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After 25 years, free-trade deal with U.S. has helped Canada grow up Add to ...

A quarter century of free trade has transformed this country, but not in the way its champions hoped, or its critics feared.

Canada has not, as opponents predicted, become an economic appendage to the American giant, a 51st state in all but name, since the Canadian and American governments reached a comprehensive free-trade agreement. We are, if anything, a freer actor in the world than we were before the deal was signed, 25 years ago Thursday.

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But the benefits are also debatable. After a decade of rapid increase following the ratification of the Canada-United States free-trade agreement (commonly referred to as FTA), trade with America has levelled off and even, by some measures, fallen back to where it was before the deal.

Despite rosy predictions, Canadian productivity continues to lag; too little gets researched here and not enough is developed.

“There are a lot of good things going on in this country,” says David Peterson, who was premier of Ontario at the time of the free-trade debate, and who campaigned against the deal. “But we are still hewers of wood and drawers of water.”

The real legacy, however, may be intangible. “It’s not just a question of numbers,” maintains Kevin Lynch, who was clerk of the Privy Council – Canada’s most senior public servant – from 2006 to 2009.

Free trade helped Canada to grow up, to turn its face out to the world, to embrace its future as a trading nation, to get over its chronic sense of inferiority.

Free trade got Canadians to “believe in ourselves – to take down the tariff barriers and think we could compete with the world’s largest and most competitive economy, and do well at it,” Mr. Lynch argues.

“All these things were made possible by thinking about the world through a totally different prism,” he believes. “And free trade allowed us to do that.”

As the federal government prepares to unveil a new free-trade agreement with Europe this year and with India next year, as it strives to become part of a new Pacific accord, and contemplates entering into talks with China, let’s look back at the father of all trade agreements: how it came about; what was at stake; and what it meant for our future.

Because 25 years later, it shapes us still.

The generation born after 1980 may not appreciate how grim things were at the beginning of that decade. Canada and the United States were in the grip of a recession far worse, in many respects, than the one of 2009. Inflation reached just over 12 per cent in 1981; mortgage rates were over 21 per cent; the next year unemployment peaked at 13 per cent.

Pierre Trudeau, having contributed to the mess with his ill-considered national energy program, ordered up a royal commission on how to fix the Canadian economy.

Donald Macdonald, its principal author, surprised everyone by calling for a free-trade agreement with the United States, which he described as “a leap of faith.”

Brian Mulroney, by then the Progressive Conservative prime minister, decided to take that leap, holding hands with American president Ronald Reagan. The negotiations were long and intense. At almost literally the last hour, with congressional authority to fast-track a deal about the expire, the whole thing almost foundered, over Canadian insistence on a dispute resolution mechanism.

As Mr. Mulroney remembers it, Treasury secretary James Baker told him Congress would never approve a clause limiting its power to oversee international trade.

“And I said ‘OK Jim, fine. I’m now going to call President Reagan at Camp David, and I’m going to ask him ... how the United States of America can sign a nuclear reduction treaty with its worst enemy, the Soviet Union, but cannot sign a free-trade agreement with its best friend, Canada,” Mr. Mulroney recalled in an interview in the journal Inside Policy, to be published Thursday.

Twenty minutes later, Mr. Baker walked into the room where the Canadian negotiators were waiting and dropped a piece of paper on the table, declaring: “There’s your goddamn dispute settlement resolution.”

“I was feeling worried,” Mr. Mulroney acknowledged in an interview with The Globe and Mail. Failure would not only have set back relations with the United States; it would have been a body blow to his government.

But the deal was far from sealed. Opposition to free trade with the United States was broad and deep. The Americans would take over any parts of the economy they didn’t own already, critics warned; they would use the agreement to force an end to public health care; they would siphon our water and force us to sell our oil at fire sale prices.

“Canada was in many ways somewhat fearful,” Mr. Mulroney observed in the interview, “concerned about the size of our neighbour, and deeply concerned as well by the matter that had always been out there, namely the absorption by the United States.”

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