SCENESETTER FOR AMBASSADOR SCHWAB'S VISIT TO

C O N F I D E N T I A L SECTION 01 OF 03 OTTAWA 000819 SIPDIS NOFORN SIPDIS PASS TO USTR FOR AMBASSADOR SCHWAB STATE FOR WHA/CAN; WHA/BSC; EEB/TPP E.O. 12958: DECL: 05/07/2017 TAGS: BR CA ETRD KIPR PGOV PREL SUBJECT: SCENESETTER FOR AMBASSADOR SCHWAB'S VISIT TO CANADA, MAY 9-10 Classified By: ECONOMIC MINISTER-COUNSELOR BRIAN J. MOHLER. REASON: 1.4 (B) AND (D). ¶1. (SBU) Welcome back to Ottawa, Ambassador Schwab. This cable offers background information on Canada,s political and economic environment, especially on issues that may be raised outside the formal agenda of your talks with Trade Minister Emerson. Information regarding Canada-Brazil relations is also included. -------------- POLITICAL DEADLOCK AND MINORITY GOVERNMENT -------------- ¶2. (C/NF) With Prime Minister Harper's Conservative Government in its second year, Canada's political situation is complicated. Harper's approval ratings are decent, but the Conservative Party has the solid support of less than 40 percent of the public and could be brought down by the opposition at almost any time. To survive, Harper needs the support of at least one of the three opposition parties. None of them is a natural ally, so the government operates on an ad hoc, issue-by-issue basis. It has been a resilient and stable minority government, largely by adopting a disciplined, competent, middle-of-the-road approach. Harper has stuck to a focused agenda, appealed to voters in Quebec, and established a record for competent, strong leadership, but majority status still remains out of reach. The opposition parties, while able to tie up legislation in the parliamentary committees, are not ready to run an election. ¶3. (C/NF) The Afghan government's allegedly harsh treatment of detainees turned over to it by Canadian forces in southern Afghanistan has dominated the headlines for the past two weeks. The environment, however, tops the list of Canadian political concerns, especially after the December election of former Environment Minister Stephane Dion as Liberal Leader. The public is skeptical of the Conservative Party's commitment to the environmental "cause" despite the April release of its environmental plan. To forestall a spring election (that no party really wants),Conservatives have attacked the "all-talk, no-results" Liberal environmental record and tried to shift the political agenda toward more friendly territory by releasing an eye-catching federal budget in March 2007 that was loaded with personal tax cuts, serious and practical environmental projects, and economic incentives. The government's public handling of the Afghan detainee issue, however, has knocked back down the resulting Conservative bounce in the polls. ¶4. (C/NF) A key Harper priority has been to enhance Canada's relationship with the United States. We at the Embassy (and our counterparts in Washington) note an improved willingness to cooperate on bilateral and international issues. Still, polling reflects public concern that the Prime Minister is aligning Canada "too closely" with the Administration's foreign policy agenda. Harper argues that his government's effort to restore "healthy" relations with the United States had already yielded results, notably the settlement of the contentious softwood lumber dispute. We consider him a strong friend of the U.S. and believe we are better off with him at the helm in Canada -------------- - ISSUES THAT MIGHT COME UP DURING YOUR MEETINGS -------------- - ¶5. (SBU) IPR: A well-placed contact in the Ministry of Justice (MOJ - please protect) tells us that the Ministry QJustice (MOJ - please protect) tells us that the Ministry soon plans to recommend to Cabinet that theater camcording be made a criminal offense under the Criminal Code of Canada. Illicit theater camcording has become the most prominent IPR issue in Canada over the last six months. If Cabinet approves the Ministry of Justice's recommendation, the GOC would likely introduce appropriate legislation in Parliament. Separately, the Ministries of Industry and Canadian Heritage are reportedly finalizing draft copyright legislation to implement the WIPO Internet Treaties and improve Canada's IPR protection regime. Government consultations with industry and relevant stakeholders could begin later this spring. As you know, Canada has been kept on the Special 301 Watch List for another year. ¶6. (SBU) ITAR: Canadian officials might raise the U.S. International Trafficking in Arms Regulations (ITAR) with you. These regulations require our exporters to confirm that Canadians involved with ITAR-covered goods and services are OTTAWA 00000819 002 OF 003 not nationals or citizens of proscribed countries. Canada argues that this contravenes its Charter of Rights by discriminating against employees on the basis of nationality. ITAR makes Canada's procurement of U.S. defense articles more burdensome. State and Canadian Defense (DND) officials have negotiated greater access to ITAR-protected unclassified goods and services by dual-national Canadian DND employees and contractors with Secret-level clearances. This arrangement could serve as a template for other Canadian government agencies. The Canadians want, but we do not expect to provide similar relief extended to its defense industry. If this comes up, please say that ITAR saves lives by ensuring that Canadian and U.S. soldiers do not face our technology in battle; Canada already enjoys the most liberal ITAR regime on the planet; we understand their concerns and are awaiting Canadian Government approval of a new arrangement that addresses DND concerns in a manner consistent with U.S. and Canadian law. ¶7. (SBU) Western Hemisphere Travel Initiative (WHTI): Canada's continuing top concern with us is the new passport requirement mandated by Congress under WHTI and other U.S. actions which the GoC says serve to "thicken" the border, such as our announcement of more agricultural inspections. (We emphasize that our goal is to "smarten" or "modernize" the border.) While the January implementation of the air portion of WHTI went smoothly, the Harper government continues to lobby against an early deadline of the land/sea implementation of WHTI and are pushing for acceptance of drivers licenses as an alternative secure document. We remind Canada that we are moving ahead on WHTI, but remain willing to implement it in a flexible manner. The GoC's strategy of delay and resistance could very well lead to the negative consequences we all wish to avoid. The Canadian public and media are increasingly and scathingly critical of the GoC,s (particularly Passport Canada) inability to meet the exploding demand for Canadian passports. ¶8. (SBU) Energy: Canada is our most important energy partner. We cooperate well on the government level, and our private sectors have developed a highly integrated industry that has allowed Canada to become the largest supplier to U.S. markets of oil, electricity, natural gas, and uranium. Yet we have differences. Canada is purposely raising the stakes to oppose (on environmental and safety grounds) the transit of LNG tankers through Canadian waters to terminals proposed for construction in Maine. We have told Canada that international law of the sea protects the rights of U.S. and foreign ships to transit its waters. -------------- Canada-Brazil Background -------------- ¶9. (SBU) Canadian investors have a history of direct investment in Brazil dating back to the nineteenth century, notably in mining, electric power and banking. Today, the bilateral trade relationship is modest, valued at about US$4.3 billion in two-way trade in 2006. Brazil is Canada's second largest export market in Latin America (after Mexico), and its seventeenth largest worldwide. Canada,s main exports to Brazil are minerals and paper; its main imports from Brazil are aerospace products, steel and aluminum. ¶10. (SBU) Canada-Brazil trade relations have been dominated since the mid-1990's by a bitter dispute over aircraft subsidies, which both governments have recently tried to put Qsubsidies, which both governments have recently tried to put behind them. Canada's Bombardier and Brazil's Embraer are the world's junior commercial aircraft manufacturers, building planes of around 50 seats up to the 110-seat-plus offerings of Boeing and Airbus. Both Bombardier and Embraer prospered in the 1990's by riding the trend among airlines to purchase these "regional jets." While both firms are privately owned, both are iconic national companies, and both benefit from a variety of government support programs including R&D funding and export financing. ¶11. (SBU) Bombardier first complained about Brazilian subsidies in the mid-1990s. The resulting dispute eventually ended Canada's plans to conclude an FTA with the Mercosur trade bloc. Special envoys appointed to resolve the aircraft subsidy dispute proposed a bilateral pact based on OECD subsidy rules, but (by Canadian accounts) Brazil refused this solution. The countries traded WTO complaints in 1998, and the resulting panel found aspects of both sides' subsidies to be illegal. OTTAWA 00000819 003 OF 003 ¶12. (SBU) Both countries adjusted their subsidy programs. Canada then successfully challenged Brazil's revised export financing scheme before the WTO. Meanwhile, however, Embraer continued to win sales orders for regional aircraft. In 2001, faced with a situation where it felt that it was winning at the WTO but losing in the marketplace, Canada decided to match the Brazilian advantage by offering expanded below-market financing. As a result, Bombardier won two large and critical orders from U.S. airlines. ¶13. (SBU) While Bombardier thereby partly regained its competitive position, some trade policy watchers say Canada lost some moral credibility at the WTO by resorting to unauthorized retaliation. Moreover, the escalation in the diplomatic dispute with Brazil (which also involved a spat over beef trade, provoking widespread bitterness in Brazil) scuttled any prospect of Canada-Brazil collaboration on wider trade policy goals such as hemispheric free trade. The dispute wound down in 2002-03 with a negotiated peace, in which Bombardier and Embraer split certain major orders. Since then, both the Canadian and Brazilian governments have been trying hard to put the dispute behind them. -------------- "Cultural Diversity" -------------- ¶14. (SBU) Brazil is one of many countries that have ratified the UNESCO Convention on the Protection and Promotion of the Diversity of Cultural Expressions, which Canada advocated. The USG opposed this Convention. In Brasilia on March 27 and 28, 2007, the Canadian Embassy and the UNESCO Office in Brazil hosted the "Brazil-Canada Seminar on Cultural Diversity," which highlighted the Convention and promoted comparative study of legislation, policies and programs in this area. Visit Canada's Classified Web Site at http://www.state.sgov.gov/p/wha/ottawa WILKINS