In 1982, with the global economy in recession, Liberal prime minister Pierre Trudeau established a Royal Commission, chaired by former finance minister Donald Macdonald, to look into remedies. The Macdonald report, published three years later, advocated a free trade agreement with the United States. Although the Liberals were by then out of office, Progressive Conservative prime minister Brian Mulroney, who’d previously campaigned against the idea, took it up with a passion. In 1987, he struck a deal with his friend Ronald Reagan, but the Liberals, who still controlled the Senate, delayed its ratification. The next year, a frustrated Mulroney called an election, in which his bargain with the American president was the only real issue—and the rest, as they say, is history. While many Canadians still worried that throwing our lot in with the Americans might turn us into the fifty-first state, the Conservatives prevailed, winning a convincing majority and making the Canada-US Free Trade Agreement a fait accompli.
Twenty-five years later, free trade with the United States has not transformed our economy, as proponents predicted; former Ontario premier David Peterson has recently observed that we are still mainly extractors of natural resources. Nor has it brought about, as opponents feared, the dismantling of our social infrastructure: pensions, health care, minimum wages, and so on. If it was then the largest bilateral trade agreement on earth, it was also, as we now know, merely a chapter in the unfolding story of globalization. Trade barriers had been falling since the end of World War II, as a consequence of GATT (the General Agreement on Tariffs and Trade) and later the WTO (World Trade Organization), and it is not as if Canada was the only developed country turning to bilateral and multilateral accords. Today there are hundreds of such treaties; Switzerland alone has signed more than twenty-five, including deals with both Israel and the Palestinian Authority.
In 1994, Canada, the US, and Mexico entered into the North American Free Trade Agreement, which superseded the FTA and created what has become the world’s number one trading bloc. We have also negotiated accords with Chile, Colombia, Costa Rica, Jordan, Panama, and the European Free Trade Association (Iceland, Liechtenstein, Norway, Switzerland). And now this: after years of intense bargaining and much ballyhoo, Prime Minister Stephen Harper has announced a treaty with the European Union. Requiring approval from legislators in all twenty-eight EU countries, as well as Ottawa and the provinces, it may take years to become operational. And naturally, it has its detractors (the most vocal on this side of the Atlantic being dairy farmers concerned about imported cheese). But the net benefits of tariff-free access to a market of 500 million consumers seem obvious. The Tories claim it will create 80,000 new jobs, although our experience with NAFTA suggests that we should expect a more modest outcome.
So is it still worth doing? Supporters argue that aligning with the EU before the US does will give our exporters a first-mover advantage. It will also, they claim, signal to countries with whom we hope to make deals in the future, notably China, that we are prepared to negotiate in earnest. But there is a serious, if less obvious, downside: international trade agreements are often enforced by a process of binding arbitration that allows private investors to sue governments alleged to be violating the terms. These quasi-judicial proceedings take place behind closed doors, and the arbitrators, frequently trade lawyers, are not publicly accountable. Thus, every new agreement we make compromises to some extent our control of our economy. If the one with the EU takes effect, and if we succeed in negotiating another with China, we will have surrendered to unelected and, in some cases, foreign actors more agency in our economic affairs than any developed country in the world, and not just for years (these agreements typically have no expiry date) but for decades.
I’ve argued that the world’s problems have become so complex that our only hope of resolving them is international co-operation. Whatever form this takes—be it the formation of superstates like the EU or the much-desired reform of the United Nations—it will require sovereign powers to subordinate individual interests in the pursuit of a global good. In the realm of trade, however, the bargaining isn’t just between elected governments; it’s between elected governments and the private sector. Investors accountable only to themselves have a seat at the table. This, surely, is a public policy issue that deserves a debate as serious as the one that preceded our free trade agreement with the Americans twenty-five years ago.
This appeared in the January/February 2014 issue.
John Macfarlane is the editor and co-publisher of The Walrus.
Adrian Forrow (@AdrianForrow) has contributed to The New Yorker, and Bloomberg View.