Canada’s Tar Sand Foreign Policy Stifles Manufacturing

Canada’s Tar Sand Foreign Policy Stifles Manufacturing

Canada’s  over-reliance on raw commodity exports, notably the tar sands, has weakened its economy and stifled a struggling manufacturing sector.

In the past few years Canada’s foreign policy has shifted dramatically from its usual place of punching way above its weight for a middle power, to watching international affairs from the sidelines. Canada was once known as the country that invented peacekeeping, banned CFCs from the atmosphere, and a founding country for international organizations like the United Nations and NATO. The Canadian government used to lead the world in environmental policy, global development, and world peace. Today, Canada is known internationally for its tar sands, cuts to foreign aid, and absence from the UN. Bitumen has become the centrepiece of Canadian foreign policy. This foreign policy shift, curated under the past 7 years of Prime Minister Stephen Harper’s Conservative Party government, has not only meant the decline of Canada’s international reputation, but it is also symptomatic of the country’s weakening economic stability.

The Canadian economy, once the envy of the world’s developed economies following the 2008 Financial Crisis, has faced a number of recent setbacks. The IMF in April cut Canada’s growth forecast to 1.5% of GDP from its projected growth of 2%; one of the slowest growth rates among the G20. With the Canadian housing bubble set to collapse, the pessimistic forecast has been followed by high profile investors betting against the Canadian economy. In softening the landing into a pending recession, Canadian policy makers have relied on what has come to be known as the “bitumen bubble” amid stagnant commodity prices, bottlenecked production, and gaining competition from other oil producers.

The oil sands (as they are known to the Canadian political community), the tar sands (as they are known internationally), or the bituminous sands (as they are scientifically known) are a type of raw petroleum resource concentrated in the province of Alberta. Bitumen reserves have only recently been considered as a part of the world’s oil supply. High energy costs and the technological requirements needed to refine bitumen have made it prohibitively expensive to turn the sand into crude oil, but increasing oil prices have made the resource more accessible and Canada into the third largest oil reserve in the world. In the rush to build on the quick gains presented by high oil prices, the past decade has seen raw bitumen replace manufactured goods as Canada’s biggest export product. Unprocessed raw resources made up 43% of the value of all Canadian exports in 2000, but that number has grown to 65% in 2011 as Canadian oil producers tapped into bitumen reserves. The highly diverse economic activity seen in Canada during the 1990s has regressed as the nation has transformed into a staple export economy, reminiscent of Canada’s colonial era.

Reliance on raw resource exports

Canada’s reliance on raw resource exports stifles its manufacturing sector (Credit: Policy Alternatives)

As the country’s political economy increasingly centralizes around the bitumen export industry, Canada is drawn further into a “staples trap”; an economy that needs to sell more and more of its staple as quickly as possible in order to sustain growth. This also locks the Canadian economy into focusing on the accelerated export of a raw product, despite volatile oil pricing over the past decade. Little is being put into the refinement and ‘value-added’ production of bitumen into crude oil. Though the revenues brought in by this resource should be used to help strengthen other industries and improve wealth distribution throughout the country to secure the economy against the limits of the industry, there is little initiative from the federal and provincial governments to do so. In its raw form, bitumen is mostly transported abroad, typically to American oil refineries via pipeline where it is processed and resold with added value.

Currently, the Canadian government’s largest infrastructure projects all involve pipelines that are needed to further accelerate the export of raw bitumen abroad. All the while, the value of the Canadian Loonie has increased rapidly against the US Dollar in the past decade, making Canadian manufactured goods and services less competitive and producing a manufacturing and service industry slump in profitability and employment. The revenues that do come from the bitumen industry (already subject to “competitively” low taxes) are modest, but little is saved or invested in other public projects. The question remains as to how long this kind of economic activity can sustain itself, not to mention the environmental costs and inequality that have followed the bitumen boom. The “staples trap” the Canadian government finds itself in means the country’s social and economic security rests more and more on an industry set to eventually fall off what’s come to be known as the “bitumen cliff”. The provincial government of Alberta’s recent experience near the edge of the “bitumen cliff” should be a wake-up call to the federal government that a more sustainable economic policy is needed, but if Canada’s current foreign policy is any indication of the prevailing attitude, it would appear that the tar sands export economy is here to stay.

The heavy dependence on the bitumen oil industry has affected Canadian foreign policy profoundly by turning statesmen into salesmen. The federal government and provincial government of Alberta have invested heavily in promoting the accelerated export of bitumen both at home and abroad. The federal government has focused much of its diplomatic energy engaging in carbon-based international relations through an aggressive pro-tar sands campaign in Asia, the EU, and the US, that paints the image of Canadian oil as an “ethical” source of “cheap” fuel.

As the US is traditionally Canada’s largest trading partner, Washington DC is front and centre in the bitumen strategy. The Keystone XL pipeline, a contentious project in both the US and Canada that aims to expand the transfer of Alberta bitumen to Texan refineries, is being pushed hard by both the governments of Canada and Alberta. Opposition to the project has been strong in both Canada and the US, but Canadian officials have gone out of their way to denounce its detractors. A newly minted Canadian ambassador in the American capital has already pushed the US State Department hard on approving the Keystone XL. It has even resulted in a public shouting match between the Canadian Natural Resource Minister and US environmentalist and ex-Vice President Al Gore.

All the while, many Americans seem content with their own oil prospects via fracking and would rather see American resources being refined with added-value at American processing plants. “West Texas Intermediate” is certainly a more appealing option to for American consumers than “Western Canadian Select”. Americans are further discouraged from supporting the tar sands industry due to recent oil spills and contaminations by Canadian crude through pipeline failures in the US Midwest. Canadian-US relations used to be about friendly battles over car manufacturing and softwood lumber rights, but in order to sustain the bitumen industry’s continuous need to grow, the “special relationship” with the US has turned into a tar sands reputation war.

In the EU, the tar sands have been labeled “dirty energy” by climate scientists and leaders. Even though the Canadian government is in the midst of negotiating the Comprehensive Economic and Trade Agreement with EU, a free trade and copyright agreement, recent reassurances by EU officials that the tar sands are indeed “dirty” has led to threats from Canadian trade and energy officials of a trade war. Though a counterintuitive foreign policy move, the enflamed rhetoric coming from the Canadian government over the tar sands reputation reveals the vulnerability and volatility of a bitumen-centric economy.

The Canadian government, including the Prime Minister, has made numerous diplomatic overtures to Asia’s emerging markets to sell bitumen. At home, arguments for and against pipeline expansions that direct bitumen to ports on the West Coast of British Columbia to sell to Asian buyers have boiled down to rhetoric, with the government accusing “foreign radicals” of opposing westward pipeline projects. New policies that have allowed state-owned Chinese companies to buy up Canadian bitumen producers and the negotiation of new trade agreements such as the Canada-China Foreign Investment Promotion and Protection Agreement have replaced the federal government’s usual complaints over Chinese human rights.

This new bitumen-focused economy also explains Canada’s other controversial foreign policy moves. It would be no surprise if the Canadian government revealed that their withdrawals from the Kyoto Protocol and the United Nations Convention to Combat Desertification were linked to the carbon-intense, climate-changing bitumen industry. The increasing focus on promoting the tar sands abroad may also have something to do with the government’s cuts to foreign development aid and the merger (rather, a purge) of the government’s Canada International Development Agency with the Department of Foreign Affairs and International Trade, tying Canada’s commercial interests to international aid policies. And could it be that Canada’s unbalanced pro-Israel approach to the Middle East has something to do with competition from OPEC?

Canada’s volatile and unsustainable bitumen-based economic policy has had an adverse effect on Canada’s foreign policies and international recognition. The rest of the world has reacted to Canada’s policies, tarnishing the tar sands’ “ethically clean” image the Canadian government currently promotes, and has discouraged Canada from pursuing its traditional role as a member of the UN Security Council. The international community’s hesitations and grumblings around Canada’s tar sands foreign policy should be sending signals to the Canadian government that it cannot depend on pipelines and diplomatic salesmanship. Nevertheless, while locked-in to its resource export economy, Canada’s foreign policy and international reputation will continue to orbit around the bitumen bubble.

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