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The great free-trade debate: 25 years later

OTTAWA - It was a day in Canadian history that eventually spawned an emotional election campaign that forced Canadians to make a crucial decision at the ballot box.

Twenty-five years ago, on Oct. 3, 1987, Canadian and American negotiators reached a free-trade deal just minutes before a midnight deadline.

To this day, there is still disagreement over whether Canada is better or worse off - with political party leaders from the era offering different assessments.

Former Conservative Prime Minister Brian Mulroney, who will deliver a major speech about the deal at a tribute to him in Toronto Wednesday evening, believes the agreement was a "winner" for Canada.

John Turner, the Liberal leader who made opposition to the deal "the fight of my life", now says the agreement changed little because it never really provided free trade.

Ed Broadbent, whose New Democrats also opposed the deal, says the deal has cost Canadian jobs, particularly in the manufacturing sector, and has not been the economic "panacea" that was advertised.

These days, as the Harper government seeks free trade deals with Europe, India and Pacific Rim nations, it's easy to forget how contentious the very notion of free trade with the American economic giant was a quarter-century ago.

Once the trade deal was reached by exhausted Canadian and American negotiators in Washington, D.C., the political floodgates were thrown wide open.

Suddenly, Canadians were immersed in a debate about the very future of their country.

Economic prosperity. Political sovereignty. Entrepreneurial confidence. National pride.

These were hallmarks of an unprecedented coast-to-coast discussion at thousands of our kitchen tables and in the House of Commons.

It was all capped in a roller-coaster of an election campaign in the fall of 1988 that saw Mulroney, Turner and Broadbent compete for the trust of voters on the divisive issue.

Mulroney's Tories won a majority, paving the way for free trade with the U.S. to become a reality. Still, in some quarters, the debate has never ended.

"It was a hot topic back then and it's still a hot topic around some tables," said Derek Burney, who, as Mulroney's chief of staff was in the final free trade negotiations and later became ambassador to the U.S.

Burney said in an interview the trade deal was good for Canada - tripling exports to the U.S. market and giving Canadians more confidence.

"I think it did change the way that Canadians looked at themselves. I think it was kind of a maturing process for Canadians to be able to say that we can compete - provided the playing field is even and we don't have second-rate referees."

What would have happened to Canada if the deal had not been reached? Burney has no doubts.

"We would be a much smaller, less prosperous country. And we would still be pulling at the forelock, uncertain about our destiny here in North America, let alone in the world."

Under the complex deal, reached after 18 months of tough negotiations, Canada and the U.S. removed tariff barriers in goods and services, allowed more cross-border business investment, and established a dispute-settlement mechanism to resolve trade fights.

Douglas Porter, deputy chief economist of BMO Capital Markets, provides a thorough analysis of the trade deal's impact in Inside Policy magazine.

Canadian annual exports to the U.S. jumped from about $100 billion in the 1980s to $350 billion in 2000. However, those exports then "flattened" out - thanks in part to the strong Canadian dollar, the thickening of the border due to security measures post-9/11, and the recession that walloped the U.S. economy in 2008-09.

Foreign investment has shot up, writes Porter. U.S. investment in Canada increased from just $1.7 billion annually in the six years prior to the trade deal, to $19.8 billion per year since 1995.

Similarly, Canadian investment in the U.S. jumped from an average of $3.8 billion in 1983-88 to $22.3 billion per year since the mid-90s.

Porter concludes the trade deal helped "modernize the Canadian economy" and turn it from an "underachiever" among industrialized countries to an "overachiever."

In a recent interview with Postmedia News, Mulroney pointed to the free trade agreement as an example of his government working in the "national interest" - even though the deal was unpopular in some quarters.

"We all know the benefits that (the agreement) has brought to Canada," he said.

"But there's some of us who can remember how tough it was to get that through. And how criticized we were for it, and how brutal that election campaign was in 1988."

In an interview with Inside Policy, Mulroney said the deal has proven to be of "great significance for Canada, both economically and psychologically."

"It's established Canada as a winner, a clear winner in our bilateral relationship," he said."

However, Turner told Postmedia News the deal has made little difference.

"It really hasn't changed things much. We still have a good relationship with the United States and trade moves very well, but not under the agreement."

"It's not a free trade agreement. So we are not enjoying free trade with the United States."

Turner said the American Congress has never yielded its jurisdiction over trade and the U.S. wrangling to delay Canadian softwood lumber exports has shown the weakness of the dispute settlement mechanism.

Broadbent offered a nuanced assessment, insisting that while countries should not turn their backs on exploring international trade deals, they should ensure that both nations benefit and that certain standards - such as labor laws - are respected.

"If you look at what was promised, this was sold to Canadians as a kind of panacea for all our economic problems, particularly in manufacturing." Broadbent said of the Canada-U.S. trade deal.

"It would make us competitive. We'd get research and development, our competitiveness vis-à-vis the U.S. would improve. And we would get lots of jobs. Well, that by and large, has not materialized."

Broadbent also dismissed the idea that the trade deal offered a level playing field, noting that it's difficult for the Canadian auto industry to compete with competitors in the southern U.S., where wages are much lower and labor laws don't exist.

Broadbent said the free-trade deal offers some lessons for Canada as it looks abroad at more agreements.

"I'm not saying don't look at them. But there has to be a rational expectation of mutual benefit. And especially to protect the manufacturing sector."

http://www.vancouversun.com/business/great+free+trade+debate+years+later/7333739/story.html