SPECIAL REPORT

BACK TO THE RAMPARTS

OTTAWA SPARKS A NEW FREE TRADE BATTLE

NANCY WOOD December 3 1990
SPECIAL REPORT

BACK TO THE RAMPARTS

OTTAWA SPARKS A NEW FREE TRADE BATTLE

NANCY WOOD December 3 1990

BACK TO THE RAMPARTS

SPECIAL REPORT

OTTAWA SPARKS A NEW FREE TRADE BATTLE

Historians may remember it as one of Canada’s more divisive and bitter election battles. Two years ago, voters returned Prime Minister Brian Mulroney’s Conservatives to office with a majority after an emotion-charged campaign based largely on the government’s policy of free trade with the United States. Now, with the scars of that battle still relatively fresh, Mulroney and President George Bush are planning to go even further by expanding their North American free trade zone to include Mexico. Formal negotiations on a possible threeway accord are unlikely to begin before summer, but Ottawa’s decision to participate has already sparked a heated new trade debate. Declared NDP trade critic David Barrett: “The next election will be fought on free trade again.

We don’t believe Canada should be at the table.”

For now, senior trade officials from the three countries are still trying to come to an agreement on the format for the talks and on the specific issues that will be discussed.

But Canadian Trade Minister John Crosbie says that Ottawa is determined to be a full and equal participant in any future trade agreement involving Washington and Mexico City. Crosbie and many business leaders claim that, by signing such a deal, Canada will gain improved access to the 84-million-strong Mexican market and avoid losing industries and jobs to the United States and Mexico.

Poverty: The government’s critics, however, say that U.S. officials will likely take advantage of the talks to try to weaken some of the provisions of the earlier agreement—including clauses that shield Canada’s cultural industries and social programs. Others claim that it is morally wrong for Canada to strengthen its economic ties with Mexico, a country in which a third of the population lives in poverty and which some human rights groups, including the Canadian branch of Amnesty International, have cited for violations of fundamental liberties.

In Houston this week, Crosbie is scheduled

to meet Mexican Trade Secretary Jaime Serra Puche and U.S. Trade Representative Carla Hills. At the same time, Bush and President Carlos Salinas de Gortari will hold talks in Monterrey, Mexico. The series of private discussions among the three trade ministers will end in February, setting the stage for the launch of formal negotiations in June.

Crosbie’s meeting in Houston follows a similar encounter last week in Washington involv-

ing senior trade bureaucrats from all three countries. Canada’s deputy minister of trade, Donald Campbell, who attended the session, said that the three countries reaffirmed their commitment to a North American free trade area. But he added, “We are not going into the negotiations with a view to opening up the Canada-U.S. Free Trade Agreement at all.” Still, trade experts say that Canada will likely find it hard to avoid dealing with some of the lingering issues from the Canada-U.S. talks. Gordon Ritchie, who was Canada’s deputy chief trade negotiator from 1986 to 1988, said that U.S. officials may be looking forward to new trade discussions because it will enable them to raise long-standing U.S. complaints about Canadian barriers that protect farmers,

pharmaceutical manufacturers and other industries. Ritchie, now an Ottawa-based trade consultant, said that the government will have to negotiate carefully to keep the FTA intact, “I spent 2V2 years in a closed room getting beaten up by a bunch of ugly Americans. I wouldn’t be in a hurry to go back in.”

Ritchie said that Canada may also find it is an unwelcome guest at the negotiating table. Indeed, Mexico’s ambassador to Canada, Alfredo

Phillips, last week criticized Canadians for what he called their “defensive” attitude towards a free trade accord with his country. He added, “There are people in Mexico who feel that Canada’s participation could delay or hamper our negotiations with the U.S.”

Privately, Mexican officials say they are worried that any delay in securing a free trade agreement could harm the country’s efforts to revive its weakening economy. Salinas, who has spearheaded the current drive to modernize Mexican industry, has already served a third of his six-year term, and by law he is forbidden to seek immediate re-election. Under his leadership, Mexico has re-negotiated its $93-billion foreign debt, privatized hundreds of state-owned corporations and reduced many of

its tariffs and duties. His aim, he says, is to enhance Mexico’s ability to compete without trade barriers and massive government intervention.

Salinas’s reforms have won the approval of business leaders and § free-market economists in the g West. But in Canada, labor leaders J and other critics say that Mexican | workers are making most of the > sacrifices needed to enable the | country to continue its rapid rush | to industrialize. Federal NDP leader J Audrey McLaughlin, for one, has t said that it is “morally wrong” for 1 foreign corporations to pay their ¡

Mexican employees far less than f they would pay workers in more I developed countries. And Barrett | adds that Canadian wages could 1 plummet if Canadians are forced to . compete directly with Mexican | workers. He added, “We do not wish to see Mexico exploited as a cheap labor partner, or Canada forced down to slave labor wages.”

Exploitation: But the NDP’S opposition to a North American free trade agreement strikes many analysts as self-serving. Ronald Wonnacott, an economist at the University of Western Ontario in London, says continental free trade would help to expand the Mexican economy, leading to higher productivity, higher wages and more disposable income. Indeed, he says that Canadians who criticize the exploitation of Mexican

labor are, in effect, saying that “we’re rich and we’re going to tell the Mexicans what’s good for them—to stay poor.”

Even if trade barriers fall, trade experts say that Mexico still has many obstacles to overcome. Ritchie notes that much of the country’s labor force is unskilled, absenteeism and em-

ployee turnover is high and the workforce is relatively unproductive by Canadian standards. Any new factory in Mexico has to contend with expensive raw materials, often shoddy construction work and a primitive telecommunications system. Mexico’s notoriously inefficient government bureaucracy, although tamed somewhat by Salinas, remains formidable for foreign investors. In comparison, Ritchie says that Canada still has many competitive advantages, including “sophisticated technology, a skilled labor force and a high level of capital investment.”

Citing the economic disparities among the three countries, analysts say that the continental free trade negotiations are likely to be both arduous and acrimonious. Moreover, the issue may present a formidable political challenge to the federal Conservatives. The government’s pursuit of unpopular m policies—including the Goods and 8 Services Tax, high interest rates ü and recent changes to the unem~ ployment insurance system—has already dragged it down to a record low level in the public opinion polls. Now, with less than three years remaining before the next general election, the Tories appear ready to tackle yet another divisive issue. The cost could be high.

NANCY WOOD

in Ottawa