Keystone XL and its Impact on Canada-U.S. Relations: A Red Herring?

A delay in U.S. approval for TransCanada’s Keystone XL pipeline (in order to avoid Nebraska’s environmentally-sensitive Sandhills and underlying agricultural aquifer) has led to speculation that Canada should shift its balance of trade from the U.S. to Asia. Certain segments of our foreign policy community have been salivating over the Chinese market, often as an alternative to ’dependence’ on the U.S., ever since Trudeau established diplomatic relations with the People’s Republic of China in 1970. Prime Minister Stephen Harper seemed to repeat this popular mantra at the November APEC meeting in Hawaii, when he said that the U.S. delay “highlights why Canada must increase its efforts to ensure it can supply its energy outside the United States and into Asia in particular.” Those who read in such statement a return to a Chrétien-era embrace of China will surely be disappointed, simply because ‘Asia’ has taken on a new meaning in a new context. In fact, the attention paid to Keystone XL is more likely a red herring that distracts from more important stakes.

First, Harper’s comments on Keystone came in the context of his announcement that Canada would like to join the Trans-Pacific Partnership (TPP). Still very much in the embryonic stage, this partnership should integrate some of the region’s economies through tariff reduction, harmonization of regulatory frameworks, and innovations to help small- and medium-sized enterprises (SMEs) participate more actively in international trade. It is also likely to have provisions for environmental and labour regimes. The initial partners of the TPP were Australia, Brunei Darussalam, Chile, Malaysia, New Zealand, Peru, Singapore, and Vietnam. Canada, Japan and Mexico are latecomers to the table.

The addition of Canada to the project could have serious repercussions for some of Harper’s key supporters—a fact that did not go unnoticed by key stakeholders. The International Dairy Foods Association immediately argued that the TPP would force Canada to open its agricultural sector and abandon its dairy supply-control program. The U.S., Australia and New Zealand would all have reason to celebrate that change toward free market exchange. Even though the Dairy Farmers of Canada disagree with such a prognosis in their own press release, their concerns are certainly not misplaced. In a very small measure, Keystone XL gave Harper a way to deflect attention from dairy to oil. And someday, he may say that ending dairy supply-control was necessary for the economic benefit of Canada, as it permitted Canada to enter the TPP.

Second, and more importantly, it is worth noting who is absent from the negotiating table. The missing ‘panda’ in the room, as Roland Paris has pointed out, is China. This is surely intentional. The TPP will prove difficult to negotiate with the twelve partners already at the table, and many provisions would be nearly impossible for China to accept. These issues involve intellectual property rights protection, as well as environmental and labour standards. China is further unlikely to accept uniformly low tariffs (which would end its current protectionist policies) and an emphasis on SMEs (which would disadvantage China’s state-run companies). Chinese scholars, such as Li Xiangyang of the Chinese Academy of Social Sciences, thus see the TPP as an American strategy to “keep Beijing in check.”

Thirdly, the U.S. has been actively asserting its security interests in the Asia-Pacific at the same time. During President Obama’s Asia trip, the U.S. government promised increased naval visits and training in Singapore and the Philippines, announced sales of F-16C fighter jets to Indonesia, and emphasized India’s role in regional security.  Obama also made commitments to Thailand on disaster relief and to Indonesia in the fight against piracy. In the same week, Secretary of State Hillary Clinton stood on an American warship in Manila Bay to reaffirm U.S.-Philippines military ties. Although nothing explicit was said about China, this was an important symbolic moment in light of competing Chinese and Filipino claims in the Spratly Islands of the West Philippine Sea. In Australia, President Obama promised a close military alliance and deployment of marines in Darwin. In his November 16 speech to the Australian Parliament, he said, “The United States is a Pacific power, and we are here to stay.” Even Taiwan received a nod of approval: in a November 10 speech at the University of Hawaii, Clinton referred to Taiwan as an “important security and economic partner.” These are all indications of a renewed security order in the Asia-Pacific, and Canada has been invited to join.

All of this suggests that Keystone XL is little more than a convenient excuse for renewed interest in Asia. But attention to the context highlights the differences between Liberal and Conservative approaches. In the Chrétien-Martin era, the emphasis was on high-profile government exchanges with China, followed by widely-publicized infrastructure contracts for Canadian firms. The Conservatives may very well get Canada to join a new Asia-Pacific coalition, with a focus on SMEs and on levelling the playing field with respect to tariffs, regulations, and environmental and labour regimes. The U.S. will be the central player in this regime, although China will surely be welcome to join if it is willing to play by the established rules of the game. (This is unlikely in the short run, especially since it has no role in making the rules.)

Considering Conservative support for a Canadian military role in the world, Harper will probably want Canada to play a significant role in the evolving Asia-Pacific security regime. The goal is to assert American power in the Asia-Pacific, with Canada in a supporting role. Canadian natural resources, especially oil, will be needed for this ambitious project. If the TPP is successful and the U.S. succeeds with its renewed security goals in the region, Canada will end up exporting much more to its Asia-Pacific partners. But Alberta’s oil is more likely to end up flowing through TransCanada’s pipelines to Texas than on a slow tanker to China.

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