Free Trade

Free Trade: Risks and Rewards

EDITED BY L. IAN MacDONALD
Copyright Date: 2000
Pages: 312
https://www.jstor.org/stable/j.ctt8172v
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  • Book Info
    Free Trade
    Book Description:

    Free Trade provides a historical framework for ongoing discussion of economic and environmental issues. While there is empirical evidence on trade flows - they increased dramatically in both directions - the debate on related issues continues. The impact of free trade on jobs and manufacturing productivity, the effectiveness of dispute settlement, the growth of foreign direct investment, the absence of adjustment programs, and the consequences for social programs are all issues for spirited discussion.

    eISBN: 978-0-7735-6881-5
    Subjects: Economics

Table of Contents

  1. Front Matter
    (pp. i-iv)
  2. Table of Contents
    (pp. v-viii)
  3. Preface
    (pp. ix-xiv)
    L. IAN MacDONALD
  4. Introduction: An Historic Surprise
    (pp. xv-xviii)
    DESMOND MORTON

    On June 4–5, 1999, with the generous help of corporate and individual partners, and drawing on friendships often developed around the FTA and NAFTA negotiations and in the opposition to them, the McGill Institute for the Study of Canada invited several hundred people to Montreal to look atFree Trade @ 10. For two days, guided by many of the principal actors, we reflected on two events which will, I am sure, be included in even the most summary histories of the countries affected. We recalled the circumstances and the expectations in which these agreements were born; with help...

  5. PART ONE THE CONTEXT
    • The Road to Free Trade
      (pp. 3-34)
      MICHAEL HART

      In 1987 Canada signed and in 1989 implemented a bilateral free-trade agreement with the United States, concluding a quest of more than a century. Since then Canada has entered into free-trade agreements with Mexico (in 1993 as a result of the North American Free Trade Agreement), Israel (1996), and Chile (1997). At the century’s end, Canadian officials were busy negotiating a free-trade agreement with the members of the European Free Trade Association (EFTA) and were actively engaged in discussing the potential for a Free Trade Area for the Americas (FTAA) encompassing all the countries of the Western Hemisphere except Cuba....

    • Interviews with Brian Mulroney and John Turner
      (pp. 35-47)
      WILLIAM WATSON, Brian Mulroney and John Turner

      On Oct. 25, 1988, in one of the most famous exchanges in Canadian political history, Liberal Party leader John Turner told Prime Minister Brian Mulroney that in signing a free trade deal with the United States he had “sold out” the country. Does Turner still think that? How does former Prime Minister Mulroney evaluate the impact of the deal today? The following are edited transcripts of their conversations withPolicy Options’ editor William Watson.

      Watson: On the cover this month we’re running a shot from your famous debate with John Turner in October 1988. In his book about that election,...

    • Leap of Faith
      (pp. 48-54)
      DONALD S. MACDONALD

      I have been asked to give my remarks in my former capacity as Chairman of the Royal Commission on the Economic Union and Development Prospects for Canada which, in its final report of September 1985, recommended that Canada seek to enter into a free trade agreement with the United States under Article xxiv of the General Agreement on Tariffs and Trade (“gatt”).

      What the Commission recommended was more or less the treaty that came into effect ten years ago and whose tenth anniversary we now observe. The conference organizers have asked me to explain “why” and “how” the Royal Commission...

    • A Signal Moment
      (pp. 55-60)
      JAMES A. BAKER III

      Part of my pleasure in being here is admittedly personal: this conference gives me an all-too-rare opportunity to renew my acquaintance with many old friends, both American and Canadian, with whom I worked to a chieve the U.S.-Canada Free Trade Agreement back in 1985–88. But I am also delighted to be here because the subjects of this conference – the tenth anniversary of the FTA and the fifth anniversary of NAFTA – are both important and timely.

      The FTA and later NAFTA were events of significance not just in economic terms but also, more broadly, in terms of the...

    • Where There’s the Will …
      (pp. 61-70)
      DEREK H. BURNEY

      I am delighted to be here, along with Jim Baker, to commemorate more than ten years of free trade between Canada and the U.S. I begin by congratulating our host, Des Morton and the McGill Institute for the Study of Canada for taking this initiative and for assembling such a distinguished group of participants.

      You have heard from Don Macdonald on what might be called the intellectual backbone for the initiative in Canada. There can be no doubt but that the thorough analysis and virtually unanimous recommendation by Mr. Macdonald and his associates proved to be a major catalyst for...

  6. PART TWO THE MAKING OF THE DEAL
    • The Negotiation and Approval of the FTA
      (pp. 73-95)
      L. IAN MacDONALD, CLAYTON YEUTTER, SIMON REISMAN, PETER MCPHERSON, JOHN C. CROSBIE, WILLIAM MERKIN, CHARLES E. ROH, JEAN ANDERSON, WILLIAM DYMOND and STANLEY H. HARTT

      The difficulty of achieving a successful negotiation of the Free Trade Agreement was matched only by the difficulty of the political machinations required to have the deal passed into law, both in Canada and the United States. A hostile U.S. Congress and a heated Canadian election threatened to render null the product of years of talks between the two countries, a process that involved many people at all levels of government. Assembled for this plenary were several of the key figures involved in negotiating and selling the deal. On the Canadian side, John C. Crosbie, Simon Reisman, William A. Dymond,...

    • [Illustrations]
      (pp. None)
  7. PART THREE THE RECORD
    • The Canada-U.S. FTA: Real Results Versus Unreal Expectations
      (pp. 99-106)
      RICHARD G. LIPSEY

      This year the Canada-U.S. FTA observed its tenth anniversary. The first tariff cuts took place ten years ago and the current year saw the end of its 10-year transition period. Its terms are now fully implemented. Measured against the predictions of disaster by some of its most severe critics, the FTA must be seen as a massive success. Measured against the prediction made by many of its more enthusiastic supporters that it would be a universal panacea for all of Canada’s ills, it must be seen as a failure. Measured against reasonable expectations, it is a significant success.

      A first...

    • From Leaps of Faith to Lapses of Logic
      (pp. 107-117)
      ANDREW N. JACKSON

      The tenth anniversary of Canada-U.S. Free Trade Agreement (FTA) was marked by an ironic tension within mainstream media commentary. On the one hand, pundits generally hailed the success of “free trade,” and poured scorn on the critics of the past. It was taken as more or less obvious that exports had grown hugely, and that their surge had fuelled growth and new opportunities. Yet, at almost precisely the same time, the same pundits were gripped by mounting anxiety over the “productivity gap” between Canada and the U.S.. The fact that the FTA could be counted a success despite a large...

    • Free Trade in North America: Some Observations
      (pp. 118-121)
      PAUL WONNACOTT

      In my view, John McCallum’s background paper comes out about right. To date, the U.S.-Canadian FTA deserves two cheers. It has worked well, although some of the expected long-run results have yet to occur.

      While trade flows have increased in roughly the way that might have been anticipated following the FTA,¹ overall Canadian productivity apparently has not – at least not yet. This is very important. The point of freer trade is not simply to increase trade, but to improve living standards. Trade can contribute to higher incomes in two ways – by changing the composition of production between sectors...

    • NAFTA and the Manufacturing Industry in Mexico: A Preliminary Balance
      (pp. 122-132)
      FERNANDO CLAVIJO

      During the last twenty years, the Mexican economy has been involved in a broad process of structural reforms in almost all the economic realms. Among these reforms, the importance of NAFTA, as the culmination of the previous liberalization efforts, is unquestionable.

      Before NAFTA was put into force, important and intense discussions towards the effects that the agreement would have on the Mexican economy took place. The positions towards the convenience of the agreement were extremely opposite. However, five years after, not much has been written about the evolution of the Mexican economy under a free trade agreement with North America,...

  8. PART FOUR SECTORAL PERSPECTIVES:: RESULTS AND OPPORTUNITIES
    • Sectoral Results and Opportunities: An Introduction
      (pp. 135-136)
      FRANCIS FOX

      My role here is to facilitate the presentations and discussions of a sectoral perspective on the results and opportunities under Free Trade. The sectors represented on this panel – telecommunications, telecom manufacturing, energy, transportation and aerospace, and the automotive sector – are crucial to the Canadian economy and vital to its growth in the next century.

      They’re particularly important here in the Greater Montreal Region, which accounts for about 75% of Quebec’s exports. This province’s merchandise exports to the U.S. grew, as the Royal Bank impact study demonstrates, from just over 10% to just under 25% of Quebec’s output in...

    • A Matter of National Interest
      (pp. 137-138)
      LAURENT BEAUDOIN

      Our company, Bombardier, was among a small group of Canadian businesses that worked to promote free trade with the U.S. in the early days before any trade agreement was signed. Our efforts in promoting free trade were mostly a matter of national interest. For our company, there were no major barriers at the time, selling our products in the United States, because our snowmobiles were included in the auto pact and no duties were imposed.

      However, in the mass transit business, if we wanted to sell our products to transit authorities, we had to comply with the Buy America Act...

    • A New Mindset
      (pp. 139-141)
      L. JACQUES MÉNARD

      As I know all of us agree, if there is one thing that FTA, and later on NAFTA, has done it is to materially change the mindset of both governments and companies. That of course applies to the way energy policy has and is evolving here in Canada as well as the way in which power generators such as Hydro-Québec will operate their business going forward; I mean this in terms of capital expenditure decisions, the way we interrelate with our neighbouring markets and so traditional competitors as well as the way we will interface as an industry with our...

    • A Sea Change
      (pp. 142-143)
      CHARLES SIROIS

      The FTA was the catalyst of important economic change for our country. In Canada, where were we in 1986? Teleglobe had just been privatized. It was a monopoly. The Canada-U.S. Free Trade Agreement was a new avenue for Canada, which had traditionally used the multilateral forum of the gatt to negotiate its trade with the United States. In the U.S., in the telecommunications sector, the government had broken up the monopoly, of at&t but most countries still had monopolies.

      What difference did the FTA make for telecoms? The FTA was the first international, binding agreement to include provisions on services,...

    • A New Frontier of Trade Policy
      (pp. 144-146)
      LYNTON R. WILSON

      What I will call the “infocom” sector – essentially computers and telecommunications, including both services and equipment – is one of the world’s most rapidly growing sectors, in Canada accounting for more than five percent of gdp (close to $45 billion and 450,000 jobs). Roughly 50 percent of Canadian infocom output is exported, principally on the computer and telecomequipmentside. Infocomservices– primarily voice and data telephony, wireless and cable tv – is about a $20 billion business in Canada, with a much smaller proportionate trade component. The panel of economists was concerned about the poor performance of...

    • The Case of the Softwood Lumber Industry
      (pp. 147-150)
      BOB RAE

      The most objective study of the real impact of free trade is by Professor Dan Trefler at the University of Toronto. His paper, prepared in 1998, assesses the impact of the Canada-U.S. Free Trade Agreement (FTA) on Canadian manufacturing over the period 1989–1995. The estimated effects of the tariff cuts are as follows:

      First, by 1995 the tariff cuts had reduced employment by 10 percent, reduced output by 7 percent, and reduced the number of establishments by 12 percent. These numbers capture the large adjustment costs associated with reallocating resources out of protected, inefficient, low-end manufacturing. The fact that...

    • A Reality Check
      (pp. 151-156)
      JIM STANFORD

      It is often said that a central banker is someone who comes in and takes away the punch-bowl just as the party is getting fun. I kind of feel that way about this conference. Much as I hate to interrupt the mutual congratulation and back-patting which seems to be the primary purpose of this gathering, I do nevertheless feel that I must inject a bit of reality into our evaluation of a decade of free trade. I will try to do so from the perspective of someone active in the auto industry – since I was asked to speak particularly...

  9. PART FIVE FREE TRADE AND SOCIAL POLICY
    • Globalization and the Social Dimension
      (pp. 159-165)
      GÉRALD LAROSE

      I want to address globalization and the Quebec experience as perceived by Quebec workers and the less affluent members of society. I especially want to look at the impact of economic integration with the rest of North America, not only because it’s the theme of this conference but because of the opening of the Quebec economy to the rest of the world in the last decade, particularly the phenomenal growth of trade with our neighbours to the South.

      External trade, with the rest of Canada and internationally, now represents 57% of Quebec’s output, compared with 45% in 1989. But international...

    • Economic Arguments versus Ideological Ones
      (pp. 166-168)
      GUY STANLEY

      Understanding what’s happening to social programs in Canada and elsewhere requires that we make some distinctions between economic arguments and political or ideological ones. To my mind, the left’s critique of the FTA/NAFTA agreements and of globalization rests crucially upon muddling these distinctions.

      The FTA and its successor, NAFTA, are instruments of trade policy, not social policy. That is, they make most things coming into both countries cheaper (by lowering tariffs) and thereby make it possible for firms to organize more efficiently. This does have an impact on social policy but only in the important sense that any policy to...

  10. PART SIX FREE TRADE AND DISPUTE SETTLEMENT
    • FTA and NAFTA Dispute Settlement in Canadian Trade Policy
      (pp. 171-174)
      JONATHAN T. FRIED

      I have been asked to share with you some thoughts on the role dispute settlement plays in our pursuit of broader trade policy goals under the FTA/NAFTA framework. It is fair to begin this examination with a confirmation of some basics. Permit me to offer three propositions that we Canadian trade negotiators, as the main “clients” of the intergovernmental dispute settlement system of the WTO and the NAFTA, accept.

      First: The Dispute Settlement provisions of the FTA, and the improvements made in the NAFTA, were a major achievement for Canada

      The dispute settlement regime set out in Chapter 18 of...

    • Dispute Settlement: A Practitioner’s Perspective
      (pp. 175-181)
      SIMON V. POTTER

      Ten years after the advent of free trade between Canada and the United States, and five after its spread to include Mexico, it is a timely juncture to review the innovative¹ dispute settlement mechanisms which the FTA and the NAFTA brought not only to trading relations but also to investment rules and rules regarding the cross-border movement of services and even financial services.

      These are the thoughts of a practitioner, who has been involved in the dispute settlement mechanisms under both the FTA and the NAFTA. They are offered with an audience of business people in mind, rather than trade...

    • Mexico and Dispute Settlement
      (pp. 182-188)
      M.H. YVONNE STINSON

      In the last five years we have seen enormous growth in intra-regional trade within the NAFTA countries. Trade was valued at $482 billion in 1997, with $157 billion between Mexico and the U.S., $320 billion between Canada and the U.S., and $5 billion between Canada and Mexico. This can be compared with the figures for 1994, where trade between the U.S. and Canada was over $240 billion, while U.S.-Mexico was $100 billion and Mexico-Canada there was less than one billion. With such a huge amount of trade it is expected disputes of several kinds would be generated at both private...

  11. PART SEVEN THE NAFTA:: FROM CANADA TO MEXICO
    • From Canada to Mexico: “A Common Future”
      (pp. 191-196)
      GEORGE BUSH

      I’m pleased to be at this prestigious Institute’s conference, theFree Trade @ 10 Conference. You have a great group of experts here, every single one of them knows more about the details of trade than I do, and then you have those who helped shaped and implement the policies and questions.

      And it’s great to be here to celebrate the legacy of an agreement that represented the best of international diplomacy. And I say this because whether you’re talking about the FTA, the Free Trade Agreement between the U.S. and Canada, or NAFTA between Mexico, Canada and the U.S.,...

    • The Most Comprehensive Agreement Ever
      (pp. 197-199)
      CARLA A. HILLS

      I am delighted to participate in this conference to commemorate the fifth anniversary of the North American Free Trade Agreement and the tenth anniversary of the Canada-U.S. Free Trade Agreement. I was so pleased by the prospect of a reunion with John Crosbie, Michael Wilson, Jaime Serra, my counterparts in trade and partners in the quest for market openings. Each has become a friend for whom I have deep respect, admiration, and affection. Actually, I saw this event as an opportunity to share with you less reported occasions, like the time that John taught us the refrain “She’s dead but...

    • NAFTA and the Mexican Economy
      (pp. 200-206)
      JAIME SERRA PUCHE

      It’s a pleasure for me to participate in this important conference, which marks the fifth anniversary of the NAFTA, and allows us to evaluate the progress our three countries have achieved, and the progress we have yet to make.

      It’s also a pleasure, as always, to be here with Carla Hills and Michael Wilson, veterans of the long march to the NAFTA agreement, and particularly fellow survivors of the long, hot summer of 1992.

      I might say that I returned again in the summer of 1993, to another Washington hotel, to conclude the side deals on the environment and labour...

    • Free Trade: Then and Now
      (pp. 207-210)
      MICHAEL H. WILSON

      With your permission, I’d like to take both a 10-year look back and a five-year retrospective on both the FTA and the NAFTA, since I was privileged to be present at the creation, so to speak, of both.

      In the first instance, I was Minister of Finance, and was involved in the final three-day crunch in October of 1987 in Jim Baker’s boardroom at the Treasury Department in Washington. In the second, I was at the table for Canada as Minister of International Trade from 1991 through the final negotiation of the NAFTA in 1992. I have many warm memories,...

    • [Illustrations]
      (pp. None)
  12. PART EIGHT NAFTA AND THE ENVIRONMENT
    • Five Windows for the Future of NAFTA’s Environment Commission
      (pp. 213-221)
      PIERRE MARC JOHNSON

      NAFTA’s Commission for Environmental Cooperation (cec) is in many ways a unique institutional experiment in trade and environment related initiatives. Created under the North American Agreement on Environmental Cooperation (naaec), a parallel agreement to NAFTA, it has been instrumental in: strengthening continental cooperation on environmental issues, supporting local conservation projects, preventing environmental disputes between trading partners, and fostering the development of a regional environmental community by linking together government officials, specialists, consultants, academics and elements of a broad public around its work.

      During its first five years (1994–99) the cec experimented with and developed initiatives and procedures in a...

    • NAFTA and the Environment: Five Years After
      (pp. 222-225)
      VICTOR LICHTINGER

      My comments pertain to the cec, the Commission for Environmental Cooperation, established by the NAFTA side agreement and reporting to the Council of the three NAFTA countries. I was privileged to serve as the first executive director of the cec, based here in Montreal, and my observations reflect that experience.

      NAFTA is the first trade agreement that takes environmental considerations into account and promotes sustainable development.

      After five years of experience with the cec we can now understand the areas in which the Agreement has worked and the areas in which there is much work to do.

      The cec has...

    • NAFTA and the Environment: A Review of the Basic Issues
      (pp. 226-236)
      DAVID K. SCHORR

      At the time of NAFTA’s adoption more than five years ago, sharp disputes developed over the relationship between trade and environment, and over the environmental implications of NAFTA itself. Fears and promises on all sides were expressed, sometimes without perfect regard for moderation. Today, as new negotiations gather steam in the Americas and at the global level, debate continues over the rudiments of linking environment with trade and investment agreements. Indeed, controversy around this linkage contributed to the demise last year of a proposed multilateral treaty on investment that in many respects was modeled after the investment chapters of NAFTA...

    • Challenges for the Environment and NAFTA
      (pp. 237-240)
      JEAN CHAREST

      The basic NAFTA agreement was concluded in 1992 without the companion accords on the environment and labour standards that were negotiated in 1993 at the request of the Clinton Administration. President Clinton was basically supportive of the NAFTA, but needed to bring the environmental and labour constituencies onside in the U.S. The side deals, as they were known, were finalized only in the summer of 1993 and the enhanced NAFTA entered into force on January 1, 1994.

      NAFTA includes in its preamble a basic commitment of the parties to sustainable development, to environmental protection and conservation, and to the enforcement...

  13. PART NINE WHERE DO WE GO FROM HERE?
    • New Policies for a New Century
      (pp. 243-246)
      THOMAS d’AQUINO

      Let me begin with a salute. A salute to Presidents Reagan and Bush for their leadership and vision in advancing the cause of free trade in North America and the hemisphere. We are delighted that President Bush is here with us today, as convinced as ever of the importance of trade liberalization to the advancement of global economic prosperity. A salute to the Mexican leadership – political and private sector – for boldly reversing history and for opening the Mexican economy to North America and the world. No single Mexican more clearly represents this spirit of opening – ofapertura...

    • The Future Work of the FTA, NAFTA and the WTO
      (pp. 247-252)
      PETER S. WATSON

      1999 serves as a useful year to take stock of the progress of the FTA, NAFTA and the WTO, in order to determine the agendas to move beyond their many current limitations. While the FTA and NAFTA are clearly more advanced than the WTO in terms of adopting disciplines needed in this era of increasing international economic integration, they share the need of the WTO for new instruments in the areas of investment protection, competition policy, and regulatory reform. Indeed, reforms in these areas would help achieve the vision of the world trading system originally intended to be incorporated into...

    • The New Economic Environment
      (pp. 253-258)
      BRIAN MULRONEY

      As you know, we are rarely able to evaluate within a few years the real impact of important decisions of public policy. Most often, it takes a great deal of time, even decades, before all the consequences of an important initiative are apparent.

      In the recent history of our country, there have been several major policy decisions whose impact is still not completely known. One such initiative was the Canada-U.S. Free Trade Agreement. Few events in the short history of our country have aroused such passions and controversy. The debates were often bitter and indignant, and it took a general...

  14. APPENDICES
    • APPENDIX A Two Cheers for the FTA: Ten-Year Review of the Canada-U.S. Free Trade Agreement
      (pp. 259-274)
      JOHN McCALLUM
    • APPENDIX B Ten-Year Figures for Canada-U.S.A. and Canada-Mexico Trade
      (pp. 275-280)
      DEPARTMENT OF FOREIGN AFFAIRS AND INTERNATIONAL TRADE/STATISTICS CANADA