Regional Energy Security & Collaboration; Moving from a Free Trade Area, to a North American Community Remarks by the Honourable Sergio Marchi, President and CEO of the Canadian Electricity Association Washington International Trade Association (WITA) Panel Discussion: Energy and the NAFTA Washington, DC December 7, 2017 1
Introduction Thank you very much for the invite to join you this morning. And I d like to commend WITA for organizing this timely series of NAFTA discussions. From the perspective of the Canadian Electricity Association, energy is an integral element of NAFTA and part of a vital, more than a century old partnership between Canada and the United States. Let me touch on three issues. First, in addressing the NAFTA energy talks, a word on our bilateral energy file is a must, because it offers invaluable context. When it comes to electricity, the very first transmission line between Canada and the U.S. was commissioned back in 1909. And today, more than 35 transmission corridors span the border, with 6 more under various stages of development. Some 30 US Sates depend on Canadian electricity. Since that first line, our two countries have built and nurtured an integrated grid. And for the US, Canada remains a reliable and trusted partner. A partnership marked by collaboration on everything from reliability and resilience, to security and mutual assistance, to innovation and clean energy. 2
This rich cooperation and trade provides vast economic, social, and environmental benefits on both sides of the border not to mention a flexible, reliable and secure grid. So from my point of view, today s discussion is part of an ongoing and highly positive conversation between our two countries about this vital energy partnership and how we could further strengthen it. Given the importance of this north-south grid, CEA s Board travels to Washington every year to meet with White House Staff, Members of Congress, departmental officials, and other influential stakeholders. During our last visit, which occurred in the early days of the Trump Administration, officials told us something that I think is quite relevant to our discussion today. They said that while the President had been elected on mandate for radical change, they had an obligation to inform him about the things that actually work well and that don t need fixing. And at the top of that list was our bilateral energy file. They readily affirmed that our energy partnership is hugely positive, admitting that Canada has contributed mightily to America s national energy security, with its reliable exports of electricity, gas and oil over the many years. For me, this serves as a foundation that should continue to find a home in NAFTA and be built upon. 3
Second, this bilateral cooperation leads to the inevitable importance of developing a North American energy strategy. This imperative was reinforced just a few weeks ago, when I was invited to participate in a regional discussion in Houston, with the energy Ministers of Canada, Mexico and the US. North American energy cooperation and collaboration was front and center. It s the smart way to go. The meeting focused on how to jointly develop our energy assets, foster economic growth, and ensure our regional energy security --- all for the benefit of our citizens and our businesses. More specifically, CEA believes any North American energy strategy should include: Shared innovation, and shared research and development efforts, so that we may leverage our collective brains and stretch limited funds; Shared infrastructure builds, and a lessening of the red tape for these builds; Shared security strategies; and A North American Energy Business Council, that would work closely with policy makers from the three countries. 4
One of the challenges is that this multi-border partnership relies on strong and stable relationships --- and the need to constantly nurture them. Thus far, in his mandate for radical change, we have seen how President Trump has shaken things up in this town, generating considerable uncertainty. And while it hasn t yet come to it this kind of rhetoric can become a disruptor for sound energy policy making, and threaten friendships and alliances. Instead, our political leaders must strive to protect and build on the progress we ve achieved, so as to win that future together and emerge stronger individually. This naturally brings me to the current NAFTA negotiations. In 1993, I remember well the political jitters in both the Canadian and US governments led by PM Chretien and President Clinton, when it came to ratifying NAFTA. In fact, the very first call between the two respective Chiefs of Staff was on what to do about NAFTA. Since then, governments, political leaders, economists, and a healthy majority of our respective citizens have pointed to the trade deal as an economic boon for all three countries. And beyond the dollars and cents --- it served as a sturdy bridge between our peoples. 5
The election of Trump clearly changed the dynamics on the US side. During and after the election campaign, he has been a tough critic of NAFTA, and so it s not surprising that after five rounds of negotiations, the US tone continues to be quite harsh. Yet, many Congressmen and US governors remain friends of NAFTA, and are big supporters of the robust Canada-US trading relationship. What we know is that the overall NAFTA narrative, based on hard numbers and real facts, is a decidedly positive one. This is not fake news. What we don t know is whether the harsh tone of this US Administration is purely tactical, or, whether this tough talk is for real, and perhaps a prelude to pulling the plug. So, the negotiations continue. Before the negotiations started, CEA drafted and submitted, to our relevant Ministers and negotiators, an Electricity NAFTA Position Paper. It outlined our issues and priorities as a sector, both defensive and offensive. The core of our message, was: do no harm. Because NAFTA has worked well for our electricity and energy sector over the past twenty-four years. 6
So, if it ain t broken, let s not have politicians moving in to fix it. Instead, let us strengthen and modernize it: Protect zero tariffs and duties for energy commodity trade; Have Mexico sign as a full Party to the Energy Chapter; Ensure better regulatory alignment, especially as it pertains to: - permitting cross-border energy infrastructure; - improved labour mobility; and - strong investor protections. Prohibit discrimination against foreign energy sources; And, bolster the security standards of energy infrastructure; The matter of security merits a word or two. Some 25 years ago, the number one energy issue was securing energy supply, especially for the US. Today, North America is awash in natural gas and oil, and the electricity system is well supplied. From my perspective, the number one challenge has shifted from energy security to systems security. 7
In other words, how to ensure the safety and reliability of the electricity system, as it comes under increasing cyber-attacks and extreme weather events. Facing this unprecedented storm of threats, no company or country, for that matter, should go it alone. We should work cooperatively to ensure that there are no weak links in our North American chain. Pause. Energy was first discussed only in the third round of NAFTA talks, so we know it is not at the top of the agenda. Which, in my opinion, is not a bad thing. But we understand that the US is insisting on eliminating NAFTA s Energy Chapter, Chapter 6. Their rationale is that these provisions can be covered by other sections of the agreement. We think this would be a mistake. We believe that the chapter has worked well, and that it does not need major fixing or nixing. It provides a consolidated energy space in the agreement, and offers an effective framework for adding new elements. Moreover, the political optics of removing something that has been so positive are not good for the energy constituency, nor for onlookers of the deal. 8
I find it strange that the U.S. is uncommitted to an energy chapter, which emphasizes the foundation of our modern economy and way of life, while pushing for a chapter on textiles, arguably a 19th century issue. NAFTA can be used to collectively propel us forward or it can be used to anchor us in the past. You can probably tell which outcome I favour. In closing, because all politics is local, I remain hopeful that US political and business leaders, including yourselves, will prevail on the President and his private-sector-oriented Cabinet, to in fact modernize NAFTA, and build on it, rather than lowering the curtain. For me, our vision should be to move from a North American free trade area, to a North American community. A community increasingly built on common values and shared aspirations. And in the process, a community that would be rendered much more secure and competitive, in relation to the rest of the world. Thanks for your attention. 9
QUESTIONS AND ANSWERS: 1. What would you (Canadian electricity sector) do if US decided to withdraw unilaterally from NAFTA? If the President does pull the plug, it certainly puts into question the broader bilateral and regional collaboration that I just talked about, without even talking about the economic downside and uncertainties that would be unleashed on all sides of the border. Of course, no one knows the answer yet. So, the negotiations continue. 2. Investor protection will be a key concern for many of those who ll be in the audience. What is CEA s position on investor protection provisions that are currently in NAFTA and others that may be added? CEA strongly supports the protection of the Investor-State Dispute Settlement (ISDS) mechanism contained in Chapter Eleven. Canadian electricity companies have been actively building and acquiring U.S. and Mexican assets over the past decade and must be protected from policies that unfairly target or disadvantage foreign owners. Canadian companies need strong investor protections. This was a critical issue for Canada before the signing of NAFTA, and it remains central to our commercial interests today. 3. What is CEA s position on NAFTA s chapter 19? CEA believes that for trade agreement to work well, it s important to have effective dispute mechanism in place. 10