Rules and regulations

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Regulatory coherence between Canada and other countries can benefit the automotive industry

Based on recent and surprising changes to trading conditions between the United States and Canada, one might believe the trading relationship between our two countries is anything but harmonious.   

The U.S. has slapped a 20 per cent tariff on Canadian softwood lumber, despite the fact that Canada has won every case and challenge against an alleged “unfair” Canadian lumber subsidy.

It has also raised concerns about the supply management system of Canadian dairy products, and is expressing worries about Canadian oil — say what?

Even more confusing: President Trump approves of the Keystone XL pipeline project to import more Canadian oil into the U.S. and then suddenly has an issue with that same oil — I don’t believe that I’m the only one scratching my head over this.

To top it all off, the president recently threatened to issue an Executive Order to torpedo NAFTA in its entirety; a day later he walked away from that cliff for the sake of the North American economy after tweeting that he preferred a negotiated resolution to the issues he sees within NAFTA.

What remains to be seen is how much of the president’s public musings — whether in 140 characters or more — are rhetoric, proffered to appeal to his base of supporters? And how much represents the new policy of the American government.

In all the dialogue between Trump and Trudeau, one area has nonetheless emerged where the two find some common ground: regulatory cooperation.

Agreeing on policy alignment is no small matter — it can serve as the basis for establishing an environment of trust, from which a constructive and collaborative working relationship can be nurtured. 

At the early-February Washington meeting between our PM and the president, Trump expressed optimism about how Canada and the U.S. could do more together for the benefit of both nations.

By February 13th, however, regulatory cooperation had already become a trade policy linchpin after one of the best meetings any foreign leader has had with an American president.

For the six years the Canada-United States Regulatory Cooperation Council has been in place, it has been spearheaded by Canadians for the benefit of Canadians — or at least multinational firms based in Canada.

The American perspective has been a pragmatic one that wishes to see Canada align its regulations and standards with those of the U.S.; but the Americans have yet to actually display any real interest in harmonizing or aligning with Canadian standards or regulations.

That being said, there seem to be a few Canadian regulatory initiatives that have found some resonance with the POTUS.   

For instance, Canada’s one-for-one rule initiated by the Harper government seems to have become the template for Trump’s two-for-one rule.

In both instances regulators are now required to think long and hard about the necessity of any new regulation if there is also the requirement to eliminate one regulation (or two in the U.S.) at the same time.   

The intent of the one-for-one rule in Canada was to attempt to free business from the grip of unnecessary red tape and build a foundation for a competitive business environment for foreign direct investment.

In the case of the U.S., it appears to be more of the president’s philosophical position to get the government out of the lives of both business and citizens, making it easier to start new businesses, manufacture and employ people. 

Similarly, as the new administration looks to revamp the American immigration system, it has been studying Canada’s point-based immigration model.

This model values immigration applications on the basis of the number of points a given applicant earns. The points are ascribed according to the fulfillment of desirable traits that Canada wants in new immigrants, in order that they may quickly participate and contribute to Canadian society.

So as dialogue between the regulating agencies in both countries continues, there may be a few things that we can assist our American friends with.

Addressing what is typically referred to as “the tyranny of small differences” blocks the opportunity to continue streamlining production and distribution across a number of sectors — reducing compliance costs for businesses and purchase prices for consumers, while at the same time providing a greater range of choices for consumers.

Canadian and U.S. regulators have moved in a nuanced but important direction from dealing with differences in existing regulations, to working together to develop regulations so that there is never any need to deal with differences.   

Both countries’ systems are different and this invariably leads to discrepancies in timing when introducing new, agreed upon regulations. 

I think this is as it should be though. 

We are both sovereign nations with our own regulatory systems. Either nation may have good and valid reasons for regulating on its own.   

In Canada, however, there is a price to pay for having “Canada-unique” regulations in that the cost of the product — whatever that may be — is likely to be higher because the regulation cost is amortized over a much smaller volume of product.

Nevertheless, it makes sense for Canada to consider other first-world jurisdictions’ regulations that could potentially meet the particular needs of its citizens.   

Adopting regulations or mutually recognizing European UNECE standards in the automotive industry could have great benefits for Canadian consumers in terms of providing greater vehicle choice and more options for advanced technology vehicles (e.g. electric and hydrogen).   

I don’t think anyone believes that driving a vehicle down the autobahn at 200 km/hr is any less safe that driving a vehicle down Highway 400 at 130 km/hr.   

To suggest otherwise is to suggest that sovereign governments do not care about the safety of their citizens — which of course is not the case. 

Given that there is a Regulatory Cooperation Annex to the Canada-EU Comprehensive Economic and Trade Agreement (CETA), Canada would be well served to capitalize on expanding the notion of regulatory cooperation to include Europe.

Doing this would allow it to walk the fine line between continuing to do good work with the U.S. while ensuring that this work does not preclude Canada from also pursuing useful regulatory cooperation with the EU, providing Canada with a global comparative advantage across a number of sectors — not the least of which would be automotive.

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