BUSINESS WATCH

The pull of the American dream

Peter C. Newman October 19 1987
BUSINESS WATCH

The pull of the American dream

Peter C. Newman October 19 1987

The pull of the American dream

BUSINESS WATCH

Peter C. Newman

The combined impact of the free trade agreement, the Meech Lake accord and the tax reform package will create a new kind of country— and they should not be ratified without a specific mandate from Canadian voters. These daring Mulroney initiatives represent nothing less than a rewriting of the social contract between Canadians and their federal administration. Most of the familiar touchstones by which we have been governed are about to change in unpredictable ways.

The enduring bipartisan dedication to pragmatism as Canada’s state religion has been shattered. If last week’s dramatic free trade agreement-in-principle between Ottawa and Washington becomes law, we will find ourselves having to obey the much tougher ethic of the international marketplace—having to make our way through the Darwinian swamps of unfettered competition, where survival of the fittest and the fastest is all that counts.

“These three recent initiatives of ours,” admits Tom Hockin, the minister of state for finance and a political scientist, “go well beyond pragmatism and represent a definite break from that tradition. The next election could be the most ideological campaign in Canadian history, and I mean ideological in the sense of opening up a genuine freeenterprise approach.”

If Hockin is right, and I think he is, the next election will turn into a jihadlike confrontation between nationalists and continentalists. Many specific policy differences will be aired, with each side claiming that the other is betraying Canada’s long-term interests. But the central issue will be the unfettered export of Canadian energy, which was the Reagan administration’s bottom-line reason for entering into the free trade negotiations in the first place. U.S. energy experts predict that declining domestic production will raise the current American dependence of 25 to 30 per cent on petroleum imports to 50 to 60 per cent during the 1990s. Free access to Canadian energy sources—lock, stock and oil barrel—would fuel the American industrial machine for the foreseeable future. (Even when we start to run out of our own oil, under the draft treaty, Canada must provide “proportional access to the diminished supply” without price discrimination.)

Our energy exports would not, of course, be limited to oil. One reason

Quebec Premier Robert Bourassa is so anxious to support free trade is that it would allow him immediately to sell off $3 billion worth of Manicouagan and James Bay power to New England over 10 years. Precisely such an arrangement was blocked by Ottawa’s National Energy Board last June.

Apart from these and many other specific aspects of the proposed deal, one of its fundamental weaknesses is that we are entwining our destiny with a

trading partner on the decline. America’s merchandise trade balance, which last showed a surplus in 1975, declined to a deficit of $29.8 billion in 1980 and fell to a deficit of $200.6 billion last year—proportionately a lot worse than in Canada. Interest payments on Washington’s gargantuan budgetary deficits last year totalled $189 billion, and productivity in U.S. manufacturing since 1979 has only increased by a puny annual 0.4 per cent.

In the debate over free trade’s bene-

fits and pitfalls, few crusaders will go to the wall to protect Canadian wines, but the Auto Pact is a much more serious matter. The irritation to the U.S.-owned Big Three caused by the duty remission scheme that benefits Japanese and South Korean auto assemblers in Canada will be removed, as will the 60-percent Canadian content rule. Although that will weaken many of the Auto Pact’s Canadian benefits, General Motors is looking forward to the new set of rules. “We’re very pleased,” George Peapples, the Canadian head of General Motors, told Maclean's. “The new free trade arrangement preserves most of what is available to us under the current ground rules.”

As the fine print of the free trade agreement becomes available, both sides in the escalating debate will use its various clauses to strengthen their cases. In the financial field, for example, we have dropped all pretence that banking must remain a protected Canadian industry. While there were some minor concessions granted by the Americans allowing our banks to penetrate the U.S. market (as long as they don’t try to buy investment houses), there is no barrier to the acquisition of control of, say, the Bank of Montreal by U.S. investors.

These are watershed issues, and whichever way they’re resolved this country will never be the same again. What will decide the outcome of the great debate, bound to climax in an election next year, will not be divisions on policy details but a split in differing views of our best long-term individual and collective interests.

In the past we could afford the luxury of not having to choose between surrender and resistance to the magnetic pull of the American dream strictly on the basis of the economic considerations. We were the resource storehouse to the free world, and everyone wanted what we had. Not only is that no longer true but, without exception, all of the world’s other major industrialized countries are joining (or have joined) a trading bloc that will enlarge access of its domestic manufacturers to markets of 100 million people or more. By the mid-1990s, for example, Western Europe is expected to be so thoroughly integrated that it will be using a common currency.

For Canadians to reject the free trade pact strictly on the grounds of its undoubted threat to Canadian sovereignty is too simplistic. The alternative—trying to preserve a vanishing status quo— could be even worse.