Pursuing Free Trade

Abstract

IN RECENT YEARS, THE CANADIAN GOVERNMENT has emerged as a leading proponent of western hemispheric trade liberalization and transatlantic free trade. Its efforts to transform the North American Free Trade Agreement (NAFTA) into a Free Trade Area of the Americas (FTAA) and to promote free trade between NAFTA and the European Union (EU), however, have not been successful. Ottawa's ability to lead regional and inter- regional initiatives is constrained because Canada lacks the political and economic weight of the major powers, whose support is critical to bring such projects to completion. Ottawa should continue to promote free trade, but it should focus its efforts on broadening and strengthening its own relations within the hemisphere and with Europe.THE WESTERN HEMISPHEREWhen Brian Mulroney's Progressive Conservative government announced in 1989 that Canada would join the Organization of American States, Canada's role in the region was enhanced. But it was Ottawa's decision the following year to join Mexico and the United States in negotiating NAFTA that gave economic substance to Canadian policy.The NAFTA negotiation was the result of Mexico's decision to seek free trade with the United States. The administration of George Bush incorporated the Mexican initiative into its Enterprise for the Americas Initiative, the focus of which was to reinforce economic growth and political reform in Latin America through trade, debt relief, and investment. The key element of the programme was the willingness of the United States to begin to create a hemispheric free trade area 'stretching from the port of Anchorage to the Tierra del Fuego.'(f.1) Although the Canada-United States Free Trade Agreement negotiated three years earlier would become a model for NAFTA, Ottawa was not eager to join the talks. Canada's trade and investment ties with Mexico were limited and the government was not anxious to reopen the divisive domestic debate that had accompanied free trade with the United States. It decided to participate in order to avoid a 'hub and spoke' arrangement that would leave the United States as the only country with privileged access to the others' markets. After the negotiations began, Ottawa's main objective was to protect and improve upon the gains it had achieved in the Canada-United States pact.By the time the bruising United States debate over ratification of NAFTA, which pitted labour and environmental groups against free trade supporters, ended in 1993 American enthusiasm for hemispheric free trade had faded. Deepening divisions in Congress over the place of labour and environmental standards in trade pacts prevented President Bill Clinton's administration from securing renewal of 'fast track' authority to negotiate future agreements that would not be subject to legislative amendment. The result was that the United States was no longer able to play its crucial leadership role in trade matters.(f.2)As the United States commitment to hemispheric free trade weakened, Canada's commitment increased. Jean Chretien's Liberal government, which had been highly critical of NAFTA while in opposition, reversed itself when it came to power and became a leading supporter of the agreement's expansion as a stepping stone to free trade in the hemisphere. A hemispheric accord would allow Ottawa to diversify its trade and to broaden the basis of its interaction with the United States while extending support for the multilateral trade system.The Canadian government, which had been encouraging the Clinton administration to continue its trade liberalization course, was therefore pleased when, at the December 1994 Summit of the Americas, thirty-four countries endorsed the president's proposal to negotiate a Free Trade Area of the Americas by 2005. In the meantime, Canada, the United States, and Mexico would explore ways to bring other countries into NAFTA. Chretien, Clinton, and the Mexican president, Ernesto Zedillo, announced that negotiations would begin the following month to bring Chile, which was seen as a key link between North and South America, into the agreement by 1 January 1996. …