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Jeffrey Simpson (Brigitte Bouvier For The Globe and Mail)

Jeffrey Simpson

(Brigitte Bouvier For The Globe and Mail)


Free-trade forecasts are always foggy Add to ...

The free-trade agreement between Canada and the United States, like the deal just reached between Canada and the European Union, was both excessively criticized and praised.

The Canada-U.S. deal, reached in 1987, did not produce the catastrophic consequences critics predicted, nor did it fulfill all the promises of its advocates. The same will be true for this deal with the EU.

Before and during the 1988 election campaign, which turned on free trade, critics cried that the FTA would erode pensions, threaten medicare, shred the social safety net, drive Canadian wages to southern U.S. levels, end Ontario’s wine industry, lead to water diversions and, over time, eliminate the Canada-U.S. border, as graphically shown in a Liberal Party television ad. All these predictions were proven false, but they resonated with many Canadians.

Before and during that campaign, proponents insisted that free trade would boost Canada’s economic productivity. Canadian companies, it was argued, would be given “world product mandates” within U.S. multinationals to make one or two product lines for international export, thereby creating more export opportunities. Canadian companies, building on increased exports to the United States, would become so proficient that they would then conquer other international markets. None of this happened.

There was a sharp increase in overall Canadian exports to the United States, and jobs were created as a result. There is no doubt about these facts. But quantifying how many jobs resulted from the trade deal as opposed to other factors is impossible.

In the United States, the 1990s could be called the “Roaring Nineties” for reasons having nothing to do with free trade with Canada. The U.S. economy rode a high-tech boom, a soaring stock market, a period of sustained international peace and a declining budgetary deficit to a spectacular decade of growth.

A lot of Canadian boats got lifted during that boom decade. But how many Canadian exports and jobs resulted from the trade deal as opposed to the overall boom is a matter for conjecture.

The same is now true of the Canada-EU deal. The critics are overcriticizing; the defenders are bragging too much. We won’t know for a decade or more whether the deal was a “game-changer,” as suggested by promoters, or a net drag, as the critics contend.

What is obvious, though, is that claims that the deal will produce 80,000 new jobs, as the government has contended, or cost 15,000 jobs, as unions have warned, is conjecture based only on economic models.

For example, Canadian business generally remains almost as fixated on the American market as it was when the Canada-U.S. agreement came into force. For all the exhortation, for all the reports, for all the trade missions to Asia, trade with that region has grown only modestly.

When Canadian business think beyond the United States, it has usually been to Asia, not Europe. Similarly, every economic projection for Europe suggests sustained slow growth overall. Some countries, such as Germany, Sweden, the Netherlands, Finland and Poland seem set to grow. But others, such as Spain, France, Italy and Britain, are hobbled by large deficits and debt. They might restore growth, but it’s going to take time.

So although the Canada-EU deal provides opportunities that justify the deal (at least on paper), no one knows how businesses will take advantage of it. A few – cattle and pork producers, presumably – will certainly do so. The rest, no one can tell.

Nor can anyone predict whether European businesses will take aggressive advantage of the deal for their purposes. The Canadian market, after all, is just 35 million people (albeit with a high purchasing power), compared to much larger markets such as Mexico (which has its own trade deal with Europe), China or India.

From a long-term point of view, this deal is geopolitically important because of the risk of being left isolated if (and it’s a big if) the EU and the United States negotiate their own trade deal. If for no other reason, this alone makes the deal worth doing for Canada, as long as everyone understands that the advantages will be both oversold and overcriticized for political reasons.

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