our overall goal is to say let’s modernize, let’s update, and let’s find ways to trade even more together.

The U.S.—the vision of this administration is different. This is an administration that is explicitly protectionist. And in many areas, the objective quite explicitly is to shrink the trading relationship. And so finding a way to mesh those two visions can be a challenge.

We’re really working at it, and in this round what we really tried to do is to say—because, you know, another way of talking about that difference is you can see this negotiation as a zero-sum game; one guy wins, one guy loses. We really sincerely think a trade relationship is a win-win, right? We think a win-win-win is possible. Otherwise, why would you trade, if it wasn’t good for both parties? We’re kind of like Adam Smith there.

And so we really—what we’ve tried to do is think, can we step back, can we find some creative ways that everybody gets a win. And in this—in this round, we tried to do that in areas like rules of origin, like creating some kind of a review mechanism—otherwise known as the sunset clause—like ISDS.

So we’re trying. Canada believes, you know, we are the ultimate compromise country. We are—people might say we’re boring. We say it’s because we are fact-based—(laughter)—and pragmatic. We try always to be polite and have a lot of goodwill, and that’s our approach at the table.

LEW: So maybe I can just drill in on one issue on each side where perhaps the U.S. has taken a position that’s somewhat unconventional and where Canada has maybe taken a position that’s more novel. The U.S. approach on dispute resolution is certainly different from anything that I have seen before. It would be interesting to hear your reaction to that proposal.

But also, Canada’s total-value proposal is different, and it’s gotten a fair amount of coverage here. It would be interesting to hear you talk just a little bit about that.

FREELAND: So, on the dispute settlement, I think you’re probably referring to the Chapter 11.

LEW: Yeah.

FREELAND: And what—there was a quite novel U.S. approach. The U.S. objective, as we understand it, is that the U.S. not be subject to sovereignty above national jurisdiction. And so we thought about what’s a way that we can help our American partners achieve that, while also helping Canadian businesses achieve what they need. And so what we’ve proposed on Chapter 11 was to say why don’t we just take the U.S. out of ISDS, but retain ISDS between Canada and Mexico.

Canadian companies are very significant investors in Mexico, particularly in the extractive industries. And what we heard from our companies was they feel that having a Chapter 11 gives them a little bit more insurance and security, and encourages them to invest more in Mexico. And what we’ve heard from the Mexicans—and, you know, these are new ideas we just put forward in this round, so I don’t want to speak for the negotiating partners. They can speak for themselves. But we’re hopeful that our Mexican partners will see the value in having Mexico be a more attractive destination for investment.

I see Bill Ford nodding his head. He invests a lot in Mexico, so. (Laughter.)

LEW: And on the total-value proposal? In the United States, it’s been covered as dealing with the rules of origin.

FREELAND: Oh, the regional content.

LEW: Yeah, yeah.

FREELAND: Oh, OK, so rules of origin. And you’re going to have to cut me off if I get too boring, because rules of origin—if anyone is here from the car sector, please raise your hand or something so I know I’m talking to a person who’s in the same zone as me.

Rules of origin are fiendishly complicated. A lot of things go into the making of a car, and cars also have developed significantly since, you know, roughly 23 years ago, when NAFTA was concluded. And—

LEW: There were no electronics to speak of then.

FREELAND: Exactly, right? And they’re changing a lot in the future.

The U.S. put forward a proposal. So currently within NAFTA there is a regional content requirement of 62.5 percent. So 62.5 percent of the car has to be made inside the NAFTA countries to qualify as a NAFTA car. The U.S. has proposed in these negotiations that we raise that to 85 percent, and also to introduce a 50 percent U.S. domestic content requirement.

Our concern with those proposals—and our concern very much has been based on talking to car companies, the Detroit three plus the Japanese and German companies that produce in North America, as well as car-parts suppliers and also unions. And our concern about those proposals is if you raise the level too high, you risk making it uncompetitive to make a car in North America. And what you have to bear in mind, especially from the U.S. perspective, is the MFN rate for importing a car into the U.S. is 2.5 percent. So you don’t have to make the extra cost of building in North America too high before a company says, you know what, it’s just going to be easier to make the whole thing outside North America and to import it to the U.S. So that has been our big concern with those ideas.

And that’s why we—you know, we had a hard time engaging with them directly. But we have—you know, we listen to our American counterparties. I think the rules of origin and the auto issue is one of the core issues in NAFTA. And so what we thought of was—and we didn’t put this forward as a—as a specific counterproposal, because we think rules of origin are so complicated the way we’re going to get to a solution is a collaborative approach of all three countries. And ideally, we would like the car companies, the car-parts makers, and for sure the unions involved in that conversation rather than, you know, seeing it, again, as like a zero-sum game.

So what we proposed as some ideas to consider in rules of origin is why don’t we—before we talk about the numbers, why not talk about what goes into what we count as making up a car? So let’s modernize and update the list of things that we count. Let’s not—let’s take the cassette deck out and put in more of the electronics.

And, second, partly because of the era when these rules were first put together, they’re extremely onerous for companies to actually comply with. Imagine tracing all these different parts through the car. So we have some ideas for cutting the red tape for companies. Red tape that you can cut doesn’t hurt any of the trading partners, it just makes all of us more competitive.

What we’ve also thought about is we want to encourage the next generation of cars. So we think that, in the rules of origin, let’s think about maybe having some credits for electronic cars—electric cars, sorry, for self-driving vehicles to encourage that kind of production in North America.

And then, finally, we have put forward some ideas about using North American steel and aluminum because, again, that’s a sector that I think we would really like to encourage. So, but again, these were just sort of areas that we said let’s talk about them.

And, oh, and sorry, I missed one, which is realizing how important things like R&D are in the value of a car, and counting that more. And we see that also, frankly, as helpful for high-skilled, high-educated Canadian, but very much also American workers. We’re never going to win—if the race we think our workers is in is a low-skill, low-wage job, workers in our countries are not going to win that race. So what we think we ought to be doing is encourage this sector, which is so highly integrated, to have more of the high-skill, high-wage, high-value-added jobs in North America.

LEW: Yeah. I mean, the—for all the emotions around NAFTA, I personally believe that the North American market is what makes the auto industry competitive, and it’s been of great value in that. And it’s one of the reasons I’m personally hopeful that there is a strong incentive for NAFTA to continue, because that would be a terrible thing to lose on any side of the border.

FREELAND: I totally agree. And I think—like, I think also we need to—and this is part of why we feel in Canada we need to think of ourselves as a trading nation and not be about building walls. I think we need to have confidence in the ability of our economies and our societies and our workers to compete in the world.

You know, CETA, which is a free trade agreement that Canada has now concluded with the EU, it entered into force in September, and we are now building cars in Canada which are exported to Europe. Not that many, but we’re doing it. We’re starting. And I think we also need to be thinking not only of the North American market, but of North American competitiveness facing outwards to the world. And we’re pretty great. Like, I think we can do it. (Laughter.)

LEW: So one—(laughs)—one last question on NAFTA. How would you, looking forward, assess the probabilities now? Does everybody want a deal?

FREELAND: So when you were still a politician, you would never answer hypotheticals.

LEW: I would not. (Laughter.)

FREELAND: And that is a wise policy.

And in terms of, you know, the desires of counterparties, also, you know, no one made me telepathic when I became a minister. But what I would say is, you know, once, back when I was a journalist, I interviewed Indra Nooyi. And she had this great thing she said, which is she approached every negotiation assuming positive intent from her counterparty. And she said it’s the only—you know, they may not have positive intent—

LEW: But it can’t go—

FREELAND: —but the only way you can get a positive result is assume the people on the other side of the table have positive—bring positive intent yourself. Assume they have positive intent.

And that’s kind of Canadian anyway. We are actually quite nice. The stereotype is true. (Laughter.) And so we—

LEW: There are worse things in the world. (Laughs.)

FREELAND: There are worse things in the world, so—much worse things. You know, so we have a strong assumption of positive intent, and that’s our path.

Having said that, we also—you know, we believe very much in hoping for the best, but we’re also prudent and practical people. And it gets very cold in the winter in Canada, and we believe in preparing for the worst. We prepare for the blizzard. The prime minister said the other day not only do we have plan A and plan B, we have plans C, D, E, and F. And that is 100 percent true. We have a whole-of-government approach, and we actually have a very strong Team Canada approach on my NAFTA Council.

And one member of my NAFTA Council—our consul general to New York, Phyllis Yaffe—is here right now. On my NAFTA Council I have the former leader of the Progressive Conservative Party, our official opposition party. I have another former Conservative Cabinet minister on that council. I have a very senior leader from the NDP, the third party. I have business leaders. I have the leader of the Assembly of First Nations, one of our main indigenous groups. And I have labor leaders. And we really have sought to have, you know, a strongly united Team Canada approach. Former Prime Minister Brian Mulroney, whose party is opposed to mine, was speaking, among other things, about NAFTA at the Senate Foreign Relations Committee.

So we’re united. We’re ready for anything. You guys are kind of unpredictable at the moment. (Laughter.) And we bring, you know, total goodwill, hard work, and a lot of—you know, a fact-based approach to the table. So wish us well.

And my final NAFTA thought is, you know, I see a lot of business leaders in the room. When I talk to Canadian business, I know Canadian business really believes, of course, NAFTA can be modernized and improved, and believes NAFTA has been really good for everyone on our continent. And I would say to the Americans here, if you believe that too, you should be sure that people know that’s what you think. (Laughter.)

LEW: I would underscore that. Having been in a place where I wanted to hear more of that, it helps a lot when people who benefit speak up.

Let me switch to a different topic. I read the speech you gave in June, where you laid out a very clear and compelling vision of internationalism, and what it means for Canada, and what it’s meant for the world and the world order of the last 70 years. That’s a view that I share. I actually wrote an article May 2016 in Foreign Affairs where I made the case, and—

FREELAND: I read that article before my—I gave my speech.

LEW: Well, I’m flattered. (Laughs.)

FREELAND: It’s true. Yeah, yeah.

LEW: To state the obvious, that’s not necessarily the most popular view these days, at least in the United States and, sadly, in many developed countries. If you take a step back, you know, how do you make the case to people who feel anxious because of technology and globalization about the benefits of the international order that I, for one, believe has made the world richer, poverty far less, and much safer, and has reduced conflict? That doesn’t seem to be getting through as well as it needs to.

FREELAND: You’re sounding a lot like Steven Pinker there.

So, look, I do think, for those of us who, you know, believe in globalization, who believe in free trade, who generally support immigration—and I think, you know, the kind of people who show up at a Council on Foreign Relations event tend to fall into that category—I think something really important to appreciate is the anxieties of the hollowed-out middle class are real. And they’re not just anxieties, they’re based on stagnant incomes, on concerns—people being concerned about are they going to keep their job, concerned about is their kid going to get a job, are they going to have a pension.

And, you know, that’s—actually, that concern about the hollowed-out middle class is the whole reason I became a politician, because I wrote a book about it, and I met our then-future now-current prime minister at the Toronto launch of my book. And we sort of started talking, and that was really the centerpiece of our campaign in 2015, was saying, you know, we need to do something for the hollowed-out middle class.

Where I think you run into problems is I don’t believe the problems of the hollowed-out middle class are caused by trade deals or by immigrants. I think the middle class is being hollowed out in a lot of Western industrialized countries a lot because of the technology revolution, you know. Maybe, you know, 10 or 15 percent because of globalization, mostly the technology revolution. And it’s happening because of good things, right? Who doesn’t want the technology revolution? I think we all want it. There are no Luddites out there.

But I think the political reality is, you know, maybe back in the day in the Industrial Revolution you had people going out and breaking the new looms. No one is going to the square and, you know, destroying their iPhones. We love the technology revolution too much.

And so you have this real anxiety of people, and some political leaders in many countries around the world, you know, see that anxiety as a political resource and are looking for how you can harness it. And the easy way to harness it is to point the finger at outsiders, to say it’s the fault of that immigrant who speaks a different language and looks different from you, or it’s the fault of that bad trade deal and that bad country that’s taking advantage of us.

Now, I can see how that’s politically easy, but if you have the wrong diagnosis you’re going to have the wrong solution. And I think what you need to do to shore up your middle class is shore up your middle class. You know, have—

LEW: Invest in education and training and infrastructure, yeah.

FREELAND: Invest in education. Invest in training. Invest in infrastructure. I think you need a stronger social safety net. You know, you need stronger pensions.

The thing that our government has done that we are the proudest of is we increased the Canada child benefit, which is tax-free money paid to Canadian children. It’s indexed based on incomes. And it has lifted 300,000 Canadian kids out of poverty. And we have seen a direct impact on the economy because that is money going to families who have a higher marginal propensity to spend. And there’s no kind of welfare-trap issue. Who’s going to say to a 6-year-old you shouldn’t be getting enough to eat and new clothes, you should be out there working? Six-year-olds should not be out there working, they should be taken care of.

So I think—you know, I think what you need to do is support your middle class, have that social safety net, and then you can have a confident society that’s confident about engaging with the world.

LEW: Well, sadly, we have—in my view, we have spent resources we don’t have already, and we’re now going to be facing some of these questions without the resources to put to work to solve those problems. And I very much believe that what we have to do is deal with the disruption that’s been caused in people’s lives, showing that there are things you can do to do well in this new society and giving people the skills they need. But that’s not cheap. That requires active involvement by partners at the federal, state, and local level. And I think it’s going to take a while in the United States for us to find the will to do that.

FREELAND: Look, Jack, in our—in 2015, we campaigned on this Canada child benefit. We campaigned on a tax cut for the middle class and raising taxes a little bit for people at the very top. I am, like all Canadian—we have a parliamentary system. So, as well, as being a minister, I am a member of Parliament, and I represent a constituency in Toronto called University-Rosedale. People here who know someone in Toronto, odds are they live in my constituency. They probably live—if they are friends with someone at the Council on Foreign Relations, very likely they live in Rosedale. It is an affluent neighborhood.

And I knocked on people’s doors and, you know, people said to me: If I vote for you and you win, you’re going to raise my taxes. And what I said to them was, yeah, it’s true, but you have to make a choice about what kind of a society do you want to live in. Do you want to live in a society which is polarized? Do you want to live in a society where people feel really anxious—they feel like their kids are not going to be OK, they feel insecure about their job? Or do you want to pay a little bit more and have public schools you can send your kids to and have a universal single-payer health care system, which we have? And, you know, I won. (Laughter.)

LEW: So we’re going to turn to our members for questions in just a moment. Let me just ask one last question.

Over the last few days, we saw TPP-11 take effect.

FREELAND: Yay. (Applauds.)

LEW: As somebody who spent several years of his life—

FREELAND: I know.

LEW: —trying to make a TPP-12, I was sad that we weren’t at the party. (Laughs.)

FREELAND: Come to Canada. You can be part of it.

LEW: I was kind of struck by the comment over the weekend by the president that there would be a willingness of the United States to get back into TPP if TPP could be reopened. Is there a pathway there?

FREELAND: That’s—you know, I get paid in Canadian dollars, not U.S. dollars. So I’m going to leave it up to U.S. leaders to talk about whether they want to come in—come back into the TPP. It’s certainly open for the U.S.

But, you know, I think, speaking for the TPP-11, we’ve now reached an agreement in principle. Canada is pleased that some changes were made that made the agreement more progressive, particularly in areas like the cultural exemption—which if there’s anyone here from Quebec in particular will understand the importance—in areas like IP. And, you know, we’re glad about that. And now the TPP-11 are glad to be moving forward together.

LEW: Yeah. I just have to say that watching labor laws be strengthened for the last two years we were negotiating TPP—in Mexico there was a constitutional amendment; in Vietnam there were new labor standards put into effect—it was so clear to me that TPP was driving things in the direction we wanted even before we completed the negotiation. So it is—it is certainly something that I think would be important for the United States to find a way back into.

FREELAND: And, look, I will say one more thing, you know. Canada, like the United States, is a Pacific nation. We recently held a summit meeting on peace and security on the Korean Peninsula in Vancouver. I co-chaired it with Secretary Tillerson. And Secretary Mattis, together with our Defense Minister Harjit Sajjan, joined us the night before. And one thing that was very clear at that meeting, as at very, very many meetings, is in the Asia-Pacific and in the whole world we think the world is stronger when the U.S. is at the table.

You know, Secretary Mattis gave a great speech a couple of weeks ago where he quoted Winston Churchill. He said the only thing harder than fighting with your allies is fighting without them. Great line. So true. And, you know, the world—like, you guys have done a great job being the leader of the free world. If you look at, you know, world history since the Second World War, the U.S. has done an extraordinary job in building up this rules-based international order. Canada was a major player, too, and we’re very, very proud of our contribution. And, you know, we all do better when you guys are there at the table.

You know, Prime Minister Mulroney said at the Senate Foreign Relations Committee yesterday “Les absents ont toujours tort,” those who are absent are always in the wrong. And that’s kind of true. (Laughter.)

LEW: Well, on that note—(laughter)—I think it’s come time to turn to our members for questions. I already see a lot of hands. Let me just make a few observations here: remind everyone that this session is on the record, and please wait for a microphone to come to you, and when you get it introduce yourself with your name and your organization, and then ask your question. So why don’t we start right over here?

Q: Stephen Blank, the University of Ottawa.

What is the Canadian perspective on what happens if NAFTA stops? Revert to the FTA? Kick in WTO? The United States has trade relationships, elaborate ones, with no agreement whatsoever. Do you think U.S. companies are going to pack up and pull out? What exactly will happen if this thing doesn’t continue?

FREELAND: It is no surprise that the hard question would come from a Canadian. (Laughter.) But at University of Ottawa you’re—you count.

So, look, as I said to Jack, we are very clear about not dealing in hypotheticals, and we’re not going to reveal our negotiating positions in advance. Having said that, exactly as the prime minister said a couple of days ago, our plan A is we want this NAFTA negotiation to be successful. We want a modernized, improved, better NAFTA for all parties—a win-win-win outcome. We do, however, have plans B, C, D, E, and F. We’re prepared for any eventuality. The president has repeatedly said that he is considering invoking the six-month withdrawal notice from NAFTA. We pay the president the respect of taking him at his word. And you’re quite right that there exists the Canada-U.S. FTA, which predated NAFTA.

So there are lots of different possible scenarios, and we’re prepared for all of them. But we’re really—we’re focusing on the hope for the best, even as we prepare for other, less-good outcomes.

LEW: All the way in the back?

Q: Bhakti Mirchandani, One Williams Street. Thank you for your comments.

I had a question about Mexico. López Obrador is leading the polls there. He made a comment in the last week about how NAFTA renegotiation should wait until the new administration is in office. He has populist views. He wants to reduce Mexico’s dependence on foreign powers. What are your thoughts on that dynamic in the negotiations?

FREELAND: Well, I’m traveling to Mexico tomorrow for a meeting of the North America—a trilateral meeting of the North American foreign ministers. So I’ll meet with my counterparts, Luis Videgaray and Rex Tillerson.

We in Canada have been—you know, a real priority for our government has been working hard on strengthening our relationship with Mexico. And I hosted last—God, what—sorry, gosh—(laughter)—what day is it, last Monday in Toronto Ildefonso Guajardo, the Mexican economy minister. So we talk to the Mexicans a lot.

It is always complicated to negotiate trade agreements or any international agreement across an election. It is up to the Mexicans how they choose to handle that. And Canada, you know, is at the table now, and we’re prepared to be at the table for as long as our negotiating partners are happy to be there.

LEW: Yeah.

Q: Thank you. Joanna Weschler, Security Council Report—an organization, incidentally, Canada helped in 2005.

Canada will be running for the Security Council elected seat in two years, and it’s going to be difficult. It’s a contested election, and it’s always very, very brutal in Security Council elections. You must have a reason to want to do it. Could you explain why you want to be on the Security Council? And what do you think it can accomplish in today’s world?

FREELAND: Yeah, that’s a great question. I will quibble with the use of the adjective “brutal,” though. There are many brutal things in the world. We are, you know, keen to compete for that Security Council seat, and we think Canada will be a great country to have there. It’s not quite brutal. There are tougher things in the world.

Why do we think Canada should be there? We think Canada should be there because we are really strong believers in the rules-based international order. And we think having Canada on the Security Council is—first of all, it’s something—Canadians really believe it. You know, when I became minister of foreign affairs, a lot of people said to me that’s a terrible job for a politician because no one actually cares about foreign affairs, right? This is a truism among politicians, right, that, like, that’s not an issue that actual humans, like voter-type humans, care about. And in my experience, nothing could be further from the case, at least when it comes to Canadians.

I get stopped every day by people. Half of them want to talk to me about NAFTA. Canadians have very strong views about it, often using salty language about things I should or should not do. But Canadians really care about the world. I get a lot of people talking to me on the streets about the Rohingya. That’s an issue that has touched Canadians. A lot of people mentioning Venezuela and very grateful for the strong position Canada has taken in support of Democracy in Venezuela. A lot of people mentioning Ukraine, an area where Canada, of course, has focused a lot and we have Canadian troops training Ukrainians, even as we speak. So Canadians really care about it, we feel we have kind of an obligation to the world. You know, again, it’s going to sound very corny, but try to make the world a better place, contribute to the rules-based order.

And it’s also about our self-interest. You know, there are some people today who talk about how international relations are sort of Hobbesian, you know, it’s about might is right. And I kind of thought we ended that after the Second World War and that we realized that kind of contest was bad for everybody, even the strong countries, even the strongest countries. But Canada as, you know—we’re more than a middle power. We’re the 10th-largest economy in the world, but we have a strong self-interest in a rules-based international order, so that’s why Canadians want to be there.

Why should everybody else want us to be there? I would say because we’re good guys. (Laughter.) You know, we believe in an international rules-based order, we know that climate change is real, and we’re big supporters of the Paris accord. We have a feminist foreign policy and we really know that when you empower women and educate girls you’re going to have better outcomes. We believe in free trade. We are, you know, supportive of refugees. So I think having the Canadian voice on the Security Council would be pretty good for everybody.

Vote for us! (Laughter.)

LEW: Over here.

Q: Hi, Andres Small from Partners Group, so an asset manager, and I’m actually originally from Mexico.

My question for you is if you can talk about your preference and commitment to a trilateral agreement when a bilateral agreement could also be an option for Canada.

FREELAND: So, you know, I have a two-part answer to that. The first is we are where we are. And the reality of history is our three countries, our continent is now and has been for the past 23 years an integrated economic space. The supply chains exist, the investment exists, the links exist. And I think it is always—so it is always prudent for political leaders to bear in mind what you have.

And if that sounds overly cautious, let me remind you or tell you if you don’t know—there’s no reason you should know this—the Canadian national motto is “peace, order, and good government.” I’m happy for that to be our national motto, I think those are good things. And if you believe in peace, order, and good government, you would say let’s look really carefully at what we have and if it’s working let’s kind of try to make it better rather than tear it up and do a brand-new thing. So there is that, you know, that historical fact.

The second thing is, you know, we find as Canadians that the economic relationship in North America, including—we’ve always had a very strong Canada-U.S. economic relationship and the free trade agreement between Canada and the United States predates NAFTA. Having Mexico as part of it makes sense not only geographically, it makes a lot of sense economically. So that’s the table we’re at and we’re very happy to be there.

Having said that—to the University of Ottawa question—we’re prepared for every eventuality.

LEW: I must say, I was struck at how many times auto parts go back and forth north and south across borders in both directions. And that is just intrinsic to what the North American auto industry is. And I started in government in the 1970s. If anyone would have said in 1973 that North America would be energy independent, they would have been considered a lunatic. And it didn’t happen because one of our countries was developing its resources, because North America developed. So we’ve actually gotten quite a lot out of working together on a trilateral basis.

FREELAND: Yes, from your lips to God’s ears, Canada agrees. (Laughter.)

LEW: Over there.

Q: To be the devil in the room, what do you think is the biggest red-line issue if this negotiation is going to follow—

LEW: Could you introduce yourself?

Q: Oh, I’m sorry. Amy Jaffe here, senior fellow at the Council.

What do you think is the biggest red-line issue that could actually make the negotiations fall apart? And what do you see as the pathway forward on it?

FREELAND: So I—and this is a Canadian negotiating approach—we try not to think in terms of red lines and we try not to think in terms of negotiations falling apart. We really believe if you have good will and you’re prepared to stay at the table, you can find outcomes. Maybe there are outcomes you haven’t thought of before that can give every party what they need. And that’s not just some, you know, sugarcoated, idealistic vision. Getting our trade agreement with Europe, getting CETA done was incredibly complicated, and it involved a negotiation with 27 countries, effectively, at the table. And each country had its own issues and we managed to get there at the end. That agreement has entered into force. So that’s not, you know, a way we prefer to think about it.

Having said that, there are some more difficult issues. We’ve spoken about the rules of origin. Another issue that is significant for Canada, and Prime Minister Mulroney spoke about this yesterday, is Chapter 19 which is the binational arbitration panels. That’s important for us. It was probably, from the Canadian perspective, the single-biggest thing that the original NAFTA created. And it’s important for us that it stay in place. Obviously, it could be modified and improved, as could everything, but it’s important that we keep Chapter 19.

LEW: Yeah, over here.

Q: Rick Thoman from the Fletcher School and Columbia University, and formerly a Fortune 50 executive for four companies and CEO of one of them.

Does it worry you that the environment we’re in is somewhat different? The rules-based days are gone. We see a world in which democracy seems to be at a pause or maybe at a retreat, protectionism is growing. So could you talk a little bit about—

FREELAND: Could you repeat what’s growing?

Q: Protectionism appears to be growing.

FREELAND: Oh.

Q: So can we still play by the rules we played with in the past? And how much is Trump’s appeal, because he seems to recognize the new game and not the old one?

FREELAND: Well, you know, I think we spoke about that a little bit in that I think the resentments and the anxieties are real, but I don’t think that protectionism or, you know, a pulling back from the rules-based international—protectionism or parochialism I don’t think are the only answers to those anxieties.

I really believe that there are other—that not just other ways, that I don’t think those answers are actually going to work in the long run. I think the answers that are going to work are much more about domestic policy. And I think if you get that domestic policy right, then your country can be today, in the 21st century, a more eager-than-ever embracer of the world. That’s certainly the case in Canada.

You know, I would say today Canada is doubling down on its engagement with the world, whether in trade—you know, Jack has referred to TPP, so, you know, CETA has entered into force, we concluded an agreement in principle with TPP last week on immigration and on refugees. You know, our country is more committed than ever to an idea that being an open society is actually going to work.

You know, with Syrian refugees, we campaigned on a commitment to bring at least 40,000 Syrian refugees into the country. And we did it. And as a constituency MP, the single-most-urgent criticism I have from people living in my constituency was a criticism of the government that we had not brought in the refugees they had sponsored quickly enough. Because we have a system which was developed after the Vietnam War for the Vietnamese boat people of private sponsorship of refugees, so Canadians, just regular Canadians can get together and sponsor a refugee family to come to the country. They have to put up money and help them to have a home and integrate. And the Canadians who do this become so passionate. We put them in touch with the refugees who are going to be coming to Canada before they come. They talk to them when they’re in the camps and they get so passionate about it that they go and yell at their poor, hardworking members of parliament—(laughter)—and they say, why is my refugee family not in Canada yet? So that, and that’s just regular Canadians, you know? I mean, amazing, wonderful people who are doing this.

So I don’t think we should give up on the rules-based international order. I don’t think we should give up on globalization. I don’t think we should give up on free trade. From Canada’s perspective, we’re doubling down on it and we do it partly, very much—not just partly, a lot—because it’s consistent with our values. That’s the kind of place we want to live in.

But I frankly think it’s a huge advantage for us economically. The University of Toronto is in my constituency and it has seen a surge in applications from students around the world because they see Canada as a place they want to be. That’s got to be great for Canada.

LEW: Yeah, here in the front.

Q: Thank you. Evelyn Leopold, a resident correspondent of the U.N. And we came days from overlapping at Reuters.

Since my friend Joanna Weschler went into foreign policy, I’ll continue. Why did you vote—abstain on the Jerusalem thing, the question in the U.N. General Assembly last month? Last month? Yes. This month—anyway—

FREELAND: We’re still in January.

Q: Yeah, in January, sorry.

FREELAND: I was also—I was, like, is it February yet?

Q: We’re still—yeah, it’s almost February. And among the G-20, only three countries abstained: Canada, Australia, and Argentina. And I was just curious if—

FREELAND: And Mexico?

Q: What?

FREELAND: And Mexico?

Q: No. They voted yes. And I was just curious if this was not to have another problem with the United States.

FREELAND: You know, in the speech that Jack referred to, I talked about Canada charting its own clear and sovereign course, and we very, very much believe that. On that particular issue, we—let me back up a little bit. Canada is a strong believer in a two-state solution. That has been consistently Canadian foreign policy and very much continues to be. And we think the issue of Jerusalem needs to be resolved as part of those discussions around a two-state solution.

Having said that, with that particular vote we felt there was a certain polarization and that the best—the right thing for us was to not pitch in to that polarization.

LEW: All the way in the back.

Q: Now for something completely different. David Kirkpatrick from Techonomy.

You know, there’s a—

FREELAND: Hi, David, nice to see you.

Q: Good to see you, and you sound so rational. So I was curious, in particular, to ask you this question, you know, and you know what I do. One of the most new problems in international order that you may be better suited to think about than most because of your business journalism background, in my opinion, would be the role of the global internet platforms vis-à-vis government. And, you know, it would seem to me that it’s one of the most vexing issues which governments are almost entirely not engaging with. Just any thoughts on that?

FREELAND: That is such a good and interesting question. And by the way, who knew that a person would ever say being a business journalist was a good qualification for anything, having been a business journalist is a good quality—(laughter)—so I’m glad. Yeah, I think that—

LEW: And no one else was surprised at how rational you are.

FREELAND: Yeah, thank you for that.

I think that is an excellent question. It’s something that I personally and we in government think about a lot. Actually, when I was trade minister, my parliamentary secretary was a guy called David Lametti, who was a fellow MP, and he was a professor of law at McGill who specialized in intellectual property. So we have real firepower in our government. Actually, my dad, when he met him, he said to him, why are you her parliamentary secretary? (Laughter.) Like, something is wrong here. I was, like, thank you, dad, thank you very much.

And I am actually hosting—I was supposed to do it on Friday, but it turns out I’m going to be in Mexico, so next Friday I’m holding a roundtable of Canadian academics and some Canadian business leaders to talk specifically about data and trade agreements going forward. So I think it’s a huge issue.

I think there is also, you know, there is the trade side and intellectual property and data and how does all that work and how does that overlap with sovereignty, and how do we strike the balance, right, between fostering innovation? Every country, I think, wants to be, you know, be a magnet for as much innovation as possible, certainly Canada does—we’re making a big bet on AI—and at the same time maintaining national sovereignty and for Canadians to feel that they have control over their own space, they have control over their own privacy, they have control over their own data.

And I think there’s also a democracy element to it. You know, I think that all of us today, maybe more than a couple of years ago, are conscious of the ways in which even advanced Western democracies like our own can be fragile. And we need to be mindful of ensuring our democracies are robust. Now, a lot of that, I think, is about being sure that people in our countries feel engaged with their political process, but part of it is also being mindful of this internet space.

So I don’t have, like, a single, brilliant answer, but I can assure you that it’s something we are very, very focused on and we are talking about at home a lot, and I think we need to have a much more robust international conversation about it.

LEW: Well, needless to say, it’s a big issue here in the United States as well. And it seems like ancient history, but the last major issue we had before we closed the negotiations in TPP-12 was data localization and how do you balance legitimate concerns of financial regulators with demands for local data to be kept in every country and losing all the benefits that you would have from modern cloud computing. And we’ve managed to thread the needle. It took—it took months of very difficult negotiations. But when you want to get to a solution, you keep at it.

I think we have time for one more question. OK, all the way in the back.

Q: Hi. My name is Veronica. I’m with W Radio, Latin America.

The Canadian government and the American government seem so different right now in many issues. (Laughter.) So how has it hurt that relationship between the two countries, the position that the American government has taken on NAFTA, if it has hurt it at all?

FREELAND: You know, Canada and the United States have the world’s longest—we don’t call it undefended because it’s not an undefended border, but the world’s longest, secure, peaceful border. We have been friends and neighbors, you know, for our whole history. And the connections between Canada and the United States are incredibly deep.

You know, I am an example of it. You know, my great-grandparents, my father’s grandparents, immigrated to Canada from Illinois and Buffalo because, believe it or not, at the beginning of the last century the United States was too civilized for them. (Laughter.) So they were—

LEW: The wild North.

FREELAND: —quite, like, pioneer-type people. You know, I went to university in the United States. The youngest of my three children was born here in New York at Roosevelt-St. Luke’s. And pretty much talk to any Canadian and that person has a very wide network of connections with the U.S.

And the U.S. has a huge link with Canada, too. You know, Americans sometimes don’t think of it because we can sort of pass for American, you don’t always notice us because we are so decent and so nice. But we are actually the largest customer of the United States. The U.S. sells more to Canada than it does to China, Japan, and the U.K. combined. Think about that for a minute. So that, yeah, most people don’t know that, right? I see people, like, shaking their heads—and by a longshot.

LEW: And Europe is our second-largest trading partner.

FREELAND: Yeah, you know, by a longshot. So this is an incredibly deep relationship. Of course, it’s a government-to-government relationship, but it’s also a relationship among legislators. I mentioned that just yesterday our former prime minister testified before the Senate Foreign Relations Committee. It’s a relationship between mayors. It’s a relationship between governors and premiers.

And, you know, Canadians know that this is a relationship that transcends—you know, officeholders, politicians, we like to think we’re important, but I think Jack and I both know, you know, the office exists—the person occupying—

LEW: We’re in trust.

FREELAND: We’re in trust, right?

LEW: Yeah.

FREELAND: You know, the officeholder is transient, and the relationship and the position endures. So Canada and the U.S. have a deep, longstanding, historic relationship founded really on shared values and centuries of working together. And we’re doing a lot of work together right now.

You know, I mentioned just—I lose track of time in my job nowadays, but just two weeks ago I cohosted in Vancouver, cohosting with Secretary Tillerson, a summit on peace and security on the Korean Peninsula. I’m going to see Secretary Tillerson again on Friday, a meeting of the North American foreign ministers. We do—our minister of defense, Minister Sajjan, is doing a lot of work with Secretary Mattis. We are very engaged together, you know, around the world. So we have a very, very deep relationship and I think that that relationship absolutely, you know, is strong today, it was strong yesterday, it’s strong today, it’s going to be strong tomorrow.

LEW: Well, please join me in thanking the minister for a very interesting conversation. (Applause.) I for one hope that your optimism about the good will of all the parties leads us to talk about the success of these various endeavors.

FREELAND: Yes, hear, hear!

(END)

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