Vive Le Canada

Free Trade A Boon To Canada, Study Concludes
Date: Monday, November 06 2006
Topic:


HEATHER SCOFFIELD

From Monday's Globe and Mail

Canada's economy has flourished under the North American free-trade agreement, and with the right policy moves, could repeat that experience as it deals with the trade shock from Asia, a new study suggests.

In a paper to be released this week, Royal Bank of Canada examines a wide range of data showing Canada's economic performance before and after free trade with the rest of North America.

“Canadians have prospered,” conclude economists Craig Wright and Derek Holt.

“Few countries have provided as shining an example of how to adapt and prosper in a post-freer trade world than Canada.”

But it wasn't always clear that this would be the case — something that's important to keep in mind when dealing with the intense competition from Asia these days, says Mr. Holt, RBC's assistant chief economist.

Before Canada signed on to the Canada-U.S. free-trade agreement in 1988 and the North American free-trade agreement in 1993, critics charged that Canadian production would move south, exports would evaporate, jobs would dry up, foreign investment in Canada would deteriorate, the tax base would shrink, and the restructuring would force the country into a painful and long-term funk.

The adjustment was not without pain, but the end result, after 18 years of free trade, has made the criticisms look frivolous, the paper argues. The paper, provided to The Globe and Mail, is to be presented at the Canadian American Business Council's annual forum on competitiveness this week.

Exports have soared and foreign direct investment in Canada has risen substantially. Government coffers are full to overflowing, and Canada's fiscal situation is the envy of many a rich country. And while many of Canada's top companies have been bought by foreigners, often American, Canadian companies have been just as busy buying up U.S. firms, the study says.

Still, public opinion is not completely onside, and many trade experts and politicians alike have raised questions about the value of NAFTA in light of Canada's failure to prevail over the United States in the costly softwood lumber dispute.

As well, wage growth has been disappointing, and Canada's record on productivity has been lacklustre since the agreements came into effect. But those problems predate North American free trade, and were well entrenched in Canada in the 1980s, Mr. Holt argues.

Over all, the initial adjustment to the FTA and NAFTA was painful at first, but successful after a few years of restructuring, he says. And Canada can hope for a repeat of that experience as it deals with intense trade competition from China and India, as long as it takes some key steps to ensure a strong footing.

With adjustment to NAFTA under Canada's belt, the economy is in the midst of yet another major transition, this time dealing with the rise of Asia — now a major source of goods and services of every kind.

http://www.theglobeandmail.com/servlet/story/RTGAM.20061106.wrnafta06/BNStory/Business/home







[Proofreader's note: this article was edited for spelling and typos on November 6, 2006]

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