A Retrospect of Canada’s Landmark Free Trade Agreement 20 Years Later
On Jan. 1, 1994, the North American Free Trade Agreement officially took effect between Canada, the United States and Mexico, ushering in a new era of economic partnership. To this day it remains, by far, Canada’s largest free trade agreement.
The formal NAFTA agreement ultimately came into force 20 years ago, but reaching the finish line took years of negotiations between the three countries prior to it being initialized. In fact, Kim Campbell had replaced Brian Mulroney as prime minister and as leader of the federal Conservatives, while south of the border Bill Clinton had been sworn into office in the U.S. having beaten George Bush Sr. in the 1992 U.S. Presidential election. By the time the three-country agreement was officially enacted, Liberal leader Jean Chrétien had taken over the prime minister’s office having sent Campbell and her Conservatives to a crushing defeat in the 1993 election. But there are few who would deny the architect behind Canada’s front line role in NAFTA was that of Brian Mulroney and his government.
As noted, the landmark free trade agreement was years in the planning with then Prime Minister Mulroney, U.S. President George Herbert Walker Bush and Mexican President Carlos Salinas spearheading efforts as the triumvirate on behalf of their respective nations. It meant banding together an integrated market of almost 400 million people with $6.5 trillion worth of goods and services annually. That population now stands beyond 450 million and produces $17 trillion in goods and services, according to the U.S. government. All remaining duties and quantitative restrictions were eliminated, as scheduled, on Jan. 1, 2008, on the 14th anniversary.
For the 20th anniversary of this momentous trade agreement, The Canadian Business Journal conducted an exclusive interview with former Prime Minister Mulroney to get his take on NAFTA – how it all began coming together in those early days, the many obstacles it faced along the way, and ultimately how he rates its success two decades later.
Mulroney, who turns 75 in March, is now a senior partner with Montreal law firm Norton Rose Fulbright. He spends a great deal of his time travelling for various work-related matters as well as numerous special guest appearances, as one would imagine with a former prime minister. Recently he was part of the Canadian contingent that flew to South Africa along with Prime Minister Stephen Harper to attend the memorial service for Nelson Mandela. Madiba, as Mandela was fondly called, often spoke highly of Canada and his close personal relationship that developed with Mulroney through the years.
1994 to Today
Much has changed throughout the world over the past two decades from an economic standpoint. The original proposed Canada-U.S. trade agreement had been very controversial and divisive, and the 1988 Canadian election was fought almost exclusively on that very issue as Mulroney recalls during our lengthy discussion. As the name would imply, the primary goal of NAFTA was to eliminate barriers to trade and investment between the U.S., Canada and Mexico.
“It’s played out very well, and even more so than we anticipated, particularly by – and with – Mexico,” Mulroney begins. “Canada’s trade with Mexico has increased more than eight-fold.”
The numbers bear out what Mulroney is saying, with trade in 1993 at about $4 billion to more than $34 billion through 2011; trade amongst the three partners has more than tripled. Gross domestic product in each of the three nations has shown increases throughout the years. GDP is often a barometer for the number of jobs being created, which the former PM also points out.
“Also, no less importantly over 4.5 million jobs have been created in Canada since NAFTA,” he continues. “It’s done its job as we’d hoped – and then some.”
NAFTA’s proponents believe that more jobs were ultimately created in the USA. Opponents see the agreements as costly to well-paying American jobs. The truth is there is no definitive right or wrong answer if debating over small sample sizes or individual cases. There is no doubt that some people and enterprises wound up being adversely affected. In recent years the ‘Buy American Provision’ of the American Recovery and Reinvestment Act of 2009 has created huge controversy with what appears to be an attempt by the U.S. to implement a degree of precedence over some of the NAFTA legislation. The Canadian Manufacturers and Exporters trade organisation, supported by Canadian steel producers, want the federal government to retaliate against what it feels are unfair trade tactics being invoked by the Americans. It definitely has caused a negative impact on the Canadian steel industry. Other disputes continue to this day, such as the argument over the Americans imposing a substantial 27 per cent duty on Canadian softwood lumber imports. It smacks of free trade with protectionist safeguards. Prime Minister Harper reached a compromised settlement in the summer of 2006, but it has yet to be ratified by either country, due in part to widespread opposition in this country.
U.S. employment increased over the period of 1993-2007 from 110.8 million people to 137.6 million people. The mid to late 1990s was a period of strong economic growth in the United States. But what clearly disappoints Mulroney is that this major accord has never served as a blueprint or catalyst for other similar trade agreements either domestically or internationally on a much wider scope.
“NAFTA was certainly a catalyst for more of the same in the hemisphere, for example individual free trade agreements with say Chile, Colombia and Panama, etc., but unfortunately I have to acknowledge that it really didn’t serve as the template as I certainly hoped for,” he candidly admits.
The free trade area of The Americas, with 34 countries and a GDP of 25 trillion and more than one billion people involved, left Mulroney and many of his associates confident of even bigger and better things on a similar scale. Time will tell how much more expansive Canadian trade deals will become, including the Canada-EU pact.
“That’s a matter for the future and for political will,” he remarks, when asked about growth potential. “With the Doha Development Round stalled, any effort for trade liberalization should be commended and I think that Prime Minister Harper is well situated to call for this free trade area of The Americas, which would be fantastic for Canada.”
Negotiations and Results
The scope and magnitude of putting together such a monumental trilateral free trade agreement between each of the three North American countries was years in the planning. NAFTA began to really take hold in 1989 and was concluded in 1992. It was three years of long, often difficult negotiations, but fruitful in the end, as Mulroney mentions.
“I remember being in San Antonio, Texas in October 1992 with President Bush and President Salinas to sign it, but at that point it still had to go through the U.S. Congress,” he recalls.
The U.S. House of Representatives approved NAFTA on November 17, 1993 by a close vote of 234-200. The agreement’s supporters included 132 Republicans and 102 Democrats. It passed through the U.S. Senate by a vote of 61-38, but getting politicians here in Canada – other than Conservatives – to see its benefits was not an easy task. MPs voted along party lines, and despite the Liberals and NDP voting against, the majority government was able to pass the legislation. Even so, it was an immense battle just the same. Mulroney, Bush and Salinas signed the deal on Dec. 17, 1992 in San Antonio.
“It was extremely difficult,” Mulroney bluntly states. “The Canada-U.S. free trade agreement, which was the basis of NAFTA, was so hotly contested; opposed by the Liberals, the NDP and many of the interest groups, the trade unions and much of the media. There was great hostility towards the government and me for introducing this concept.”
Mulroney’s Conservatives had to call, and fight, a brutally tough general election campaign on the primary issue of free trade in 1988 to get it accepted by the Canadian people. The Canada-U.S. agreement took effect in 1989.
“When I did NAFTA a few years later, the Liberals’ Mr. Chretien campaigned on killing it along with the GST,” Mulroney remarks. “Fortunately, when he became prime minister he showed the maturity and leadership to cast aside what he’d campaigned on and keep both, which his finance minister (future PM Paul Martin) has acknowledged publicly made possible deficit elimination and debt reduction in Canada. It wasn’t always popular, but I’d venture a guess today that if somebody came on the scene and said ‘I’m going to campaign against free trade and NAFTA and if you elect me I’ll eliminate it’, he wouldn’t get out of the starting gate.”
The implementation of any free trade agreement is executed with several primary reasons in mind, including economic growth and improved standards of living. The U.S. Chamber of Commerce credits NAFTA with increasing American trade in goods and services with Canada and Mexico from $337 billion in 1993 to $1.2 trillion in 2011. However, on the flipside, the AFL-CIO blames the agreement for sending 700,000 American manufacturing jobs to Mexico over that same time period. But Mulroney says one needs to analyze the overall numbers to accurately gauge the entire success rate.
“Total NAFTA trade has more than tripled from about $288 billion in 1993 to more than $1.2 trillion in 2011,” he affirms. “You know of the millions of jobs that have been created in Canada since NAFTA, well, the same is true of the other countries and the benefits are obvious from the stats themselves.”
“I think I can also say the fact that many of the arch opponents of the Canada-U.S. free trade agreement and NAFTA, eventually became champions of the agreement, so there’s no better compliment that I can think of than that,” he chuckles.
Canadian manufacturing was one of the more notable benefactors of the NAFTA agreement, but as Mulroney reflects, it reached a much broader scope overall.
Originally there had been many concerns that such an accord would effectively kill the industry in this country.
“The real benefit for Canada is that it strengthened the original free trade agreement with the United States in some respects, making the dispute settlement provisions permanent and also clarifying the rules of origin definitions on products like automobiles, a vital part of North American trade.” Mulroney notes. “All industries benefitted and as to specific industries, all I can say is the ones that would have been paved over – like wine – have absolutely flourished.”
As example, Mulroney points to the case of a long-standing company in Montreal called Peerless Clothing, in business since 1919 and currently owned by Alvin Segal, which has emerged as one of the largest manufacturers of suits anywhere in the world.
“In spite of the doom and gloom predictions about clothing and wine, none of the gloomy predictions materialized. I think the benefits have been spread over our entire economy and of course the other thing it did was that it helped modernize our economy and got Canadians to be much more outward thinking and self confident that they could trade with the best in the world and win.”
Battles behind the Scenes
Despite a strong personal friendship and solid working alliance between the Mulroney government and the Bush administration, the relationship was not without its arguments and heated debates, and in fact had some rather bumpy obstacles to overcome behind the scenes.
“We had to fight to get into the discussions with Mexico,” Mulroney says, with air of annoyance still in his voice all these years later, on recalling that particular part of the NAFTA negotiations. “The Americans wanted the hub and spoke theory, whereby they would have a free trade agreement with Canada and then they’d turn around and do a free trade agreement with Mexico, and then with others. I said ‘No’ to President Bush telling him that we were going to be at the hub of everything. We won’t become a spoke to anybody.”
As Mulroney notes, it may come as a surprise to Canadians that we had to actually fight hard for an equal part in the deal. The truth is the Americans didn’t want Canada in the agreement as equal partners. But it’s something they had to agree to or Mulroney made it clear we would not be a part of it.
“They didn’t want us in there; we had to fight to get in,” Mulroney confirms. “I thought – and my government thought – this was vital to our future prosperity.
Look, I subscribe to the bicycle theory and trade liberalization. It’s vital to maintain momentum and so we need to expand access to markets in order to ensure that our economy continues to grow and I think the present government is trying to do that in dozens of areas in countries around the globe and I strongly support their initiatives.”
So just how expansive can free trade in the western world and beyond realistically reach for Canada over the next decade knowing there are countless political and economic obstacles to overcome?
“I think it depends on the success or ultimate failure of the equivalent of the go-around. We are now working in the area of bilateral arrangements with countries like China and India that are very significant. But obviously larger trading relationships like the TPP for example are very important and can lead to huge gains in our productivity and our national wealth. I’m a free trader as you know, and I would only say that if opportunities come along we have to be disposed to take advantage of them, to be nimble and quick, agile and to make deals that benefit Canada. You can’t take too much time either; you’ve got to be ready to move. In retrospect, we got the Canada-U.S. free trade agreement at the right time. I wouldn’t want to be trying to do that in a protectionist environment such as today.”
A Trading Nation
About 80 per cent of Canada’s total merchandise exports have typically been destined for our NAFTA partners in recent years. With increased globalization, it’s a percentage that could well drop in the ensuing years.
“We are a trading nation,” Mulroney states. “Our prosperity comes from our ability to trade internationally and so we can’t rest on our laurels. Whether it’s CETA (Canadian-European Trade Agreement) or TPP (Trans-Pacific Partnership) or individual trade negotiations with Japan, India or China, all of these are moving in the right direction. That is the only direction that will safeguard and enhance and our prosperity. It is unlikely that any one of these will have the tremendous impact that the Canada-United States free trade agreement – followed by NAFTA – had on our economy, because they represent much smaller proportions of our GDP, but all of them together will improve our productivity, strengthen our economy and enhance our prosperity, so I’m very much in favour of what the government is doing in these areas and I think it’s the only way to make our children and grandchildren richer by putting them in a better position.”
The TPP is a U.S.-led initiative is a major part of President Barack Obama’s foreign policy shift toward Asia, bogged down on numerous occasions by varying issues including market access for some of the countries, particularly in regards to agricultural products, intellectual property and environmental protection.
Besides the U.S. and Canada, the other countries involved with the TPP are: Australia, Brunei, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam.
Another recent development was Canada’s expanded free trade agreement with Chile, which moves beyond natural resources and now also includes financial services. Mulroney agrees there are a number of solid opportunities in various regions around the world for Canada to pursue, but some are higher on the list than others.
“I think we have tremendous opportunity in Latin America,” he says. “I’ve spoken quite often and hoped that we would move on to this free trade area of The Americas, which would be a great addition for Canada to be part of that kind of negotiation."
At the time NAFTA came into force 20 years ago, its environmental component was widely touted as a method for enhancing safety and protection standards for the environment and by extension deliver a higher degree of compliance of environmental laws. It was also designed to ensure that trade liberalization would be accompanied by greater levels of environmental protection. But there are some who would argue two decades later, the opposite is true, including The Council of Canadians Acting for Social Justice.
Although some groups and individuals consider NAFTA’s environmental agenda and results to be inadequate, they set an important precedent for building environmental safeguards into all such agreements from that day forward, which many staunch opponents will grudgingly admit.
Further to that, the not-for profit organization Commission on Environmental Cooperation (CEC) was created in part to investigate the environmental impact of NAFTA. A notable concern was that North American industry would be drawn to jurisdictions with lax environmental laws or weak enforcement. Most studies determined that the most serious overall increases in pollution due to NAFTA were found in the base metals sector, the Mexican petroleum sector, and the transportation equipment sector in the United States and Mexico, but not here in Canada. Overall, many of the direst hypotheses about the environmental impact of NAFTA have never been confirmed.
“I can only say that by forging closer trade relations with the Reagan and Bush administrations in the United States it certainly helped galvanize the political will in Washington that enabled us to conclude an accord on acid rain, an objective that had eluded Canadian governments in the 1970s and 1980s. The Canada-U.S. Acid Rain treaty that I signed with President Bush really became the template and the model for Kyoto and other major environmental initiatives around the world and has been cited as such in a number of important works on the environment – so yes, I think that trade cooperation can be a vital instrument in the are of international leadership and cooperation in many other areas.”
Effects on Higher-paying Jobs
As with any type of political will, there will always be a certain percentage of the population that runs in disagreement. The best that can realistically be achieved is getting a simple majority on your side. It’s virtually impossible to get much more than that with such a politically fractured environment. Mulroney says he always found the best way to combat detractors was not to get angry, but rather vigorously campaign to the public, extolling the virtues of a platform and providing an alternative vision to what was already out there. Ultimately, the will of the people will decide the course of action.
“Twenty five years ago when we did the Canada-U.S. free trade agreement I forecast – along with my government – our belief, which was that the Canada-U.S. free trade agreement, followed by NAFTA, would usher in an era of prosperity and growth such as Canada had never experienced in modern history, and that turned out to be the case,” Mulroney responds. “Opponents said it would never work and would cost us our Medicare, health insurance, our water, regional development programs and linguistic protections. You look back today on what they said then and it was fear mongering.”
When Canadians had to choose between fear of the future and confidence in the future, Mulroney says we as a nation chose the latter. It’s also about younger generations knowing we can compete on the world stage and win.
A notable downside for Mexico has been with small businesses, which can no longer be protected by tariffs, leaving owners unable to compete with the prices of subsidized products from the U.S., resulting in many of them going under. As a result, many Mexicans have left their homeland looking for work in the U.S.
Prior to NAFTA, Mexican tariffs averaged about 250 per cent as compared to U.S. duties. After the pact, about half of the tariffs on trade between Mexico and the United States were eliminated.
Benefits to Agriculture
Manufacturing often takes the spotlight when economists talk about our employment performance and impact on the gross domestic product, but agriculture is a sector that has also drawn immense value from free trade. It’s something Mulroney takes great pride in seeing.
“There were dire predictions about the future of agriculture along with vineyards in Canada and various other dimensions of production of produce, all of which turned out to be completely false and groundless,” he says. “I’m very pleased with the results for agriculture. It may exist, but I cannot really point to an area of our national economy which failed to gain and benefit from the Canada-U.S. free trade agreement and/or NAFTA.”
But even Mulroney admits that there were times 20 years ago when doubts crept in as to how successful NAFTA would ultimately become, but having doubts is just part of regular everyday human life.
“While I certainly believed in it very strongly and defended it in the 1988 election campaign, and then later in regard to NAFTA and thought it was all going to work out, nobody knows anything for absolutely certain; there’s always some doubt, particularly when your opponents are selling doubt as an election commodity and trying to get the voters to accept an alternative vision of Canada, which I’ve always referred to as ‘the vision of little Canadians’ or ‘little Canada’. I wanted an expansive, strong, confident, vibrant Canada and we conveyed that vision.”
Now 20 years later, there’s little disputing more good than bad has arisen from the agreement, at least where Canada is concerned. Of course one’s point of view depends on how they were directly or indirectly impacted by its implementation.
“The alternative that had been described has long since been swept to the dustbin of history,” Mulroney continues. “I’m very pleased that this turned out to be a major win for Canada and that we turned out to be on the right side of history on such an important economic chapter. It’s a tribute to the government of the day and those Canadians in business and elsewhere who supported our initiatives and had the courage to stand up and defend these in very, very difficult times. It’s very pleasant to be proven right.”
A Place in History
Mulroney also has kept in touch with Bush and Salinas through the years and says it’s always fun to get together and reminisce about those days from more than 20 years ago when NAFTA was still very much still in the planning stages.
“I see George Bush on a regular basis as I have for 25 years,” he replies. “We’ve taken holidays together so we’ve gone over this many times. President Salinas I’ve seen less frequently but we have met on occasion. The three of us once spoke in Washington on an anniversary of NAFTA. We spent the day together reminiscing about it. It’s very pleasant, as you might imagine, reminiscing about a success rather than a failure. Politicians tend to like their successes rather than their failures and I’m no exception,” he says with a hearty laugh.
Canada’s former leader also has some advice for political leaders of today, believing they need to remember they should try and be guided less by public opinion polls and more by objectives and achievement.
“History will remember only not where you stood on a given day in a Gallup Poll, but where you stood on the major issues of the day and whether you brought forward changes that fashioned the future of your country,” Mulroney opines. “If you’re doing that, then you’re in the business of dealing essentially with structural changes all of which tend to be unpopular with voters in the short term. But just because something is popular, doesn’t mean it’s right. Political leaders have to learn not to go for easy headlines in 10 days but rather for a better Canada in 10 years. To do that you have to have the fortitude and endure the criticism that comes from unrelenting sources on the other side of the fence and you have to endure this while you await the verdict that only history and a more serene nation can render in the fullness of time.