Twenty Years On, the Cassandras Are Still Wrong

TWENTY YEARS ON, THE CASSANDRAS ARE STILL WRONG

Derek H. Burney

As chief of staff to the prime minister in 1987, Derek Burney headed the Canadian team at the meeting that literally at five minutes to midnight, resulted in the Canada- United States Free Trade Agreement. At the signing of the FTA on October 3, 1987, and in the subsequent free trade election of 1988, various Cassandras forecast dire scenarios of doom for Canada’s economy, social programs and political sovereignty. Twenty years on, the Cassandras couldn’t have been proven more wrong, though that doesn’t mean they’re out of business. Here is a look back and a look ahead, by a top official who was present at the creation of the FTA.

En tant que directeur de cabinet du premier ministre, Derek Burney dirigeait en 1987 l’équipe canadienne déléguée à la réunion qui, exactement cinq minutes avant minuit, a donné naissance à l’Accord de libre-échange entre le Canada et les États-Unis. Au moment de la signature, le 3 octobre 1987, et lors des élections subséquentes de 1988, les Cassandre de tous horizons ont brandi des scénarios apocalyptiques pour l’économie, les programmes sociaux et la souveraineté du Canada. Vingt ans plus tard, la réalité a fait mentir ces prophètes de mauvais augure, qui n’en continuent pas moins de tenir boutique. Voici le regard tour à tour rétrospectif et prospectif d’un haut représentant ayant assisté à la création de cet Accord.

wenty years ago, in the fall of 1987, the Canada-US country between Cassandras who predicted literally the end free trade negotiations hovered precariously of Canada from a free trade agreement with the US and opti- T between success and failure. Time was running out. mists who saw the agreement as a means to make the President Reagan’s authority to negotiate a free trade agree- Canadian economy more competitive and trade with our ment was scheduled to expire in early October and the major trading partner more secure. major issues were far from resolution. In an intensive, final The Cassandras were led essentially by self-appointed three-day round of negotiations during which I represented Canadian nationalists, perennial anti-Americans who Prime Minister Mulroney and Treasury Secretary Jim Baker defined Canada and Canadians as everything that was not headed the US side, success was achieved. A few months either the US or American. They saw the Free Trade later, the final legal text was drafted and the Prime Minister Agreement as a conspiracy to make Canada the 51st state, and the President signed the agreement on January 2, 1988. reflecting a latent sense of inferiority but imbued with an The negotiations were arduous enough and success had even more profound sense of moral superiority. Canadians by no means been pre-ordained. But the conclusion of the were warned that their industry would be swallowed whole Free Trade Agreement added new fuel to what had become by American competitors. Our vineyards in the Niagara and a volatile national debate in Canada, a highly emotional Okanagan Valleys would be “paved over.” Canadian cultur- roller coaster touching every corner of society and extend- al industries would drown in a flood of southern imports. ing well beyond the provisions of the actual trade agree- Canadian foreign policy would be yoked to the White ment. It raised fundamental questions about the character House and the Pentagon. In short, Canada would lose its of Canada, its relationship with the world and, in particular, ability to survive as a distinct North American entity. its relationship with the US. Everyone seemed to have an opinion, from the chattering classes to seniors, from reli- ocial policy activists declared that Canadian medicare gious leaders to feminists, from authors to actors and, of S would be deemed a subsidy and would have to be aban- course, politicians from all sides. The debate polarized the doned in favour of American-style heath care. Senior citizens,

POLICY OPTIONS 41 OCTOBER 2007 Derek H. Burney

including the Prime Minister’s mother, outside the political arena, sought to present in politics.) One who did not, were told that their nursing homes concentrate the debate on economic however, was Maude Barlow, erstwhile would be privatized and that they issues — the need for better and more critic of the FTA, NAFTA and virtually would be thrown “out on the street.” secure access to Canada’s principal any trade liberalization agreement. Labour leaders worried that facto- export market — and with an appeal Writing two years after the agreement ries would close en masse. to Canadian self-confidence, namely came into effect she declared solemnly Unemployment would rise and our ability to compete under an that “Canada faces extinction as a Canada would become an economic enhanced, rules-based trade system. nation.” As Churchill might observe backwater with Canadians condemned Free trade became the dominant “Some extinction; some nation!” for eternity as hewers of wood and issue in the 1988 election. As they say drawers of water. in Newfoundland, the campaign was a tatistics tell a powerfully pos- Select religious leaders S itive story all by themselves. rushed into the debate preach- The Cassandras were led essentially Not only has Canada-US trade ing to their no doubt bewil- by self-appointed Canadian more than quadrupled since the dered flocks that free trade FTA but the quality of the expan- would imperil Christian values. nationalists, perennial anti- sion, notably the increase in One bishop complained that Americans who defined Canada and higher value Canadian exports, any agreement that compelled Canadians as everything that was exceeded the government’s Canadians to be more competi- not either the US or American. They expectations. In short, the theo- tive was unchristian and uneth- ry worked — liberalization of ical. saw the Free Trade Agreement as a trade fuelled specialization and Instant experts emerged conspiracy to make Canada the 51st efficiency with dividends for from varied disciplines, includ- state, reflecting a latent sense of both producers and consumers. ing at least one from a family inferiority but imbued with an even Two-way investment grew rapid- court, stimulating headlines ly as firms on both sides of the and fear in equal proportions. more profound sense of moral border equipped themselves to “Sellout” and “traitor” were superiority. Canadians were warned take advantage of the agree- among the milder epithets used that their industry would be ment. Intra-firm trade accelerat- against advocates favouring swallowed whole by American ed with productivity spin-offs on free trade. The language of the both sides. Over 70 percent of critics was often as crude as the competitors. Our vineyards in the Canada-US merchandise trade analysis. Niagara and Okanagan Valleys today consists of trade within would be “paved over.” Canadian the same industries. Tariffs were gainst this emotional cultural industries would drown in a reduced more quickly than ini- A assault it was difficult to tially contemplated. defend the agreement with dis- flood of southern imports. Canadian More to the point, none of passionate messages about foreign policy would be yoked to the dire predictions about van- “comparative advantage” or the White House and the Pentagon. ishing social programs ever Adam Smith’s theories on spe- In short, Canada would lose its materialized. Canada’s approach cialization. to health care certainly has prob- At the height of the debate, ability to survive as a distinct North lems, but they are home-grown Saturday Night commentator American entity. and in no way attributable to David Frum shrewdly observed free trade if anything the US that free trade’s opponents were hav- “doozy.” The government was re-elect- health care system is in more serious ing all the fun. They could, he pointed with a second majority (the first for jeopardy. Costs are escalating dramati- ed, “write any old thing that comes Conservatives since the days of John cally — even without universal coverage into their heads… and did not consid- A.). The agreement was ratified by — eroding US competitiveness and driv- er themselves bound by the customary Parliament and came into effect ing many major US manufacturers to standards of evidence expected over January 1, 1989. the brink of bankruptcy. Neither coun- matters of urgent public policy.” What has happened since? The try is satisfied with its approach to But ultimately it didn’t matter. Cassandras were proven wrong on all health care but at least the debate is no The Canadian people were not all lis- points to the extent that many of free longer distorted by loopy links to trade tening to the Cassandras. The govern- trade’s most vehement, political oppo- agreements. Canadian social programs ment countered each of the allegations nents eventually became ardent sup- more generally face challenges but these and, with strong support from many porters. (The theory of elasticity is often are not the result of trade agreements.

42 OPTIONS POLITIQUES OCTOBRE 2007 Twenty years on, the Cassandras are still wrong

CP Photo Prime Minister Mulroney escorts President Reagan from Air Force One on his arrival in Quebec City for the Shamrock Summit on St. Patrick’s Day in 1985. The real lesson from the negotiation of the FTA in 1987, writes Derek Burney, was that their “leadership and confidence” over- came “both the hand-wringing Cassandras at home and the customary ambivalence of the United States.”

The fears that bilateral trade agree- and Iraq. The Harper government is tion but has left a serious scar on the ments would emasculate commitments proving itself no less capable of man- agreement as a whole, undermining to multilateral trade proved equally aging a vibrant trade and investment confidence more generally about the hollow. Success in the FTA, and subse- relationship with the US while pursu- willingness of the US to live up to quently NAFTA, actually helped galva- ing policies that serve distinct solemn treaty obligations. nize the conclusion of the Uruguay Canadian interests, whether in our The Free Trade Agreement was not Round, which gave birth to the World own hemisphere or on issues such as perfect. It was a negotiated compro- Trade Organization (WTO). In fact, the Arctic sovereignty. mise reflecting a balance of gives and WTO adopted some features from With the glaring exception of soft- gets by both sides. It was a bold initia- NAFTA, notably the dispute settlement wood lumber, the dispute settlement tive, much more so for Canada than for system, to strengthen its effectiveness. provisions of the FTA, made perma- the US, made possible by the tenacity Throughout the Mulroney and nent in NAFTA, are doing what was and commitment of the two political subsequent Chrétien/Martin years, intended — reducing the threat of leaders at the time — Prime Minister Canada pursued its own course on for- arbitrary or capricious use of protec- Mulroney and President Reagan. The eign policy, supporting the US and tionist US measures against Canadian FTA, NAFTA and the Uruguay Round other NATO allies where it was in exports. The blatant abuse by the US of represented a high-water mark of Canada’s interest, e.g., the Balkans and final rulings by NAFTA panels on the achievement for Canadian trade policy. Afghanistan, while opposing the US perennial lumber dispute necessitated, The fact that not much has happened where it was not, e.g., on South Africa once again, a “managed trade” solu- of that magnitude since on the trade

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front is a tribute to the political will people, goods and services. It seems per- managing relations with the world’s mustered at that time. verse that, as Europeans find new ways only super power is to generate commit- to ease and expedite movements within ment, tenacity and vigilance from the y any measure, Canada is a their borders, North America is moving top while reinforcing it systematically at B stronger, more prosperous country in the opposite direction. other levels. The real lesson from 1987 is than it was 20 years ago. No one would The new passport requirement is that, with the right leadership and con- claim that free trade merits all the cred- proving more onerous than effective. fidence about our objective, we can it nor that it has been flawlessly imple- Four-to-five-hour lineups at the bor- overcome both the hand-wringing mented. But it would be difficult for der for trucks and tourists are count- Cassandras at home and the customary the most dedicated of the Cassandras er-productive to both economies. ambivalence of the United States.

With the glaring exception of softwood lumber, the dispute ut trade policy and settlement provisions of the FTA, made permanent in NAFTA, B trade agreements are are doing what was intended — reducing the threat of only one element of measures needed to assure our arbitrary or capricious use of protectionist US measures future well-being. On the against Canadian exports. The blatant abuse by the US of home front, we need a final rulings by NAFTA panels on the perennial lumber dispute coherent policy framework necessitated, once again, a “managed trade” solution but has that will give Canadians the best chance to compete and left a serious scar on the agreement as a whole, undermining prosper in a rapidly globaliz- confidence more generally about the willingness of the US to ing world. We need funda- live up to solemn treaty obligations. mental tax reform that levels the playing field for to claim that Canadians would be bet- Particular focus is merited on cus- Canadian firms and stimulates invest- ter off today without improved access toms pre-clearance procedures that ment — domestic and foreign; regulato- to the US market and without the more would ease congestion along the bor- ry reform that respects legitimate public competitive Canadian economy that der. As David Ganong pointed out policy interests instead of home-made has been generated by regional and eloquently at the recent Montebello solutions designed simply to distin- global trade liberalization. Summit, we also have different regu- guish Canada from the US. After too Canada’s prosperity is vitally lations on the production of things many years of talk with too little action, linked to our proximity to the vast US like jelly beans that serve no practi- our provinces need to match the exam- market and one of the biggest threats cal use whatsoever. The introduction ple of Alberta and B.C. and remove to our future prosperity would be an of new user fees and extra inspec- internal trade and investment barriers. outbreak of protectionism from our tions at the border are egregious Most importantly, we need comprehen- southern neighbour. Whether or not examples of protectionism under a sive investments in education and Canada is the target, we could easily different disguise. infrastructure (ports, railroads, bridges, become the victim. Whether in the At their Montebello Summit in municipal transit, etc.) by all levels of name of security or anti-globalization, August, the leaders of Canada, the government that will sustain our ability US protectionism is a constant threat United States and Mexico made a to compete and prosper in an increas- to our economic well-being. solemn joint commitment “to a secure ingly integrated global economy. That Canada’s first priority must there- border that remains open to the too requires the kind of vision, stamina fore be to restore full commitments to exchange of goods and services and and political leadership we were fortu- the dispute settlement provisions of the interaction of people.” The words nate to have had 20 years ago. NAFTA. We should also use the are compelling but concrete actions increasing integration of the Canada- emulating this sentiment would be Derek H. Burney, chief of staff to the US economies as a platform for bold more convincing. prime minister from 1987 to 1989 and trade negotiations with the European It is never easy to get and sustain US ambassador of Canada to the United Union and the major economies of attention to genuine Canadian priorities States from 1989 to 1993, is chairman Asia. — whether on trade or other bilateral of CanWest Global Communications We should address the broad issue issues. Inattention or indifference in Corp, senior strategic adviser at Ogilvy of border management in a way that Washington was a huge obstacle to the Renault LLP and distinguished fellow at respects legitimate concerns about secu- trade negotiation 20 years ago and near- the Norman Paterson School of rity while using 21st-century technolo- ly caused the initiative to collapse. The International Affairs, Carleton gies to facilitate efficient movements of never-ending challenge for Canada in University.

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