The Multinational Monitor

MAY 1990 - VOLUME 11 - NUMBER 5


C A N A D A

Colonizing Canada

A Year and a Half of Free Trade

by Randy Robinson

Ottawa, Canada--In Vancouver, British Columbia, Kathy Schultz's fish plant job is disappearing and her future is uncertain. "I barely made it out of high school," she explains. "I'm 37, I'm a woman and I've worked 15 years in the fish plants--I don't know what other job I can get."

Schultz blames the U.S.-Canada Free Trade Agreement and Canadian Prime Minister Brian Mulroney for her predicament. She says, "It's taken a long time for people in the plant to understand what free trade is doing to our industry--they could not believe that the Mulroney government could sell out their jobs and their future, all in the name of business and profits."

The winter of 1989 was depressing for Hans Mueller, union representative in Medicine Hat, Alberta. He spent months counselling 600 laid-off employees at a nearby glass plant. "There is no such thing as providing enough help to someone who has reached a stage in his or her career where he will probably not be employable," he says. "You find out how inadequate the support systems are, you know, to take the place of regular income."

Free trade with the United States has come to Canada, and hundreds of thousands of Canadians are facing it the hard way-- personally.

The pull of the giant to the south

Canada's existence as a country has always been at odds with the concept of unrestricted cross-border trade. With a cold climate, few people and a territory larger than that of the United States, keeping in place a domestic economy based on east-to- west transportation of resources and manufactured goods has never been easy. Shoring up weaker industries and regions of the country with subsidies and a modest level of protectionism has been essential to Canada's independence. As Mueller puts it, "We were doing things in Canada in a certain manner ... for very good reasons, tailoring our policies to our country with its sparse population. [T]hat seems to be fast disappearing now."

The magnetic pull of the giant to the south has always threatened to disrupt the tenuous links holding Canada together. Now, free trade with the United States poses a menace to many of the policies critical to Canada's economic well-being and political survival.

In 1983, one year before he became prime minister of Canada, Brian Mulroney expressed his views on the dangers of free trade with the United States: "We'd be swamped. We have in many ways a branch plant economy in certain important sectors. All that would happen with free trade would be the boys cranking up their plants throughout the United States in bad times and shutting their entire branch plants in Canada. It's bad enough as it is."

That same year, Michael Wilson, the man who would become Mulroney's Minister of Finance, expressed a similar position. "Bilateral free trade with the United States is simplistic and naive," he said. "It would only serve to further diminish our ability to compete internationally."

But by the time Mulroney sang "When Irish Eyes Are Smiling" with Ronald Reagan at the so-called "Shamrock Summit" in Quebec City on March 17, 1985, something had changed. On that day, Mulroney and Reagan committed themselves to exploring freer trade between the two countries. The change represented a major victory for U.S. and Canadian corporate interests.

When Ronald Reagan ran for president in 1980, he advocated a North American trade deal with Canada and Mexico, but at the time it was little more than a campaign speech line aimed at giving the ex-Hollywood actor the air of a political visionary. Even at the Shamrock Summit, Reagan and his advisors did not have a clear idea of what "free trade with Canada" might mean. But major U.S. corporate interests supported free trade, and, from the U.S. point of view, there certainly wasn't any risk involved.

Looking back, Mulroney's about-face on free trade was not surprising. As a fledgling prime minister flushed with the thrill of winning the biggest parliamentary majority in Canadian history, Mulroney liked hearing the influential voices around him. Many of those voices belonged to members of the Business Council on National Issues (BCNI), whose members are the chief executive officers of the 150 largest corporations in Canada. As Mulroney was to learn, the BCNI had been methodically mapping out a free trade strategy for him--or whoever else happened to be prime minister--for quite some time.

The influence of "Canadian" business

The BCNI was established in 1976, when the influence of business on Canadian politics was at an ebb. Existing business organizations, such as the Canadian Manufacturers' Association and the Chamber of Commerce, were taking few initiatives, and the Liberal government of Pierre Trudeau had stopped listening.

The former head of Imperial Oil, W.O. Twaits, argued for a new business group that would "strengthen the voice of business on issues of national importance and put forward constructive courses of action for the country." After much study, Canadian CEOs rejected Japanese and European models of organization and opted for the wide-open, free enterprise approach of the U.S. Business Roundtable.

The BCNI brought together representatives of U.S.-owned multinationals like Imperial Oil (owned by Exxon), DuPont, IBM, ITT and Bell as well as Canadian multinationals like Inco, Stelco, Seagrams and Alcan. Banks, insurance companies, energy companies and manufacturing giants such as Ford and General Motors all had a say--as they still do--in the BCNI's plans for remodelling the Canadian economy.

The BCNI began to see its first successes only after six years of consensus-building in the business community. In 1982, it persuaded the Liberal government to impose wage controls on public employees. Then, with a little help from Washington, the BCNI persuaded the Liberals to scrap the regulatory National Energy Program, curtail the Foreign Investment Review Agency and refrain from "interfering" in the economy with regulations, strategies and job creation programs.

In the fall of 1982, the BCNI decided Canadian multinationals had outgrown the country. Increased integration between the Canadian and U.S. markets was its answer.

Lobbying was in full swing by 1983. BCNI president Tom d'Aquino spoke often with Canadian and U.S. business people. He met several times with the U.S. Ambassador. He also raised the issue of free trade with then-Vice President George Bush.

This all took place before Mulroney became prime minister--the same year he warned that Canada would be "swamped" by free trade with the United States.

The hard lobbying continued through 1984, the year of Mulroney's election. Soon the wider ranks of the private sector, including many small business people, were supporting the BCNI free trade agenda.

In March 1985, just before the Mulroney-Reagan summit, 17 BCNI representatives took their carefully devised plan to Washington for three days of discussions with U.S. business leaders and Secretary of State George Schultz, Secretary of Defense Caspar Weinberger, Senate Majority Leader Robert Dole and Senator John Danforth, chair of the International Trade Subcommittee.

By 1986, Mulroney and Reagan's commitment to liberalizing trade had metamorphosed into full-blown talks. Canada's negotiators wanted guaranteed access to the U.S. market and protection from U.S. countervail. The United States wanted secure, permanent access to Canadian energy, free trade in services, an end to restrictions on foreign investment in Canada and the right of U.S. corporations to receive "national treatment" (the same treatment accorded to Canadian companies).

When negotiations were completed, it was clear that Canada surrendered what the United States wanted without getting much in return. Instead of guaranteed market access, the Canadian negotiators accepted a dispute-settlement mechanism which did not provide protection from U.S. countervail or anti-dumping laws; it merely created a forum wherein Canada could make sure the United States was obeying its own trade laws.

It also became clear that, while the negotiations appeared to occur between two sovereign nations with different interests, they in fact took place between two groups of people whose interests were the same. On both sides of the U.S.-Canadian border, multinational companies pushed to erase that border. Canadian publisher Mel Hurtig, an ardent opponent of the deal, put it bluntly: "What is on the table is Canada itself. We are not talking about sovereignty association with the U.S. What we are talking about is association sovereignty. We get the association and the United States gets the sovereignty."

The resistance

The Canadian people awoke rapidly to the meaning of the Free Trade Agreement. "The Tories [Mulroney's Conservative Party] have given up on Canada and its people," said Ed Finn of the Canadian Union of Public Employees. "They want to bring Canada into the American empire. Those of us who still have faith in this country, and in our ability to stay free and independent, must commit ourselves to this historic battle."

Soon, a new coalition formed in opposition to the agreement. Organized labor, environmental groups, anti-poverty organizations, nationalists, women, farmers, nurses, teachers, peace groups, cultural groups, senior citizens and church groups banded together to fight the deal. In 1987, this loose coalition formed the Pro-Canada Network and launched the biggest nonpartisan political education campaign in Canadian history, aimed at defeating the Free Trade Agreement.

It argued that the Free Trade Agreement would bring the full force of the U.S. corporate agenda to Canada: that it would deindustrialize the country as corporations shifted production to low-wage states in the United States; that industry would use the threat of increased U.S. competition to call for concessions from workers; that Canada, whose main exports were unprocessed natural resources, would become even more of a "hewer of wood and drawer of water" for the United States; that Canadian business would attack environmental, consumer and workplace health and safety standards as putting it at a competitive disadvantage; that regional development would suffer; and that the Tory government would begin "harmonizing" Canada's social pro-grams with those of the United States to drive down wages and production costs in Canada.

The 1988 election campaign was the most bitter and divisive in living memory. Business and the Conservatives squared off against the popular sector, the opposition Liberals and the left-leaning New Democratic Party.

Liberal leader John Turner turned his back on his own corporate ties to lead the charge against Mulroney. "I will not let Brian Mulroney, by a stroke of the pen, sell out our sovereignty. I will not let Brian Mulroney destroy a 120-year-old dream called Canada, and neither will Canadians.... I believe Canadians are not going to vote for Brian Mulroney, a man who would be governor of a fifty-first state."

Mulroney, painting his opponents as backward-looking fear-mongerers, threatened that 2 million jobs were at risk if the deal died. At his side was the big business community. In the two years leading up to the election, the BCNI and its allies spent close to $20 million promoting free trade. By contrast, opponents of the deal spent only $750,000 about what the corporate alliance spent on advertising in the last three days of the campaign alone.

In the final analysis, the election was decided at the bank. Although Mulroney received only 43 percent of the vote, Canada's multi-party parliamentary system al-lowed him to obtain a majority government.

The free trade experience

A rash of corporate mergers occurred in the days after the election. Two of the three largest breweries in Canada merged, as did two of the three largest passenger airlines. Exxon took over Texaco Canada. The Chicago-based Stone Container Corporation paid $2.6 billion for pulp and paper giant Consolidated Bathurst.

Smaller companies also felt the pressure to "get big or die." "I expect the merger activity will grow in the middle market as smaller companies adjust to free trade," said one corporate accountant. Said another, "The things that drive the big companies affect medium-size companies as well." He pointed to a major re-alignment of markets on a north-south axis. All in all, 1989 was a record year for corporate mergers in Canada.

The mergers brought job losses. Canadian Airlines, for example, laid off or announced the layoffs of 2,600 people after merging with competitor Ward-Air. A spokesperson for Canadian said the cuts would reduce "duplications" resulting from the merger.

Free trade forces have eliminated jobs in other ways as well, with many small Canadian producers forced to close their doors in the face of competition from large U.S. manufacturers. "Free trade indirectly doomed all 89 jobs at the century-old Ogilvie Mills Ltd.," said company president Terry McDonnell when he announced the closing of a flour mill in Winnipeg, Manitoba. "It is important [that] we be as efficient and effective as possible. There is an urgency that does come from the free trade deal."

As companies plan for the long term, they are taking the scheduled phase-out of tariffs and other trade barriers between Canada and the United States for granted, and planning for increasingly direct competition with U.S. firms and U.S. production facilities. These facilities are often very big, as is the amount of finance capital available to U.S. firms. When he announced the closing of Ogilvie's Winnipeg Mill, McDonnell noted that the US: based multinational giant Conagra has one mill big enough to process flour for the entire Canadian market.

Such big operations generally produce goods at a lower cost per unit, although this may be caused by lower wages and inferior product quality. McDonnell noted that a bag of flour that cost Ogilvie Mills $1.20 to produce at the Winnipeg mill would cost Conagra only 90 to 95 cents. Ogilvie simply decided to cut its losses.

Other Canadian branch plants of larger U.S. multinationals closed as companies sought to "rationalize" their production for the North American market. U.S. multinationals can order slight increases in their U.S. production, shut down Canadian plants and sell the U.S: made products directly to the Canadian market. In the process, Canadian jobs disappear. In a typical case, baby-food manufacturer Gerber (Canada) Inc. announced on November 30,1989 that when it transferred production at its Niagara Falls, Canada plant to Freemont, Michigan, where the U.S. company is headquartered, 150 Canadian workers would lose their jobs. A newspaper report said the company attributed the move to "greater efficiencies" at the U.S. plant.

Free trade also costs Canada jobs when, as opponents of the Agreement expected, the Agreement fails to pro-vide Canadian producers with guaranteed access to the U.S. market. In May, for example, U.S. farmers complained that Canadian pork imports were unfairly subsidized. The United States slapped an 8-cent-per-kilogram duty on Canadian pork. It has already cost the jobs of hundreds of Canadian pork-processing workers.

The Canadian Labour Congress calculates that free trade with the United States has already cost Canada over 105,000 jobs. Millions more will feel the effects of the government's new budgetary priorities.

The April 1989 free-trade budget began the "harmonization" of Canadian social policy with the requirements of the Free Trade Agreement. Canadian business has attacked government social spending at levels greater than the United States, arguing that the taxes it pays for social programs put it at a competitive disadvantage versus U.S. corporations. In a February 1990 letter to the Minister of Finance, the head of the Canadian Manufacturers' Association wrote that free trade makes it "more urgent that we tackle outstanding issues that affect our competitiveness.... Because 60 percent of program spending is tied up in statutory programs, with most of this on social programs, this is the spending area that must be reduced." Backed by other business leaders, the Conservatives waded in, chopping spending on unemployment insurance, regional development, farm support and social services programs in one stroke. In every case, these cuts moved the level of support for Canadian programs closer to the lower U.S. levels.

Hundreds of millions of dollars were cut from the Canadian Broadcasting Corporation and VIA, the national railway passenger service. The railroad looms large in Canadian mythology as a symbol unifying the country from the Atlantic to the Pacific. The elimination of the "Canadian," the only transcontinental passenger train in Canada, struck a heavy blow to Canadian pride and unity.

An uncertain future

Canadians are uneasy. Free trade is undermining key elements of Canada's identity. "I believe that the election of 1992 or 1993 will clearly be the last chance for Canada," says publisher Hurtig. "[T]hree more years of Mulroney sellouts and mismanagement will leave our country prostrate economically, politically, socially and culturally. Three more years will leave us dependent, vulnerable and straight-jacketed, with a declining standard of living, with substantially more unemployment, and with a devastated, de-industrializing, warehouse economy."

These changes are happening in the midst of a Mulroney-engineered constitutional crisis which many fear will cause Quebec, with one quarter of the country's population, to leave the Confederation. Recently, the Premier of Nova Scotia speculated that the four Atlantic provinces, cut off from the rest of Canada, might be forced into joining the United States if Quebec separates.

The situation in Canada is a complex mess. As free-trade integration continues, democratic control of the country continues to weaken. June 23,1990, the last day that Mulroney's constitutional deal can possibly be ratified, might see Quebec strike out on its own. A U.S: Mexico free trade deal may be signed within the next 18 months, creating the possibility that Mulroney will seek to bring Canada into a possible North American free trade zone in the hope of portraying himself as a global "man of the future."

But at present, the Conservatives are striving to implement a regressive new federal sales tax the Goods and Services Tax which will make consumers pay several billion dollars in taxes previously paid by corporations. Support for Mulroney's party in recent polls is at an all-time low of 15 percent of the population. His current prospects for re-election are poor.

The backlash against the Goods and Services Tax shows signs of becoming a backlash against the Conservatives' undemocratic policies generally. If this happens, cancellation of the Free Trade Agreement on six months' notice after the next election is a possibility if the next Liberal leader (almost certain to be the next prime minister) has the courage to stand up to the multinationals. Unfortunately, the two frontrunners are most noteworthy for their corporate connections. Aside from unrealistic statements about "improving" the free trade deal, they have been keeping quiet on the trade issue.

The involvement of an unprecedented number of Canadians in the national political debate centering around the Free Trade Agreement heightens the possibility of a Canadian abrogation of the Agreement. Regard-less of who is prime minister in the years ahead, there is a very good chance the people won't get fooled again.


Randy Robinson is Political Education Coordinator of the Pro-Canada Network, which led the struggle against the Canada-U.S. Free Trade Agreement.


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