Business

A FIGHT REBORN

Anthony Wilson-Smith February 15 1999
Business

A FIGHT REBORN

Anthony Wilson-Smith February 15 1999

A FIGHT REBORN

Business

ANTHONY WILSON-SMITH

John Turner has no regrets. Not, at least, when it comes to the 1988 federal election campaign and the vociferous battle he fought as federal Liberal leader against a free trade treaty with the United States. The concept, Turner said in an interview with Maclean’s last week, has never involved anything more than “phoney so-called free trade,” and was further flawed because it involved two countries when “it should have been multilateral.” And, he added, “nothing has happened in the last decade to change my opinion. This agreement erases borders and leads to making us a branch plant economy of the United States.” Never mind, says the 69-year-old former prime minister, that exports to the United States have increased dramatically, to $243 billion in 1997 from $101 billion in 1988. That, Turner says, would have happened anyway because of the falling Canadian dollar. The real danger, as he sees it, “is what is happening now: the Americans go after our cultural sovereignty, and everything else.”

Here they go again. As Canada and the United States mark a decade since the Free Trade Agreement came into effect—and five years since Mexico signed on to the North American Free Trade Agreement—the results of unfettered trade are under close scrutiny, and this time, there are hard facts to measure. In philosophical terms, there are few people these days in Canadian political circles other than Turner and the NDP who criticize the principle of free trade. But within the framework of the CanadianAmerican deal, some bitter battles are raging over how, and whether, Canada should protect itself against American intrusion in several key areas.

Arguably, the most intense debate over those issues is taking place among federal Liberals, who, under Prime Minister Jean Chrétien, reversed their opposition and then expanded the terms of free trade begun by the Progressive Conservatives. With the resumption of sessions of the House of Commons last week, they are preparing protective legislation in two areas once considered exempt from the Canada-U.S. agreement—cultural properties and restrictions on bulk-water export sales. Those measures, including an existing bill that will affect magazines and proposed rules for the domestic film industry, have ruffled feathers in the United States and at home. “It is no surprise that the Americans are going after culture,” says Daniel Schwanen, an economist with the Toronto-based C. D. Howe Institute. “The issue is how well we confront them.”

That will likely be one of the topics discussed in June, when a bluechip group of current and past Canadian and American political and opinion leaders—including former president George Bush, his onetime secretary of state, James Baker, and ex-prime minister Brian Mulroney—meet at a free-trade symposium in Montreal hosted by the McGill Institute for the Study of Canada. One finding will be that the pact has outperformed original expectations for increasing trade between the two countries—but in another key area, produc-

tivity, Canada has not improved as expected. “It is a bit of a mystery why our economy has changed in some of the ways that it has,” said John McCallum, chief economist at the Royal Bank of Canada, who is studying that topic for the conference.

But there is no mystery about either the intent of the Liberals or the depth of the opposition confronting them as they move on cultural issues and restrictions on bulk-water sales. Heritage Minister Sheila Copps has provoked a storm of protest from Washington and in some Canadian circles with her planned Bill C-55, which would bar foreign publishers from offering advertising services in so-called split-run magazines—which contain ads aimed specifically at Canadian readers. As well, she is raising hackles with a proposal that would eliminate an existing tax-break program for Hollywood films shot in Canada and instead direct the ftinds levied to Canadian film producers. At the same time, Environment Minister Christine Stewart is preparing legislation to ban the export of water in bulk through such means as supertankers or pipelines.

All three measures have provoked threats of a trade war from Washington, and sparked debate at home about their usefulness. On the magazine issue, most of the country’s publishers—including

Rogers Media Inc., which owns Maclean’s—argue that some domestic protection is essential. The aim is to stop American magazines from flooding the market with so-called Canadian editions that are beamed electronically into Canada, but are composed almost entirely of U.S. content. As a result, with minimal editorial cost, those magazines can vastly undercut the prices of their Canadian rivals in bidding for advertisers.

Copps’s Bill C-55 would stop that practice by making it illegal for a foreign publication to offer advertising to the Canadian market, with potential fines for violations ranging up to $250,000. But American officials say that if the bill is passed, they will retaliate with measures aimed at Canadian exports in such areas as dairy, steel, lumber and wheat. Some advertisers say they might chal-

Ten years after free trade, fears about Canada’s sovereignty linger

lenge the bill under the charter of rights, claiming that it denies their right to free expression. The legislation is scheduled to go back before the House of Commons this week for third and final reading. After that, some Ottawa sources suggest, one possible outcome might be that the federal government would delay implementation of the bill. Then, both Ottawa and Washington would ask the World Trade Organization to provide a quick ruling based on Canada’s contention that the legislation meets WTO requirements because it deals with services (meaning advertising) rather than goods (the magazines).

Some people who defend the need to protect cultural properties say other measures might better serve the same goal. Schwanen says Ottawa could offer tax breaks to advertisers who use publications that “have a circulation that is at least 95 per cent composed of Canadians.” And in an article in the latest edition of Policy Options, Dennis Browne, director of the Ottawa-based Centre for Trade Policy and Law, suggests the government should base its taxing policies on Canadian content, rather than ownership. That would allow Americans equal access to the Canadian media market—but oblige them to meet content quotas in order to benefit from tax breaks. But magazine industry sources say those proposals are insufficient, because the costs of split-run magazines are so low that tax breaks could not make up for the huge disparity in ad rates.

Similarly, Canada’s film-making industry is grappling with how best to survive in the face of enormous American competition. At a Parliament Hill meeting of film producers, politicians and bureaucrats last week, Gordon Ritchie—usually known for his expertise as a trade consultant and for a dry, deadpan manner—caused a minisensation with his comments to the group. Ritchie, who later said he was taken aback by what he called the “self-congratulatory” manner of the group, ripped into the film-makers for insisting that they need

government subsidies and tax breaks to stay alive, while asserting Canadian movies deserve more attention internationally. “You cannot have it both ways,” said Ritchie. He belittled the film-makers’ claim that they play an important role in the nation’s economy, saying “their sheer insignificance” protects them most from complaints about their protected status.

Then, there is water. Alarm bells began sounding in Ottawa in December, when a California company announced plans to sue the government of British Columbia over the province’s moratorium on exports of bulk water. Before that challenge, the federal Liberals thought they had banned such exports under NAFTA by specifically citing one exception—bottled water—that could be exported. Now, their plans to introduce new legislation indicate their concern—and experts are divided over the degree of control that Canada exercises. “There is nothing in NAFTA that says we are obliged to sell water,” says Ritchie. But Wendy Holm, a B.C.-based agricultural economist, says bulk-water exports to the United States have been made in the past “so a precedent exists—and we have plenty to worry about.” For his part, Schwanen says there are two issues: “If you get a licence to export water, does that become a property right, and do we have the right for environmental reasons to limit the amount of water being taken out of the country?”

One option is for both countries to rely on the dispute mechanism set up between them for such occasions. But that raises another of Turner’s objections. He points out that the clause says disagreements will be settled according to “Canadian or American law as may be amended.” Turner says: “If you get a protectionist American Congress, it will keep changing the laws until things are weighted their way. That is neither free trade, nor fair.” And while Turner found himself on the losing side of free trade a decade ago, at least he can say he predicted the tough battles still ahead. □