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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