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

Both the Liberals and the NDP were dead set against the deal. Liberal Leader John Turner declared that stopping it was “the cause of my life.”

“I’m a free trader, but I want mutual free trade,” Mr. Turner explains, 25 years later. “The way it was negotiated with the United States, only Canadian jobs were at stake.”

When the Canadian Senate blocked ratification, Mr. Mulroney called an election in the autumn of 1988. There has never been an election quite like it. Canadians bitterly disagreed among themselves over whether to embrace free trade with America. They all agreed, however, that the future of the country was at stake.

“If you went into a bookstore or you went into a laundry, people were arguing about free trade,” remembers Allan Gotlieb, who was Canadian ambassador to the United States at the time, and one of the key negotiators of the agreement. “People were pinning up editorials or articles on their refrigerators. It was an issue that grabbed hold of the country in a way no other foreign policy issue has since conscription. To me, it was a phenomenon.”

Polls surged for the Liberals after Mr. Turner kicked butt during the leaders’ debate. And the party put out what may be the most effective attack ad in Canadian history:

A Canadian and an American negotiator sit over a table discussing the accord.

“There’s just one line I’d like to change,” the American proposes.

“What line is that?” asks the Canadian.

“This one here. It’s just getting in the way.” On a map placed between them, the American takes an eraser to the Canada-U.S. border.

But with opposition split between the Liberals and NDP, the Progressive Conservatives won a second majority government, and the FTA became law.

Two years later, Canada fell into a deep recession – with free trade part of the reason. With tariffs removed, American firms closed their Canadian branch plants and shut down their Canadian head offices.

“We lost 200,000 manufacturing jobs in the first two years,” Mr. Peterson recalls. “We were the province with the most to lose, and we predicted we’d lose it, and we did.”

But then things started to take off. Bilateral exports, which totalled about $100-billion a year in the late 1980s (all figures are in Canadian dollars), shot up to $350-billion a year by 2000, according to a new study by Douglas Porter, deputy chief economist of BMO Nesbitt Burns. The study is part of the Inside Policy issue on free trade.

Little of the gloom turned to doom. Public health care remained intact. Water stayed in Canadian rivers and lakes.

Yes, total American investment in Canada increased, to $326-billion in 2011 from $76-billion in 1988. But Canadian investment into the United States also grew, to $276 billion today from $55 billion before free trade.

Free trade with the United States, and the subsequent North American free trade agreement that brought Mexico into the tent, were “critical ingredients in helping modernize the Canadian economy ... transforming Canada from a relative underachiever among industrial world economies to a relative overachiever,” Mr. Porter concludes.

Except there’s a catch. Actually, there are several catches.

Since 2000, growth in Canada-U.S. trade has not only flattened, but declined. After almost a decade of little or no growth, from 2000 to 2008, bilateral export values plunged with the arrival of the 2009 recession, and are still struggling to return to 2000 levels.

Taking an even longer view, Mr. Porter notes that just before free trade, exports to the United States represented 17 per cent of Canada’s nominal gross domestic product, in current Canadian dollar terms. By 2000, they had reached 33 per cent of Canada’s GDP. Today the number is all the way down to 19 per cent. By that measure, we’re practically back to where we started.

Different yardsticks produce a better result. But by any measure, the wild trade gains of the 1990s were at least partly clawed back in the past decade. Trade between Canada and the U.S. is stronger today than it was before free trade, but not that much stronger.

There are many reasons for the swoon. Mr. Porter points to the rising Canadian dollar -- which appreciated by 75 per cent between 2002 and 2007 – as the principal culprit. As well, there was also the thickening of the border that followed the attacks of Sept. 11, the bursting of the tech bubble in 2000-02, the last recession, which hit the United States harder than it hit Canada, and growing competition from other exporters, especially China.

There is a bigger catch. If the Canada-U.S. free-trade agreement was a critical opening act in the story of globalization – signalling to the world that two G7 countries were ready to open their markets to each other – the most recent chapters of that story make for grim reading.

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