Free trade's many broken promises
By David Crane, in the Toronto Star, 15 January 1998
THERE WAS was not a peep out of Ottawa on Jan. 1, despite the fact that the date marked a significant event in Canadian history - the final elimination of tariffs on goods between Canada and the United States under the Canada-U.S. free trade agreement.
It was on Jan. 1, 1989 that the free trade deal came into effect.
Based on the great claims that government and business proponents of the trade deal had made, you would have thought that the Business Council on National Issues, the Canadian Chamber of Commerce, the Alliance of Canadian Manufacturers and Exporters, the C.D. Howe Institute, not to mention negotiators Simon Reisman and Gordon Ritchie, would have planned a gala event to celebrate on Jan. 1.
But nothing of the sort happened.
In the United States, Commerce Secretary William Daley issued a statement, declaring that "a milestone in the trade policy history of the United States and Canada was reached on Jan. 1, 1998."
But from the Canadian point of view, maybe there's not a lot to celebrate.
To be sure, Canadian exports to the United States have soared. But it's likely that would have happened anyway due to the strength of the U.S. economy.
Much of the increase in trade volumes to the United States have occurred in sectors such as automobiles and resources, where tariffs were already zero.
But what the Mulroney government, the business community, economists and think tanks promised for the most part never materialized.
Then prime minister Brian Mulroney proclaimed that the trade deal would mean "jobs, jobs, jobs." Reisman predicted that the free trade deal would pave the way for bigger pay increases for Canadian workers.
Groups like the business council and the Alliance of Canadian Manufacturers and Exporters said the deal would mean richer social programs. The C.D. Howe Institute said it would mean the end of bitter disputes such as the softwood lumber dispute.
The Economic Council of Canada said it would mean a huge surge in Canadian productivity. The government boasted it had won an exemption for Canadian cultural policies.
A decade later, Canadians are still waiting for "jobs, jobs, jobs" and for those big pay increases. And Canadian families are still waiting for richer social programs and rising living standards based on the promised upsurge in productivity.
And as for the promised end to cross-border trade disputes and the exemption of cultural industries from trade measures, the record speaks for itself.
Major industries, such as steel, softwood lumber and wheat, have been forced under U.S. threats to agree to managed trade provisions that limited their shipments to the United States. While Mulroney had promised he would not sign a trade deal unless Canada was exempted from U.S. trade harassment, in the end he caved in.
And Canada's cultural industries have continued to face the full assault of the giant U.S. media conglomerates and the White House and Congress.
The only goal of the free trade agreement that has turned out as predicted is that Canadian governments have fewer powers to stand up for Canadian interests. As senior federal negotiators made clear, one of the key, though not widely broadcast goals of the free trade agreement was to prevent future elected Canadian governments from pursuing certain pro-Canada policies.
Thus Canada gave up many of its powers to prevent Americans from buying up promising Canadian companies. Canada also conceded greater access for the United States to Canadian resources. And U.S. corporations gained greater leverage in fighting federal and provincial policies that might affect them.
Meanwhile, as CIBC-Wood Gundy economists Jeff Rubin and John Lester have shown, "instead of narrowing, the labour productivity gap in manufacturing has continued to widen to an unprecedented 20 per cent. Free trade hasn't accelerated the slide in relative productivity but it hasn't halted it either."
Nor has the free trade agreement made Canada a magnet for foreign investors to serve the North American market.
Instead, the continuation of trade harassment from Washington has made the United States a safer location for European and Japanese multinationals.
It's hard to see what Canada really gained from the free trade deal. All we can say with certainty is that 10 years later it has not delivered the benefits its proponents promised us.
David Crane is The Star's economics editor.
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