COLUMN

The case for a free trade accord

Diane Francis September 7 1987
COLUMN

The case for a free trade accord

Diane Francis September 7 1987

The case for a free trade accord

COLUMN

Diane Francis

As the Oct. 5 deadline looms on the U.S.-Canada free trade talks, uncertainty still appears

to be the order of the day. Canadian Trade Minister Pat Carney gives the deal 60-to-40 odds in favor of success. Chief Canadian negotiator Simon Reisman rates the chances of success at only fifty-fifty. That is why Carney says that she is thinking about what to do if the talks collapse. “We want a good agreement, but we’re not desperate,” she told Maclean's. “How can we be politically damaged if we don’t get a deal because Americans are being unreasonable over culture or some other part of it? Congress is a wild card. So what I’m doing is developing scenarios: what if there is no treaty? What if it is signed, but rejected by Congress?” Politically, Carney and the government may indeed profit from an agreement—or the lack of one. A Decima Research Ltd. poll taken in May and June for the department of external affairs showed that 50 per cent of those surveyed agreed that an attempt should be made to reach an accord— but only seven per cent fully supported one. That means that Ottawa can walk away from the table and still earn points. But economically speaking, the country is far from a no-lose situation. Canada needs a deal.

The two countries are hopelessly entwined. Treaties dealing with everything from taxes to autos and the St. Lawrence Seaway have helped to create the world’s largest trading relationship, worth about $180 billion each year. About 25 per cent of U.S. exports go to Canada, and 80 per cent of Canadian exports head south. Exports represent one-third of Canada’s economic activity. Exports of all kinds represent only five per cent of the gigantic U.S. economy, but its business with Canada has rung up a collective trade surplus of $53.8 billion over the past40 years, with surpluses in 37 of those years. Canadians and Americans have billions invested in each other’s countries. North America is already a de facto economic union. A free trade deal would open up new markets and counteract the threat of U.S. protectionism.

Carney says Canada wants three things or Canada walks: unfettered access to the huge U.S. marketplace; a mechanism by which trade disputes can be settled; and reductions of all tariffs by the year 2000. “We want

nothing less or we won’t sign,” she said. “We’re not selling out the country. The auto pact and culture are not on the table, nor are social programs, medicare or regional development. You may not be able to subsidize a company [so it can export more goods to the United States] under this, but you can provide infrastructure and subsidize a company that is strictly selling domestically or outside the United States.”

An agreement would be more of a fair trade deal than one aimed at unfettered free trade. For one thing, the talks aim at stemming cheating that enhances exports and impedes imports. That means that government subsidies, bailouts or incentives will be allowed—but not to directly cheapen exports. The talks also aim at getting rid of artificial trade obstacles such as the U.S. ban a few years ago on Canadian cattle imports due to “health concerns” about a veterinary drug used

Ottawa can still walk away from the table and earn points, but economically speaking Canada needs an agreement

here. Negotiators are also trying to define “rules of origin,” or how much Canadian or American content is required for goods to flow tariff-free. And talks are dealing with the possibility of establishing ironclad safeguards in other sectors such as exist in the auto pact—designed to keep one country’s industry from overrunning the other’s. Lastly, the key issue of an independent agency to adjudicate disputes must be resolved.

If Canada and the United States reach an agreement, President Ronald Reagan must tell Congress by Oct. 5 of his intention to sign a deal. Two congressional committees then have 90 calendar days to consider it. If they approve of the agreement, Congress has 60 working days to ratify it by majority. If derailed, it will take years to work out another deal with a new administration. But Congress has an omnibus protectionist trade bill before it. And ugly protectionism has led critics to talk tough on both sides of the border. “The way to fight U.S. protectionism is to stand up to it, not lie on our backs,” Edmonton publisher Mel Hurtig has written. And

others, such as the NDP, would pull out of talks and avert U.S. protectionism by erecting “buy Canadian” procurement policies and renewed investment and ownership restrictions—a form of economic isolationism.

It is also totally wrongheaded. Who would the NDP have us trade with, the ultraprotectionist Japanese or Chinese? The Australians, who export the same resources as we do? Europe, which has turned its back on the rest of the world in favor of its own economic union? Developing countries where workers earn one-tenth the wages Canadians do and have lousy credit ratings?

Canada has only two reasonable trade policy options: talks toward a direct, bilateral deal with the United States, now under way; or talks toward an indirect deal with the United States as part of the process of updating GATT, the General Agreement on Tariffs and Trade, also now under way. The agreement, signed in 1947 by 23 countries including Canada, has been continually amended and its ramifications have been profound, freeing up world trade and breaking through the mercantilist policies of the past. Up until GATT, developed countries or colonial powers used tariffs as weapons, eliminating them to encourage raw material imports from less developed countries or colonies, and hiking them to keep out finished imports that were also made at home.

Indeed, in the years since the Second World War the trend had clearly been toward less protectionism. A CanadaU.S. free trade agreement would be part of that—and might provide a blueprint for future GATT negotiations. But to pull it off, those Americans who realize that the United States would only benefit from having a prosperous, nonprotectionist neighbor to the north must come forward. Florida Gov. Robert Martinez, for one, clearly realizes the importance of a trade agreement. Canada is Martinez’s state’s biggest customer. In 1985 trade between Canada and Florida totalled $650 million; 300,000 Canadian “snowbirds” live in Florida and each spends an average of about $300 a week. And there were 1.6 million visits by Canadian tourists in 1986. “I hope the two governments can quickly arrange a trade policy,” Martinez said. But when asked if he would lobby in Washington, he told Maclean's". “That’s not my style. Besides, I have a state to run.” Such political reticence can only lower the odds of success for a pact that will benefit both countries.