We managed to get a seat at the North American Free Trade Agreement (NAFTA) table only because of the persistent efforts by Prime Minister Brian Mulroney and the extraordinarily close relationship he had with President George H.W. Bush. His willingness to act boldly, even courageously, at home, and his remarkable, personal relationship with President Reagan had been essential to our success on the Canada-US agreement.
For those who wonder about the importance of personalities in managing international relations, I cannot think of better examples. And the achievements were not only in the field of trade. The Acid Rain Accord and the 1988 Arctic Cooperation Agreement on the Northwest Passage only happened because the leaders had the courage and the conviction to override bureaucratic and political resistance in order to find common ground.
In any political system that I know, and especially the one here in Ottawa, the direct personal engagement of the prime minister on any policy initiative is a pretty good guarantee that something will happen. The opposite is also true.
The perennial obstacle for any government is inertia —resistance to change —not just institutional (or bureaucratic) but in terms of public mindsets as well. The inclination to retain the status quo persists long after the “quo” has lost its “status.”
Personal chemistry is not just important between leaders. It can be every bit as influential with congressional leaders as well.
Is any of the history of the Free Trade Agreement (FTA) and NAFTA of relevance today? I believe it is. For one thing, our trade numbers are not inspiring. I know that the top trade priority of the moment is the negotiation with the European Union (EU). That would be a good start, but the EU economies are sputtering, except possibly that of Germany.
Our broader challenge on the trade front is to harness benefits from the dramatic transformation occurring in the global economy. In the past five years, the emerging markets have accounted for two-thirds of global growth. By 2020, their share is expected to be 75 percent, as more than one billion new middle class consumers enter the global marketplace. That spells opportunity, along with more than a bit of volatility and risk. These are not alternatives to our traditional markets, but they could become significant and necessary complements.
But it is one thing to talk about diversifying our trade to emerging markets, which are growing at twice the rate of the US and EU economies. It is quite another to conclude agreements that will secure and stimulate our access to these markets.
Because the market practices of emerging markets — like China, India and Brazil — are different, with governments controlling much of the decision-making, and because the rule of law in these countries is often a bit elastic, we will need to custom-tailor agreements to safeguard our interests accordingly. The FTA and NAFTA templates will not be sufficient.
Never forget that many of these new, dynamic markets need much of what Canada has in abundance — not just resource and agricultural commodities, but also financial skills, IT capabilities and education facilities. That constitutes real leverage for Canada or what trade negotiators describe, evoking David Ricardo, as “comparative advantage.”
We also need a dramatic change of attitude from our business leaders who should move out of their customary comfort zones and become less risk averse and more prepared to invest time, energy and effort in order to capture long-term benefits, not just quick hits for the next quarterly earnings.
A lingering regret is that NAFTA did not serve as the template for broader free trade initiatives. That had been the intent, and yet each partner, beginning with the US, chose to negotiate unilaterally and at its own pace for additional deals in our hemisphere and beyond.
Instead of using the combined negotiating power of a market of 500 million to carve new deals and make North America more competitive globally, self-interest, or the proverbial “hub and spoke” sentiment, has prevailed. It should not surprise anyone, perhaps, that the partner with the largest self-interest at stake has been the most adamant about going it alone.
We will always have to be vigilant in safeguarding our access to, and our interests in, the US market. We will inevitably have to lead, prod and even cajole the US administration and the Congress of the day to help us meet that primary objective.
We may also need to be more assertive in ensuring that the auto sector we helped bail out a few years ago, notably General Motors, doesn’t leave us holding our share of the bill, but with less production in Canada.
We have seen a few examples lately of Canadian governments investing in auto companies. What we need are more examples of investments by auto companies operating in Canada.
We may have to contemplate some exceptional measures to oblige some producers, like the German and Korean producers that are rapidly increasing their share in our market, to invest, manufacture and train, as well as sell, in Canada.
That should tell you that my free trade orientation is not simply a matter of economic theory, but steeped in reality — political reality — drummed into me at close hand by those wielding political power in Ottawa.