The Canadian and US governments must engage each other, analyze the issues as they emerge, and determine what can be accommodated and what cannot.

A current "tyranny of small differences" between Canadian and U.S. regulations is frustrating businesses, adding costs and stymieing further economic integration. That said, the potential benefits of greater regulatory convergence between Canada and the United States are great.

In June 2005, the Canadian, U.S. and Mexican governments agreed to develop "a trilateral regulatory cooperation framework by 2007 to support and enhance existing, as well as encourage new cooperation among regulators."

Progress, however, has been glacial. The default option has been to stay on the very Canadian path that has gradually emerged: cooperation if necessary but not necessarily coordination.

The time has come for Canadians to decide whether they will stay the default course or opt for a more strategic, top-down approach of deliberately steering and determining the pace of this process.

Beneficial Partners
Operating in a small, export-dependent economy next door to the world's most vibrant economy, Canadian suppliers and regulators alike have learned the benefits of Canada-U.S. regulatory cooperation.

The Canadian and U.S. economies have become intertwined in response to demands by Canadians and Americans alike for each other's products, services, capital and ideas. These demands are creating jobs and wealth across many sectors and accelerating the forces of mutually beneficial integration.

The result has been an inexorable drift toward ever-greater convergence. This trend is unlikely to change, but Canadians can take steps to harness it and ensure that it develops in ways that bring greater benefits and control than is currently the case. As a first step, the two governments should change the current practice of discretionary cooperation at the federal level to a mandatory process of information exchange, consultation and even coordination.

The aim should be to advance a jointly agreed mandate to improve regulatory outcomes, eliminate duplication and redundancy, reduce regulatory differences between the two countries and affect a North American approach to regulation. Much of this mandatory cooperation can be implemented on the basis of existing institutions.

Small, But Important Differences
Differences between Canadian and U.S. requirements are often small and incidental to their intended effect, the result more often of history and accident than deliberate differentiation. Once in place, however, they attract powerful interests benefiting from these differences. A few examples include:

· In Canada, anti-theft immobilizers are required on all new vehicles; in the United States lower-cost entry level vehicles are exempt.
· In Canada, cheese-flavored popcorn must contain no more than 49 percent real cheese; in the United States, no less than 53 percent.
· In Canada, fortified orange juice is classified as a drug; in the United States, it is classified as food.
· In Canada, combined sleep and pain aids require a prescription; in the United States, they are available over the counter.

A Sound Program
There is no sentiment that the government should interfere in private business and investment decisions to change the logic of resources, geography and private choice that underpin economic integration. The framework of rules and institutions developed in the past 70 years has worked well to facilitate and govern this process of "silent," market-led integration. However, the continued presence of a heavily administered border and of similar but differentiated regulatory regimes still undermines the ability of firms and individuals alike to reap the full benefits of deepening integration.

A program of regulatory cooperation should form part of a larger vision implementing a joint commitment to the creation of the necessary legal framework and institutions that will govern accelerating cross-border integration and ensure that both Canadians and Americans enjoy its benefits.

According to Allan Gotlieb, former Canadian ambassador to the United States, we need to develop "a more comprehensive North American community of law. It would create agreed rules and procedures applying to all significant aspects of the movement of people, goods and services across our border. Such a community of law, inspired by the European model, could lead to a full-scale customs union, embracing a common security perimeter, common standards affecting all commerce, joint tribunals to adjudicate disputes and, in time, complete freedom of movement of people."

Commitment to such a program obviously will have implications that go beyond trade and commercial considerations. Some Canadians, for example, are concerned that growing convergence might drag them into applying U.S. geopolitical trade barriers that are inimical to Canadian values and interests. Others worry that further trade and commercial integration could undermine federal and provincial governments' ability to nurture Canadian culture and identity. Still others fear that further negotiations could require Canada to share its resources and leave Canadians without adequate capacity to ensure that they benefit from these assets. Some Canadians are suspicious that governments' approach to healthcare, education, regional development and other defining policies could be compromised.

These are serious concerns to which there are serious answers. Some of these fears relate more to the forces of proximity than to the nature of the rules in place to manage the process of deepening integration. Canadians can do little about the fact that they live next door to the world's largest, most energetic economy.

However, the negotiation of better rules can provide an improved basis for managing the frictions created by proximity and ensure that Canadians are able to reap the full benefits of their geography. Other concerns are matters that would need to be addressed with care in the negotiation of any terms and conditions that would apply. Like Canadians, Americans also have worries to be addressed.

As with the 1985/87 Canadian-U.S. Free Trade Agreement (CUFTA), the essence of any negotiation involves resolving such issues and finding mutually acceptable compromises. The two governments must engage each other, analyze the issues as they emerge, and determine what can be accommodated and what cannot.

Further Efforts
Face-to-face meetings between Prime Minister Stephen Harper and President George Bush - such as the session on March 30-31, 2006, in Cancun, Mexico - are an opportunity for Harper to signal the end of the strained relations that had developed between the Bush Administration and the governments of his two predecessors.

An active program of regulatory cooperation fits the bill admirably. Certainly, the case for such a program is sufficiently compelling to warrant government and non-government analysts to pay close attention. Now is also a good time for business leaders to do the homework necessary to strengthen the case for cross-border regulatory cooperation.   VTR_US

Michael Hart holds the Simon Reisman Chair in Trade Policy at the Norman Paterson School of International Affairs, Carleton University, Ottawa, Ontario. Published with permission of the C.D. Howe Institute, Toronto, Ontario.