A Canada-U.S. Free Trade Agreement

Ronald Goodall

The issue of free trade, it seems to me, has been before us for over 100 years, since the days of reciprocity. It is an issue that helped topple one Canadian government. It is an issue today that many view as the most important issue to be decided by Canadians since World War II.

Some argue that Great Britain's current industrial success is an example of the benefits arising from a free trade arrangement, the European Economic Community. Some argue that Canada's future industrial success would arise from revisions to the General Agreement on Tariffs and Trade rather than from a free trade arrangement. Some argue that the natural trading routes for Canada are north to south and that access to a huge market to the south cannot help but present the opportunity for wealth. Some argue that south to north trading routes would result in the establishment of foreign-controlled enterprises responding more to foreign political influences than to Canadian economic conditions. Some are concerned that the perceived preferable lifestyle north of the border would disappear with the adoption of different trading patterns and the adoption of an eventual political unity.

The free trade proposals appear to present more benefits to some provinces than to other provinces. Provincial ambitions could divide the country. Ontario has historically placed federal unity before provincial ambition and we have confidence, Sir, that Ontario's influence will mend potential provincial divisions.

This is not the first time that the Premier of Ontario has addressed this audience on this issue. Indeed in 1985, you concluded: "Just as in Robert Borden's day, the issues we are dealing with will shape the future destiny of this country. Securing the kind of future we want will require a tough fight. But Canada is worth fighting for."

The arguments are now being debated loudly and the arguments are many. I sense the fight continues.

Born in Toronto and raised in London, Ontario, the Premier earned his Bachelor of Arts degree in philosophy and political science from the University of Western Ontario and went on to the University of Toronto, completing his Bachelor of Laws degree. After articling in Toronto, he was called to the bar but subsequently assumed the presidency of his family's electronics business.

Elected member for London Centre in 1975, Mr. Peterson won the leadership of the Ontario Liberal Party in 1982 and initiated programs of reform. He campaigned on a pledge to form an open government which is truly representative of all people.

Mr. Peterson led the Ontario Liberal Party to victory in the 1985 and 1987 elections and has become Ontario's 20th premier.

Mr. Peterson is married to the former Shelley Matthews and they have three children.

Ladies and gentlemen, it is with great pleasure that I present to you today the Hon. David Peterson, Premier of Ontario, to address us on the proposed free trade agreement.

David Peterson

I'm always delighted to address The Empire Club and The Canadian Club-but never more so than today, when Canadians must have the opportunity to consider all points of view on the preliminary free trade agreement.

In debating this issue, we must reject any attempt to turn province against province or region against region.

I find it ironic, and sad, that some people who claim this agreement would lead to a stronger Canada would make their argument by tearing at the fibre of our national unity, and appealing to sentiments of envy, or historical resentment.

Canadians from coast to coast and every walk of life have the right and the responsibility to debate this deal in the fullest detail. And they have the right to demand that the debate be carried out without impugning the motives or questioning the good faith of any province, region, or individual.

Those who oppose this deal are as concerned about

Canada and its future as those who support it. That cannot be questioned. This issue must be decided on its merits. It is too crucial to be settled on the basis of a PR campaign that doesn't allow for serious national debate.

The proposed free trade agreement is as vital as any issue Canadians have ever dealt with. Future generations of Canadians will have to live with its consequences.

We are now past the time for theory and philosophy; the appropriate time for that would have been before negotiations began. Now, we must determine whether the deal would secure our access to the U.S. market, and whether it would allow Canadians to retain control of our own destiny.

It is important to recall why the federal government sought a free trade agreement with the United States in the first place. When Prime Minister Mulroney asked the U.S. government to enter into negotiations, he made it clear that Canada's goal was secure and enhanced access to the U.S. market, to ensure that Canadians would be able to sell our goods and services south of the border.

Ontario supported this goal wholeheartedly. It was one of the six conditions we put forward three months ago. This deal, in our judgment, does not measure up to the goals of Ontario, or Canada as a whole.

Under this agreement, our access to the U.S. market would not be appreciably more secure than it was the day negotiations got underway.

According to proponents of the agreement, Canada's major gain is a new bilateral panel to review antidumping and countervail disputes. But as far as trade actions against Canada are concerned, the panel would only be empowered to determine whether they are consistent with U.S. laws and regulations. The panel would not be able to assess the fairness of any trade law; it would not be empowered to hear new evidence. It would merely replace the U.S. courts as a final forum to enforce the same trade laws that have been used against us in the past.

It is hard to see how this addresses our need for secure access. As the deputy chief Canadian negotiator said the other day, it is not the courts that have been the source of the protectionist problem. The problem is in the Congress which writes the laws, and will continue to write them; and the Commerce Department which applies the laws, and will continue to apply them. Under this agreement, U.S. trade laws could still be used to harass fairly traded Canadian products.

The agreement provides no assurance that Canada would be dealt with more fairly. Canadians may get the chance to examine the deck-but we won't be able to do anything about the fact that it's stacked against us. In a memo that became public last spring, U.S. negotiator Peter Murphy said a "facesaving device" was required to get Canada to sign an agreement. While this binational panel may save face for the negotiators, it does not save anything for Canada.

Tomorrow, our Minister of Industry, Trade and Technology, Monte Kwinter, will be releasing an independent legal analysis of the dispute-settlement mechanism. It will clarify what has been changed and what has not. The proposed disputesettlement mechanism would do little to widen our options or reduce our risks. It would not have prevented the Commerce Department decision that led to a 15 per cent surcharge on Canadian softwood lumber. It would not solve the potash dispute, the pork dispute, or any other dispute in which we face protectionist pressure. It would not secure market access for a single Canadian product, nor improve job security for one Canadian worker.

If any free trade agreement was going to meet Canada's needs, as Prime Minister Mulroney told The New York Times on April 20: "The U.S. trade remedy laws cannot apply to Canada, period." Under this agreement, four of the five key U.S. trade remedy laws are unchanged-period. The only one that is affected at all is Section 201 of the U.S. Trade Act which allows for restrictions against fairly traded goods.

While there is provision for some exemption, the section could still be applied against fairly traded Canadian products once they have achieved significant penetration of the U.S. market. For example, President Reagan's decision last May to impose stiff tariffs on cedar shakes and shingles would be allowed to stand under this deal.

The agreement does not deal with Section 301, which addresses violations of international agreements; nor Section 337, which addresses perceived violations of U.S. intellectual property law.

There are a number of misconceptions about what the deal does and does not do.

It does not change the application of U.S. antidumping law, which prevents Canadian companies from adjusting prices in response to market forces.

If a steel company in Chicago, for example, cuts its price, USX can stay competitive by cutting its own price in that city. But if a Canadian steelmaker tries to do the same thing, it would have to cut its prices all across Canada-or face a possible charge of dumping.

If you're making steel in Pittsburgh and you want to cut local prices anywhere in the United States, you can. But if you're making steel in Hamilton and you want to cut local prices to compete, you can't.

This deal would do nothing to change that-for steel, potash, or any other Canadian export.

Under this agreement Canada would not be exempted from U.S. countervailing duties. Indeed, the agreement specifically ensures that the softwood lumber agreement is not affected.

As Simon Reisman stated last March: "Any agreement which did not restrict the use of U.S. dumping and countervail statutes ... would not be worth the powder it would take to blow it to hell." I agree.

What then is this agreement worth, when those statutes have not been changed?

We can take little comfort in the vague, general language of the so-called standstill provision which calls for both sides to exercise discretion, and take into account each other's interests in the use of any export subsidy on agricultural goods. The United States has already run counter to the spirit of that provision by offering heavily subsidized farm products to Russia, China, and India-products which Canadian farmers used to be able to sell. Indeed, the U.S. has also breached the standstill commitments made at the Shamrock Summit, and the Uruguay Round of GATT. What's fair is what the U.S. Congress says is fair-and that keeps changing.

Any U.S. trade legislation passed before the implementation of the free trade agreement would apply against Canada as much as against any other country-free trade deal or no free trade deal. Even after the free trade agreement took effect, all Congress would have to do in order to make a new antidump or countervail restriction apply against Canadians is name Canada in the legislation, and it would block Canadian goods as much as goods from any other nation-free trade deal or no free trade deal.

Canadian industry and workers would be asked to go through tremendous dislocation in order to become more competitive in the U.S. market. But without a meaningful guarantee of secure access, the more successful they are in reducing the costs of production, the more vulnerable they would be to U.S. protectionist action.

Clearly, Canada failed to gain what we sought to gain. We failed to obtain secure access for our goods. We also failed to improve our access to state procurement, and defence procurement. And worse, we left ourselves with little leverage to bargain in the future.

The agreement provides for further negotiations over five to seven years to change Canadian and U.S. trade laws and agree on definitions of acceptable subsidy practices.

There is no reason to believe that it will be any easier to negotiate an agreement five years from now than it is today. Putting off tough decisions does not make them any easier.

We can obtain future concessions from the United States only if we are prepared to offer some, beyond what we have already given up in this agreement.

What does Canada have left to trade away? The game is only half over, and the federal government has given up most of our bargaining chips.

Before negotiations even got underway, they eliminated the National Energy Program and the Foreign Investment Review Agency-without even asking the United States for a single concession in return. While negotiations were still on, they moved ahead with the pharmaceutical bill. They gave away a lot in the agreement itself.

They gave away some of our devices to preserve Canadian culture, such as postal subsidies for the Canadian magazine and periodical sector. They gave away our ability to pursue an independent energy policy. Even in the case of a Canadian supply shortage, exports could not be controlled to meet domestic needs. U.S. and Canadian customers would have to share any shortfall proportionately.

Under this agreement, tariffs would be eliminated simultaneously in both countries, despite the fact that Canadian tariffs start at a higher level. The United States would be the big winner, and we would bear the brunt of the adjustment burden. Even Donald Macdonald, a strong advocate of free trade, said that it would be necessary to reduce U.S. tariffs either at a faster rate or earlier than Canadian tariffs in order to meet our adjustment needs.

By eliminating all tariffs, they undercut incentives for auto companies to comply with the Auto Pact. In the past, we have used the tariff safeguard as a lever to require auto companies to increase their investment in Canada. In 1980 and 1981, for example, we used the Auto Pact commitments to get Chrysler and American Motors to modernize and expand their Canadian operations.

Because of the elimination of Canadian value-added requirements, there would be less incentive to locate assembly plants in Canada. Parts producers need to be near assemblers. Parts companies may find it more attractive to locate in the United States to reduce transportation costs and meet delivery deadlines. The CEO of Canada's largest parts manufacturer, Magna International-which employs 10,000 Canadians-said last week that if this deal goes through he

would be better off expanding his operations in the United States than in Canada.

The federal government gave away the option of extending Auto Pact status to offshore companies-even if they meet the same criteria as U.S. companies. Canada would thus be deprived of an important industrial tool, and could become a less attractive site for third-country investment.

Ironically, the federal government which cooperated with us to attract Japanese assembly plants to Canada has now severely limited our ability to expand those facilities and attract new ones. We would risk losing high value-added work to the United States.

Under this deal, we would be giving away an important lever to manage our auto industry, and leaving it open to multinationals to decide what is best for the Canadian industry. Given the auto industry's enormous spin-offs, the effects would be felt in every part of this nation.

Today, Canada has a healthy auto industry. But who can predict when there will be a downturn in markets? When it is time to decide where to cut investment and production, do we want all of the decisions to be made in Detroit, with few safeguards for Canada?

The federal negotiators gave away most of our ability to ensure that Canada benefits from U.S. investment, and proposed foreign takeovers of Canadian-owned firms. Foreign ownership and control-mostly American-already prevails in about half of our manufacturing, and about three-quarters of the higher value-added sectors.

Of the top 500 firms in Canada, 207 are Canadiancontrolled. Currently, a foreign takeover of any of these companies could be reviewed. But under the free trade agreement, by 1993 it would no longer be possible even to examine the takeover of 40 per cent of them-representing assets of $6.2 billion, sales of $16.1 billion, and jobs for 86,000 Canadians. Many of our largest Canadian corporations, with the potential to significantly improve our ability to sell goods and services on the global market, would be vulnerable to foreign takeover with no opportunity for review.

This deal gives away Canada's right to examine takeovers of major companies that help set our economic direction, and some of our most strategically important companies-including almost the entire high-tech sector. In all, only 500 companies would be considered large enough to warrant a takeover review-as opposed to 7,000 today.

Ironically, Canada would be substantially reducing its ability to screen foreign investment at a time when takeovers are on the rise and becoming a concern of every developed nation-including the United States.

We can't blame the United States for looking for gains in any deal. But what does Canada gain?

Estimates of potential gains and losses in jobs have varied widely. The gains are based on the assumption of secure market access-a seriously flawed assumption in light of the actual provisions in the agreement.

Further, the high level of U.S. ownership and control of companies in Canada could hinder Canadian penetration of the U.S. market. Would branch plants be given free rein to compete with their parent companies? For that matter, would they even be kept in Canada once all tariffs are eliminated?

There are a number of questions about the potential benefits. But there is no question that there would be considerable dislocation. The federal Employment Minister recently predicted half a million Canadians could lose their current jobs. Dealing with dislocation of that magnitude would be difficult in the best of times. How would we do so in times of economic uncertainty?

The proposed free trade agreement almost seems to have been negotiated on the premise that the first half of 1987 would last forever. It seems to be based largely on what Canada can afford to accept in good times. If we are to have a free trade agreement, it must serve our needs at all times.

Proponents of free trade acknowledge that Canada would go through a significant period of adjustment. It is one thing to do that in a time of prosperity-but what if there is an economic downturn?

When the decisions that determine our future are made, we want to make sure that we are able to make them in Canada, not just leave it to board rooms in New York or Detroit or Washington. We want to make sure that the crucial choices are made by Canadians whose bottom line is the future of our country.

That's what sovereignty is-the ability to decide what's right for us. Sovereignty is the ability to decide how our natural resources should be managed, how our economy should be directed, and how to deal with change. Sovereignty, quite simply, is the ability to shape our own destiny. Our sovereignty is our most valuable asset.

Of course, we recognize the high degree of global interdependence. It's important that it remain and grow. Nor are we under any illusion that we can demand constraints on others without accepting constraints ourselves.

Thus, any trade agreement must be fair and balanced. Under this deal, Canada would achieve some gains-such as those for the petrochemicals industry. But it is clear that the gains would be far outweighed by the losses.

On this basis, l do not believe that the agreement presented to us is the right deal for Ontario, or Canada as a whole. We need to ensure that Canadians can sell our goods and services in the U.S. market without being hamstrung by unreasonable protectionist measures. We need to be able to set our own course, and make our own decisions-about investment, energy, and other facets of our economy.

This deal is simply a bad deal for Canadians. No deal is better than a bad deal. We do not want our children and our grandchildren to be bound by a deal that was negotiated in fear and signed in haste.

Some people say that supporting this deal shows faith and confidence in Canada's competitive strength, while opposing the deal constitutes timidity. But surely they've got it backward. It is no sign of confidence to live in such fear of protectionist elements in the United States that we reduce control over Canadian resources, risk Canadian jobs in vital sectors, and give up the right to determine which investments are beneficial to Canada, all in the naive hope that the protectionists might exempt us from their measures-without a single assurance or guarantee.

It is no act of faith in Canada to say that we are so weak, so vulnerable, that we can survive only if we surrender much of our sovereignty and our ability to direct our own economy.

Canada has the resources, the know-how, the industrial base and the talented work force to compete anywhere in the world-not just in North America. We must use our assets to become a stronger international trading nation, not an economic dependent huddling under the American umbrella.

There is no reason to believe that Americans can create more opportunity in Canada than we can create ourselves. We must rededicate ourselves to a vision that says all things are possible for Canadians if we maintain our capacity to shape our own destiny. That capacity includes our right and responsibility to decline a deal that does not meet our needs. Canada is possessed of enormous potential. But we can realize it only if we retain the sovereignty to decide what is right for us, and the confidence to pursue it.

Sonja Sinclair

One of many advantages of belonging to one of our clubs is the opportunity to hear a variety of opinions on topics of national and international importance, so that we can make up our minds where we stand.

During the past few weeks we've heard a number of speakers extol the advantages of free trade. I don't know about you, but personally I felt it was high time we heard the opposite point of view. And I am sure everybody here will agree that we couldn't have hoped for a more knowledgeable or more persuasive spokesman for that point of view than Premier Peterson.

I suspect that, had we taken a poll at the beginning of today's meeting, the verdict would have been overwhelmingly in favour of free trade. I am not going to ask for a show of hands but I suspect that, after listening to our guest speaker, the vote would be substantially different.

Thank you, Sir, for being with us and for presenting such a factual, eloquent, convincing case against the free trade agreement. You have provided us with much food for thought, and for this, we are truly grateful.