Free Trade Between The US And Canada

Free Trade Between The U.S. And Canada Essay, Research Paper

Free Trade between the United States and Canada

A Historical Standpoint

Free trade between the United States and Canada has existed for many years. The earliest evidence of trade between Canada and the United States can be seen in the Reciprocity Treaty of 1854. Negotiations for the Reciprocity Treaty took 8 years, and the Canadian government found it difficult to arouse much interest from the United States. Canada s persistence finally paid off, and a limited free trade agreement was formed under the Elgin-Marcy Treaty of 1854.

The goods included under the Reciprocity Treaty were mainly natural products including meat and dairy, fish, ores and minerals, forest products, and sundry agricultural goods. Manufactured products (with the exception of dyestuffs and rags) were largely excluded due t the importance of tariffs on manufactures for government revenues.

Trade flourished under the Reciprocity Treaty, although there were many complaints from both sides about violations of the treaty. The period 1854-66 coincided with an economic boom in Canada, which was probably due more to a natural upturn in the business cycle than to effects of the Reciprocity Treaty. In 1866 the United States unilaterally annulled the treaty largely because of ill feeling generated towards Canada during the Civil War.

Attempts were again made by the government of Canada in 1869,1871, and 1874 to negotiate a new trade agreement. These efforts were widely supported in Canada, but there was little interest on the part of the United States, particularly congress who perceived Canadian initiatives as being inconsistent with the protectionist principle that under lay United States tariff legislation.

Five years later, a new government under Sir John A. MacDonald brought in the National Policy of 1879 on an appeal to nationalism and protectionism. This policy of high tariffs was intended to promote manufacturing in Canada, and it was a conscious reaction to the U.S rejection to efforts at free trade. MacDonald argued that it was only by restricting American trade that the U.S would be induced to accept reciprocity with Canada. MacDonald felt that U.S would see the advantages to trading with Canada if they were cut out of Canada s markets.

Free trade again emerged in the Canadian election of 1911. On a U.S initiative, a reciprocity agreement had been negotiated by the Laurier government, and it became the principal issue in the subsequent election. Manufacturing and financial interests again took strong exemption to this plan, and became excessively active in the electoral campaign. The anti-reciprocity forces made blatant appeals to Canadian nationalism and by extension anti-Americanism. These appeals received widespread support and Laurier lost the election to Borden of the Conservatives. This loss was widely regarded as a defeat for reciprocity and closer relations with the United States.

The Canadian government again made efforts at the ministerial level in 1922 and 1923 to interest the United States in trade negotiations. These efforts were not accepted, as the U.S was moving towards a more protectionist policy. In the 1920 s and 30 s little action was taken except that in 1935 and 1938 Canada and the U.S concluded two bilateral agreements pursuant to the Reciprocal Trade Agreements Act of 1934. These agreements were not reciprocity agreements in the earlier sense; nevertheless, they constituted the first commercial agreement between the two countries since the 1854 Reciprocity Agreement.

Finally in 1947-48, on the initiative of the U.S government, Prime Minister Mackenzie King authorized a secret negotiation, which lasted several months, to draw up a comprehensive free trade agreement. In the end, because of uncertainties in the approval process in the United States, King formally decided not to proceed, and talks were broken off.

One of the early fruits of Canadian-American cooperation was the successful conclusion of the General Agreement on Tariffs and Trade (GATT) in Geneva in 1947. In effect, the GATT became Canada’s trade agreement with the United States and Britain as well as with the rest of the world. After a slow start, the GATT succeeded in providing a regime consonant with the new business practices and governmental policies developed over the previous 20 years. The GATT allowed national firms in industrialized countries to take greater advantage of their economies of scale by finding foreign markets for their products, either directly or on the basis of foreign direct investment. The combined effect of advances in transportation, communications, and the reduction in trade barriers made it possible for companies to compete for much wider markets, face much stronger competition in the home market, and become increasingly specialized. The result was unprecedented expansion in global production, trade, investment, and prosperity. Increased international trade and competition in turn accelerated globalization or harmonization of consumer tastes and demand, setting the stage for further internationalization of the economy. Canada’s new multilateral trade policy rapidly became the mainstay of government policy and enjoyed remarkable success.

In the quarter century from the founding of the GATT to the first oil shock (1948-1973), the real