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A trade deal’s hopes and fears Add to ...

THE PROMISE

Trade Nirvana

Trade exploded in the first 15 years after the Canada-U.S. free-trade deal went into effect in 1989. Exports more than tripled. Imports from the U.S. also rose rapidly.

But it’s been a different story since. Trade with the U.S. has pretty much stagnated as a series of events unwound the progress of the early years, including the crash of the tech bubble, the post 9/11 border crackdown, the rapid rise of the loonie and the global financial crisis.

The result: Exports to the U.S. are now lower than they were in 2000, and account for roughly the same share of Canada’s gross domestic product now as before the deal (19 per cent vs. 17 per cent). And Canadian exporters have steadily lost market share in the U.S. market.

End bickeringThe FTA created a new model for impartial dispute resolution that was supposed to end chronic border bickering. It didn’t quite work out that way. The nastiest post-FTA fight – softwood lumber – ended with a managed trade deal in 2006 after several rounds of inconclusive litigation before FTA panels.

And yet disputes have become less frequent in recent years. But that’s mainly because the economies of the two countries are much more integrated. Companies and their suppliers operate on both sides of the border, blurring the lines of national self-interest.

Fix Canada’s economic woesMany proponents boldly sold the FTA as a cure-all for problems that had long plagued the economy, including the large current account deficit, wild currency swings and hefty sovereign debts.

The results are mixed. Currency fluctuation is still a problem (witness the ascent of the loonie in 2006 and 2007). And after running large trade surpluses in the first decades after the FTA, Canada has a deficit again. Sovereign debts aren’t a big problem after Ottawa cleaned up its finances in the 1990s. The country also has many new problems, including lagging productivity and underinvestment in research and development.

Boost investmentIt’s one of the forgotten outcomes of the deal. Two-way foreign direct investment has soared. Americans are still more invested here than the other way around ($326-billion versus $276-million). But the flows are way up in both directions. Canadian banks, for example, have expanded massively south of the border.

THE FEAR

Loss of sovereigntyPerhaps the greatest fear of Canadians about free trade was that the country would lose its autonomy. There almost no evidence of this happening. The country has continued to take an independent course, both inside Canada and on the world stage.

A flashpoint was the FTA’s chapter 11, which allowed companies to sue governments. But the clause is sporadically used, and no major government programs have been affected in Canada.

Loss of identity

The feared Americanization of Canadian culture hasn’t happened. Canada continues to enjoy a vibrant media industry, filled with a mix of homegrown music, theatre, film and books, as well as foreign material. Canadian content rules and foreign ownership restrictions for sensitive industries remain firmly in place.

Canada remains a major cultural exporter, with success stories such as Justin Bieber and Cirque du Soleil.

Undermine MedicareThe two countries’ public and private health care models remain distinct. Private health care is gaining ground in Canada, but that’s largely a response to cost pressures and wait times. Meanwhile, elements of public health care have crept into the U.S. system, including increased drug coverage for seniors and Obamacare for the uninsured.

Death of industry

Some industries have clearly suffered, including lumber, cattle, textiles, autos and clothing. But it hasn’t been the disaster many critics warned. And many of the challenges these industries face – including the high dollar, low-cost offshore competition and the recession – would have happened anyway.

Even some of the most unlikely survivors, such as clothing makers, continue to thrive in Canada, exporting items such as jeans and suits.

Follow on Twitter: @barriemckenna

 

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