U.S.-Canada Free Trade Pact Is a Real Start

After three years of debate, Congress has passed the trade bill, and the President is expected to sign it into law. But for all the shouting, the trade bill is yesterday’s story.

It may get a few more exports into other markets, but currency shifts and U.S. competitiveness are already doing that job. And to the extent the bill threatens to curb imports, it will only frighten foreigners into upping their growing U.S. investments.

Meanwhile, the U.S.-Canada Free Trade Agreement is the real trade story. That treaty, phasing out all tariffs and barriers between the two countries, was signed by President Reagan and Prime Minister Brian Mulroney in January and is now before the U.S. Congress and Canadian Parliament. It becomes law Jan. 1, 1989--unless derailed in the approval process by either country.

And growing support makes that unlikely. “Together we and the Canadians can have real clout in this world,” said Kansas Democratic Congressman Dan Glickman the other day as the House Agriculture Committee gave its approval. People realize the agreement is “historic,” says Washington consultant Harald Malmgren, a former U.S. trade negotiator.

Why is an agreement with Canada called “historic”? Because it’s a first step toward a North American Free Trade area comparable to the European Common Market. Ultimately, many in Washington believe, Mexico will be included. U.S. government officials have even broached the idea to Japan.

Benefits Shared Equally

In one sense the pact with Canada is a response to Europe. In 1992, the 12 nations of the Common Market plan to abolish all trade and immigration barriers and take a giant step toward becoming one country economically. U.S. exports could be affected--last year Europe took $61 billion worth or 24% of the total, while selling the United States $85 billion in goods, 20% of its imports.

But in another sense, the agreement is a start toward expanding trade’s benefits in the Western Hemisphere. As the numbers make clear, developed countries that enjoy the good life do a lot of business together; developing countries where life is a struggle do little business. In contrast to $35 billion in U.S. trade with all the South American countries last year, or the $35 billion with Mexico, U.S.-Canada trade totaled $131 billion. Trade with Japan was $116 billion.

With Canada, trade benefits are shared fairly equally. In other cases, America acted as market and midwife to other economies: Japan sold $88 billion worth of goods to the U.S. customer, while buying only $28.5 billion; Korea, Taiwan and other Asian nations sold $61.6 billion, bought $23.5 billion.

But now the United States wants opportunities for its own industries, and Canada wants a secure market in a changing world.

The free trade agreement gives something to each side, explains economist John Grant of Toronto’s Wood, Gundy Securities. Canadian companies gain a broader market but also new U.S. competitors. U.S. investors get access to Canadian energy, but Canada gets to sell abundant hydroelectric power to customers in New England and the upper Midwest. Over time the agreement promises integration of the two economies.

Right for the Time

Which makes some Canadians fear for their country’s identity--a chronic worry in a nation of 26 million living next door to a restless giant of 240 million--and others fear for their business, such as the Ontario manufacturers who oppose the trade agreement. The betting is that Canada will hold an election in September, a referendum of sorts on Mulroney’s agreement.

But the betting also is that Mulroney’s party will win, because most Canadians recognize the benefits of hooking up with the U.S., and perhaps, too, because the free trade agreement is appropriate for this time in history.

The great British historian Arnold Toynbee predicted today’s events in 1974, a year before he died. The force of commerce, he said, would make nations similar to states of the U.S., “with goods flowing freely between countries as they now do between Virginia and Maryland.” A start on fulfilling Toynbee’s vision may be made on the Canadian border next January.