SPECIAL REPORT

FREE TRADE’S SOUR TASTE

CANADIANS TURN AGAINST THE FTA

ANN WALMSLEY June 25 1990
SPECIAL REPORT

FREE TRADE’S SOUR TASTE

CANADIANS TURN AGAINST THE FTA

ANN WALMSLEY June 25 1990

FREE TRADE’S SOUR TASTE

CANADIANS TURN AGAINST THE FTA

PORTRAIT OF TWO NATIONS

In the fall of 1988, few issues caused more acrimonious debate in Canada than the proposed Free Trade Agreement (FTA) with the United States. A series of opinion polls that autumn showed that a majority of Canadians opposed the accord negotiated by the Conservative government of Prime Minister Brian Mulroney. But the divisive issue was decided in free trade’s fevor with the reelection of the Mulroney government on Nov. 21, 1988. And immediately after that, a Maclean ’s/Decima poll showed that majority opinion had shifted in favor of the trade deal. The FTA became law on Jan. 1, 1989. But by late that year, opinion had changed again: a slight majority then opposed the pact. Now, those negative attitudes have strengthened. In the Maclean ’s/Decima Two Nations poll, 57 per cent of Canadian respondents say that the

agreement has already harmed Canada’s economy. “The FTA has become an easy focus of frustrations for Canadians,” said Peter Morid, a professor of economics and Canadian studies at the University of Maine in Orono. Added Morid: “Canadians are being influenced by nationalists who blame every economic ill that befalls the country on U.S. imperialism.” Canada’s economic ills in recent months—a slowdown under austere interest rates—may well have colored public attitudes. That was reflected in another poll response in which one in five Canadians ranks economic troubles as the country’s most important problem. For Americans, economic concerns are a minor issue, the poll shows. And the American partners in the trade agreement show little interest in, or even awareness of, the FTA: 58 per cent of Americans polled say that the pact has had

no discernible effect on their economic conditions, and another 20 per cent offer no reply at all. Among the remaining small minority, twice as many Americans as Canadians (14 per cent to 7 per cent) say that the FTA has improved economic conditions. Said Richard Bonacci, a former Torontonian who is now a senior editor for Harcourt Brace Jovanovich Inc. Publishers in San Diego: “It is a non-issue here. Free trade is almost never discussed in the news.”

Indeed, to a poll question asking which country has benefited more from the agreement, 28 per cent of Americans say that they have no idea. A plurality of 42 per cent say that the FTA has had

Decima Research chairman Allan Gregg says that the negative Canadian attitudes towards the FTA arise from criticism by labor unions and nationalists, who have cited the trade deal whenever a U.S. company closes down a Canadian subsidiary and moves production to the United States. At the same time, government and business groups that campaigned actively for free trade in 1988, and forecast long-term benefits, have been largely silent since the agreement was implemented. According to figures collected by the Canadian Labor Congress, which groups 2.2 million union members, the pact has been responsible for the loss of roughly 105,000 jobs. Asked Rory Dodd, 36, a Canadian singer from Port Dover, Ont., now living in New York City: “Where are we going to find jobs for all those people? The United States is a behemoth. I think free trade will go down as another one of Mulroney’s follies.”

the same effect on both sides of the border. The rest of the American respondents divide in a ratio of 20 to 10 between those who say that Canada has gained more and the smaller group who perceive more benefits for the United States. By contrast, the verdict in Canada is firm: 66 per cent say that the United States has benefited more. For another 24 per cent, the effect has been even on both sides. The rest divide between those with no opinion and a negligible four per cent who say that Canada has been the winner.

Many economists and corporations deny that the FTA is to blame for the loss of jobs. Early in June, Statistics Canada reported that 165,000 manufacturing jobs had disappeared in a year. While union spokesmen said that free trade was the main cause of the loss, business leaders blamed Ottawa’s emphasis on fighting inflation with high interest rates. Overall, the Canadian unemployment rate in May was 7.6 per cent of the labor force—more than one million people were out of work—but that rate has varied only marginally during the past two years. Guy Stanley, a business professor at Pace University in New York, says that focusing on job losses overlooks the fact that the deal has made Canada’s corporations “more outward-looking and more competitive than before.” Craig Dobbin, whose company in St. John’s, Nfld., operates helicopter and other services in many countries, including the Unit-

ed States, says that the FTA “is a fabulous deal that will wash out the nonproductive aspects of our economy.” But Gregg says that the message is not getting through. He added, “Quite simply, there is more evidence of bad things abounding in the Canadian economy, and people are prepared to link the problems to free trade.”

Despite the readiness on both sides of the

The early effects of the accord are hard to determine because of the adverse im-

argument to blame or credit the FTA for altering the economic order, some economists say that it is too soon to tell. The expected job dislocation, corporate restructuring and opportunities will not be fully felt until the late 1990s, they say. The deal, intended to enhance commerce that already amounts to the world’s richest two-way trade, is designed to eliminate tariffs and other commercial barriers in stages over 10 years. The Economic Council of Canada, which advises provincial and federal governments, has estimated that the FTA will create an extra 250,000 jobs in Canada over 10 years. pact on Canadian production and exports of relatively high interest rates—base rates are about double the U.S. equivalent—and an increase in the foreign exchange rate of the Canadian dollar during the past two years, which raises the price of Canadian goods in the American market. “I can’t imagine a worse economic environment in which to implement

the free trade agreement than the one we’re in now,” said Gordon Ritchie, Canada’s former deputy chief trade negotiator. “The adverse impact of the valuation of the Canadian dollar has 20 times the impact of free trade.”

Still, economists concede that some industries are vulnerable to the removal of tariff walls. In the Canadian furniture industry, for one, a 15-per-cent tariff on competing U.S. imports will be phased out by 1994. About 5,000 jobs have already been lost in an industry that employed 62,000, according to the Canadian Council of Furniture Manufacturers. One result of the FTA: in March, Bilt-Rite Upholstering Co. Ltd. closed its Toronto plant, eliminating 400 local jobs, and shifted production of its Bauhaus furniture to a lower-cost facility it opened last year in Tupelo, Miss.

On the other side, as the U.S. seven-percent tariff on processed food is phased out, Campbell Soup of Camden, NJ., has cut 1,731 workers from the payroll by closing several plants in the United States. It is planning to shift production of most of its low-volume items to its Toronto plant, which would double in size to serve what the company is calling “the North American common market.” Said Robert Hiller, senior vice-president of Campbell Soup Co. Ltd. in Toronto: “Free trade definitely is a catalyst in that happening.” During a visit to Toronto last December, New York Gov. Mario Cuomo remarked: “I know you have lost some jobs; so have we. After these adjustments, this deal is going to be good for everybody.”

Retailers in New York and other border states are among the early beneficiaries of free trade. Despite having to pay a premium on the dollar exchange rate, many Canadians are buying such newly duty-free items as skis and computers on cross-border shopping expeditions. The United States has also won favorable decisions in early rulings of disputesettlement panels set up under the FTA, notably in the regulation of lobster, salmon and herring imports. But in merchandise trade between businesses, the value of Canada’s exports to the United States increased by 2.3 per cent in the first three months of 1990, while U.S. exports to Canada rose by less than one per cent compared with the first quarter of 1989.

In the persisting argument over free trade, many Canadians contend that their country begins with major disadvantages simply because the American population and economy are 10 times larger than Canada’s. Others add that Canadian business is comparatively less competitive. Paul Meagher, for one, a property developer and plumbing contractor who lives on a family farm near Prince Albert, Sask., says that “Overall, the fallout from free trade has been negative for Canada.”

Meagher, 51, is a former Conservative member of the Saskatchewan legislature. He spent two years in the Florida real estate business in the late 1980s, but moved back to Canada because “the crime rate and the drug scene” were not healthy for his three daughters. Said Meagher: “Business will move south. Unfortunately, we cannot compete because our social security net is so expensive.” Meagher’s comments, and those of many others, are a clear indication that the debate on whether Canada will perish or prosper under free trade has really just begun.

ANN WALMSLEY