Brian Mulroney's greatest achievement

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For most of us the idea of reading Brian Mulroney's Memoirs: 1939-1993 is about as appealing as trying to relive, successively, the worst hangovers of your life. Imagine having to turn pages to find out how great it was for Canadians to welcome the GST, Meech Lake, Charlottetown, and the Free Trade Agreement.

In a misdirected desire to say something, anything nice, commentators on his memoirs do try to make at least one positive reference to Brian Mulroney's record as Prime Minister. The usually astute Chantal Hebert mentions Free Trade favourably for instance, and she is not the only one who does so.

Just in case anyone takes this kind of claim seriously, a few remarks are in order.

First, Ronald Reagan not Brian Mulroney was the father of Free Trade. The Gipper even put it in his inaugural address. The best full account of the nasty FTA is in the marvelous Yankee Doodle Dandy by former Maclean's Washington bureau chief and perennial award winning feature journalist Marci McDonald. As we see, it obviously matters that it was an American idea.

Second, when a reserve currency country (the U.S. dollar is a world currency held around the world) signs a trade agreement giving both countries national treatment on investment, with a non-world currency country (that would be us), the country that issues the world currency in question cannot lose.

If Canadians want to buy a U.S. company, or a U.S. good, we have to earn U.S. currency to pay down the loan or pay in U.S. cash. When Americans want to gobble up Canadian assets or buy oil and gas no foreign currency earnings are needed. They use their own money.

As a result the growth in American foreign debt has been exponential. It is all denominated in American dollars, and they have Canadian goods, Canadian services, and Canadian companies to show for a part of it.

Third, when economists talk about "free" trade, they mean tariff free: no customs duty at the border on imports. In Canada-U.S. trade the foreign exchange rate is much more important to the economic health of Canada than the piddling tariff changes which have been introduced over ten years by the FTA.

We had virtually duty free access to the U.S. market (there was a one per cent average duty on Canadian exports and 85 percent of our goods went duty free to the U.S.) before we signed away our ability to set our own taxes on exports of natural gas and petroleum or anything else, to control the sale of our assets, or to manage our domestic economy in favour of Canadians not the absentee landlords. It was all in the name of supposed Free Trade.

Twenty years later, the Americans have decided that their home security trumps our duty free access. So we get to pay for customs inspection of our goods by the U.S., then wait for lengthy security checks before bringing our stuff across the border.

The FTA came into effect on January 1, 1989. The Canadian manufacturing economy started tanking in March 1989. The exchange rate went up. Canada went into a recession that only ended with the world increase in the price of our natural resource exports. When the Bank of Canada drastically reduced interest rates, it provoked a steep fall in the value of the Canadian dollar into the low 60 cent range.

The devaluation put some punch back into our national economy. If the currency falls by 20 percent, it is if a 20 percent tariff goes on imports, and a 20 percent tariff comes off exports, so devaluation is a form of protectionism which usually does benefit the country with the devalued currency, at the expense of its trading partners. But at the same time, the low dollar encouraged the world to buy up many of the assets we had that were worth selling.

Fourth, when one country owns one-half of the manufacturing sector of another, Free Trade does not work the way your American-authored economics textbook says it does. If the average cost of producing a specific good is lower in Chicago than the extra cost of producing it in Ontario and a U.S. multinational owns both operations (this is not mentioned in your textbook), it shuts down the Ontario operation and services the market from Chicago. This simple logic continues to devastate the Canadian manufacturing sector. The reason I've used Chicago in my illustration is because that was in the example given by Brian Mulroney opposing Free Trade with the U.S. as the winning candidate for the leadership of his party.

Fifth, under the FTA (described by Marci McDonald as primarily an energy deal) we, the world's largest per capita energy consumer, agreed to pool our energy resources with the U.S., which is the world's largest energy importer.

As a result, about 20 years later, we have cheaply sold off most of our easy-to-get and low production cost oil reserves and run our natural gas reserves down to less than a 10-year supply. Meanwhile, we are planning to import liquefied natural gas, even as we burn off natural gas to provide the U.S. with tar sands production and import more expensive foreign oil.

Smart, eh?

Sixth. Water, water everywhere. Or so many people thought when we signed a trade deal that everyone knew did not exclude water as a traded good. Now many people know better, and this week it a report from the Munk Institute confirmed that our water is the topic of secret discussions with the U.S.

A lot more can be said about the failure of Free Trade and the continued dangers of continental integration. But 20 years later, Brian Mulroney has not been given due recognition on one score.

Mulroney's greatest achievement was that despite election promises to the contrary, in 1993, the record of the Chretien-Martin regimes on Free Trade was indistinguishable from Mulroney's own agenda

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