Harper's Christmas Special: The myth of how fortress North America will boost Canadian exports to the U.S.

By James Laxer

Over the past quarter century, it has been a commonplace for right-wing continentalists to insist that without binding agreements between Canada and the United States, Canadian exports will be shut out of the American market.

In the mid 1980s, members of the Conservative government of Brian Mulroney and business lobbyists, who supported free trade with the U.S., insisted that day by day, week by week, rising protectionism in the United States was shutting Canadian goods out of American markets. In truth, only about five per cent of Canadian exports were the subject of trade disputes. More than half of Canadian exports to the U.S. took the form of internal transfers within American owned firms.

With a short list of exceptions, the U.S. government and regional American political heavy weights were not interested in retarding shipments of raw materials, including oil and natural gas, and semi-fabricated products to the United States, mostly by U.S. firms. And Washington did not want to block exports of assembled automobiles and auto parts (overwhelmingly by U.S. companies) to the U.S. Besides, this trade was conducted under the terms of the Canada-U.S. Auto Pact.

The outcome of that critical debate -- which big business and the Tories lost -- 54 per cent of voters opted for the anti-free trade Liberals and New Democrats in the 1988 federal election, while 43 per cent voted for the pro-free trade Conservatives, was the signing of the Canada-U.S. Free Trade Agreement. With fewer voters but a majority of seats in the House of Commons, the Conservatives carried the day.

The treaty to which the Conservatives appended their imprimatur was a puzzler. It stipulated that U.S. firms would be accorded equal treatment in Canada with Canadian firms when it came to subsidies or tax incentives. It further stipulated that Canada was barred from reducing its petroleum exports to the U.S. below the level of a rolling average of exports over the previous three years. And it also barred Canada from establishing a two price system for Canadian petroleum -- with a lower price for the Canadian domestic market while Americans were charged the world price.

With the above provisions which made it very difficult for Canada to establish an industrial policy and which gave Washington considerable authority over Canadian energy policy, how did the Mulroney government do on the matter of guaranteeing access for Canadian exports to the U.S. market?

Not well, at all. While the relatively low tariffs between the two countries were quickly removed, both the U.S. and Canada kept their own trade laws. No set of common rules, or code, was agreed on to govern allowable subsidies or tax incentives for companies involved in trans-border trade. While bi-national panels were to be set up to adjudicate trade disputes when they arose, the panels were only empowered to rule on whether each country had correctly applied its own trade laws. Each country was permitted to mount countervailing duties on goods imported from its partner when its authorities concluded that the other party was seeking an undue advantage for itself in a particular sector.

full article http://www.rabble.ca/blogs/bloggers/james-laxer/2010/12/harpers-christmas-special-myth-how-fortress-north-america-will-bo