A Conversation with Stephen Harper, Prime Minister of Canada

ROBERT RUBIN: All righty. Welcome. I'm Bob Rubin, co-chairman of the council. And we welcome you here today. We are absolutely delighted to have with us our distinguished guest, the prime minister of Canada, Stephen Harper. I will not recite from his resume; as you know, it's council practice to simply welcome our distinguished visitor. But it's worth looking at that resume. It's extremely impressive and this is an extremely accomplished prime minister.

Let me just make one personal observation. I had the good fortune to be at breakfast with the prime minister this morning. We discussed -- or the group that was there discussed economic issues, we discussed the Mideast, about which he knows an enormous amount. And he is very, very thoughtful, as you will quickly find out.

So we again, Prime Minister, are just delighted to have you with us. Our program will be as follows: I'll spend about, oh, the first half of the program posing a few questions to the prime minister and then we'll open it up to all the participants. And then we will adjourn on time.

If you do ask a question, raise you hand. Somebody will come to you with a microphone. State who you are, your affiliation, and be very brief so we can get as many questions in as possible.

Let me start you off in this way, Prime Minister -- as I mentioned at breakfast, I happen to have a very small investment account, so it kind of interests me -- (laughter) -- what do -- what do you -- and I think, you know, I do, because I think Canada has a very strong position. But as you look forward over the next five or 10 years, what do you think about when you think about risks, problems, concerns, issues that Canada needs to address?

PRIME MINISTER STEPHEN HARPER: Sure. Well, first of all, thank you for the kind introduction and thank you, everybody, for having me today. I'm delighted to be back here.

Bob, let me just say this, what I said this morning, you know, we can point to little things, there's always things you want to see better in your economy. But the fundamentals of the Canadian economy are very strong. Our growth is slow, but it has been extremely steady -- the best overall since the end of the recession in the G-7. We continue to create jobs. We have the lowest tax rates at the federal level we've had in 50 years. And our debt and deficit levels are lowest in the G-7 by a long way -- by a long way.

RUBIN: Can you tell people what they are? I think --

HARPER: Well, at a federal level we're now peaking at about 33 percent. So it's a very, very manageable level.

I can point to little things, but all of the risks to Canada are really external. There were never in Canada any of the fundamental problems that led to the recession globally -- the banking problems, the housing market problems, the sovereign debt problems. None of these things were present in Canada in any significant way.

And our recession came about entirely due to our external markets, our export markets and the effect of commodity prices. And these things remain our significant risks in the -- in the near and medium term. What I have told Canadians repeatedly in the last few years is those risks are there, they're going to continue to be with us. And our finance minister, Mr. Flaherty, will continue to dialogue with his partners around the world, our central bank will try and deal with those things.

What we have to do in Canada is, quite frankly, simply look past those things and ask ourselves what can we do to try and increase the growth potential of our economy over time going forward. And that's why we are working on trade agreements, including completing the one we're in -- negotiating with the EU right now; why we're keeping our taxes down, getting our budget balanced; why we're making investments in long-term economic infrastructure and innovation; why we're focusing -- are trying to focus our training programs increasingly on economic and labor force needs; why we're reorienting our very -- I think very positive immigrations programs even more towards the labor force. We're trying to do all the things we can to deal with the growth potential of the Canadian economy, and as I say, not that there are no risks in Canada, but the real significant risks are all external.

RUBIN: May I ask you a question, Prime Minister? My impression -- I think this is right -- is that with all the great strengths of Canada, productivity still has not increased at the rate that it has in some of the competitive countries -- for example, ours.

HARPER: Yeah.

RUBIN: And what would you think, if that's right -- and I think it's right -- what would you think the reasons would be? And what can be done to address that?

HARPER: Yeah, it is -- it is true. I don't think we entirely know why it is true, but you know, we're doing a couple things that are important. In terms of particularly our manufacturing sector, we're doing things to encourage innovation and investment in that sector. We've had accelerated capital cost allowance write-downs for new machinery and equipment. We've eliminated all tariffs, incoming and outgoing, on manufactured goods. And we're putting more money into -- government money into the commercial side, commercialization side, of research and development.

These are all things on which we're starting to see some improvements in productivity, particularly in that -- I think that's the really key place where it has to be done.

The other thing we're doing more going forward is looking at -- you know, given that we're -- like all big Western economies, we have large government, what can we do to improve productivity and efficiency in government. As we're trying to balance our budget, rather than cutting services left, right and center, we're trying to look at ways we can reduce back office overheads, we can find more efficiency through application of new technology, how we can improve our performance management system for our public servants, to make sure that we're getting the highest levels of results.

So those are some of the things we're trying to do on productivity, and I think I see some sign it's starting to have some effect. But it's something we'll have to watch going forward.

RUBIN: You obviously are an enormous producer of energy -- gas, oil, coal and so forth. How do the environmental versus the production of energy forces weigh out in Canada? You've got the gateway pipeline --

HARPER: Right.

RUBIN: -- which I think now has run into some difficulty in British Columbia, if I remember correctly.

HARPER: Well, then the Northern Gateway is still -- it's still part of a regulatory review process. I -- as I tell people repeatedly, we in Canada -- you know, we have a market-driven energy system; the government does not fund or invest in particular energy products -- projects, outside of the hydroelectric sector.

We have vigorous regulatory systems to look at the economic, environmental and other impacts of environmental -- of energy projects.

I'll repeat what I said this morning: to repeat kind of what you said, Bob, that, you know, whether it's coal, hydroelectricity, uranium, natural gas, oil, you name it, Canada is one of the largest producers in the world, and in almost every case with some of the largest reserves in the world. So whatever the energy mix of the future, as I tell people, Canada will be a major provider.

Look, environmental challenges are real. They have to be dealt with. You know, in terms of the one that -- probably one I do want to talk about today, the Keystone pipeline in particular --

RUBIN: (Chuckles.) Thought you might.

HARPER: -- and the oil sands, let me just talk a little bit about the environmental side of that, because I know that's something we're going to be focused on.

Oil sands -- first of all, one needs to put this in a global perspective. Less than one-tenth of 1 percent of global emissions are in the oil sands. And so it -- it's, you know, almost nothing globally.

Now obviously it's a significant part of the -- of our own pressures in terms of our targets, the targets we share -- we share a Copenhagen target with the United States. We have the same target and obviously constraining emissions there in the oil sands is going to be important.

We've had a 25 percent reduction over the past decade or so in emissions intensity out of the oil sands -- 25 percent down.

The province of Alberta already has a technology fund, a regulatory approach in the oil sands that is going to lead to even more investments in technology that will continue to reduce our emissions. So look, truth of the matter is heavy oils out of the oil sands -- yes, there still are emissions issues, but no -- no more so than heavy crudes in other parts of the world, including Venezuela. And I don't have to tell you there are probably reasons beyond just emissions why you would want to have your oil from Canada rather than from Venezuela.

You know, this project -- well, if I can just take a second, four things. I talked about the environment. You know, on the economic side, 40,000 jobs in this country alone over the life of the project -- I don't think, given the growth and job record in North America, we can afford to turn down -- turn up our nose at that. Energy security -- this project will bring in enough oil to reduce American offshore dependence by 40 percent. This is an enormous benefit to the United States in terms of long-term energy security. And finally, of course, I think when you weigh all these factors, including the environmental factors, it explains why there is such overwhelming public support for this pipeline in the United States and why the -- in the -- particularly in the regions affected, there's such broad bipartisan support.

So I think this absolutely needs to go ahead, but you can rest assured that making our emissions targets, including in the oil sands sector, is an important objective of the government of Canada.

RUBIN: This may be an unfair question. You don't have to respond to it. But you've obviously been touched with the -- or involved with the -- our government quite a bit on this subject. What would your prognosis be for approval? You can not respond to that, and you can say that -- (laughter) -- you can say it's complicated -- (inaudible) --

HARPER: (Inaudible) -- ask Ambassador Jacobson that question. (Laughter.) Look --

RUBIN: I don't think he wants to take personal responsibility for this. (Laughter.)

HARPER: I think -- you know, as I say, I think all the facts, including the recent -- you know, recent State Department had a pretty thorough analysis of this, including the environmental impact. And the immediate -- the only real immediate environmental issue here is that we want to increase the flow of oil from Canada via pipeline or via rail. If we don't do the pipeline, more and more is going to be coming in via rail, which is far more environmentally challenging in terms of emissions and risks and all kinds of other things than building a proper pipeline. I think all the facts are overwhelmingly on the side of approval of this, but there is a process in the United States. As I'm told by those who know, the process is subject, as in everything in this country, to a massive potential litigation on either side, so the -- I know the administration will do a thorough analysis before arriving at the right decision.

RUBIN: Let me go back to my first question. (Laughter.) That was what -- that's what I thought you were going to say. Let me go back to the first question again. It really -- I've spent a fair bit of time on this. It's hard to see internally -- for the external difference -- internally, where Canada could go wrong. Yet every economy has its risks. So if you were to identify the 1 percent risk that would worry you, what would it be?

HARPER: Well, as I say, they are -- they are external. That's what keeps me up at night. We've had -- I think there's been some comment on it here. We have had, as you know, growth of household debt in Canada. I think it's -- it -- the assets behind it still speak to the fact that it's well-supported. The financial institutions lending are the most solid in the world. But household debt has risen. We've taken some important steps in Canada to cool that trend through changing some mortgage rules, which is having a noticeable impact. You know, there's always risks you can't predict in this world. There are security risks. There are terrorist attacks. As you know, we just have been working with the Royal Canadian Mounted Police and the Federal Bureau of Investigation working to make arrests on a particular incident we had not long after the Boston bombings. So there's political risks. There's always the risk of -- there's always the risk of people picking the wrong government, but my primary job is to make sure that doesn't happen. (Laughter.)

RUBIN: Well, since you raise that, I wasn't going to. But you do have -- (laughter) -- you have to have an election within the next 2 1/2 years sometime.

HARPER: Yeah, actually, we have a date set for October 25th.

RUBIN: Oh, you do? OK, I didn't realize that. What will the issues in that election likely be?

HARPER: (Chuckles.) You know, I -- look, I tell -- in fairness, Bob, I tell people that my focus right now is the economy. And I am not -- you know, I'm trying to -- trying to stay out of campaign mode as long as I can. The -- that's one of the differences between our system and your system. The campaign mode is not perpetual in Canada, although when we had minority governments, it sometimes seemed that way. I believe that in the foreseeable future, to most people, the economy, the future of jobs and opportunities for themselves and for their children -- those will continue to be the major issues. I think they'll be the major issues for some time to come.

I think -- look, I think, in the developed world, we're going to have some ongoing challenges, particularly in Europe, and, for that matter, U.S. fiscal situation is likely to remain challenging for a while. But I think we're at a crossroads as I think we all recognize there is a -- there really is a shift, an unprecedented shift of power and wealth away from the Western world.

And in many ways, that's a good thing, because we're seeing hundreds of millions of people come out of poverty who never had opportunity before, and it's something we want to see continue. But at the same time, if these trends continue, they will be a real threat to our standards of living. And what we keep telling Canadians, and I think all Western governments need to tell their people, is we can maintain and increase our standard of living and opportunity for our children and grandchildren, but we have to govern ourselves responsibly, we have to live within our means, and we have to not develop a mentality that somehow, the wealth we have today is a right, and it is simply going to be taken as a given. It's going to be earned in a very competitive world. We're prepared as government to make the investments and decisions necessary to grab that future. And I think we have to keep working with our people to make sure they understand those challenges, not just in their communities but obviously business leaders as well.

RUBIN: Look, I think that's a very good statement of the challenge that faces all of us. Would you like to comment is another question you might want to be diplomatic about. (Chuckles.) As you look south -- you obviously have a very strong economic relation with our country -- what is -- how does it strike you that we're doing --

HARPER: Well --

RUBIN: -- in the context of the framework you just set out?

HARPER: Look, we've made -- you know, Canadians are very -- you know, very proud of the fact that the country has performed so well over the past seven or eight years. And, you know, for the first time in a very long time, maybe ever, we now have numbers on standard of living that are at or exceed the numbers of the United States as a consequence of some of the trends of the last few years. And Canadians always -- I tell people from around the world, Canadians always compare themselves to the Americans because you're our only real neighbor, and it's the only real comparison that matters to us. And we're proud of that comparison.

But we also know that for our country to realize its potential, the United States has to do better. I'm encouraged by growth signs I see in the United States. As I mentioned here earlier today, I have enormous -- first, I'm an enormous admirer of this country. And in spite of the fact I value the differences we have as Canadians, I'm an enormous admirer of this country, and I have enormous faith in the ability of the American people and particularly the American business community to always find opportunity, always seize it and always create a better future. That's been the history of this country. I think it requires a hell of a lot of effort by everybody in Washington to make that not true. (Laughter.) And I just -- I just don't think they can sustain that kind of effort indefinitely, so -- (laughter) --

RUBIN: Boy. Well, that's a -- (chuckles) -- that, Prime Minister, is very well said. I hope that -- (inaudible) -- I hope that your bet on their inability to maintain that indefinitely has turned out to be right. (Laughter.)

Before we turn to everybody else, let me ask you, I had not realized, actually, until you were coming here just how deeply you've been involved with the Mideast and how constructively, from our point of view, at least. Why don't you tell people a little bit about your involvement, how much you've been involved and what you've done and what your views are, including in -- with respect to your views, if I may, on Israel, Syria and Egypt?

HARPER: Sure.

Well, look. I think like everybody we're very concerned about what's happening in the Mideast. I was criticized somewhat at home for maybe not as enthusiastically embracing the Arab Spring as some, not because I didn't see positive there, but because I also saw enormous risks. And in some countries like Egypt, I think we're starting to see the implications of maybe unrealistic expectations, both foreign and often on behalf of the populations themselves.

We were very supportive of our allies on the Libya mission. In fact, it was a Canadian commander, actually, in charge of that mission, with, obviously, our American, British and French and other allies, a mission I think, notwithstanding the problems we see today, was still worthwhile for all kinds of reasons.

Look, the one that's on everybody's mind is Syria. And I will just say this: You know, all joking aside about Washington, I -- you know, we've -- I have a really good relationship with the president. And, you know, obviously, think within the constraints of the American system, he's doing what he can do on all kinds of issues. On Syria, I see a lot of criticism about inaction. I look at Syria over the past couple years, and I would urge the president and everybody else extraordinary caution in jumping into this situation. This is a terrible regime. Canada has some of the toughest sanctions in the world against the Assad regime. We believe, as everybody believes, that he should step down and there should be a transition.

But we should not fool ourselves about what is happening in Syria. The overwhelming complexion of the events in Syria is that of a sectarian conflict on both sides, with brutality and extremism on both sides. And to just start talking about, you know, as some do, arming unnamed people whose objectives -- whose identities we don't know and whose objectives we do not understand I think is -- I think is extremely risky. So I think we are best to try and continue to work -- we're making -- doing humanitarian aid, as I know the United States is. Best that we keep doing that nonlethal aid, that we assist the neighboring countries, particularly Jordan, who are threatened by this and that we continue to try and do what we can diplomatically, notwithstanding the obstruction of some at the United Nations, that we continue to do what we can diplomatically to try and see if we can't bring the sides together and lead to a more peaceful transition. I think those are still the best options. Even if they don't appear attainable, none of the other options, to me, are very pleasant.

I think it is also important -- and I'll use this opportunity to say it again, as I think many of you know, our government has been very well known for its strong support of the state of Israel. I think there is nothing more short sighted in Western capitals, in our time, than the softening support we have seen for Israel around the globe. This is the one strong, stable, democratic, Western ally that we have in this part of the world, and the worst possible thing we could do in the long term for any of our governments is to be anything less than fully supportive of Israel. As long as I'm prime minister, this government will remain very supportive, you know, and -- of that country in what is a very challenging neighborhood.

RUBIN: As soon as you said -- we'll turn to everybody else, but now you lead me to a follow-up question, if I may. One would think that, in some respects, they have a very difficult situation right now. If you were Israel, how would you navigate in this -- in this water?

HARPER: (Chuckles.)

RUBIN: And you may also -- on that one our may find some equal answer, like saying it's complex.

HARPER: Yeah, you know, it's so hard. I speak frequently with Prime Minister Netanyahu, and it's so hard for me to put myself in that kind of environment. As president -- or Prime Minister Netanyahu always says to me, he says, I have the worst neighborhood in the world and you have the best neighborhood in the world, because you know where I am and you know all the turmoil around me. And he says, you have three oceans -- you have oceans on three sides and the United States on the other. There is no possible better arrangement any country could ask for -- (laughter) -- in the entire world, and I think he's absolutely right on that.

You know, obviously first and foremost -- first and foremost, Israel has to be preoccupied with its own security, given all the risks -- the immediate risks of -- in the immediate neighborhood and the farther off but very real risks of places like Iran and its nuclear weapons ambitions, which I consider to be the biggest single threat to the globe today.

At the same time, obviously we encourage Israel to try and work with its neighbors to establish workable relationships, as it has with a couple. And we encourage Israelis and Palestinians to return to the peace table and try and make some progress there. But we should -- I really think we should back away from a mythology that there is some kind of magic bullet in Palestinian-Israeli talks that would affect the wider region. The wider region is in turmoil for reasons that go way beyond the Palestinian question or, for that matter, the existence of Israel.

RUBIN: Prime Minister, thank you.

Now we will take questions from anybody who would like to begin the process of asking questions.

Yes, ma'am. Just state who you are and what your affiliation is.

QUESTIONER: Hello. Peggy Hicks with Human Rights Watch. Prime Minister, your government has looked at the issue of violence and murders against indigenous women, and it has been supportive of a parliamentary -- special parliamentary committee that's been set up but so far hasn't been willing to take up the recommendation of a national commission of inquiry to address that very desperate problem, with hundreds of women missing or dead. This featured prominently in Canada's UPR, Universal Periodic Review, in Geneva, and now some provinces and territories have come out in support of National Commission of Inquiry. Is it time for the government to support it as well?

HARPER: Yeah, I remain very skeptical. You know, I, first of all, tend to remain skeptical of commissions of inquiry generally. Not to say they never work or never produce good recommendations, but my experience has been, they almost always run way over time, way over budget and often, the recommendations prove to be of limited utility.

This issue has been studied; the government itself -- the federal government itself -- it's been studied in several different venues -- the federal government itself provided funding or multi-years of study within various branches of our government. We do really think it is time to pass to action.

We have been funding increasing elements -- a number of elements in the justice system to increase the efficacy of both prevention programs as well as investigate techniques on behalf of the police. You know, we're talking about a large number of cases, many of which bear no resemblance to each other whatsoever. And a lot of it is just a matter of getting -- getting better processes to both prevent and investigate these kinds of disturbances.

But I think the other thing, more broadly, that is required -- and something we have been battling in parliament for some years -- is to really enhance the status of women in aboriginal communities. For instance, something we have been trying to pass for some years, when we were a minority, without success, and now advancing -- we're a majority is matrimonial property rights on reserve -- women on Canadian reserves, for various reasons -- historical reasons -- don't enjoy the same kinds of property and other rights that women off reserves enjoy.

The Canadian Human Rights Commission was, for all intents and purposes -- its authorities were not applied on reserves until a couple of years ago when this government managed to amend legislation. So I think there are practical things besides, obviously, enhancing the efficacy of police work. There are things we have to do to increase and raise the status of women in aboriginal communities. And this has been a bit of a pitched battle, because there are forces within aboriginal communities and outside who have been resisting those kinds of changes.

RUBIN: Yes, sir.

QUESTIONER: Ralph Bertrands (ph), New York University. Prime Minister, in recent times, ethnic problems around the world have risen -- ethnic separatism has risen. But in Canada, it seems to have declined. Why is that so, and what are the mechanisms the Canadian government has used in this process, and are there any lessons that the rest of the world can learn from this?

RUBIN: That's a good question.

HARPER: You know, broadly -- I won't comment at great length on the issue of Quebec separatism. As you know, we have a separatist government in Quebec right now, primarily because it was the principal opposition, and Quebecers wanted to change the government, but in fact, support for their actual option of separation is at historic lows.

Look, I think one of the things we're very proud of in Canada is the general approach we've had to diversity. It obviously has origins in the country, because almost from the outset, we've had two national languages. We've had a policy of multiculturalism for some years. The approach we have used in Canada that I think has been very effective -- it's not perfect -- is that we have always taken the view that when people are prepared -- people who have lived millennia in other nations pull up their roots and come to Canada, that this is a very dramatic decision they are taking.

And in wanting to do that, we should be very clear that in almost every case, they really want to become Canadians. And so as much as we want and expect them to integrate, we also view that it is our role as the country they're coming to to make that integration process easier and to accept that when immigrants and when people of different cultures come to Canada, they will not only change to suit the country, but the country will, in some -- in some measure, also evolve to reflect them.

And so I think, in understanding that this is a two-way street and that we accept diversity as a positive, this is a deeply-rooted, across the political spectrum in Canada. I think it's been something that's served us very well. And I say, notwithstanding problems that arise from time to time, I think it's fair to say that there's probably no country in the world with greater cultural diversity, but also greater cultural harmony than Canada, simultaneously.

RUBIN: In that context, Prime Minister, do you have an illegal immigrant problem in Canada of any dimension?

HARPER: We have -- we certainly have illegal immigrants in Canada, but nothing like the problem in the United States. Our problems in Canada have tended to be more problems of people coming and making bogus claims in what is a very generous refugee system, as opposed to mass migration from across the border. So we certainly have illegal immigration, but it is -- it would be a fragment of the phenomenon in the United States.

QUESTIONER: Mr. Prime Minister, Gordon Giffin, a lawyer from Atlanta, Georgia, proud graduate of Richview Collegiate Institute.

HARPER: My high school, same high school. (Laughter.)

QUESTIONER: And a former ambassador to Canada. Welcome, sir.

I hope I can formulate this question where it is coherent. 1988, Canada-U.S. Free Trade Agreement; 1994, NAFTA. Almost 20 years later, some significant, I'll call them incremental initiatives, largely led by the two gentlemen sitting in front of me here, to improve how we work at the border together. But no big moves to try and make a difference in North America to make us more efficient economically. I'm not talking about in any way political integration or even currency integration, nothing like that.

But I even look at the Keystone debate right as evidence of the issue. The only reason we're having this debate is because of an anachronistic provision in our law that relates to a permit to take infrastructure across the 49th parallel. Why we need that in North America, I'm not sure, when all of the jurisdictions along the route get to approve it or not under their own state laws.

So my -- really, my question is, is there a chance of a much bigger initiative between our two countries at some point, to break down the anachronistic rules that impede economic efficiencies in North America, some of which have been done in Europe? I'm not talking about creating an EU with a large governance or anything, but the economic efficiencies.

Last thing I'll say, when I was in Canada working on things like this, I found the impediment to that to be an insecurity in Canada about dealing with the United States, that we were somehow going to assimilate Canada. I don't see that anymore. I think Canada's much more self-confident in dealing with the United States and the world. So if that's the case, is there a chance at doing a bigger deal going forward?

HARPER: Well, Gordon, let me just begin by just repeating -- I know you're familiar with it -- some of the things we are doing, because I think we do have some significant initiative going forward.

We have the -- what we call the Beyond the Border Initiative where we are attempting through a series of individual initiatives and investments and closer cooperation between border authorities, to make things more seamless at the border and to push a lot of -- you know, inspections out around the perimeter of North America to try and arrange our affairs so that, as we say things, are -- things are -- you know, may enter twice, but are inspected only once. And we're doing some of those things.

We also have a parallel initiative called the Regulatory Cooperation Council, where we've identified 29 areas to create greater consistency and harmonization of regulations and more importantly, in my judgment, especially for our side, is to find ways in those areas where we will prevent regulatory -- unnecessary regulatory difference and duplication going forward, where we try and identify some of those things in advance, try and change some of the processes.

And I should mention one very specific project of international cooperation, which is the president just issued a permit for the Detroit River International Crossing, which this is financed largely by Canada, but this will be -- this is a huge piece of infrastructure in what is -- and we often forget the size of this relationship -- what is the largest single trade corridor in the entire world, the Detroit-Windsor trade corridor.

So we have some important initiatives going forward. Could they lead to something systemically more integrated? Look, I think on our side, they could. I think on our side, they could. I agree with your assessment. I think the view -- we had a watershed election in 1988 over the free trade agreement with the United States, and the opponents argued that whether economic integration with the United States -- greater economic integration and trade would lead to wealth or not, it would cause Canada to lose its political independence and identity.

What we've seen is it has led to vast increases in cross-border trade without any such loss of political independence or identity. In fact, this past year, as you know, we've been celebrating the War of -- the War of 1812, which --

RUBIN: I know. (Chuckles.)

HARPER: -- permanently established this -- (laughter) -- this independence and separate identity. So I think that -- there will always be opponents in Canada, but I think that is a real minority view now.

I think the resistance to this kind of thing's far more in the United States than in Canada, for reasons that -- and maybe, Bob and others, for reasons you would better fathom than me.

Some of it's post-9/11 security concerns, but I've never seen -- the United States in the past decade is -- the sensitivity here about sovereignty and the negative assessments I often read of NAFTA -- completely counterfactual assessments of NAFTA -- I think, are the real barriers. I think the real barrier to making some of these arrangements broader and more systemic in terms of the integration are actually on this side of the border.

RUBIN: (Chuckles.)

HARPER: So I leave that to you guys to work out.

RUBIN: To the best my knowledge, Prime Minister, there's never been a serious study of NAFTA that has shown it not to have been positive, but it lives in the politics of the United States in a very powerful way, because I think it symbolizes a lot of other issues that people are concerned about. That would be my impression, anyway.

HARPER: That's -- it -- I don't think there's any evidence that it's been anything but positive. And it's one of these things -- you get this sometime in politics -- you get odd things where nobody would repeal it, yet nobody will admit it works.

RUBIN: (Chuckles.)

HARPER: And I don't know why that is. In Canada I say the -- there were many people opposed. It was a very close election, 50-50, Canadians' original support, on the Canada-U.S. trade arrangement. Any political party that advocates backing away from this trade relationship or from NAFTA would never a general election in Canada, would never be a serious contender.

So that was a watershed, and people understand that this trade is necessary, essential and beneficial.

RUBIN: We'll go back again. Right there. Yeah.

QUESTIONER: Stephen Blank, Fulbright professor, University of Ottawa. Back to risk. Three factoids: Canada's increasingly a commodity-driven economy now. We see a decline of Canadian manufacturing competitiveness. And the trick -- Canadian dollar trades about 10 to 15 cents higher than we always thought was appropriate. Do these pieces connect with each other? And is this a risk?

HARPER: I wouldn't want to say they necessarily connect with each other.

We talked earlier today about commodity prices. I'm not sure I agree that we're more commodity-dependent than ever. In fact, I think what distinguishes us from some countries like Australia is we're actually less commodity-dependent.

But look, commodities are important. My own view is that commodity prices are likely over any significant period of time to track the general level of global economic activity. Obviously if there's -- if we were to see a recession or vast slowdown in the emerging economy, that would have a real impact on Canada through commodity prices, but it would have a real impact on everybody, whether you were commodity-dependent or not.

So I -- you know, as I said earlier, I think -- I think the fact that Canada actually is an advanced economy with a commodity side is actually one of our strengths. The fact that we have both traditional and nontraditional industries distinguishes us from some other developed countries where the kinds of problems you see in manufacturing and elsewhere are much more fatal in the long term.

We do need -- as I said earlier, we do need to do more to make our secondary manufacturing sectors more competitive, more effective. We are working with the manufacturing sector through a series of sectoral initiatives as well as general tax policies to make that happen. I think those sectors are very supportive of what we're doing in Canada to make that happen.

And on the research side, as you know, we have been making significant changes to try and make sure the vast -- as we -- you know, we are a very big funder of public R&D in Canada -- to make that connect better with private R&D and to have better results on commercialization.

So look, those things are all -- we can point at all kinds of things in Canada where things are not ideal or where there are weaknesses. And they're all true. We have strengths and we have weaknesses. I don't think any of these things individually would say that Canada, in isolation, is suddenly going to have a major economic problem. They're all weaknesses we would have that -- on which we would be susceptible, if there were a continued general global economic lowing. So I think our risks primarily (really ?) are external.

RUBIN: Over here.

QUESTIONER: Thank you, Mr. Prime Minister. Daniel Arbess, Parella Weinberg Partners. I wanted to take the opportunity to ask about universal health care. You know, I was born and grew up in Montreal and had the experience of living with universal health care as an adolescent, and my family did. It provided full access to health care, but it always -- it wasn't always to the highest-quality health care and to the most accessible when you needed it. As you know, the United States is moving in this direction. And getting universal health care right is probably the most important economic imperative. I'm sure Bob Rubin would probably agree with that assessment. Being able to create a universal health care system in this country where costs will be managed but so will the quality and accessibility of service balanced against that is critically important as the demographic advances here. So I wondered whether you could illuminate lessons in the Canadian experience with universal health care that would be applicable to our experience here?

HARPER: You know, in all fairness, probably not. (Laughter.) And the reason -- the reason I say that is my experience with the health care system is similar to yours, and that -- as you know, in Canada, the federal government doesn't run the health care system. We provide some significant funding through transfer payments to the provinces, but we actually have very little to do with actually running a health care system. And I don't proclaim any particular expertise in running a health care system.

I would agree with your assessment that we have a system of -- a system of universal access. I would actually say that I think, in my own experience, the quality of care is actually quite high. Timeliness is sometimes an issue and becoming more of an issue as we face some of the demographic pressures on that system. And sometimes a system that's publicly dominated innovation is also -- may also be a bit more of a challenge in some areas.

But look, as you know, the fact of the matter is, Canadians across the political spectrum, including our party, we are very supportive of the fundamental premise of the Canadian health care system, which is that when somebody is sick and needs medical care, their ability to pay should not be a factor in them being able to access medical care. And that is a principle that Canadians believe in and, I know, one that remains a matter of some debate in the United States.

I would also made the following observations -- when I say that I can't give you an easy answer -- I'd make this observation. In spite of the differences between Canadian and American health care and the health care systems in many other Western countries, it seems to me that health care systems around the world, regardless of how they're structured, seem to have a lot of the same problems, the more I actually look at them.

And a lot of the reason for the problem is actually a positive thing. It is that with the -- with the great strides we've made in both the professions, professional training, and especially technology and drugs, that there is just more and more and more we can do to improve people's lives and to keep them living longer. But these things all come with price tags and, in some cases, with enormous price tags.

And the fact of the matter is it is very difficult for systems to assess, however they assess it, where you're going to put these resources. Resources are never unlimited. And the demands and the ability to treat in many cases are virtually unlimited. And so decisions have to be made, and however those decisions are made, whether they're through queuing or through pricing or whatever they are, are very difficult decisions. And I just think those are challenges.

And they're going to be compounded, as we all know, because of the demographics in Western countries, where the population's aging, people will need more health care, and more health care professionals themselves are aging, there will be less and less practitioners. So those are going to be some of the common challenges.

In our country, previous federal governments -- well, not running a health care system -- made a point -- our ambassador was a former premier -- they made a point of periodically picking fights with the provinces over health care to demonstrate that somehow we were going to be great defenders of the system. I think that was an entirely negative dynamic. The approach we now take is we try to work with the provinces to assist them in tackling what are very real challenges going forward.

RUBIN: Prime Minister, if a province decided they didn't want to have a single-payer system, would they be in a position where they could move away from that?

HARPER: They -- technically yes, but they would not be receiving significant transfer payments from the federal government if they did that. And in fairness, there is no political appetite that I'm aware of in any province in any segment of -- significant segment of political opinion to do that.

RUBIN: The gentleman over there. Yeah, that's it.

QUESTIONER: My name is Andrew Gumlock (sp) from -- (inaudible). You've had some recent bruising battles on economic nationalism. In the fertilizer sector you chose not to allow foreign investors in. In two recent energy deals, you debated it a lot but you ultimately allowed them in, ring-fenced some assets.

How do you see this playing out in the short term with the election? But more broadly, and perhaps more importantly, how do you see Canada attracting in the surplus countries into very capital-intensive industries? Frankly, they need capital well in excess of the savings of Canada.

HARPER: Yes, that's true. We need -- we need foreign investment and, at the same time, you should be under illusion that we want foreign investment in Canada. And in fact, although we screen all major foreign investments, only twice in our history have we actually rejected foreign investments.

I just want to talk briefly about the two issues you raised. The one where we did not allow the investment, this was a case of the potash industry, where currently it's a Canadian/American company, and Canada is a dominate producer. And through a Canadian/American organization, it's headquartered -- or, you know, partly headquartered in Canada.

Canada has significant market power in that industry. In one single transaction, what was going to occur was that that significant market power as going to shift out of the country and towards a foreign, private investor. Our judgement was that, because we do screen foreign investments, that that simply was not in the long-term interests of the Canadian economy. I'd say that was fairly unique circumstances.

The second case you raise was our decision to allow certain state-owned investments -- one by a Chinese state-owned corporation, another by a Malaysian state-owned corporation -- into the energy sector. And we allowed those after considerable deliberation.

And while we allowed those, we were very clear going forward that in areas of the economy -- like, for instance, the oil sands -- where we see now a significant risk that if we did not restrict foreign ownership that we would have in -- essentially have that sector be nationalized by some other state-owned enterprise.

Our view is that is not the direction we want for the Canadian economy. We want to have foreign investment. This government -- in fact, it's conservative governments in our country, like mine, who have opened up the economy for foreign investment and have privatized crown corporations. We did not privatize state corporations in order to see other governments nationalize our industry.

So while some foreign state-owned investment is desirable, we would not want it at a level at any critical part of the economy where essentially we began to put that sector of the economy under a foreign state management system, rather than having it essentially run by commercial forces. So as they say, it's a matter of level and degree. And we'll deal with that going forward.

The risk Canada actually has, given the attractiveness -- we're now rated -- I forget -- was it Forbes who said now Canada's in the best place in the world to make an investment. We get that kind of rating elsewhere. Given the relative smallness of the Canadian economy and the relative size of some potential investors, I do think that if we don't -- if we don't have this concern in mind, we could see our economy morph in a way we don't intend.

And as I say, it's not about foreign or domestic. It's about the nature of state-owned enterprises versus genuinely commercial operations. And that's the thing we're keeping an eye on.

RUBIN: Yes, sir.

QUESTIONER: Jeff Laurenti with The Century Foundation.

Mr. Prime Minister, the gradual melting back of the ice cap over the Arctic Ocean, attributed usually to global warming, raises two issues, as you now have long, frozen territorial claims suddenly heating up as well. And I wonder if you might elucidate for us, first, on the mega-issue of global warming, on which Canada has taken a somewhat more nuanced stand -- walking back from Kyoto -- whether -- for Canadians, perhaps the prospect of having a climate more like New Jersey's is so appealing that, you know, it doesn't seem to be urgent. So where do you see the global climate change issue going on the mega level?

And then, on the Arctic territorial claims question, what are the major claims and dispute that affect Canada, and do you see that as resolved by the six countries adjacent to the ocean relative to their bargaining power with each other, or under broader principles of international law like the Law of the Sea? What's the interplay between those?

HARPER: First of all, on the issue of climate change -- our government's position from the outset is that we need a mandatory international protocol that includes all significant emitters, and that if we do not get that, we will not be able to control global emissions. Part of the reason our government was not supportive of the Kyoto protocol is it controlled one-third of global emissions and a shrinking proportion of global emissions. Even if the Kyoto protocol had -- every country in it had realized their targets, which, of course, most weren't -- they would have had no impact whatsoever on the growth of global emissions.

So we need -- we need some of the big emitters outside the developed world -- not just the United States -- China and others -- to be part of a -- of a global system. And I do believe a couple of things going forward if we're going to make that global system effective. It's not just a matter of setting targets. We actually have to have ways of reaching them. You know, many countries have tried simply setting a target as a way of demonstrating that they're going to achieve something. We need a couple of things.

I think, first and foremost, we do need technological change. I am convinced that over time, we are not going to effectively tackle emissions unless we develop the technology -- lower emission technology in energy and other sectors. And that is the thing that will allow us to square economic growth with emissions reduction and environmental protection. And I'm convinced that if we cannot square those two things, we're not going to make progress globally.

And I don't just say that about developed countries like ours, where people are still saying they need jobs as a consequence of the recession, but certainly, in the developing world, we're not going to simply be able to put caps on economic growth as a way of achieving environmental targets. So that's the framework we're approaching it from, but look, there's a lot of -- there's a lot of work to be done. There is still not -- the reality is, there is still not an acceptance in many countries of the need for mandatory targets at all.

On the -- on the issue of territorial claims, you know, with one -- with one small exception, from our standpoint -- with one small exception, there really aren't significant land and territorial claims. There are some disputes, including with your country, on some offshore claims. We have some with the United States on the Beaufort Sea, we obviously have an ongoing dispute about the international status of the Northwest Passage; we have some dispute in the Lincoln Sea area with Denmark.

I think these are things that can be resolved bilaterally. We are obviously, at the same time, big supporters of the United Nations Convention on the Law of the Sea and the process that's going on there to deal with the -- you know, the much farther offshore. And we will continue to support those international efforts. But I actually think the immediate territorial disputes, if they are to be resolved at all, can be resolved or managed bilaterally.

RUBIN: We have time for half a question more -- (laughter) -- and I'm going to -- I'm going to take the liberty, if I may, of asking the question, because it relates to the question just answered. How do -- can you see any way that the international community is actually going to effectively reach some kind of way of dealing with global climate change before it becomes a crisis that forces action? And in that context, is the G-20 an effective vehicle for dealing with transnational issues?

HARPER: Boy, that's a big question.

RUBIN: Well, I -- it's a half a question, if you have a half an answer.

HARPER: Yeah. Well, look, I think the answer to the first question is yes. I think it's going to be difficult. I think that -- I think that most countries understand not just the question of climate change is serious, but understand that the price of having no effective environmental framework is already causing significant impacts and will cause greater impacts in the future.

I think even with marginal progresses in standard of living in places like China and India, there will be overwhelming public demand for environmental improvement in those countries. You know, it's incomprehensible to me, when I look at the growth of China and India and I see the kind of environmental challenges that exist today, how those challenges could be tolerable if they became five or 10 times as bad. So I do think everybody will -- will come to the realization, whether it's on climate change or these broader economic problems of pollution and other such matters, that these things do have to be tackled.

I -- I really do think that we'll -- we'll get farther on these things if we take serious approaches. And serious approaches, Bob, means that we admit that not just they are big challenges, but they are also difficult ones. It is not a matter of just getting on a street corner and yelling and that will somehow lead to a solution. These are real challenges that -- where environmental needs intersect and often appear to be at cross-purposes with economic and social development. And unless we realize that, take those things seriously, we're going to keep talking around the real issues. So I think if we admit they're real problems with real, difficult solutions and real, difficult choices that have to be made, that everybody has to contribute to, then I think we'll make progress.

And I do think as time wears on and as we've had, you know, failures as we have through Kyoto and failures at some of these international conferences, I do think it will increasingly dawn on actors that we'll just keep failing unless we actually get together and realize this is a -- these are issues that -- that don't have simple, quick answers.

That was the first. What was the --

RUBIN: Oh, I'm just curious whether you think the G-20 is an effective mechanism for --

HARPER: Well, look, I don't know. I -- you know, I don't -- I wish I could tell you yes to that one. The G-20 was extraordinarily effective when President Bush first convened it in late 2008. It was extraordinarily effective at that meeting, at the subsequent ones in London and Pittsburgh, at arriving at a consensus on a series of issues that had to be addressed. And you know, we did a global stimulus. We worked for -- we all worked together on -- we shared, in fact, the panel on working together in more effective financial regulation. There's been another -- a number of other agreements.

What my observation would be, that going forward -- when we all faced exactly the same problem, which was a collapse in economic activity, it -- it -- it sure led much more quickly to a consensus on what to do. Now that countries find themselves -- you know, we talk about two three -- two-speed, three-speed developed world, emerging economies on a different trajectory. As the situations and needs of these different countries diverge, getting consensus on these issues is proving to be more and more difficult. I don't know whether it will be -- whether it will be as effective going forward as it needs to be.

I do know this, that I think it's the only mechanism at our disposal. I don't think you'd want more than 20 players in the room. Unfortunately, the G-20 tends to mean, in practice, G-20 -- something like G-35. But with 20 to 30 to 35 people in the room, I think you're squeezing the -- the bounds of effectiveness anyway, and -- and there is nothing else that I see as a plausible substitute, other than the major sovereign players getting together and trying to -- to work through some global needs.

What -- what we lack -- I would say often the real crucial problem is this. It's -- it's not that -- it's not that -- just that we have divergent paths and -- and different situations. It's that there is still often in these discussions a failure of many people around the table to fully grasp the holistic nature of the approach we need to take.

And look, we -- Canada, like everyone else, we defend our national interests and our national perspective. But given that we are part of a global economy, effective -- for lack of a better words, effective global governance through the G-20 -- and that's the closest thing we got -- is only going to work if a lot of people around the table bring a holistic and global perspective to that economy and to -- to what needs to be done globally. And that is still an area where we're deficient, where I don't think there's still enough of a realization that the best we're going to do -- even in some of the largest economies, the best we have is coping mechanisms, unless we actually work together on how we address some of these challenges.

RUBIN: Prime Minister, we thank you for being with us and -- (applause) -- you were terrific.

(C) 2013 Federal News Service



ROBERT RUBIN: All righty. Welcome. I'm Bob Rubin, co-chairman of the council. And we welcome you here today. We are absolutely delighted to have with us our distinguished guest, the prime minister of Canada, Stephen Harper. I will not recite from his resume; as you know, it's council practice to simply welcome our distinguished visitor. But it's worth looking at that resume. It's extremely impressive and this is an extremely accomplished prime minister.

Let me just make one personal observation. I had the good fortune to be at breakfast with the prime minister this morning. We discussed -- or the group that was there discussed economic issues, we discussed the Mideast, about which he knows an enormous amount. And he is very, very thoughtful, as you will quickly find out.

So we again, Prime Minister, are just delighted to have you with us. Our program will be as follows: I'll spend about, oh, the first half of the program posing a few questions to the prime minister and then we'll open it up to all the participants. And then we will adjourn on time.

If you do ask a question, raise you hand. Somebody will come to you with a microphone. State who you are, your affiliation, and be very brief so we can get as many questions in as possible.

Let me start you off in this way, Prime Minister -- as I mentioned at breakfast, I happen to have a very small investment account, so it kind of interests me -- (laughter) -- what do -- what do you -- and I think, you know, I do, because I think Canada has a very strong position. But as you look forward over the next five or 10 years, what do you think about when you think about risks, problems, concerns, issues that Canada needs to address?

PRIME MINISTER STEPHEN HARPER: Sure. Well, first of all, thank you for the kind introduction and thank you, everybody, for having me today. I'm delighted to be back here.

Bob, let me just say this, what I said this morning, you know, we can point to little things, there's always things you want to see better in your economy. But the fundamentals of the Canadian economy are very strong. Our growth is slow, but it has been extremely steady -- the best overall since the end of the recession in the G-7. We continue to create jobs. We have the lowest tax rates at the federal level we've had in 50 years. And our debt and deficit levels are lowest in the G-7 by a long way -- by a long way.

RUBIN: Can you tell people what they are? I think --

HARPER: Well, at a federal level we're now peaking at about 33 percent. So it's a very, very manageable level.

I can point to little things, but all of the risks to Canada are really external. There were never in Canada any of the fundamental problems that led to the recession globally -- the banking problems, the housing market problems, the sovereign debt problems. None of these things were present in Canada in any significant way.

And our recession came about entirely due to our external markets, our export markets and the effect of commodity prices. And these things remain our significant risks in the -- in the near and medium term. What I have told Canadians repeatedly in the last few years is those risks are there, they're going to continue to be with us. And our finance minister, Mr. Flaherty, will continue to dialogue with his partners around the world, our central bank will try and deal with those things.

What we have to do in Canada is, quite frankly, simply look past those things and ask ourselves what can we do to try and increase the growth potential of our economy over time going forward. And that's why we are working on trade agreements, including completing the one we're in -- negotiating with the EU right now; why we're keeping our taxes down, getting our budget balanced; why we're making investments in long-term economic infrastructure and innovation; why we're focusing -- are trying to focus our training programs increasingly on economic and labor force needs; why we're reorienting our very -- I think very positive immigrations programs even more towards the labor force. We're trying to do all the things we can to deal with the growth potential of the Canadian economy, and as I say, not that there are no risks in Canada, but the real significant risks are all external.

RUBIN: May I ask you a question, Prime Minister? My impression -- I think this is right -- is that with all the great strengths of Canada, productivity still has not increased at the rate that it has in some of the competitive countries -- for example, ours.

HARPER: Yeah.

RUBIN: And what would you think, if that's right -- and I think it's right -- what would you think the reasons would be? And what can be done to address that?

HARPER: Yeah, it is -- it is true. I don't think we entirely know why it is true, but you know, we're doing a couple things that are important. In terms of particularly our manufacturing sector, we're doing things to encourage innovation and investment in that sector. We've had accelerated capital cost allowance write-downs for new machinery and equipment. We've eliminated all tariffs, incoming and outgoing, on manufactured goods. And we're putting more money into -- government money into the commercial side, commercialization side, of research and development.

These are all things on which we're starting to see some improvements in productivity, particularly in that -- I think that's the really key place where it has to be done.

The other thing we're doing more going forward is looking at -- you know, given that we're -- like all big Western economies, we have large government, what can we do to improve productivity and efficiency in government. As we're trying to balance our budget, rather than cutting services left, right and center, we're trying to look at ways we can reduce back office overheads, we can find more efficiency through application of new technology, how we can improve our performance management system for our public servants, to make sure that we're getting the highest levels of results.

So those are some of the things we're trying to do on productivity, and I think I see some sign it's starting to have some effect. But it's something we'll have to watch going forward.

RUBIN: You obviously are an enormous producer of energy -- gas, oil, coal and so forth. How do the environmental versus the production of energy forces weigh out in Canada? You've got the gateway pipeline --

HARPER: Right.

RUBIN: -- which I think now has run into some difficulty in British Columbia, if I remember correctly.

HARPER: Well, then the Northern Gateway is still -- it's still part of a regulatory review process. I -- as I tell people repeatedly, we in Canada -- you know, we have a market-driven energy system; the government does not fund or invest in particular energy products -- projects, outside of the hydroelectric sector.

We have vigorous regulatory systems to look at the economic, environmental and other impacts of environmental -- of energy projects.

I'll repeat what I said this morning: to repeat kind of what you said, Bob, that, you know, whether it's coal, hydroelectricity, uranium, natural gas, oil, you name it, Canada is one of the largest producers in the world, and in almost every case with some of the largest reserves in the world. So whatever the energy mix of the future, as I tell people, Canada will be a major provider.

Look, environmental challenges are real. They have to be dealt with. You know, in terms of the one that -- probably one I do want to talk about today, the Keystone pipeline in particular --

RUBIN: (Chuckles.) Thought you might.

HARPER: -- and the oil sands, let me just talk a little bit about the environmental side of that, because I know that's something we're going to be focused on.

Oil sands -- first of all, one needs to put this in a global perspective. Less than one-tenth of 1 percent of global emissions are in the oil sands. And so it -- it's, you know, almost nothing globally.

Now obviously it's a significant part of the -- of our own pressures in terms of our targets, the targets we share -- we share a Copenhagen target with the United States. We have the same target and obviously constraining emissions there in the oil sands is going to be important.

We've had a 25 percent reduction over the past decade or so in emissions intensity out of the oil sands -- 25 percent down.

The province of Alberta already has a technology fund, a regulatory approach in the oil sands that is going to lead to even more investments in technology that will continue to reduce our emissions. So look, truth of the matter is heavy oils out of the oil sands -- yes, there still are emissions issues, but no -- no more so than heavy crudes in other parts of the world, including Venezuela. And I don't have to tell you there are probably reasons beyond just emissions why you would want to have your oil from Canada rather than from Venezuela.

You know, this project -- well, if I can just take a second, four things. I talked about the environment. You know, on the economic side, 40,000 jobs in this country alone over the life of the project -- I don't think, given the growth and job record in North America, we can afford to turn down -- turn up our nose at that. Energy security -- this project will bring in enough oil to reduce American offshore dependence by 40 percent. This is an enormous benefit to the United States in terms of long-term energy security. And finally, of course, I think when you weigh all these factors, including the environmental factors, it explains why there is such overwhelming public support for this pipeline in the United States and why the -- in the -- particularly in the regions affected, there's such broad bipartisan support.

So I think this absolutely needs to go ahead, but you can rest assured that making our emissions targets, including in the oil sands sector, is an important objective of the government of Canada.

RUBIN: This may be an unfair question. You don't have to respond to it. But you've obviously been touched with the -- or involved with the -- our government quite a bit on this subject. What would your prognosis be for approval? You can not respond to that, and you can say that -- (laughter) -- you can say it's complicated -- (inaudible) --

HARPER: (Inaudible) -- ask Ambassador Jacobson that question. (Laughter.) Look --

RUBIN: I don't think he wants to take personal responsibility for this. (Laughter.)

HARPER: I think -- you know, as I say, I think all the facts, including the recent -- you know, recent State Department had a pretty thorough analysis of this, including the environmental impact. And the immediate -- the only real immediate environmental issue here is that we want to increase the flow of oil from Canada via pipeline or via rail. If we don't do the pipeline, more and more is going to be coming in via rail, which is far more environmentally challenging in terms of emissions and risks and all kinds of other things than building a proper pipeline. I think all the facts are overwhelmingly on the side of approval of this, but there is a process in the United States. As I'm told by those who know, the process is subject, as in everything in this country, to a massive potential litigation on either side, so the -- I know the administration will do a thorough analysis before arriving at the right decision.

RUBIN: Let me go back to my first question. (Laughter.) That was what -- that's what I thought you were going to say. Let me go back to the first question again. It really -- I've spent a fair bit of time on this. It's hard to see internally -- for the external difference -- internally, where Canada could go wrong. Yet every economy has its risks. So if you were to identify the 1 percent risk that would worry you, what would it be?

HARPER: Well, as I say, they are -- they are external. That's what keeps me up at night. We've had -- I think there's been some comment on it here. We have had, as you know, growth of household debt in Canada. I think it's -- it -- the assets behind it still speak to the fact that it's well-supported. The financial institutions lending are the most solid in the world. But household debt has risen. We've taken some important steps in Canada to cool that trend through changing some mortgage rules, which is having a noticeable impact. You know, there's always risks you can't predict in this world. There are security risks. There are terrorist attacks. As you know, we just have been working with the Royal Canadian Mounted Police and the Federal Bureau of Investigation working to make arrests on a particular incident we had not long after the Boston bombings. So there's political risks. There's always the risk of -- there's always the risk of people picking the wrong government, but my primary job is to make sure that doesn't happen. (Laughter.)

RUBIN: Well, since you raise that, I wasn't going to. But you do have -- (laughter) -- you have to have an election within the next 2 1/2 years sometime.

HARPER: Yeah, actually, we have a date set for October 25th.

RUBIN: Oh, you do? OK, I didn't realize that. What will the issues in that election likely be?

HARPER: (Chuckles.) You know, I -- look, I tell -- in fairness, Bob, I tell people that my focus right now is the economy. And I am not -- you know, I'm trying to -- trying to stay out of campaign mode as long as I can. The -- that's one of the differences between our system and your system. The campaign mode is not perpetual in Canada, although when we had minority governments, it sometimes seemed that way. I believe that in the foreseeable future, to most people, the economy, the future of jobs and opportunities for themselves and for their children -- those will continue to be the major issues. I think they'll be the major issues for some time to come.

I think -- look, I think, in the developed world, we're going to have some ongoing challenges, particularly in Europe, and, for that matter, U.S. fiscal situation is likely to remain challenging for a while. But I think we're at a crossroads as I think we all recognize there is a -- there really is a shift, an unprecedented shift of power and wealth away from the Western world.

And in many ways, that's a good thing, because we're seeing hundreds of millions of people come out of poverty who never had opportunity before, and it's something we want to see continue. But at the same time, if these trends continue, they will be a real threat to our standards of living. And what we keep telling Canadians, and I think all Western governments need to tell their people, is we can maintain and increase our standard of living and opportunity for our children and grandchildren, but we have to govern ourselves responsibly, we have to live within our means, and we have to not develop a mentality that somehow, the wealth we have today is a right, and it is simply going to be taken as a given. It's going to be earned in a very competitive world. We're prepared as government to make the investments and decisions necessary to grab that future. And I think we have to keep working with our people to make sure they understand those challenges, not just in their communities but obviously business leaders as well.

RUBIN: Look, I think that's a very good statement of the challenge that faces all of us. Would you like to comment is another question you might want to be diplomatic about. (Chuckles.) As you look south -- you obviously have a very strong economic relation with our country -- what is -- how does it strike you that we're doing --

HARPER: Well --

RUBIN: -- in the context of the framework you just set out?

HARPER: Look, we've made -- you know, Canadians are very -- you know, very proud of the fact that the country has performed so well over the past seven or eight years. And, you know, for the first time in a very long time, maybe ever, we now have numbers on standard of living that are at or exceed the numbers of the United States as a consequence of some of the trends of the last few years. And Canadians always -- I tell people from around the world, Canadians always compare themselves to the Americans because you're our only real neighbor, and it's the only real comparison that matters to us. And we're proud of that comparison.

But we also know that for our country to realize its potential, the United States has to do better. I'm encouraged by growth signs I see in the United States. As I mentioned here earlier today, I have enormous -- first, I'm an enormous admirer of this country. And in spite of the fact I value the differences we have as Canadians, I'm an enormous admirer of this country, and I have enormous faith in the ability of the American people and particularly the American business community to always find opportunity, always seize it and always create a better future. That's been the history of this country. I think it requires a hell of a lot of effort by everybody in Washington to make that not true. (Laughter.) And I just -- I just don't think they can sustain that kind of effort indefinitely, so -- (laughter) --

RUBIN: Boy. Well, that's a -- (chuckles) -- that, Prime Minister, is very well said. I hope that -- (inaudible) -- I hope that your bet on their inability to maintain that indefinitely has turned out to be right. (Laughter.)

Before we turn to everybody else, let me ask you, I had not realized, actually, until you were coming here just how deeply you've been involved with the Mideast and how constructively, from our point of view, at least. Why don't you tell people a little bit about your involvement, how much you've been involved and what you've done and what your views are, including in -- with respect to your views, if I may, on Israel, Syria and Egypt?

HARPER: Sure.

Well, look. I think like everybody we're very concerned about what's happening in the Mideast. I was criticized somewhat at home for maybe not as enthusiastically embracing the Arab Spring as some, not because I didn't see positive there, but because I also saw enormous risks. And in some countries like Egypt, I think we're starting to see the implications of maybe unrealistic expectations, both foreign and often on behalf of the populations themselves.

We were very supportive of our allies on the Libya mission. In fact, it was a Canadian commander, actually, in charge of that mission, with, obviously, our American, British and French and other allies, a mission I think, notwithstanding the problems we see today, was still worthwhile for all kinds of reasons.

Look, the one that's on everybody's mind is Syria. And I will just say this: You know, all joking aside about Washington, I -- you know, we've -- I have a really good relationship with the president. And, you know, obviously, think within the constraints of the American system, he's doing what he can do on all kinds of issues. On Syria, I see a lot of criticism about inaction. I look at Syria over the past couple years, and I would urge the president and everybody else extraordinary caution in jumping into this situation. This is a terrible regime. Canada has some of the toughest sanctions in the world against the Assad regime. We believe, as everybody believes, that he should step down and there should be a transition.

But we should not fool ourselves about what is happening in Syria. The overwhelming complexion of the events in Syria is that of a sectarian conflict on both sides, with brutality and extremism on both sides. And to just start talking about, you know, as some do, arming unnamed people whose objectives -- whose identities we don't know and whose objectives we do not understand I think is -- I think is extremely risky. So I think we are best to try and continue to work -- we're making -- doing humanitarian aid, as I know the United States is. Best that we keep doing that nonlethal aid, that we assist the neighboring countries, particularly Jordan, who are threatened by this and that we continue to try and do what we can diplomatically, notwithstanding the obstruction of some at the United Nations, that we continue to do what we can diplomatically to try and see if we can't bring the sides together and lead to a more peaceful transition. I think those are still the best options. Even if they don't appear attainable, none of the other options, to me, are very pleasant.

I think it is also important -- and I'll use this opportunity to say it again, as I think many of you know, our government has been very well known for its strong support of the state of Israel. I think there is nothing more short sighted in Western capitals, in our time, than the softening support we have seen for Israel around the globe. This is the one strong, stable, democratic, Western ally that we have in this part of the world, and the worst possible thing we could do in the long term for any of our governments is to be anything less than fully supportive of Israel. As long as I'm prime minister, this government will remain very supportive, you know, and -- of that country in what is a very challenging neighborhood.

RUBIN: As soon as you said -- we'll turn to everybody else, but now you lead me to a follow-up question, if I may. One would think that, in some respects, they have a very difficult situation right now. If you were Israel, how would you navigate in this -- in this water?

HARPER: (Chuckles.)

RUBIN: And you may also -- on that one our may find some equal answer, like saying it's complex.

HARPER: Yeah, you know, it's so hard. I speak frequently with Prime Minister Netanyahu, and it's so hard for me to put myself in that kind of environment. As president -- or Prime Minister Netanyahu always says to me, he says, I have the worst neighborhood in the world and you have the best neighborhood in the world, because you know where I am and you know all the turmoil around me. And he says, you have three oceans -- you have oceans on three sides and the United States on the other. There is no possible better arrangement any country could ask for -- (laughter) -- in the entire world, and I think he's absolutely right on that.

You know, obviously first and foremost -- first and foremost, Israel has to be preoccupied with its own security, given all the risks -- the immediate risks of -- in the immediate neighborhood and the farther off but very real risks of places like Iran and its nuclear weapons ambitions, which I consider to be the biggest single threat to the globe today.

At the same time, obviously we encourage Israel to try and work with its neighbors to establish workable relationships, as it has with a couple. And we encourage Israelis and Palestinians to return to the peace table and try and make some progress there. But we should -- I really think we should back away from a mythology that there is some kind of magic bullet in Palestinian-Israeli talks that would affect the wider region. The wider region is in turmoil for reasons that go way beyond the Palestinian question or, for that matter, the existence of Israel.

RUBIN: Prime Minister, thank you.

Now we will take questions from anybody who would like to begin the process of asking questions.

Yes, ma'am. Just state who you are and what your affiliation is.

QUESTIONER: Hello. Peggy Hicks with Human Rights Watch. Prime Minister, your government has looked at the issue of violence and murders against indigenous women, and it has been supportive of a parliamentary -- special parliamentary committee that's been set up but so far hasn't been willing to take up the recommendation of a national commission of inquiry to address that very desperate problem, with hundreds of women missing or dead. This featured prominently in Canada's UPR, Universal Periodic Review, in Geneva, and now some provinces and territories have come out in support of National Commission of Inquiry. Is it time for the government to support it as well?

HARPER: Yeah, I remain very skeptical. You know, I, first of all, tend to remain skeptical of commissions of inquiry generally. Not to say they never work or never produce good recommendations, but my experience has been, they almost always run way over time, way over budget and often, the recommendations prove to be of limited utility.

This issue has been studied; the government itself -- the federal government itself -- it's been studied in several different venues -- the federal government itself provided funding or multi-years of study within various branches of our government. We do really think it is time to pass to action.

We have been funding increasing elements -- a number of elements in the justice system to increase the efficacy of both prevention programs as well as investigate techniques on behalf of the police. You know, we're talking about a large number of cases, many of which bear no resemblance to each other whatsoever. And a lot of it is just a matter of getting -- getting better processes to both prevent and investigate these kinds of disturbances.

But I think the other thing, more broadly, that is required -- and something we have been battling in parliament for some years -- is to really enhance the status of women in aboriginal communities. For instance, something we have been trying to pass for some years, when we were a minority, without success, and now advancing -- we're a majority is matrimonial property rights on reserve -- women on Canadian reserves, for various reasons -- historical reasons -- don't enjoy the same kinds of property and other rights that women off reserves enjoy.

The Canadian Human Rights Commission was, for all intents and purposes -- its authorities were not applied on reserves until a couple of years ago when this government managed to amend legislation. So I think there are practical things besides, obviously, enhancing the efficacy of police work. There are things we have to do to increase and raise the status of women in aboriginal communities. And this has been a bit of a pitched battle, because there are forces within aboriginal communities and outside who have been resisting those kinds of changes.

RUBIN: Yes, sir.

QUESTIONER: Ralph Bertrands (ph), New York University. Prime Minister, in recent times, ethnic problems around the world have risen -- ethnic separatism has risen. But in Canada, it seems to have declined. Why is that so, and what are the mechanisms the Canadian government has used in this process, and are there any lessons that the rest of the world can learn from this?

RUBIN: That's a good question.

HARPER: You know, broadly -- I won't comment at great length on the issue of Quebec separatism. As you know, we have a separatist government in Quebec right now, primarily because it was the principal opposition, and Quebecers wanted to change the government, but in fact, support for their actual option of separation is at historic lows.

Look, I think one of the things we're very proud of in Canada is the general approach we've had to diversity. It obviously has origins in the country, because almost from the outset, we've had two national languages. We've had a policy of multiculturalism for some years. The approach we have used in Canada that I think has been very effective -- it's not perfect -- is that we have always taken the view that when people are prepared -- people who have lived millennia in other nations pull up their roots and come to Canada, that this is a very dramatic decision they are taking.

And in wanting to do that, we should be very clear that in almost every case, they really want to become Canadians. And so as much as we want and expect them to integrate, we also view that it is our role as the country they're coming to to make that integration process easier and to accept that when immigrants and when people of different cultures come to Canada, they will not only change to suit the country, but the country will, in some -- in some measure, also evolve to reflect them.

And so I think, in understanding that this is a two-way street and that we accept diversity as a positive, this is a deeply-rooted, across the political spectrum in Canada. I think it's been something that's served us very well. And I say, notwithstanding problems that arise from time to time, I think it's fair to say that there's probably no country in the world with greater cultural diversity, but also greater cultural harmony than Canada, simultaneously.

RUBIN: In that context, Prime Minister, do you have an illegal immigrant problem in Canada of any dimension?

HARPER: We have -- we certainly have illegal immigrants in Canada, but nothing like the problem in the United States. Our problems in Canada have tended to be more problems of people coming and making bogus claims in what is a very generous refugee system, as opposed to mass migration from across the border. So we certainly have illegal immigration, but it is -- it would be a fragment of the phenomenon in the United States.

QUESTIONER: Mr. Prime Minister, Gordon Giffin, a lawyer from Atlanta, Georgia, proud graduate of Richview Collegiate Institute.

HARPER: My high school, same high school. (Laughter.)

QUESTIONER: And a former ambassador to Canada. Welcome, sir.

I hope I can formulate this question where it is coherent. 1988, Canada-U.S. Free Trade Agreement; 1994, NAFTA. Almost 20 years later, some significant, I'll call them incremental initiatives, largely led by the two gentlemen sitting in front of me here, to improve how we work at the border together. But no big moves to try and make a difference in North America to make us more efficient economically. I'm not talking about in any way political integration or even currency integration, nothing like that.

But I even look at the Keystone debate right as evidence of the issue. The only reason we're having this debate is because of an anachronistic provision in our law that relates to a permit to take infrastructure across the 49th parallel. Why we need that in North America, I'm not sure, when all of the jurisdictions along the route get to approve it or not under their own state laws.

So my -- really, my question is, is there a chance of a much bigger initiative between our two countries at some point, to break down the anachronistic rules that impede economic efficiencies in North America, some of which have been done in Europe? I'm not talking about creating an EU with a large governance or anything, but the economic efficiencies.

Last thing I'll say, when I was in Canada working on things like this, I found the impediment to that to be an insecurity in Canada about dealing with the United States, that we were somehow going to assimilate Canada. I don't see that anymore. I think Canada's much more self-confident in dealing with the United States and the world. So if that's the case, is there a chance at doing a bigger deal going forward?

HARPER: Well, Gordon, let me just begin by just repeating -- I know you're familiar with it -- some of the things we are doing, because I think we do have some significant initiative going forward.

We have the -- what we call the Beyond the Border Initiative where we are attempting through a series of individual initiatives and investments and closer cooperation between border authorities, to make things more seamless at the border and to push a lot of -- you know, inspections out around the perimeter of North America to try and arrange our affairs so that, as we say things, are -- things are -- you know, may enter twice, but are inspected only once. And we're doing some of those things.

We also have a parallel initiative called the Regulatory Cooperation Council, where we've identified 29 areas to create greater consistency and harmonization of regulations and more importantly, in my judgment, especially for our side, is to find ways in those areas where we will prevent regulatory -- unnecessary regulatory difference and duplication going forward, where we try and identify some of those things in advance, try and change some of the processes.

And I should mention one very specific project of international cooperation, which is the president just issued a permit for the Detroit River International Crossing, which this is financed largely by Canada, but this will be -- this is a huge piece of infrastructure in what is -- and we often forget the size of this relationship -- what is the largest single trade corridor in the entire world, the Detroit-Windsor trade corridor.

So we have some important initiatives going forward. Could they lead to something systemically more integrated? Look, I think on our side, they could. I think on our side, they could. I agree with your assessment. I think the view -- we had a watershed election in 1988 over the free trade agreement with the United States, and the opponents argued that whether economic integration with the United States -- greater economic integration and trade would lead to wealth or not, it would cause Canada to lose its political independence and identity.

What we've seen is it has led to vast increases in cross-border trade without any such loss of political independence or identity. In fact, this past year, as you know, we've been celebrating the War of -- the War of 1812, which --

RUBIN: I know. (Chuckles.)

HARPER: -- permanently established this -- (laughter) -- this independence and separate identity. So I think that -- there will always be opponents in Canada, but I think that is a real minority view now.

I think the resistance to this kind of thing's far more in the United States than in Canada, for reasons that -- and maybe, Bob and others, for reasons you would better fathom than me.

Some of it's post-9/11 security concerns, but I've never seen -- the United States in the past decade is -- the sensitivity here about sovereignty and the negative assessments I often read of NAFTA -- completely counterfactual assessments of NAFTA -- I think, are the real barriers. I think the real barrier to making some of these arrangements broader and more systemic in terms of the integration are actually on this side of the border.

RUBIN: (Chuckles.)

HARPER: So I leave that to you guys to work out.

RUBIN: To the best my knowledge, Prime Minister, there's never been a serious study of NAFTA that has shown it not to have been positive, but it lives in the politics of the United States in a very powerful way, because I think it symbolizes a lot of other issues that people are concerned about. That would be my impression, anyway.

HARPER: That's -- it -- I don't think there's any evidence that it's been anything but positive. And it's one of these things -- you get this sometime in politics -- you get odd things where nobody would repeal it, yet nobody will admit it works.

RUBIN: (Chuckles.)

HARPER: And I don't know why that is. In Canada I say the -- there were many people opposed. It was a very close election, 50-50, Canadians' original support, on the Canada-U.S. trade arrangement. Any political party that advocates backing away from this trade relationship or from NAFTA would never a general election in Canada, would never be a serious contender.

So that was a watershed, and people understand that this trade is necessary, essential and beneficial.

RUBIN: We'll go back again. Right there. Yeah.

QUESTIONER: Stephen Blank, Fulbright professor, University of Ottawa. Back to risk. Three factoids: Canada's increasingly a commodity-driven economy now. We see a decline of Canadian manufacturing competitiveness. And the trick -- Canadian dollar trades about 10 to 15 cents higher than we always thought was appropriate. Do these pieces connect with each other? And is this a risk?

HARPER: I wouldn't want to say they necessarily connect with each other.

We talked earlier today about commodity prices. I'm not sure I agree that we're more commodity-dependent than ever. In fact, I think what distinguishes us from some countries like Australia is we're actually less commodity-dependent.

But look, commodities are important. My own view is that commodity prices are likely over any significant period of time to track the general level of global economic activity. Obviously if there's -- if we were to see a recession or vast slowdown in the emerging economy, that would have a real impact on Canada through commodity prices, but it would have a real impact on everybody, whether you were commodity-dependent or not.

So I -- you know, as I said earlier, I think -- I think the fact that Canada actually is an advanced economy with a commodity side is actually one of our strengths. The fact that we have both traditional and nontraditional industries distinguishes us from some other developed countries where the kinds of problems you see in manufacturing and elsewhere are much more fatal in the long term.

We do need -- as I said earlier, we do need to do more to make our secondary manufacturing sectors more competitive, more effective. We are working with the manufacturing sector through a series of sectoral initiatives as well as general tax policies to make that happen. I think those sectors are very supportive of what we're doing in Canada to make that happen.

And on the research side, as you know, we have been making significant changes to try and make sure the vast -- as we -- you know, we are a very big funder of public R&D in Canada -- to make that connect better with private R&D and to have better results on commercialization.

So look, those things are all -- we can point at all kinds of things in Canada where things are not ideal or where there are weaknesses. And they're all true. We have strengths and we have weaknesses. I don't think any of these things individually would say that Canada, in isolation, is suddenly going to have a major economic problem. They're all weaknesses we would have that -- on which we would be susceptible, if there were a continued general global economic lowing. So I think our risks primarily (really ?) are external.

RUBIN: Over here.

QUESTIONER: Thank you, Mr. Prime Minister. Daniel Arbess, Parella Weinberg Partners. I wanted to take the opportunity to ask about universal health care. You know, I was born and grew up in Montreal and had the experience of living with universal health care as an adolescent, and my family did. It provided full access to health care, but it always -- it wasn't always to the highest-quality health care and to the most accessible when you needed it. As you know, the United States is moving in this direction. And getting universal health care right is probably the most important economic imperative. I'm sure Bob Rubin would probably agree with that assessment. Being able to create a universal health care system in this country where costs will be managed but so will the quality and accessibility of service balanced against that is critically important as the demographic advances here. So I wondered whether you could illuminate lessons in the Canadian experience with universal health care that would be applicable to our experience here?

HARPER: You know, in all fairness, probably not. (Laughter.) And the reason -- the reason I say that is my experience with the health care system is similar to yours, and that -- as you know, in Canada, the federal government doesn't run the health care system. We provide some significant funding through transfer payments to the provinces, but we actually have very little to do with actually running a health care system. And I don't proclaim any particular expertise in running a health care system.

I would agree with your assessment that we have a system of -- a system of universal access. I would actually say that I think, in my own experience, the quality of care is actually quite high. Timeliness is sometimes an issue and becoming more of an issue as we face some of the demographic pressures on that system. And sometimes a system that's publicly dominated innovation is also -- may also be a bit more of a challenge in some areas.

But look, as you know, the fact of the matter is, Canadians across the political spectrum, including our party, we are very supportive of the fundamental premise of the Canadian health care system, which is that when somebody is sick and needs medical care, their ability to pay should not be a factor in them being able to access medical care. And that is a principle that Canadians believe in and, I know, one that remains a matter of some debate in the United States.

I would also made the following observations -- when I say that I can't give you an easy answer -- I'd make this observation. In spite of the differences between Canadian and American health care and the health care systems in many other Western countries, it seems to me that health care systems around the world, regardless of how they're structured, seem to have a lot of the same problems, the more I actually look at them.

And a lot of the reason for the problem is actually a positive thing. It is that with the -- with the great strides we've made in both the professions, professional training, and especially technology and drugs, that there is just more and more and more we can do to improve people's lives and to keep them living longer. But these things all come with price tags and, in some cases, with enormous price tags.

And the fact of the matter is it is very difficult for systems to assess, however they assess it, where you're going to put these resources. Resources are never unlimited. And the demands and the ability to treat in many cases are virtually unlimited. And so decisions have to be made, and however those decisions are made, whether they're through queuing or through pricing or whatever they are, are very difficult decisions. And I just think those are challenges.

And they're going to be compounded, as we all know, because of the demographics in Western countries, where the population's aging, people will need more health care, and more health care professionals themselves are aging, there will be less and less practitioners. So those are going to be some of the common challenges.

In our country, previous federal governments -- well, not running a health care system -- made a point -- our ambassador was a former premier -- they made a point of periodically picking fights with the provinces over health care to demonstrate that somehow we were going to be great defenders of the system. I think that was an entirely negative dynamic. The approach we now take is we try to work with the provinces to assist them in tackling what are very real challenges going forward.

RUBIN: Prime Minister, if a province decided they didn't want to have a single-payer system, would they be in a position where they could move away from that?

HARPER: They -- technically yes, but they would not be receiving significant transfer payments from the federal government if they did that. And in fairness, there is no political appetite that I'm aware of in any province in any segment of -- significant segment of political opinion to do that.

RUBIN: The gentleman over there. Yeah, that's it.

QUESTIONER: My name is Andrew Gumlock (sp) from -- (inaudible). You've had some recent bruising battles on economic nationalism. In the fertilizer sector you chose not to allow foreign investors in. In two recent energy deals, you debated it a lot but you ultimately allowed them in, ring-fenced some assets.

How do you see this playing out in the short term with the election? But more broadly, and perhaps more importantly, how do you see Canada attracting in the surplus countries into very capital-intensive industries? Frankly, they need capital well in excess of the savings of Canada.

HARPER: Yes, that's true. We need -- we need foreign investment and, at the same time, you should be under illusion that we want foreign investment in Canada. And in fact, although we screen all major foreign investments, only twice in our history have we actually rejected foreign investments.

I just want to talk briefly about the two issues you raised. The one where we did not allow the investment, this was a case of the potash industry, where currently it's a Canadian/American company, and Canada is a dominate producer. And through a Canadian/American organization, it's headquartered -- or, you know, partly headquartered in Canada.

Canada has significant market power in that industry. In one single transaction, what was going to occur was that that significant market power as going to shift out of the country and towards a foreign, private investor. Our judgement was that, because we do screen foreign investments, that that simply was not in the long-term interests of the Canadian economy. I'd say that was fairly unique circumstances.

The second case you raise was our decision to allow certain state-owned investments -- one by a Chinese state-owned corporation, another by a Malaysian state-owned corporation -- into the energy sector. And we allowed those after considerable deliberation.

And while we allowed those, we were very clear going forward that in areas of the economy -- like, for instance, the oil sands -- where we see now a significant risk that if we did not restrict foreign ownership that we would have in -- essentially have that sector be nationalized by some other state-owned enterprise.

Our view is that is not the direction we want for the Canadian economy. We want to have foreign investment. This government -- in fact, it's conservative governments in our country, like mine, who have opened up the economy for foreign investment and have privatized crown corporations. We did not privatize state corporations in order to see other governments nationalize our industry.

So while some foreign state-owned investment is desirable, we would not want it at a level at any critical part of the economy where essentially we began to put that sector of the economy under a foreign state management system, rather than having it essentially run by commercial forces. So as they say, it's a matter of level and degree. And we'll deal with that going forward.

The risk Canada actually has, given the attractiveness -- we're now rated -- I forget -- was it Forbes who said now Canada's in the best place in the world to make an investment. We get that kind of rating elsewhere. Given the relative smallness of the Canadian economy and the relative size of some potential investors, I do think that if we don't -- if we don't have this concern in mind, we could see our economy morph in a way we don't intend.

And as I say, it's not about foreign or domestic. It's about the nature of state-owned enterprises versus genuinely commercial operations. And that's the thing we're keeping an eye on.

RUBIN: Yes, sir.

QUESTIONER: Jeff Laurenti with The Century Foundation.

Mr. Prime Minister, the gradual melting back of the ice cap over the Arctic Ocean, attributed usually to global warming, raises two issues, as you now have long, frozen territorial claims suddenly heating up as well. And I wonder if you might elucidate for us, first, on the mega-issue of global warming, on which Canada has taken a somewhat more nuanced stand -- walking back from Kyoto -- whether -- for Canadians, perhaps the prospect of having a climate more like New Jersey's is so appealing that, you know, it doesn't seem to be urgent. So where do you see the global climate change issue going on the mega level?

And then, on the Arctic territorial claims question, what are the major claims and dispute that affect Canada, and do you see that as resolved by the six countries adjacent to the ocean relative to their bargaining power with each other, or under broader principles of international law like the Law of the Sea? What's the interplay between those?

HARPER: First of all, on the issue of climate change -- our government's position from the outset is that we need a mandatory international protocol that includes all significant emitters, and that if we do not get that, we will not be able to control global emissions. Part of the reason our government was not supportive of the Kyoto protocol is it controlled one-third of global emissions and a shrinking proportion of global emissions. Even if the Kyoto protocol had -- every country in it had realized their targets, which, of course, most weren't -- they would have had no impact whatsoever on the growth of global emissions.

So we need -- we need some of the big emitters outside the developed world -- not just the United States -- China and others -- to be part of a -- of a global system. And I do believe a couple of things going forward if we're going to make that global system effective. It's not just a matter of setting targets. We actually have to have ways of reaching them. You know, many countries have tried simply setting a target as a way of demonstrating that they're going to achieve something. We need a couple of things.

I think, first and foremost, we do need technological change. I am convinced that over time, we are not going to effectively tackle emissions unless we develop the technology -- lower emission technology in energy and other sectors. And that is the thing that will allow us to square economic growth with emissions reduction and environmental protection. And I'm convinced that if we cannot square those two things, we're not going to make progress globally.

And I don't just say that about developed countries like ours, where people are still saying they need jobs as a consequence of the recession, but certainly, in the developing world, we're not going to simply be able to put caps on economic growth as a way of achieving environmental targets. So that's the framework we're approaching it from, but look, there's a lot of -- there's a lot of work to be done. There is still not -- the reality is, there is still not an acceptance in many countries of the need for mandatory targets at all.

On the -- on the issue of territorial claims, you know, with one -- with one small exception, from our standpoint -- with one small exception, there really aren't significant land and territorial claims. There are some disputes, including with your country, on some offshore claims. We have some with the United States on the Beaufort Sea, we obviously have an ongoing dispute about the international status of the Northwest Passage; we have some dispute in the Lincoln Sea area with Denmark.

I think these are things that can be resolved bilaterally. We are obviously, at the same time, big supporters of the United Nations Convention on the Law of the Sea and the process that's going on there to deal with the -- you know, the much farther offshore. And we will continue to support those international efforts. But I actually think the immediate territorial disputes, if they are to be resolved at all, can be resolved or managed bilaterally.

RUBIN: We have time for half a question more -- (laughter) -- and I'm going to -- I'm going to take the liberty, if I may, of asking the question, because it relates to the question just answered. How do -- can you see any way that the international community is actually going to effectively reach some kind of way of dealing with global climate change before it becomes a crisis that forces action? And in that context, is the G-20 an effective vehicle for dealing with transnational issues?

HARPER: Boy, that's a big question.

RUBIN: Well, I -- it's a half a question, if you have a half an answer.

HARPER: Yeah. Well, look, I think the answer to the first question is yes. I think it's going to be difficult. I think that -- I think that most countries understand not just the question of climate change is serious, but understand that the price of having no effective environmental framework is already causing significant impacts and will cause greater impacts in the future.

I think even with marginal progresses in standard of living in places like China and India, there will be overwhelming public demand for environmental improvement in those countries. You know, it's incomprehensible to me, when I look at the growth of China and India and I see the kind of environmental challenges that exist today, how those challenges could be tolerable if they became five or 10 times as bad. So I do think everybody will -- will come to the realization, whether it's on climate change or these broader economic problems of pollution and other such matters, that these things do have to be tackled.

I -- I really do think that we'll -- we'll get farther on these things if we take serious approaches. And serious approaches, Bob, means that we admit that not just they are big challenges, but they are also difficult ones. It is not a matter of just getting on a street corner and yelling and that will somehow lead to a solution. These are real challenges that -- where environmental needs intersect and often appear to be at cross-purposes with economic and social development. And unless we realize that, take those things seriously, we're going to keep talking around the real issues. So I think if we admit they're real problems with real, difficult solutions and real, difficult choices that have to be made, that everybody has to contribute to, then I think we'll make progress.

And I do think as time wears on and as we've had, you know, failures as we have through Kyoto and failures at some of these international conferences, I do think it will increasingly dawn on actors that we'll just keep failing unless we actually get together and realize this is a -- these are issues that -- that don't have simple, quick answers.

That was the first. What was the --

RUBIN: Oh, I'm just curious whether you think the G-20 is an effective mechanism for --

HARPER: Well, look, I don't know. I -- you know, I don't -- I wish I could tell you yes to that one. The G-20 was extraordinarily effective when President Bush first convened it in late 2008. It was extraordinarily effective at that meeting, at the subsequent ones in London and Pittsburgh, at arriving at a consensus on a series of issues that had to be addressed. And you know, we did a global stimulus. We worked for -- we all worked together on -- we shared, in fact, the panel on working together in more effective financial regulation. There's been another -- a number of other agreements.

What my observation would be, that going forward -- when we all faced exactly the same problem, which was a collapse in economic activity, it -- it -- it sure led much more quickly to a consensus on what to do. Now that countries find themselves -- you know, we talk about two three -- two-speed, three-speed developed world, emerging economies on a different trajectory. As the situations and needs of these different countries diverge, getting consensus on these issues is proving to be more and more difficult. I don't know whether it will be -- whether it will be as effective going forward as it needs to be.

I do know this, that I think it's the only mechanism at our disposal. I don't think you'd want more than 20 players in the room. Unfortunately, the G-20 tends to mean, in practice, G-20 -- something like G-35. But with 20 to 30 to 35 people in the room, I think you're squeezing the -- the bounds of effectiveness anyway, and -- and there is nothing else that I see as a plausible substitute, other than the major sovereign players getting together and trying to -- to work through some global needs.

What -- what we lack -- I would say often the real crucial problem is this. It's -- it's not that -- it's not that -- just that we have divergent paths and -- and different situations. It's that there is still often in these discussions a failure of many people around the table to fully grasp the holistic nature of the approach we need to take.

And look, we -- Canada, like everyone else, we defend our national interests and our national perspective. But given that we are part of a global economy, effective -- for lack of a better words, effective global governance through the G-20 -- and that's the closest thing we got -- is only going to work if a lot of people around the table bring a holistic and global perspective to that economy and to -- to what needs to be done globally. And that is still an area where we're deficient, where I don't think there's still enough of a realization that the best we're going to do -- even in some of the largest economies, the best we have is coping mechanisms, unless we actually work together on how we address some of these challenges.

RUBIN: Prime Minister, we thank you for being with us and -- (applause) -- you were terrific.

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