The prairies’ experience in handling inter-provincial conflicts over water-use may point the way to success in the MackenzieRiver Basin, according to a report released today by the C.D. Howe Institute. In Resolving Water-Use Conflicts: Insights from the Prairie Experience for the Mackenzie River Basin, law professor David Percy says a cooperative approach led the prairie provinces to a basic agreement on water sharing that works; and a similar approach could help kick-start progress in the more complex issues facing the Mackenzie River Basin. The history in the southern prairies, says Percy, suggests that more progress might be had if governments first sought agreement on the basics of minimum flow regimes and water quality objectives. This would set the foundations of the trust that would enable the provinces and Canada to reach toward a more comprehensive agreement, with better prospects for success.

For the report go to: http://www.cdhowe.org/pdf/Commentary_341.pdf

“It’s been 40 years since governments starting talking about a water-sharing agreement for the Mackenzie Basin,” said Professor Percy of the University of Alberta. “A generation later, a growing population and rapid development associated with the oil sands and other industries, especially in the Peace-Athabasca system, have added urgency to the task.”

Professor Percy notes that in 1969, after a prolonged period of disagreement between Alberta and Saskatchewan over conflicting priorities for the use of prairie rivers, the two provinces joined with the governments of Manitoba and Canada in an arrangement known as the Apportionment Agreement. The Agreement, based on the idea that each upstream province would allow one-half of the natural flow of the rivers to pass to its downstream neighbours, later was extended to groundwater and water pollution.

Professor Percy thinks a similarly modest approach could work for the Mackenzie Basin, where the governments of Canada, Alberta, Saskatchewan and British Columbia, as well as the Yukon and Northwest Territories, are now attempting to negotiate an agreement for the management of the entire aquatic eco-system, which extends over an area of more than 1.8 million square kilometers.

“Over the years, water sharing negotiations have grown to cover the whole eco-system of the Mackenzie Basin,” he notes. “A more bite-sized approach, beginning with a simple water sharing rule, might provide a more workable starting point.”

The history in the southern prairies, says Percy, suggests that more progress might be had if governments first sought agreement on the basics of minimum flow regimes and water quality objectives. This would set the foundations of the trust that would enable the provinces andCanadato reach toward a more comprehensive agreement, with better prospects for success.

For the report go to: http://www.cdhowe.org/pdf/Commentary_341.pdf

For more information contact: Professor David Percy, Faculty of Law, Universityof Alberta; Colin Busby, Senior Policy Analyst, C.D. Howe Institute, 416-865-1904; cdhowe@cdhowe.org

A Professor of Economics at the University of Toronto, he is a Fellow of the Oxford Centre for Business Taxation and of CESifo at the University of Munich.

He  has published widely on tax policy, fiscal federalism, and other subjects, in journals including the American Economic Review, European Economic Review, International Economic Review, and Journal of Public Economics. He is has served as a Co-Editor of the Canadian Journal of Economics and on the Editorial Boards of the Journal of Public Economics and International Tax and Public Finance.

Professor Smart received his Ph.D. from Stanford University in 1995.

His C.D. Howe Institute publications include:

• “New Housing and the Harmonized Sales Tax: Lessons from Ontario” (with Bev Dahlby and Benjamin Dachis)
• “Lessons in Harmony: What Experience in the Atlantic Provinces Shows About the Benefits of a Harmonized Sales Tax”
• “Federal Transfers: Principles, Practice, and Prospects”
• “Brooking no Favorites A New Approach to Regional Development in Atlantic Canada” (with Jack Mintz)

“Professor Smart is one of Canada’s foremost economists, whose clear thinking and academic talent will be a tremendous contribution to the Institute’s Fiscal and Tax Competitiveness Council,” stated Finn Poschmann, the Institute’s Vice President, Research. “We are proud and glad to have Michael aboard.”

The C.D. Howe Institute’s Fiscal and Tax Competitiveness Council comprises 35 of Canada’s leading fiscal and tax policy experts, drawn from business, academia, and the public sector.

Michael Smart is Professor of Economics at the University of Toronto, a Fellow of the Oxford Centre for Business Taxation and of CESifo at the University of Munich, and a specialist in the economic analysis of tax policy and fiscal federalism.

He has published widely on tax policy, fiscal federalism, and other subjects, in journals including the American Economic Review, European Economic Review, International Economic Review, and Journal of Public Economics. He is has served as a Co-Editor of the Canadian Journal of Economics and on the editorial boards of the Journal of Public Economics and International Tax and Public Finance. Professor Smart received his Ph.D. from Stanford University in 1995.

His C.D. Howe Institute work includes “New Housing and the Harmonized Sales Tax: Lessons from Ontario” (with Bev Dahlby and Benjamin Dachis), “Lessons in Harmony: What Experience in the Atlantic Provinces Shows About the Benefits of a Harmonized Sales Tax,” “Federal Transfers: Principles, Practice, and Prospects,” and “Brooking no Favorites A New Approach to Regional Development in Atlantic Canada” (with Jack Mintz).

Co-chaired by Don Drummond and William A. MacKinnon, FCA, the Institute’s Fiscal and Tax Competitiveness Council is a key source of advice for the C.D. Howe Institute’s research in fiscal policy and central in the expert external review of the Institute’s work. Its work provides key analysis and advice to Canadian governments as they work to improve the effectiveness of their programs, make their taxes more growth-friendly, and bolster their balance sheets in the years ahead.

The C. D. Howe Institute is an independent not-for-profit organization that aims to raise Canadians’ living standards by fostering economically sound public policies. It is a trusted source of essential policy intelligence, with research that is rigorous, evidence-based, and peer-reviewed, recommendations that are relevant, constructive, and timely, and communications that are clear, authoritative and practical.

For more information contact: James Fleming, Vice President of Publications and Media, C.D. Howe Institute: (416) 865-1904

Map and Directions | Register

Join us to hear David Jacobson, U.S. Ambassador to Canada, at an off-the-record C.D. Howe Institute Roundtable.

Register

Canada needs a seat at negotiations toward a new Trans-Pacific Partnership on trade to reap the full benefits of doing business with the emerging powerhouse economies of East Asia, according to a report released today by the C.D. Howe Institute. In Can Canada join the Trans-Pacific Partnership? Why wanting it is not enough, trade expert Dr. Laura Dawson notes the new trade pact could eventually account for half of global output and 40 percent of world trade. “Membership would position Canada to build trade ties with Asia’s rising economic powers, whose double-digit growth rates far outshine those in the West,” notes Dr. Dawson. “Canada is coming late to the talks. The question now is whether Canada can join the action.”

For the report go to: http://www.cdhowe.org/pdf/Commentary_340.pdf

Membership in the TPP would facilitate a more solid foothold in emerging East Asia for Canadian businesses, says Dr. Dawson. The potential is for the TPP to expand and one day include all of APEC, even China; a grouping representing 54 percent of global GDP. The TPP seeks to cover a number of leading-edge issues affecting trans-Pacific business chains, and would modernize Canada’s business links with potential TPP members with whom Canada already has trade agreements. Being at the table now, rather than joining a done deal later, will allow Canada to shape a beneficial deal that takes advantage of the early business expansion that accompanies new trade agreements.

There is a stumbling block, however: Canada had the chance in 2005 to join the nascent grouping, but chose not to, says Dr. Dawson. Now prospective partners will judge Canada’s suitability to join negotiations already in progress. Among them, New Zealand is opposed to Canada’s attempts to maintain existing dairy supply management. And in a 2010 review, US officials already declined to support Canada’s case for entry.

“Canada has faced hurdles and hard choices – there is a domestic cost for Canadian participation,” notes Dr. Dawson.

This paper argues that positive support from the United States this time could override objections by others, but Canada needs to play its cards better. This means emphasizing that Canada and the US have interests in common in these talks, and both would benefit from a strong agreement. Specifically, Dr. Dawson recommends appealing to US broader strategic interests in regional fora such as APEC, reminding Congressional leaders of Canada-US alignment on key issues such as standards, investment and labour, and emphasizing continued progress on Canada-US economic cooperation.

For the report go to: http://www.cdhowe.org/pdf/Commentary_340.pdf

For more information contact: Dr. Laura Dawson, President, Dawson Strategic and Member, International Economic Policy Advisory Council of the C.D. Howe Institute; 416-865-1904, email: cdhowe@cdhowe.org

By Daniel Schwanen

The closing of Caterpillar-owned Electro-Motive Diesel’s London, Ont., plant, and the loss of some 500 jobs that came with it, is one of many such disruptive events that have befallen Canadian manufacturing in the past five years. The closing earlier this year of Mabe’s household appliance plant in Montreal, putting more than 600 employees out of work, is another example.

In both cases, the inability of the plant to compete on labour costs with other North American facilities and workers were key factors in the decisions. Canadian dollar wages have in many cases become uncompetitive with those set in the United States, notably because of the loonie’s climb versus the greenback.

Charges that politicians are “useless” in the face of such changes are true, insofar as trying to prevent change due to shifting global competitive conditions — rather than adapting to those changes — is a mug’s game.

Neither public subsidies nor a tougher application of Canada’s “net benefit” test applied to large foreign direct investments can prevent these changes in the medium-term. Indeed, policies that would prevent companies — whether Canadian or foreign-owned — from doing what is necessary, within the confines of Canada’s laws and regulations, to adapt to these changes, would only result in Canada’s economy shooting itself in the foot.

Some commentators have also bemoaned the loss of “our” expertise and intellectual property, since Caterpillar purchased valuable Canadian-developed expertise to help expand locomotive manufacturing in the United States. However, Electro-Motive and the intellectual property that came with it were previously owned by General Motors, another large U.S.-based multinational. The jobs that existed there for decades would not have been there without foreign investment.

Prime Minister Stephen Harper rightly expressed his desire to see Canadians get more bang for the buck from publicly supported research and development. But to prevent foreigners from acquiring privately owned expertise developed in Canada and using it where they want in the world after they’ve properly paid for it, would in the long run almost certainly hurt rather than encourage innovation in this country. After all, many thousands of jobs in Canada depend on the application we make here of foreign-owned intellectual property.

To be sure, Canada’s policy framework should aim at fostering private-sector investments, including in patents that can create and sustain good jobs in Canada. But the notion that our manufacturing sector could be helped by restricting international investment or international trade — typically the source of high-paying Canadian jobs, including in the service economy — or by imposing onerous conditions on them, or trying to financially prop up uncompetitive businesses, flies in the face of logic and experience.

Yes, the number of jobs in Canada’s manufacturing sector has been declining, as it has in virtually every advanced economy. But relative to the size of its economy, Canada has lost far fewer jobs in that sector over the past 20 years than most of its peers, including such economic powerhouses as the United States, Germany or Japan, or others often held up as examples such as Sweden.

Canada has and will continue to create new manufacturing jobs in areas in which it has unique advantages, and where it can combine technical competence, intellectual property, innovative design and hard work — and attract the employees that bring these qualities. Meanwhile, the number of jobs in other goods-producing industries, or in goods-related service industries such as transportation and logistics, will continue to grow.

The higher Canadian dollar is, in fact, a signal for resources to move to higher value uses. Many Canadians are doing this, and reaping the benefits. The same high resource prices that put upward pressure on the Canadian dollar are also the source of many of the more than 1.8 million manufacturing jobs in Canada, including companies providing technologically sophisticated goods for the oilsands.

Six years ago, a pulp mill in Lebel-sur-Quévillon, Que., permanently closed, throwing 425 people out of work. Last week, Vancouver-based Fortress announced it would invest hundreds of millions to reopen and upgrade the facilities, converting them to higher grade products for export to China. The plant will directly re-employ more than 300 workers.

Canadian governments may need to do some soul-searching with respect to a decent transition for those affected by plant closures, including transition towards jobs in growing sectors. But they need to stop throwing good money after bad in preventing, rather than facilitating, adjustment to global competitive forces.

Daniel Schwanen is associate vice-president, international and trade policy, at the C.D. Howe Institute.