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Canada-U.S. Free Trade Agreement

From Academic Kids

The Free Trade Agreement (FTA) was a trade agreement reached by Canada and the United States in October of 1987. The agreement removed several trade restrictions in stages over a ten year period, and resulted in a great increase in cross-border trade. A few years later, it was superceded by the North American Free Trade Agreement, which included Mexico as well.

Contents

History

Free trade with the United States has long been a controversial issue in Canada. Historically, Canadians who advocated a closer relationship with the United States, especially closer economic ties, were portrayed by critics as encouraging political annexation by the Americans. Under Canada's first Prime Minister, John A. Macdonald, the protectionist National Policy became a cornerstone of the new Canadian nation.

Starting in 1855, the Reciprocity Treaty created limited free trade between the colonies of British North America and the United States. In 1866, the United States Congress voted to cancel the treaty.

The Liberal Party of Canada had traditionally supported free trade. In the 1911 Canadian federal election, free trade in natural products became the central issue. The Conservative Party campaigned using fiery anti-American rhetoric, and the Liberals lost the election. Further political disputes over free trade were shelved for many decades.

From 1935 to 1980, a number of bilateral trade agreements greatly reduced tariffs in both nations. The most significant of these agreements was the 1960s Auto Pact.

Negotiation

By the 1980s, Canada and the United States were each other's largest trading partners and the Canada-U.S. bilateral trading relationship was the largest in the world.

Brian Mulroney's Progressive Conservative Party was elected to office in the 1984 election. Free trade was not an important issue, but Mulroney and the party both announced their opposition to such a move. In 1985, a Royal Commission on the economy issued a report to the Government of Canada recommending free trade with the US. This commission was chaired by former Liberal Minister of Finance Donald S. Macdonald, and had been commissioned by the Liberal government of Pierre Trudeau. Mulroney nonetheless embraced the report's findings. In May 1986, Canadian and American negotiators began to work out a trade deal.

The agreement greatly liberalized trade between the two countries, removing most remaining tariffs. The FTA was not fundamentally about tariffs, however. Average tariffs on goods crossing the border were well below 1% by the 1980s. Instead, Canada desired unhindered access to the American economy. Americans, in turn, wished to compete in Canada's energy and cultural industries.

In the negotiations, Canada retained the right to protect its cultural industries and such sectors as education and health care. As well, some resources such as water were left out of the agreement. The Canadians did not succeed in winning free competition for American government procurement contracts, however.

Controversy

Canada

Once the treaty was announced, it became a source of great controversy in Canada. A wide-ranging group of Canadians, mostly on the left, came out in opposition to the deal. Led by the Council of Canadians, they argued that the deal would undermine Canada's sovereignty and begin a slippery slope towards Canada losing its political independence.

The 1988 Canadian election was almost wholly dominated by the issue of free trade. The Liberal Party, led by former Prime Minister John Turner, the social democratic New Democratic Party, and many labour unions strongly opposed the deal. Mulroney's Progressive Conservatives and most business groups supported it, including the Business Council on National Issues. The BCNI sponosored considerable pro-free trade advertising, far more than had ever been spent on a single issue in a Canadian election.

Mulroney's Progressive Conservatives were re-elected with a comfortable majority. Critics argued that the two parties opposed to free trade actually won a majority of the vote, but because of vote splitting between the NDP and Liberals, the Progressive Conservatives managed to win a majority of seats in the House of Commons. On January 1, 1989, the agreement came into effect.

United States

The agreement attracted little attention in the US. A New York Times editorial on the issue, "Worthwhile Canadian Initiative", won a prize for "most boring headline".

Effects

The exact ramifications of the agreement are hard to measure. After the agreement came into effect, trade between Canada and the United States began to increase rapidly. While throughout the twentieth century, exports fairly consistently made up about 25% of Canada's Gross domestic product (GDP), since 1990 exports have been about 40% of GDP. After 2000, they reached nearly 50%. Some of this growth must be attributed to the sharp decrease in the value of the Canadian dollar during this period ,and a general global pattern of increasing international trade.

The agreement has failed to liberalize trade in some areas, most notably softwood lumber, where Canadians have complained that the Americans repeatedly violated the agreement to impose protectionist policies.

The fears that the agreement would undermine Canada's sovereignty have still not come to pass. Canada's cultural industries are healthy, and some argue that Canadians and Americans are actually diverging on many important issues.

While the agreement remains controversial to this day, it is no longer at the forefront of Canadian politics. The NDP remains opposed to free trade; however when the Liberals under Jean Chrétien were elected to office in 1993 election promising to re-negotiate key parts of the agreement, they continued the deal with only minor modifications, and signed the North American Free Trade Agreement to expand the free trade area to include Mexico.

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