After nineteen months of ministerial bungling, complicated by prodigious self-contradiction and genuine uncertainty, the Diefenbaker government has at last come up with a trade policy toward the European Common Market.
It's a solution which implies the government's reluctant recognition that once Britain enters the European Economic Community, the Commonwealth will have lost most of its economic significance. “We'll become supernumerary members of the Commonwealth Club—with reduced privileges and much lower dues," says one of the architects of the new policy.
After intensive study, the government has rejected the idea of approaching the Com mon Market for associate membership on any basis, because of clear evidence that even if this were legally possible, the European countries would never agree to Canada’s admission. At the same time, Ottawa has ruled out the politically suicidal alternative of negotiating economic union with the United States, although the idea of free trade in some selected commodities is still alive.
Instead, the Diefenbaker administration plans to adopt a policy of dramatically extending Canada’s traditional role as a multilateral trader. This will be done through reciprocal tariff-slashing arrangements, designed to gain much freer access to world markets for our wares. The recently announced U. S.-Canada tariff-cutting agreement was the first in a series of such negotiations.
The Canadian plan amounts to little more than a belated bow to the bold initiative of President Kennedy’s trade expansion act. But at least it’s a policy with defined aims and some impressive commercial advantages.
The full realization of this scheme depends on the American president’s success in steering his proposals through Congress, and on the terms that Britain is able to extract from its Commonwealth partners in its EEC entry. Ottawa officials base their calculations on the realistic assumption that we’ll lose our preferential tariffs in the U. K., but that their disappearance will be gradual—probably spread over five years.
They also expect that the final version of the EEC’s external tariff will range from z#ro for such Canadian exports as iron ore. through fifteen percent for our sem¡processed materials, up to forty-four percent for some of our manufactured goods. But here again, it’s predicted that the tariffs will not be slapped on overnight. but applied slowly, possibly spread out until 1970.
Our horse-trading strategy
It is during this interval—as our preferential tariffs are disappearing and our Common Market tariffs are being raised—that Canada intends to carry out its serious horse trading. The senior Ottawa civil servants concerned with planning the strategy for these negotiations point out that the recent EEC-U. S. agreement for a mutual twenty percent tariff reduction demonstrates the eagerness of the European nations to find expanded export outlets for their burgeoning industrial output.
Because we’ll be losing privileged treatment for our goods in the U. K., the preference on British exports to Canada will be up for bargaining, and it is here that our negotiators expect the most fruitful results. East year, British goods worth $625 million came into Canada under preferences averaging twelve percent over imports from the Common Market countries. Automobiles from France are charged seventeen and a half percent duty; British cars come in free. On machinery and steel products, the EEC countries pay a twenty-two-and-a-half-percent tariff, while U. K. items are charged only ten percent.
The plan is to auction off these preferential rates to countries where w'e can gain compensating advantages. We might, for example, agree to allow German, French and Italian cars in free, if these countries reconsider the thirty percent tariff the EEC is plan-
ning to slap on our wheat. Such negotiations will be carried out under GATT auspices, but it won’t be the same item-by-item consideration which has prolonged GATT bargaining in the past. Canada’s delegation to GA IT is now talking in terms of “linear” tariff reductions—cuts that would include whole categories rather than specific commodities. (Agricultural produce will be dealt with outside GATT. Among the suggestions gaining favor is a system of bulk buying of Commonwealth foodstuffs by the EEC nations through international commodity agreements.)
Government negotiators stress the advantages to be gained for Canadian exporters in these dealings, but for everything we get, w'e’ll be giving away compensating advantages to EEC manufacturers selling on this side of the Atlantic. For the first time since this country became a more or less industrialized society, our factories will be seriously challenged for their home market by competitors using much cheaper labor. (Average industrial wage rates in the EEC nations arc fifty-five cents an hour as against $1.85 in Canada.)
Ottawa economists stress that federal fiscal measures will be used to relieve some of the resultant hardships, but at best these w'ill provide only temporary solace. The Canadian economy cannot escape the painful reorientation.
Production incentives expected in this year’s budget are a first step in the government’s long-term plan to make Canadian industry more competitive. By cutting corporation taxes in proportion to production increases. the government hopes to bring the Canadian tax structure more in line with those of Common Market countries. (A recent survey by Jacques Barbeau. research director of the Canadian Tax Foundation, showed that all the EEC countries have a
considerably lower effective tax rate than Canada’s fifty percent, as well as substantially accelerated depreciation plans. )
The idea of introducing production incentives in Canada originated during one of the Saturday morning brain-storming sessions that George Hees has instituted since he became Minister of Trade and Commerce. Just as C. D. Howe was ideally suited to the kind of high-level negotiation with American tycoons that opened up our natural resources potential. Hees has become equally successful in the barefisted process of persuading reluctant Canadian businessmen to get out and sell. In these efforts he’s been aided mainly by Brigadier James Roberts, the department’s deputy minister, who is becoming widely recognized as one of Ottawa's ablest civil servants, and Mel Jack, Hees’ crackerjack executive assistant, who gets results by acting as though the formerly staid Trade and Commerce Department were a fight promoter’s training camp.
Hees nowmakes an average of three trade-promoting speeches a w'eek. He’s doubled the number of trade fairs put on by his department, and has organized missions of top Canadian businessmen to explore various world markets at the rate of one every two weeks. His traveling trade circus which toured the country last year attracted feelers from 5,630 companies anxious to increase their overseas trade. When the Treasury Board recently bounced his latest trade promotion gimmick — chartering aircraft to bring industrial buyers from New York and Boston to Toronto and Montreal—Hees threatened to pay for the plane out of his own pocket. (Treasury relented.)
But dazzling as Hees’ gimmicks may be. it'll take more than gimmickry to sell the government’s new trade plan to Canadian industry.
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