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Why free trade remains important

DIANE FRANCIS October 25 1993
COLUMN

Why free trade remains important

DIANE FRANCIS October 25 1993

Why free trade remains important

COLUMN

DIANE FRANCIS

No matter who is the next prime minister, the Canada-United States Free Trade Agreement must be preserved because of its incredible and quantifiable benefits to the country. During the election campaign, the NDP and Liberal parties bashed it, incorrectly blaming it for the loss of thousands of manufacturing jobs. But their numbers overstate job losses and ignore job gains and other benefits. Despite the worldwide recession, impressive Canadian export benefits have accompanied free trade and many of our manufacturers are posting such huge profits that those of us with spare cash should take a look at them as investments.

“Thank goodness for free trade—it’s saved manufacturers,” says Stephen Van Houten, president of the Canadian Manufacturers Association. “The real problem facing most manufacturers is that their prices have only gone up two per cent since 1987, while inflation has gone up 17 per cent, wages by 20 per cent, utilities by 38 per cent and payroll taxes like CPP, UI and Workers Compensation by 43 per cent.”

NDP Leader Audrey McLaughlin’s claim that 400,000 jobs have been lost is totally without foundation. And the losses that have happened in manufacturing tell only half the story. Statistics Canada figures in July, 1993, show that since the beginning of 1989, when the free trade deal took effect, there were 337,000 fewer jobs in the manufacturing category, but that another 367,000 jobs were created in the service sector. This means that Canada has experienced a net gain of 50,000 jobs since free trade, despite the recession. This compares, by the way, to a net loss of 519,000 jobs in California alone during that period of time.

In the four years of free trade, many Canadian companies have coped and prospered, which bodes well for future job creation. A Wood Gundy Inc. report this fall by economists Jeffrey Rubin and Peter Buchanan pointed out that exports of fully manufac-

Canada’s trade surplus keeps growing thanks to free trade, which is why any notion about renegotiating the deal could backfire

tured goods surged by 15 per cent in 1992 compared with an eight-per-cent increase in other exports, and that manufactured goods now represent nearly half of Canada’s exports south of the border—up from 43 per cent in 1988, before free trade. This important trend represents a beneficial change from the resource-oriented nature of past exports to the type of high-tech, value-added goods and services that represent for Canada renewable, long-term prosperity.

“In 1994, manufacturing stocks, already well in front of the earnings recovery, should outperform the rest of the TSE 300,” the report predicts. “Net earnings of the 79 manufacturing firms in the TSE 300 [both consumer and industrial products] swung from a $593-million loss during 1991 [fourth quarter] to a $577-million profit by the end of last year [1992], Through the first five months of 1993, reported earnings doubled again. The turnaround accounts for almost 50 per cent of TSE 300 earnings so far in 1993, compared to the sector’s long-term average of about 17 per cent [of earnings].”

The influential C. D. Howe Institute thinktank also analysed Canada’s trade performance since 1988. But it took a different per-

spective in its optimistic September report entitled “A Growing Success: Canada’s Performance Under Free Trade.” Senior policy analyst and author of the report Daniel Schwanen pointed out that the value of exports to the United States has jumped more in those sectors where tariffs were lowered or eliminated under free trade than the increase in the value of raw or semi-finished resource exports (like many forest and mineral products) that have traditionally been freely traded. Meanwhile, exports of other valueadded, resource-based products also jumped to the United States, but not to the rest of the world. For example, such U.S.-destined exports enjoying lower tariffs were up 24.8 per cent by 1992 when compared with 1989, but down 1.6 per cent with the rest of the world.

The report separates automotive and crude oil export results from the figures because these are huge and well-worn export areas, trading without tariffs for decades. But here the news is also good. The value of crude oil exports is up 66 per cent between 1988 and 1992, from approximately $4 billion to $6.7 billion.

Canada’s car and truck export surplus to the United States surged from $12.2 billion to $17.7 billion, while our parts import deficit increased only from $5.7 billion to $6.1 billion. This brings the net surplus in autos and parts to a whopping $11.6 billion from $6.5 billion in 1988.

The C. D. Howe study, like that of the manufacturers’ association, also concluded that free trade cushioned the blow created by the global recession. “Canada’s weak economic performance since 1988 cannot be blamed on free trade,” Schwanen wrote. “Merchandise trade made a positive contribution to what little economic growth Canada experienced between 1988 and 1992. Free trade has helped the Canadian economy to register gains it would not otherwise have had. ... While the net employment effect so far [of free trade] has probably been slightly negative, because of the labor-intensive nature of the ‘losing’ sectors, those industries expanding under free trade are high valueadded, higher-paying industries than those hurt by the deal. Overall, these trends indicate that the FTA is placing Canada in a better competitive position in industries vital to the country’s economic future.”

Unleashed by the free trade agreement, the rapidly growing service sector has boomed. Services such as engineering, computer consulting, banking, insurance and freight handling posted a 30.3-per-cent overall jump in exports in the post-free-trade era.

The bottom line is that Canada has fared better than has the United States with this deal and is lucky to have it. Canada’s trade surplus keeps growing thanks to the negotiated improved access, which is why any naïve notion about renegotiating the deal could backfire, because it would be a two-way street. Indeed, our success—contrary to propaganda spouted by certain politicians during the election campaign—could haunt us in the increasingly anti-trade U.S. Congress.