FEBRUARY 9, 1978
Canada and the Trade Negotiations
AN ADDRESS BY The Honourable A. J. MacEachen, M.P., DEPUTY PRIME MINISTER OF CANADA
CHAIRMAN The President, Peter Hermant
Ladies and gentlemen: While it hardly seems possible, looking at our guest of honour today, a testimonial dinner was held for him on October 27th, 1973, in Halifax to celebrate his twentieth anniversary in Parliament and his tenth as a member of the Cabinet.
One of the speakers on that occasion was the Prime Minister who said, "I know of no higher praise for a man than to say that his word, whether given in public or private, can be relied upon absolutely. That what he says, he believes. That what he does will not deviate from his own high standards of personal ethics. Such a man is Allan MacEachen."
High praise indeed--but not superfluous--because it has been well and truly earned by a man who has given, and continues to give, the prime of his life to his country.
Allan MacEachen was born in the Cape Breton mining town of Inverness. His father worked in the mines to provide an education for his sons and, in fact, MacEachen lived in a totally educational environment until he entered politics.
He attended school in Inverness, St. Francis Xavier University, the University of Toronto, and the Massachusetts Institute of Technology before returning to Antigonish to join the staff of St. F.X.
He entered political life in 1953 when he was elected as Member of Parliament for the constituency of Inverness-Richmond and he has been re-elected from that Cape Breton riding ever since.
In an article entitled "An Enigma Called Allan MacEachen", Barry Conn Hughes wrote, "Maybe Cape Breton has done as much for Allan MacEachen as he has done for Cape Breton. Veneer counts very little there and visitors soon learn that Cape Bretoners have a canny appreciation of what is important and what is not. And that's obviously given him an acute sense of values." Allan MacEachen once said, "Success without worth at its source is ashes to a Scot."
Of course, MacEachen is a Scot. As a matter of fact, a story is told that on a particular Robbie Burns day some years ago several MPs wore kilts to the House of Commons. MacEachen, who was government house leader at the time, said, "I intended wearing a kilt today myself, but I decided against it. I thought as leader of the government in a minority situation I was sufficiently exposed."
MacEachen's career in the House has been spectacular and diverse. He has served as special assistant to the then leader of the opposition, the Right Honourable Lester B. Pearson; as Observer to the United Nations; as alternate delegate to the Economic and Social Council of the United Nations in Geneva.
He has served the government as Minister of Labour; Minister of National Health and Welfare; Minister of Manpower and Immigration; Secretary of State for External Affairs; and today he is president of the Privy Council, leader of the government in the House of Commons and Deputy Prime Minister of Canada. Additionally, he was co-chairman of the Conference on International Economic Co-operation until May of last year, and recently led the Canadian delegation negotiating with the United States concerning the northern gas pipeline agreement, which was signed last September.
In the last few months, Allan MacEachen's attention has turned to trade--Canadian trade and its relationship to the Tokyo round of negotiations on the General Agreement on Tariffs and Trade or GATT. Surely, nothing can be more important to our economic outlook or future than the health of our trade.
Consider a statement made in the House of Commons by Nicholas Davin. "There are some who declare that Canada's trade is declining; there are some who maintain that the rich glow of health which at present mantles o'er Canada's virgin cheek will soon be replaced by the pallid hues of the corpse. To such pusillanimous propagandists of a preposterous pessimism, I answer, Mr. Speaker, with all confidence--never, never."
If you are wondering why you have not heard of Mr. Davin recently, it may be because the quotation is reputed to have been made in the House between 1884 and 1888. Nonetheless, the sentiments are ours today.
Canada has much to gain from the Tokyo round and much to lose if we are not adroit. We are fortunate that overseeing our participation is a man whose actions were once described by his parliamentary secretary, as quoted in The Globe and Mail, as follows: "If MacEachen gets up to speak, then the government must be in trouble. He rarely shows his hand but when he's ready to shoot, he shoots."
Ladies and gentlemen, it's a pleasure for me to introduce to you the president of the Privy Council, leader of the government in the House of Commons and Deputy Prime Minister of Canada, the Honourable Allan MacEachen, who will be "shooting" when he addresses us under the title, "Canada and the Trade Negotiations--Building Blocks or Barricades?"
Ladies and gentlemen: I am very pleased to be able to talk to you today about a major international development which will touch us all and which has become a focus of public attention in the past few months. I refer to the multilateral trade negotiations in Geneva in which Canada and ninety-seven other countries are currently participating--countries which together account for nearly 95% of total world trade.
I do not intend to go into the technical side of these negotiations. But I wish to put them into their world perspective; to explain why they are so critically important. And I shall talk about Canada's role in the negotiations, the advantages which we expect to derive from them, as well as the challenges we face in moving forward to a more competitive international environment.
The formal decision to move ahead with these new negotiations was taken by ministers at a meeting in Tokyo in late 1973. Canada was represented by the Honourable Alastair Gillespie, one of your own, and then Canada's Minister of Industry, Trade and Commerce. Since then, the participating countries have been preparing for the actual bargaining stage which has just been initiated in Geneva. Given the wide range of issues being dealt with, these preparations were not easy.
The world has not stood still. Since the Kennedy Round, Japan has further enhanced its position as a major world economic power along with the United States and with the European Community. We have lived through and are still trying to cope with the world energy crisis, and its attendant rising costs and serious balance-of-payments problems. Growth has slowed down, inflation has undermined confidence, unemployment has reached unprecedented levels. And the old order changeth; new suppliers have come on stream from the developing countries, helping to improve their less favoured lot, but sometimes intensifying the problems of the more mature industrial nations. Not surprisingly, there has been some agitation or some demand to revert to more restrictiveness and protectionism in world trade. But we remember from the thirties what can happen when beggar-your-neighbour policies take the ascendancy, when barriers to trade and payments multiply on every side and all countries are impoverished together.
We are determined not to let this happen again. And so are the leaders in the United States, the European Economic Community and Japan. At the Summit Meeting last summer, the protectionist route was rejected and the collective determination expressed to proceed with trade liberalization as the better way to cope with slow growth, unemployment and inflation. As a result of this political will, it was possible by mid-summer to impart new momentum to the Geneva negotiations and a series of target dates was established designed to move them from the preparatory to the substantive stage. The last of these deadlines was to be mid-January 1978.
To an encouraging extent, this timetable was met. On January 23, the main trading countries recorded their separate and collective willingness to enter into negotiations on industrial tariffs on the basis of a number of common elements. These include the so-called "working hypothesis" which has as its objective a weighted average tariff reduction of some 40%. Scope, however, is provided for greater tariff reductions than those envisaged under the formula as well as for lesser reductions or, in some cases, complete exception from tariff cuts. It is further expected, under the concept of "harmonization", that higher tariffs would be cut more than those already at low levels. It is also common ground that tariff reductions would be phased in over a period of at least eight years. Canada is among the countries entering into the industrial negotiations on the basis of these elements as well as of a number of particular considerations closely tailored to our national objectives and to the achievement of overall reciprocity. I shall return to these considerations in more detail in a moment.
There is more to the negotiations, of course, than the reduction of industrial tariffs. Agricultural products, fisheries products and alcoholic beverages are being handled differently and on the basis of the more traditional request-and-offer precedents. That is to say, each participant lists the specific tariff and non-tariff concessions it seeks from other participants. The others reply with lists of the concessions that they are prepared to offer, and the two sides then bargain their way towards a mutually acceptable deal. The same procedure is being used for a variety of non-tariff barriers affecting industrial products. Additionally, in the field of agriculture, we are negotiating for a new International Wheat Agreement. Trade in coarse grains, dairy products and beef is also the subject of special attention, looking towards both freer and better managed trading arrangements.
Draft codes of international behaviour governing certain of the more comprehensive non-tariff measures are now on the table. Such drafts cover government procurement practices, customs valuation and technical barriers to trade. The whole issue of the use of subsidies and countervailing duties is being addressed, but differences have so far prevented the emergence of anything like a document which could be taken as an agreed basis on which to focus negotiations. The same is by and large true for possible new rules on "safeguards"--that is to say, the measures which a country may take to protect its industries against sudden or excessive import penetration which either injures or threatens injury to domestic production.
Despite those areas where the negotiating parameters have yet to be fully laid out, enough progress was made in the run-up period for the GATT Director General to conclude after the January 23 meeting that the preparatory phase was indeed over and the real negotiations now engaged.
A good deal of public concern has been expressed about the possible impact of the Tokyo Round on the Canadian economy. Businessmen are asking, do we really expect to get anything important out of these negotiations? If we do get adequate concessions from our trading partners, can we afford to pay for them? Are we in a position to assure that reciprocity will in fact be attainable for Canada? Why do we place so much importance on the reduction of tariffs when such concessions can so easily be offset by other and more devious types of barriers? Can we afford to expose ourselves to more competition at a time when our domestic industries are facing so many difficult problems, including pressure from existing imports? Would it not be better to delay the whole affair until economic skies are brighter? If we are determined to go ahead, why do we not seek more advice from those in the private sector who are surely in a far better position to advise the government than are public service officials?
Concerns such as these are understandable. But they are certainly by no means limited to Canada. Similar views have been expressed in other industrialized countries. And, of course, this is natural when economic performance has, for some years, been below par and unemployment and inflation remain such serious problems. I should like to deal with some of these concerns, beginning with the question of inputs from the business community.
Canadian participation in these negotiations has been most carefully prepared. Consultation with the private sector and the provinces has been carried out on a broad front. In the past four years, for example, we have received over 350 submissions from individual companies, business groups and industry or labour associations and these have covered every element of Canadian production and trade. Many of them gave rise to valuable follow-up consultations. And there has been a multitude of direct contacts between industry and the government departments most immediately concerned, both at the ministerial and at the senior official and technical levels.
Over the past months, as the pace of preparations sped up in Geneva, the prospective shape and real scope of the negotiations began to emerge. It then became possible to provide more relevant and timely information to the public and to business about what was going on over there as well as about related activities here in Canada. This was done through reports made public by the Canadian Trade and Tariffs Committee, through periodic situation reports, through meetings with a great variety of associations and through speeches by our Co-ordinator, Jake Warren.
More recently, and probably of key concern, a series of confidential meetings with certain industry associations and companies has been initiated, in which Canada's current negotiating position is being explained in greater detail and advice sought as to how best to proceed in particular areas of the negotiations. These consultations continue and will continue as we move ahead. And we have, of course, been working closely with the provinces over the whole range of issues comprehended in the Geneva discussions. These federal/provincial consultations have proven most useful and will also continue over the period ahead. In no previous trade negotiation has there been the degree of intimacy of contact with the provinces and the private sector that we have seen with respect to the current talks.
I wish now to underline the vital importance of these negotiations for Canada. As a major exporting country, whose sales abroad account for almost one-quarter of its Gross National Product, Canada stands to benefit directly from the general reduction of tariffs and the removal of non-tariff barriers and these benefits would be spread across the country. Canadian producers who are already competitive should obviously enjoy greater returns. Those who are not will have an opportunity to improve their position through the increased specialization and longer production runs made possible by the wider markets opened up abroad.
In this regard, in this country, we have set two special conditions to our participation in the industrial tariff negotiations, both of them designed to make sure that tariffs are reduced in areas of particular significance and importance to Canada. One of these is the willingness of other participants to go beyond the average percentage cut envisaged in the working hypothesis and to reduce to a greater extent or eliminate altogether a wide range of numerically low tariffs. These are the rates faced by the great majority of our dutiable industrial exports. Although these foreign tariffs may be low in absolute terms, they are often high in terms of effective protection and can have a decisive effect on trade and thus on the location of production and investment. This is particularly important in our exchanges with the United States where about two-thirds of our dutiable exports fall within the "low duty" category. U.S. willingness substantially to meet us on this point, as intimated by Vice-President Mondale during his recent visit to Canada, should prove of great importance with proper scope for Canada to meet its negotiating objectives.
A second condition we have placed on our participation is the willingness of other countries to move towards a greater liberalization of trade than might otherwise result from the negotiations in certain selected resource-based sectors. We have put forward non-ferrous metals and forest products for such consideration. These so-called "sector" negotiations would be expected to contribute to Canada's objective of carrying out further processing and manufacturing of our raw materials prior to export.
You will note that I have referred to all these possible benefits in terms of opportunities. We obviously cannot force Canadian firms to sell abroad. We can only ensure that they are given the opportunity to do so and that they are provided with whatever advice and assistance they need to take advantage of these opportunities. In the last analysis, we must depend on the competitiveness of Canadian production and the aggressiveness and keenness of Canadian exporters and producers, which have already carried Canadian products into every corner of the world.
It is not good enough to argue that current lack of competitiveness must inevitably keep us out of foreign markets and that therefore Canadian tariffs must be maintained, if not increased. These expanded markets, and the lower costs and higher productivity which will result from sales in them, will help improve our competitiveness both at home and abroad. Nor should we overlook the fact, sometimes overlooked in discussions I've had, that the freer access we are seeking may benefit products which as yet have not been conceived but which, in this age of rapid technological development, may at some point take an important place in our export trade. There will be increased competition as Canadian tariffs and other barriers are lowered; this is the reciprocal of the improved access Canada will have to world markets. But this increased competition can help to lower costs to industry and to consumers and in some cases will be a factor in bringing about adjustments which are necessary to the modernization and future efficiency of parts of Canadian production.
And, of course, in negotiating for improved export access we must be particularly careful to ensure that what is being paid for is not frustrated by the imposition of new obstacles.
It is precisely for this reason that so much time in Geneva is being given to the question of non-tariff barriers. Our objectives in many cases are relatively simple, involving as they do the elimination of such direct restrictions on trade as import quotas and prohibitions facing our exports. In the long run, however, the proposed codes of international conduct and new or revised general trading rules are probably even more significant.
The notion of overall reciprocity is fundamental to these negotiations. It is a concept to which we ourselves attach special importance. In the tariff field, as I have indicated, we have made it clear that our acceptance of the working hypothesis is conditional on adequate progress being made in the elimination of low duties against our exports and the liberalization of trade in resource-based sectors of interest to Canada. But other issues are involved as well. What countries offer by way of lower tariffs is not necessarily finely balanced only against the reduction of tariffs by others. In terms of the national interest all elements must be taken into account--tariff concessions on industrial goods, the degree of access offered for agricultural and fisheries products, the reduction of non-tariff barriers and agreements on codes of international conduct. It will not be an easy judgement to make and qualitative as well as quantitative considerations will be involved. But in making these judgements we will have had the benefit of the confidential consultations with industry and the provinces which I have already mentioned.
Let me turn now to the important question of Canadian industry's ability to adapt itself to this new trading environment. Clearly it is not the intention of any participating government to impose changes on its industrial structure at a faster rate than that structure can absorb. At the moment, the first reduction in tariffs seems unlikely to take place until the beginning of 1980, nearly two years from now. Subsequent reductions would be carefully phased in over a period of not less than eight years. We are looking, therefore, not at the economic situation we see in 1978 but at a progressive and gradual adaptation to a more liberal trading environment which will not be completed until at least 1987.
We have not overlooked the possibility either that, in certain cases, Canadian firms or industries may find it genuinely difficult to adjust to new conditions. In some instances, we may find it necessary to ask that they may be excepted from the proposed tariff cuts, either partially or completely, or that they be allowed a longer phase-in period than that applied to other industries. I should point out, however, that we do not have unlimited scope in this regard.
Quite apart from any exceptions or partial exceptions it is, of course, necessary to consider what should be done by governments--federal and provincial--to facilitate change. This would be a priority whether or not the Geneva negotiations were taking place for few, if any, Canadians are satisfied with our present economic performance. When we seem to have lost our competitive edge and unemployment remains so unacceptably high, change must be the order of the day.
Direct assistance to industry has, as you know, been an important element in the work of governments for many years and some of the programs are already available to facilitate adaptation by firms and workers to various kinds of change. However, we are now actively considering the question of new machinery to assist such adjustment as well as changes in the application of existing programs. The most important part of government's role in the adjustment process will undoubtedly be the creation and maintenance of a business environment as favourable as possible to such adjustment and indeed to the healthy expansion of production and investment in Canada. It is recognized that special help will be required for workers, firms or communities which may be particularly vulnerable.
I think I have said enough to make it clear that we have been working on these negotiations in a most careful and considered fashion and on the basis of conscientious analysis of the private sector views which have been made available to the government. We foresee clear advantages to Canada in the negotiations, but our participation is predicated on overall reciprocity being obtained for our country. We recognize that time will be required to permit our industries to adjust to the new challenges and opportunities. And appropriate programs of adjustment assistance will be available for those who would otherwise find adaptation difficult.
The results of these negotiations are likely to establish a framework for international trade not only for the years immediately ahead but for many years to come. In the circumstances, the question of whether we should or should not participate answers itself. We have played, as a country, a leading role in the international search for political security. We must do the same in the search for greater economic security and prosperity.
The negotiations are far more than the traditional exercise in the reduction of tariffs. They are intended to establish new rules for world trade, to cope with issues which scarcely existed when the General Agreement came into force, including the aspirations of the developing countries. And they will deal also with a number of issues of critical concern to the trade of developed countries including the use of subsidies and countervailing duties and the rules governing future resort to import restrictions in the case of disruption arising from injurious imports. It is up to us, and up to Canada, to make sure that whatever new rules and understandings emerge are every bit as responsive to Canadian interests and concerns as they are to those of the other countries at the bargaining table.
It is not easy, at a time when our country faces so many current problems, to look ahead to the world in which we will be living and working ten or twenty years from now.
But look ahead we must if we are to be faithful to our responsibilities.
There is no turning back; the world moves on and we must be part of that movement. We must shape our policies not just for now but for the generation of Canadians who will follow in our train. This is so for business, for our farmers, and our trade union leadership as it is for governments.
Policies for the future, and that is what the MTN negotiations are about, should not be predicated on false optimism about our country nor on the notion that somehow the rest of the world will look after our concerns. Neither should they be based on the sort of mid-winter pessimism which suggests that Canada has no place to go; that we have no option but to cling as long as possible to the status quo. Such policies should reflect the reality that we live in a competitive world and that our economic performance relative to others will in the end dictate the measure of our well-being.
And that is really the heart of the matter. If we get the economy back on track and create the climate in which Canadian producers, manufacturers and investors can fulfil their potential then I foresee a very different mood from the attitude of unease prevailing today. We shall be facing up to the import challenge in our market and penetrating that of others. We shall be producing more of the right things and our employment patterns will be less vulnerable. We shall be investing more of our savings here in Canada and with good prospects for return.
This is the sort of climate all Canadians should be working for. The underlying indicators are already moving, I believe in a good direction, our trade surplus is rising, inflation is declining. While unemployment remains at intolerable levels, it too will decline although less quickly than I would wish.
A successful result to the trade negotiations will provide greater world-wide scope for Canadian endeavours. Such a conclusion should also help, through greater interaction between markets, to shape our production, employment and investment for more viable and sustainable performance in the years ahead. So, I come to the title of my talk, "Canada and the Trade Negotiations: Building Blocks or Barricades?" The negotiations should therefore not be seen as a threat to a static Canada but rather as important building blocks for a dynamic future. We should not be seeking a future where Canadians cling to each other in the cold behind protective barricades. We should be seeking a future in which Canadians walk again with pride and confidence in this market and in the markets of the world.
The appreciation of the audience was expressed by Mr. R. V. Doty, a Director of The Empire Club of Canada.