The Free Trade Agreement (FTA)
signed in January by Canada and the
United States has profound implications
for the entire hemisphere. Due to be
implemented January 1, 1989, it goes
beyond mandating free trade in goods.
The FTA establishes liberal codes on
“trade in services” and corporate
investment, as well as greater protection
for patents, referred to as “intellectual
property rights.” U.S. efforts to
introduce such codes into the General
Agreement on Tariffs and Trade
[GATT] have long been resisted by a
coalition of Third World countries that
John Dillon is coordinator of GATT-
Fly, a project of Canadian churches
mandated to assist popular groups and
progressive church organizations work-
ing for economic justice .
JULY/AUGUST 1988
includes Brazil, Argentina, India,
Nicaragua, Nigeria and Peru.
Harry L. Freeman, executive vice
president of American Express, de-
scribed the U.S.-Canada talks last year
as “a path-breaking exercise” capable
of setting “precedents in both tradi-
tional and non-traditional areas–prece-
dents that can serve as examples of
what we want to achieve in the GATT.”
The ability to export more prod-
ucts to Canada is of incidental benefit
to U.S. interests, as most U.S. indus-
trial exports already enter the country
duty-free. With a population of only
25.5 million, one-fifth of whom live
in poverty, Canada’s domestic mar-
ket is actually smaller than Brazil’s.
With a population of 135 million,
Brazil has a larger proportion of people
living in poverty (74%), yet its do-
mestic consumer market is still greater.
Under the Reagan Administration,
business and its Washington allies have
waged an aggressive campaign aimed
at weakening restrictions on foreign
capital throughout Latin America and
Canada. They have sought to accord
transnational corporations the same
legal rights given to domestic indus-
tries, and to challenge social legisla-
tion favorable to workers. Brazil,
Mexico and Canada have been espe-
cially targeted, as they are the hemi-
sphere’s three largest economies after
the U.S., with the strongest controls
on foreign capital, save Cuba.
Reaganizing Canada
Canada’s Prime Minister Brian
Mulroney has been an ideal partner in
this strategy, willing to voluntarily
surrender extensive areas of national
sovereignty despite having been elected
on a platform that rejected free trade.
Mulroney’s reversal was due to pres-
sure from Canada’s most powerful
corporate lobby, the Business Coun-
cil on National Issues (BCNI), com-
posed of the chief executive officers
of the 150 largest corporations oper-
ating in Canada. Many of the BCNI’s
members run subsidiaries of U.S.-
owned transnationals, such as DuPont,
Exxon, IBM and ITT. Also in the
club are the chiefs of Canada’s pow-
erful chartered banks and Canadian
transnationals such as Inco, Stelco and
Seagrams.
When BCNI members look south
they like what they see. They envy
the business climate in the United States
where only 17% of the workforce is
unionized as compared to 39% in
Canada. They reason that competi-
tion from the “right-to-work” states
of the U.S. sunbelt would be more
effective in weakening Canadian la-
bor laws than their own lobbying ef-
forts. The BCNI has regularly cam-
paigned for cutbacks on social spend-
ing by Canadian governments and
argued for lower corporate taxes like
those delivered by the Reaganite sup-
ply-siders.
What opponents regard as the costs
of free trade, big business sees as
benefits; a way of forcing the govern-
ment to imitate U.S. practices of de-
regulation, privatization and a reduced
role for the state in the economy.
iLaurent Thibault, currently president
of the Canadian Manufacturers Asso-
ciation, told the Canadian Senate:
“It is simply a fact that, as we ask
our industries to compete toe to toe
with American industry…we in Can-
ada are obviously forced to create the
same conditions in Canada that exist
in the U.S., whether it is the unem-
ployment insurance scheme, Work-
mens’ (sic) Compensation, the cost of
government, the level of taxation, or
whatever.”
Consequently the Canada-U.S.
accord is more than a trade agree-
ment. It constitutes a continental charter
of rights for private business, which
President Reagan called a “new eco-
nomic constitution for North Amer-
ica.” In a revealing comment that he
later tried to deny, U.S. Trade Am-
bassador Clayton Yeutter observed:
“The Canadians don’t understand what
they signed. In 20 years, they will be
sucked into the U.S. economy.”
Precedents
Of major interest to Latin Amer-
ica are two significant precedents: the
incorporation of guarantees of “na-
tional treatment” and “right of es-
tablishment” into codes on investment
and trade in services. National treat-
ment means that any U.S. corporation
investing in Canada must be treated
exactly the same as a Canadian-owned
enterprise. Canadian corporations
would also be entitled to national treat-
ment in the U.S.
Right of establishment allows U.S.
firms operating in any of 296 service
industries covered by the agreement
to sell their services in Canada even if
they do not locate an office in Canada
or hire Canadian labor. These rules
are particularly significant in such fields
as data processing or insurance where
telecommunications would permit the
relocation of many jobs, particularly
for women, to low wage areas in south-
ern United States.
According to the “monopolies
clause,” any expansion of Canada’s
system of crown (state-owned) cor-
porations would be considered tanta-
mount to an expropriation. The United
States would have to be notified and
“prompt, adequate and effective com-
pensation” provided. Thus if a Cana-
dian province wanted to establish a
system of public auto insurance, it
might first have to compensate U.S.
insurance companies handsomely for
their lost market share.
Only in the area of “intellectual
property rights” did U.S. negotiators
win less than they bargained for.
Because of strong resistance by the
opposition Liberal party to granting
transnational pharmaceutical giants
greater patent rights, Prime Minister
Mulroney only committed Canada to
work with the United States within
the GATT to improve protection for
patent rights. Canada’s drug law,
which allows domestic companies to
produce generic medicines, saves Ca-
nadians about $250 million a year.
Sanctions on Brazil
Claiming that “the United States
cannot tolerate the piracy of its intel-
lectual property,” in July of this year
the Reagan Administration imposed
trade sanctions on Brazil for refusing
to rescind its code that classifies phar-
maceutical products and processes as
“nonpatentable inventions.” The U.S.
Pharmaceutical Manufacturers Asso-
ciation claims that the Brazilian laws
cost them $100 to $150 million a year.
Brazil has been targeted because it
is leading the movement against U.S.
efforts to impose a strict intellectual
property code on all 96 GATT mem-
Prime Minister Brian Mulronev
REPORT ON THE AM
S
bers. In November 1987, a coalition
of U.S. computer firms successfully
persuaded the Reagan Administration
to order trade sanctions on the grounds
that the Brazilian computer industry
had violated their intellectual prop-
erty rights. “Market-reservation
policies…have no place among the
civilized countries of the world,”
declared the head of the U.S. Soft-
ware Publishers Association.
After the U.S. threatened to place
penalty duties on a range of Brazilian
exports, including commercial aircraft,
machine tools and footware, Brazil-
ian business leaders pressed the Sar-
ney government to give in.
Mexico Strategy
In the case of Mexico the United
States is pursuing a strategy of break-
ing down its traditional nationalist
economic policies piece by piece. First
Mexico was persuaded to join the
GATT as one of the conditions for
rescheduling its foreign debt. Then in
November 1987 the United States and
Mexico signed a limited “framework
agreement” establishing a consulta-
tive mechanism for settling trade dis-
putes and promising to pursue liber-
alization in the areas of textiles, steel,
agriculture, investment, technology
transfer, electronic products, services
and intellectual property rights.
On December 31 another agree-
ment was signed increasing U.S. quo-
tas for textiles and steel imports from
Mexico and opening up the Mexican
market to products from the maquila-
doras, the in-bond assembly plants
established by transnationals south of
the U.S. border.
Heberto Castillo, leader of the
Mexican Socialist Party, addressing a
1987 conference on free trade held in
Canada, recounted how U.S. corpora-
tions had already pressured the Mexi-
can Congress to amend its patent laws.
Castillo observed that “Although
[codes governing intellectual property]
apply equally to all nations, one can
argue that equal treatment among unequals is profoundly inequitable.”
Wary of stirring up nationalism
during a presidential election campaign
in that country, U.S. trade officials
did not include petroleum in negotia-
tions with Mexico. A confidential
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DWL~nD1n XJ UC A MERICArr cappraisal of the U.S.-Canada trade deal
prepared for former Treasury Secre-
tary James Baker and obtained by Inside
U.S. Trade explains that “The politi-
cal climate in Mexico is not ready for
a market-based energy trade arrange-
ment at this time: The degree of gov-
ernment involvement in Mexico’s
energy sector is very large and is con-
sidered essential by many elements
within Mexico.”
Loss of Sovereignty
What Mexicans jealously guard,
the Mulroney government voluntarily
surrendered. If the Reagan-Mulroney
pact is ratified, Canada will no longer
be able to give its own citizens first
call on energy produced within its
borders. The accord stipulates that
even in periods of energy shortages
corporations must be allowed to ex-
port the same proportion of Canada’s
energy supply to the U.S. as was ex-
ported over a recent three-year pe-
riod. Export quotas, export taxes and
the right to set domestic prices inde-
pendent of world markets are all ruled
out. Control over energy is effec-
tively surrendered to transnational
corporations. Furthermore, article 2011
of the agreement gives the United States
the right to appeal any measure passed
by any level of Canada’s government
that appears to nullify any direct or
indirect benefit expected through the
FTA.
Even more alarming, this sweep-
ing loss of sovereignty may be ren-
dered permanent. Legislation now
before the Canadian Parliament de-
clares that the terms of the agreement
take precedence over all other federal
laws. In contrast, the legislation in-
troduced into the U.S. Congress would
make the accord subordinate to other
U.S. laws. This would mean that the
U.S., but not Canada, could change
the terms of the agreement in the fu-
ture by passing overriding legislation.
The next round of negotiations will
seek to establish rules for the use of
government subsidies. Canada enters
these talks from a very weak bargain-
ing position, having conceded so much
already. If no accord is reached, Can-
ada’s only choice would be to termi-
nate the entire agreement at some point
during the five to seven years that the
UJ LY/AUGUST
19 8
negotiations are expected to last. But
once corporations have made invest-
ment decisions based on the FTA it
would be more costly for the smaller
Canadian economy to abrogate the pact.
On the table are a host of social
programs, assistance for farmers and
regional development programs that
U.S. industries have objected to in the
past. Many U.S. corporations view
Canada’s publicly financed health care
and pension programs as unfair subsi-
dies because they lower the costs of
the total wage and benefit package
paid by employers in Canada. Cana-
dians fear that their pattern of govern-
ment assistance to less developed re-
gions will be undermined by this proc-
ess. For example, a U.S. countervail-
ing duty case involving Atlantic ground
fish identified over 50 Canadian and
provincial programs-ranging from
extended unemployment insurance
benefits received by Canadian fisher-
men during the off-season to grants
for the construction of wharfs-as un-
fairly subsidizing Canadian fisheries.
The U.S. practice of promoting re-
gional development through the allo-
cation of defense contracts, however,
is exempt under the FTA’s “national
security” clause.
Movement Against Free Trade
The Free Trade Agreement has not
yet become law. In Congress, the
House approved it without debate in
August, and the Senate followed suit
in September. But Canadian lawmak-
ers remain sharply divided along party
lines. Because Mulroney’s Progres-
sive Conservative Party controls the
Canadian House, he was able to in-
voke closure in that body, closing off
the period of debate to the end of
August and thereby ensuring its pas-
sage. However, opposition Liberals
hold sway in the Senate and are com-
mitted to defeating the accord. Under
these circumstances, Canadian law
compelled Mulroney to call an elec-
tion before September 1989. Accord-
ingly, his government recently an-
nounced that elections will be held on
November 21. They will undoubt-
edly become a referendum on the FTA.
Mulroney is counting on the free
trade issue to win another term. Pub-
lic opinion polls show Canadians to
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be about evenly divided on the FTA,
although more voters favor free trade
than favor Mulroney’s scandal-ridden
government. Millions of dollars are
being poured into a public relations
campaign to sell free trade as a boon
to consumers. Yet polls also show
that the more Canadians learn about
the agreement, the more likely they
are to oppose it.
Ironically, the free trade debate has
placed before the Canadian people
questions about their national devel-
opment rarely aired in mainstream
politics. The Pro-Canada Network–a
broad coalition that includes trade
unions, farmers, women’s groups,
native peoples, certain business sec-
tors and intellectuals–has put forth a
vision of their nation’s future that re-
jects the ideology of international com-
petitiveness. These groups propose a
more self-reliant Canada where inter-
national trade would be an extension
of production for the domestic market
rather than the central motor of the
economy.
Canadian nationalists argue that only
by becoming less dependent on the
United States can Canada stand with
the peoples of Latin America and the
Caribbean who seek the same goals.
If Canada approves the FTA, not only
will Latin America’s ability to con-
trol transnational corporations be fur-
ther weakened; Canada’s scope for an
independent foreign policy in the hemi-
sphere will be seriously limited.
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