The Economy

FREE TRADE: THE DISAPPEARING BORDER

Kevin Doyle July 23 1979
The Economy

FREE TRADE: THE DISAPPEARING BORDER

Kevin Doyle July 23 1979

FREE TRADE: THE DISAPPEARING BORDER

The Economy

Kevin Doyle

Last week, in Ottawa, the federal government released a highly detailed document outlining the results of six years of trade negotiations conducted under the umbrella of the General Agreement on Tariffs and Trade in Geneva. But, although it represented a watershed in the history of Canada-United States relations, its implications for Canadians, outlined in this report, were largely ignored.

It is remembered now as one of those forbiddingly grey late winter Ottawa days when mud and the clinging wet snow blackened the broad streets fanning out from Parliament Hill. In the library of Laurier House, Prime Minister William Lyon Mackenzie King was in a funk. The endless winter was giving

him chills, he was feeling pangs of exhaustion and, after 12 uninterrupted years in office, he seemed distracted, but fully convinced of the validity of the proposal before him—a formal and complete free-trade union with the United States. Then, sometime on that evening of March 23,1948, his eye fell on a book entitled Studies in Colonial Nationalism and the 74-year-old leader chanced to read a chapter called Soul of Empire. “I took it,” he told his diary, “to be perfect evidence of guidance from beyond.” The guidance from King’s mystical world of spirits and demons convinced him in the space of minutes

that he should undo months of work and negotiation and that he should no more contemplate signing the completed trade pact than he “would [consider] flying to the South Pole.”

At the time, Canadians seemed vaguely aware of the outlines of the momentous secret deal (the provisions of which are published for the first time on page 21) but only a handful showed any interest. And last week when, enclosed in a global trade treaty, Canada and the United States came as close to continental free trade as is possible short of some form of bilateral economic integration, the reaction of the people who occupy this brooding stepdaughter of the American Revolution was hauntingly similar.

Under the terms of the new treaty, negotiated in Geneva by 98 members of the General Agreement on Tariffs and

Trade, a whopping 95 per cent of Canadian goods are destined eventually to enter the United States almost tarifffree, while about 85 per cent of United States exports to Canada will enter with little or no tax at the border. Thus, the policy that defeated the Laurier government in 1911, that was so eagerly pursued in the cordiality of post-war euphoria and that dared not speak its name during the anglophone nationalism of the last decade, has, to a considerable degree, been achieved in 1979 with barely a whimper of approval or protest, scarcely a whisper of public debate. But for once, it would be hard to fault the bureaucrats or the politicians for the apathy surrounding the issue. The key provisions have been announced in Canada and a bill implementing them has been approved by the U.S. House of Representatives. Prime Minister Joe Clark has said complete free trade is a subject that should now be openly debated; Finance Minister John Crosbie has urged a national discussion of the subject; a U.S. Senate committee is investigating the idea and even Time magazine commented this month that, “The need is urgent to create a North American Common Market.” But somehow in this mute, halffrozen, economically illogical country, forever defying an identity, either nobody noticed or nobody wanted to know.

Says Max Saltsman, chairman of the Committee for an Independent Canada and a former NDP MP: “We are simply

drifting quietly into a client status with the United States. It’s senseless to talk about free or freer trade with the United States; it’s not an economic matter, it’s a political matter, and let’s not drift into becoming a part of the United States under an economic disguise without any discussion at all—the way we are doing now.”

The implications for Canadians of the current proposals are as easy to exaggerate as they are to ignore. The measures will, after all, be phased in over a period of at least eight years, giving any

domestic industry with even a pretence at efficiency ample chance to adjust to the new trading climate. Highly sensitive or politically volatile industries such as chemicals, textiles and footwear in Canada will receive continued protection and Canadian exporters will have easier access to other markets in addition to the U.S., in the unlikely event that those can be taken advantage of.

But the facts remain that Canada and the United States are each other’s largest markets; that Canada’s attempts to exploit other export areas have, on the whole, failed; that in a decade, the average tariff on Canadian industrial goods entering the U.S. will be .9 per cent—a meaningless, token levelwhile the average Canadian tariff on U.S. goods will be roughly six per cent— again, a “nuisance tax” and little or no impediment to the free flow of goods between countries where transport costs are minimal. There is also the fact that by 1988, nearly 80 per cent of the total trade between the two countries will be completely free, a volume which the GATT determined in 1960 constitutes free trade. At the same time, there is a clearly emerging, if still fearful, consensus at the senior levels of both the governing Conservative party and the opposition Liberals as well as in the U.S. Congress and administration in favor of formalizing north-south free trade. Comments Allan MacEachen, external affairs minister in the former Trudeau government and chairman of the cabinet committee on co-ordinating

the GATT negotiations, “We came as close as we could at this stage to free trade. It’s something I personally believe in. But sensitive industries such as textiles, footwear and domestic employment considerations held us back.”

In Washington, Democratic Senator Max Baucus, chairman of the Senate subcommittee studying the feasibility of a North American free-trade zone, told Maclean 's: “The [latest agreement] is a major step toward free trade. But the real question is what do we do next. Free trade is an obvious and essential development, but the major problem is Canadian sensibilities in this area. I now hope to start making contacts with Ottawa and get to know the new ministers, then explore the issue very slowly and very carefully.” Baucus, who is the unofficial leader of a group of senators that shares $>is view on trade with Canada, apparently means what he says. This fall his subcommittee on international trade will hold hearings on the proposal in cities around the U.S., marking the first time in a century that the issue of a North American trade union has received such broad attention in the United States.

And within the U.S. administration itself, a top policy adviser to President Jimmy Carter commented: “The president will certainly go up to Ottawa in late September or October and freer trade, with all that implies, will be his prime preoccupation.”

The Barclay Hotel in Manhattan shares with the teeming city around it a commanding advantage for the powerful public figures who help shape the destiny of nations: by sheer volume of traffic and practised discretion, the place can virtually guarantee anonymity to the highly recognizable visages of negotiators who gather there frequently to sort out the affairs of states. And it was at the Barclay that Robert Strauss, President Carter’s special trade representative, former Canadian finance minister Jean Chrétien and Jake Warren, perhaps Canada’s ablest negotiator, met on Feb. 23 to work out, in complete privacy, many of the final details that went into the agreement eventually put together in Geneva.

Warren says now that too much importance has been attached to the meeting, that it was one of several held during the winter between senior U.S. and Canadian officials and that, in any case, the new trade deal as it applies to transactions between the United States and Canada does not by itself represent a dramatic move toward closer economic integration between the two countries.

From the point of view of an experienced specialist, someone whose job was simply to write the most eloquent possible paragraph in the unfolding trade history of two countries, Warren has a contention that is completely accurate. After all, roughly 70 per cent of Canada-U.S. trade is already free while, under the new agreement, the duty-free volume will increase to just under 80 per cent, with corresponding reductions in non-tariff barriers and other obstacles. Immigration will still be restricted, there will be no notable reduction in the consumer price of Canadian cigarettes or whisky, nor will there be any formal loss of political sovereignty. But looked at from the point of view of an average Canadian, lumbering under the assumption that his is a highly independent world-trading nation, what has emerged from the GATT negotiations is the capstone to a momentous, often invisible, historical movement that has brought Canada closer than perhaps it has ever been to a divisive decision over continental economic integration or some form of radical redefinition of its industrial future.

The muted arguments about free trade are older than Canada itself and even predate the American Civil War. In fact, from 1854 until 1866 there was a formal reciprocal free-trade agreement between the United States and the five provinces of British North America— Canada (Ontario and Quebec), New Brunswick, Nova Scotia, Prince Edward Island and Newfoundland — an agreement that came apart mainly because Canada decided to boost its tariffs on imported manufactured goods. In 1910, the two countries again negotiated what was then called reciprocity and although it would have freed only about 15 per cent of the total trade it was enough to be instrumental in the defeat of the Liberal government of Sir Wilfrid Laurier in 1911.

After the latest round of GATT agreements, Canadian officials pointed out

insistently that Canada’s import barriers had been lowered in relation to all its main trading partners, not only the United States. But most economists are equally insistent that, given the already existing patterns of Canadian trade, the major increases in the flow of imports and exports will take place between Canada and the United States. Said Michael Wilson, international trade minister: “During the last few years, there has been a normal market rationalization of national corporations between Canada and the United States. The [trade pact] will assist this process and certainly anything we can do as a government to help ... will be done.”

John Connally, former Texas governor, treasury secretary in President Richard Nixon’s administration, and candidate for the 1980 Republican presidential nomination, is a bullish giant of a man whose roundhouse policy statements reverberate loudly through Washington’s halls of power. One of his most recent declarations called for es-

tablishment of a free-trade area among Mexico, the United States and Canada. California Governor Jerry Brown is Connally’s antithesis in everything but his political aspirations. Brown is considered a potential challenger to President Carter for the 1980 Democratic presidential nomination. And Brown has also recommended study of a North American free-trade zone. The momentum south of the border is clearly building. A little-known clause in the 1974 U.S. Trade Act (Section 612) reads: “The president may initiate negotiations for a trade agreement with Canada to establish a free-trade area.” And Section 1104 of the trade bill recently passed by the House of Representatives and the Senate finance committee reaf-

firms the provision.

In Ottawa, it is difficult to find government officials willing to risk their reputations—or perhaps their careers—by openly advocating formal free trade, but among senior civil servants the idea appears to have at least as much support now as it did in 1948. The prevailing attitude seems to be that if Canada can be moved quietly, step by step into ever closer economic ties with the United States, why risk an emotional political debate by raising the issue publicly?

Whether the forces of protectionism and free trade will ever raise themselves above the stupefying din of statistics that accompanies each new round of trade talks in a country which author Bruce Hutchison once described as the “tough, dumb, flexible child of crisis” seems highly doubtful. And the outer blare of publicity about annual auto-parts deficits, the monthly balance-of-payments account and the daily oil reserve totals now seems much more likely to smother the inner tone of a historic, inexorable movement until it is far too late for anyone to affect the score.