● History
● The Canada-US Free Trade Agreement
● Natural Resources
● Agriculture
● Manufacturing Industries
● Service Industries
● Canada's Place in the World Economy

The Canada-US Free Trade Agreement

Former Prime Minister Brian Mulroney Celebrated Canada Day with His People in Ottawa

Canadians—both policy-makers and ordinary people—remained worried about the possibility of the Canadian economy being completely swallowed by the much stronger American one. In 1983, the idea of instituting closer ties with the US struck fear in the hearts of many Canadians, and it seemed as though such an idea could never become a reality. In the run-up to the 1984 federal election, Conservative leader Brian Mulroney (Prime Minister from 1984—1993), campaigned on a promise of "no free trade" with the US; but after his party's landslide victory, he quickly changed direction and began negotiating with the US on dismantling tariff barriers, a U—turn that angered many of his supporters and opponents alike.

Whatever its political implications, the idea of a free trade agreement made good economic sense: Canadian industries had been hurt by the American use of non-tariff barriers to trade and a refusal to regard Canada as a "special case" and waive such measures. Businesses were increasingly relocating to the US to get around the barriers, and to protect Canadian industry, a deal had to be struck. For the Americans, the Free Trade Agreement (FTA) was a small expression of a big idea: it wanted to find more international support for the General Agreement on Tariffs and Trade (GATT) and thought if the FTA was successful, then more countries might be willing to follow the example and see freer international trade as beneficial.

The FTA came into effect on 1 January 1989, with a schedule of removing tariff protection on most items by 1998. For Canadians, the one controversial aspect was the agreement to allow free movement of agricultural products, which put Canadian farmers into direct competition with their larger, more competitive American counterparts. Also controversial was the provision of a guarantee that the US would retain access to Canadian energy supplies in case of emergency or changes in world supplies, which some critics said was a loss of Canadian sovereignty. Some things that were left out of the agreement because of their sensitivity to Canadians were cultural activities and beer—two very important aspects of Canadiana!

For Canada, entering into the FTA meant a new, reduced role in the economy for a government that has been by tradition, very interventionist, and this has been difficult to accept. The deal has benefited some regions more than others: resource—rich western provinces have done well, selling their products to their southern neighbours, while the heavily-manufacturing based eastern provinces have seen job losses, finding it difficult to compete with large American firms.

Overall, the FTA has been called an "imperfect" agreement for Canada, and given the dominance and strength of the United States, it could hardly be otherwise. It remains uncertain as to whether in the long term, embracing close economic relations with the US will lead to a serious diminishing of Canada's economic, and therefore political and cultural sovereignty. Optimists say that Canada, by embracing free trade not just with the United States, but with other countries, will benefit in the long run as the world becomes more economically interdependent and more tolerant of the free trade principles envisioned by the GATT. Mexico and other Latin American countries have joined in the North American agreement, and of course European nations are undertaking a far greater challenge by dismantling national economic borders in the European Union. Canada is not alone in carrying the principles of free international trade forward, and many countries are experiencing economic dislocation as a result.

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