Free Trade: An Opportunity

I want to be remembered as somebody of whom it can be said: He seen his duty and he done it. But also of whom it can be said: He seen his opportunities and he took 'em.

Governor William F. Weld

Let us dispense for the moment with the well-worn phrases about the 6,000 kilometre undefended border between Canada and the United States and the harmonious relations between our two countries.

Apparently, a little over 50 years ago Canada had, as part of its defence strategy, a plan to launch a pre-emptive strike into the United States. This strategy suggests that Americans had better not take their relationship with Canada for granted!

This fact was not lost on comedian Jay Leno. In the midst of the Project Desert Storm campaign in the Persian Gulf, Leno asked his Tonight Show audience: "With all our troops in the Middle East, am I the only one worrying about a sneak attack from Canada?"

It cuts both ways. Presidential aspirant Pat Buchanan, convinced that the U.S. is floating serenely in a historic Sea of Tranquility, thinks the next step is the annexation of several Canadian provinces after which the U.S. would be absolutely invincible. Where does this guy live? Twin Peaks?

The problem is that many Canadians and Americans do take for granted the relationship between the two countries. We think we know each other. But this may be an incorrect assumption.

As the gangster Al Capone once exclaimed: "I don't even know what street Canada is on!" This benign neglect by Americans does not sit well with some Canadians. As Prime Minister Lester B. Pearson once complained: "We worry when you look hard at us. But we are touchy about being overlooked!"

Trade is undoubtedly one of the strongest links between the two countries. In an oft-quoted passage, John F. Kennedy characterized relations between Canada and the U.S. as follows: "Geography made us neighbours. History made us friends. And economics has made us partners."

The economic partnership, however, is not completely harmonious--even at this politically sensitive time, when both countries are trying to consolidate the gains of the bilateral free trade pact. Inevitably, in a bilateral relationship that approaches $200 billion a year, there will be irritants arising from time-to-time.

"Presidential electioneering" is neither an adequate nor appropriate explanation for these occasional bilateral trade skirmishes. Although, many Canadians continue to maintain that, in the United States, odd things happen in even years! Especially, every four years!

The Commonwealth of Massachusetts is an important subset of our great neighbour to the south. Governor, the association between Canada and your state has been long and cordial. Whenever Massachusetts has needed something, Canada has been there. When the Bruins needed someone to play defence, we sent you Bobby Orr. When the Celtics needed someone to play guard, we sent you Danny Ainge. And when Harvard needed someone to play God, we sent you John Kenneth Galbraith. And they all played their positions like All-Stars!

The Commonwealth of Massachusetts--with over 120 places of higher learning and an impressive record of intellectual achievement--is a state that thrives on smarts! The Commonwealth also thrives on natural beauty and historical heritage.

To discuss the Commonwealth's leading attractions and the state's relations with Canada, The Empire Club is honoured to invite Governor Weld to the lectern to address our members and guests.

Governor Weld completed post-secondary studies at both Harvard and Oxford Universities. He has read widely in five languages--Latin, Greek, French and Spanish, as well as English. He practised law in Boston for 10 years including a stint as Associate Minority Counsel to the U.S. House Judiciary Committee during its Watergate impeachment inquiry.

In 1981, he was named U.S. Attorney for Massachusetts by President Ronald Reagan and, in 1986, was brought to Washington as Assistant Attorney General in charge of the Criminal Division.

William Weld was inaugurated as Governor of Massachusetts on January 3, 1991. Now 47, he has, in the words of The New York Times, successfully sprung a "hostile takeover" on the Kennedy, Dukakis and Tsongas base in Democratic Massachusetts.

According to political commentators, fiscal conservatism and social liberalism seem naturally married in Governor Weld's mind. In typically blunt Weld-speak, he frequently drops yachting jargon into the class warfare of state politics. For example: "You need somebody who has deep keel." Or: "You need somebody who can steer by his wake."

Governor, Canadians welcome this opportunity to hear your views. These days U.S. politicians are facing a blizzard of single-issue confrontation including a steady diet of such gripping questions as: Which Elvis should be on the Elvis Presley commemorative stamp? And, did you really never inhale? We hope that this visit to Canada is a welcome respite from such in-your-face confrontations.

Governor, in concluding, let me say that, good Canadian that I am, I try to avoid unpleasantness. Nevertheless, mere niceness does not strike me as an ideal goal in life. Therefore, let me level with you. There is a theory, accepted by many in your state, that says the Red Sox are finally due to win the World Series this year. As their last Series-winning season, in 1918, attests, the Red Sox always win after Russian revolutions. Governor, there are a lot of Blue Jay fans in this part of the country who are determined to prove that theory false!

Governor, whether you agree with me on this point or not, please accept my warm welcome to this Empire Club meeting. Ladies and gentlemen, please welcome Governor William Weld.

William Weld:

Thank you. This luncheon caps off what has been a delightful visit for me here in Ontario. Yesterday I had the honour of lunching with Prime Minister Mulroney at 24 Sussex Drive, and then enjoyed a visit to Parliament Hill, where I was thrilled to be introduced officially to the House of Commons.

(I was also very thankful that Question Period has not taken hold in my state legislature.)

My only regret on this visit is that I have not had a chance to explore any of the glorious wilderness your country is so fortunate to possess. When I was a boy, Gov.-Gen. John Buchan's books were scattered around our house, and I particularly remember Mountain Meadow, his novel set in Canada.

I've always preferred mountains, lakes and rivers to beaches, and I remember fondly spending five or six summers during my youth fishing in the Salmon River on Anticosti Island, along the Gasp6 Peninsula, and on the Mingan, up toward Hudson Bay.

I also feel very fortunate that my relationship with Canada and her people continues in my present duties as Governor of Massachusetts. We are blessed in Boston by the presence of Consul General Tom McMillan, whom I see on a regular basis and value greatly for his expertise--not just on trade, but also on mutual environmental concerns we share.

Last year I also had the honour of meeting and introducing your Minister for International Trade, Michael Wilson, at a National Governors' Association meeting in Seattle, where we were able to discuss trade issues and our various perspectives on the Free Trade Agreement.

Canada is vitally important to the people of Massachusetts, not just as a friendly neighbour but also as our largest trading partner. Last year Massachusetts firms had about $2.8 billion (Canadian) worth of exports to Canada, principally computer equipment, electronic tubes and semiconductors and aircraft parts. And we relied even more on Canadian products, importing about $3 billion (Canadian) of goods from your country, including fish, petroleum and coal, and other goods.

The system seems to work, and it seems to work to mutual benefit. Two-and-a-half million jobs in Canada depend on open access to American markets; in Massachusetts, more than 60,000 jobs depend on exports to Canada.

Given the importance of our two-way trade, I don't think I'll surprise any of you when I say I think the North American Free Trade Agreement is tremendously important for both our countries, and I support Prime Minister Mulroney and President Bush for their courageous work in pressing ahead for its implementation.

I know that position is not, to say the least, universally popular here in Canada, but I truly do believe both our countries are going to be far better off under the pact.

The fear of the unknown may make NAFTA seem a bit menacing, but I'm convinced that the reality of NAFTA will be far more auspicious. Most of the recent press coverage about Canada US. trade issues has focused on trade disputes. But out of the literally thousands of products that cross the U.S.-Canada border--more than $176 billion in total trade last year--we seem to disagree most on (1) magnesium, (2) Honda Civics, (3) soft wood lumber, and (4) beer, the issue that concerned me most until its resolution last weekend.

An editor at The Financial Post estimates that disputed products represent less than two per cent of our bilateral trade. The FTA dispute settlement procedure has already proven a success, mediating challenges on West Coast salmon and raspberries from British Columbia.

The GATT panel, which has jurisdiction over the beer and wine dispute, has proven to be scrupulously fair. According to last week's signed agreement, it appears that we're both wrong.

The FTA trade liberalizations were so advantageous that the private sectors of both our countries pressed for, and won, accelerated schedules of tariff reductions. An analysis by the Royal Bank of Canada shows that the FTA may actually have moderated the impact of the economic downturn here in Canada.

So those people who point to recent economic problems as an argument against NAFTA have missed the point about the crucial benefits of free trade. We in Massachusetts, for example, have had the unfortunate position of being one of the leaders of the U.S. recession. We've lost 300,000 jobs, 10 per cent of our work force, since 1988.

But we have also seen signs that our recovery is coming, and there is little doubt that our ability to trade in global markets is, and is going to be, a major factor pulling us back onto our feet.

I'm reminded of former Trade Minister John Crosbie's comment. "Managed trade is a short-sighted approach," he said. "It replaces competition among firms with competition among bureaucrats and interest groups."

Or as President Bush noted last week, some people wrongly "suggest that we can hide in a cocoon of protection and pretend still to benefit from the fresh air of competition."

Given what's happening in the world around us, with the formation of the European Community market, the powerful alliances developing along the Pacific Rim, and the emerging markets in Eastern Europe, companies here in North America will benefit most from our own free-trading bloc.

We're talking about forming the world's largest market--360 million people in a $6-trillion economy. Under NAFTA, companies in Canada, the United States, and Mexico not only are going to be able to trade freely here at home, these employers will also be in a much stronger position to swim a bit more fish-like through these other global markets.

I'm a zealous advocate of lowering trade barriers because I also see another, more complex cause behind the economic changes going on worldwide. It's not just a case of having to compete in an international marketplace. I think we're in the middle of a fundamental transformation in the way we do business--a change triggered by the ever-increasing pace of technological developments.

As one example of personal interest to me, look at the recorded music industry. After decades of cassette tapes and LPs, we moved to the compact disc as the new standard format for recorded music. That has lasted just long enough for me to switch over all my Rolling Stones and Neil Young albums. Earlier this month Sony held a press conference to announce not one, but two new recording formats: the mini disc, and digital audio tape.

Or take the computer industry. After a decade of mainframes, the personal computer was introduced, and the technology took off from there. Now we have "notebook" computers, an inch-and -a-half thick with flat-screens; new generations of "driven" chips that double and quadruple the computer's speed; we have programs that think in "fuzzy logic"; available RAM that's got a capacity three times as big as last year's hard drives; massively parallel processing. Just keeping up with the new products on the market is a full-ime job.

Toothpaste comes in "mild flavoured" gels with new ingredients to whiten your teeth. Laundry soaps are improved, biodegradable, with recycled packaging. Cheese-coated popcorn is passé; today, the potato chips still have the skins on them; tomorrow's favourite may be fried macaroni.

In short, change is coming at a faster pace than ever before. Manufacturers are having to better tailor their products to their market, identifying market-niches for their products, and they're having to do it faster, because consumers' demands are changing on an almost daily basis. Advances in technology are being made at an ever-more-rapid rate.

And there's no way that traditional manufacturing processes are going to be able to keep up with that rate of change. Henry Ford's assembly-line production was a miraculous innovation at the time. Now, the idea of taking several years to get a new model car onto the market seems like an eternity. So we're moving to a new type of manufacturing that's flexible enough to change with technology, or with customers' changing whims, quick enough to leap into a new market that has suddenly developed.

It's the type of production where the added-value is less a function of the "finished product" and more a function of how well that product meets consumers' specific needs.

To give you an example, we have a telecommunications company in Massachusetts, Octocom Systems, that has succeeded because they've copied the Japanese and turned the traditional manufacturing process on its head. The first thing that they do is to sit their service representative down with the customer, assess the client's existing network, and determine what the system needs to make it work better.

Then and only then do the engineers at Octocom design the product. Octocom is one of the fastest growing companies in Massachusetts because they are able to rapidly tailor a product to the needs of the particular customer.

For many industries to compete in international markets in the decades to come, the ability to find and develop niche markets worldwide will be far more important than creating economies of scale in a single manufacturing location.

Flexibility and speed is the likely future of manufacturing. I don't think it's a coincidence that many of the Massachusetts manufacturers who are thriving in our economy are the ones with quick turnaround, the ones that can instantly alter their product line.

This concept holds true not just for Massachusetts, but also for many Canadian firms. Even as I speak, dozens of Canadian environmental services companies are meeting with their New England counterparts at a trade show in Boston. The Canadian firms met yesterday with Tom McMillan, with my Lieutenant Governor, Paul Cellucci, and with firms from the Environmental Business Council in Massachusetts to discuss potential alliances both here in North America and in other markets.

Last month, the Ontario government office in Boston and my International Trade Office jointly hosted about 200 representatives of computer software firms at an international strategic alliance symposium. This effort produced a newly published directory of companies from both countries, indexed by software applications, as well as by horizontal and vertical market niches.

Some of us on Beacon Hill in Boston are also learning a few lessons from the aggressive overseas marketing programs of your provincial and federal governments: last month I opened our first overseas trade office in Berlin, making Massachusetts the first state in the U.S. with an office in the German capital. We feel this helps Massachusetts get in on the ground floor of this East West axis.

I think it critically important for our companies to reach out to new markets, not just in Southeast Asia and Europe but also in Latin America, in the North-South axis involving Israel and countries in Eastern Europe, and in Africa. Many of the mutual interests we share with your country are also shared by our neighbours to the south.

A year ago today, I welcomed President Carlos Saunas de Gortari and his key economic aides to Boston after their trip to Ottawa and Montreal. We discussed the possibility of exchanges among environmental industry leaders from Mexico and Massachusetts.

Last month, I participated in the signing of an agreement between our state's Environmental Business Council and one of the largest industry consortiums in Mexico. This kind of partnership will provide new markets for Massachusetts' environmental firms, but just as importantly it also allows for the resolution of complex cross-border problems.

In sum, I think the move to a global economy holds many more potential benefits than it does perils. A company's next great market and competitor is as likely to be in Barcelona or Bombay as it is in Boston.

Both Canada and the United States are likely to undergo a period of change in our industrial base, but I'm convinced that that change is unavoidable. While it might be possible to stall it, to postpone it through protectionist measures, a fullscale industrial restructuring is going to happen eventually, global forces outside our control are making change inevitable.

We might as well welcome it, understand it, and benefit from it, through an open, trilateral trade agreement.

Canada and the United States, in war and peace, have shared far more than the world's longest border. We've also shared the world's strongest alliance. I suggest that through NAFTA our two great empires can remain distinct but strong, up to the challenge of the new global economy.

As Professor Abraham Rotstein said in his oft-quoted line: "Much will have to change in Canada if the country is to stay the same."

Much will have to change in Massachusetts and the United States, as well. But it is my hope and belief that we will undergo these changes together, in partnership and in progress.

Thank you.

The appreciation of the meeting was expressed by The Hon. Barnett J. Danson, PC, Director, The Empire Club of Canada.