15
CANADA IN A GLOBALLY
INTEGRATED ECONOMY
You see things; and you say, “Why?” But I dream things that never were; and I say,
“Why not?”
– George Bernard Shaw
In many ways, 1995 marked an important divide in the historical development of
Canadian trade policy. A few years earlier, 1987 seemed to have a similar claim. The
conclusion of the Canada-US Free Trade Agreement that year witnessed the end of
a quest that had started with Britain’s repeal of the Corn Laws in 1846: free and
secure access to the giant market to the south. It also symbolized the end of the
National Policy and successive governments’ determination to deny the forces of
economics and geography in favour of politics and sentiment. And yet, the year
1995 provides a more attractive, more Canadian claim. It closed ten years of revolutionary churning that included not only the negotiation of an historic free-trade
agreement with the United States, but also its extension to a poor, developing country,
Mexico, and the establishment of a new, more robust, more comprehensive multilateral trade regime. Within one decade, Canada had satisfied its yearning for open,
secure access to the United States, for reaching out to the developing world, and for
confirmation of its fifty-year commitment to multilateralism. With their economy
now firmly rooted in the reality of a North American economy, Canadians could
pursue their vocation for global involvement, with a special nod to the challenge of
integrating developing countries more firmly into the world trade relations system.
From a wider, global perspective, 1995 also marked a critically important divide
in the history of international economic cooperation, as important a year as 1948
when twenty-three countries implemented the General Agreement on Tariffs and
Trade and ushered in one of the most remarkable periods of economic growth in
human history. The GATT was critically important in underwriting that growth.
The successful implementation of a rules-based trade relations system fostered the
426 Canada in a Globally Integrated Economy
John S. Pritchett, “The Global Economy, the Deep, Dark Woods.”
development of an international economy in which the barriers to trade between
nations were sufficiently low, and the rules and procedures governing interstate
economic relations were sufficiently stable, to allow firms and individuals in one
nation to sell their goods routinely and confidently in the market of another.
The conclusion of the Uruguay Round of multilateral trade negotiations at the
end of 1993 and the successful implementation of the World Trade Organization
(WTO) on 1 January 1995 may prove to have been similarly pregnant with opportunity. Both events underlined a commitment to ensure that the preponderance of
world trade will continue to take place under a nondiscriminatory system of rules.
They fortified the rule of law rather than might. They reinforced the commitment
of governments to economic growth based on competition rather than intervention. They may even point to the end of the road for those sectors of national economies that rely on walls and government support, like textiles, clothing, and
agriculture, and the triumph of more consumer-oriented policies. Together with
the successful pursuit of regional integration agreements like the North American
Free Trade Agreement (NAFTA) and the European Union (EU), these events also
signalled the beginning of a new era of rule making for a global economy.
Canada in a Globally Integrated Economy 427
The Reality of Deeper Integration
Canada’s experience over the past century and a half generally tracked broader,
global trends, from its early colonial experience to the current challenge of dealing
with the impact of globalization. By the 1990s, the reality of deeper integration – or
globalization – had been well documented. Annual reports by the GATT and WTO
provided clear evidence of the contribution of trade policy and institutions in establishing an enabling environment for this deeper integration. The period 1950 to
1999 witnessed steady integration through trade and investment. For the whole of
this period, the volume of world trade grew at a rate 1.6 times faster than that of
world production. The volume of world output increased by a factor of six while
the volume of world trade in goods multiplied by a factor of nineteen. By the end of
1999, the value of world trade in goods and commercial services had reached nearly
US$6.9 trillion. The ratio of world trade in goods and services to output had almost quadrupled since 1950 (see table 15.1). More remarkably, the pace of integration had steadily accelerated. Integration grew rapidly in the first two decades after
1950, slowed perceptibly in the period 1974 to 1984, recovered between 1984 and
1989, and continued to grow rapidly in the 1990s.1
Table 15.1
World merchandise exports, production, and gross domestic product, 1950-99
(Index, 1990 = 100)
Value
Volume
Exports
a
Total Ag Mi Mf
1950
1955
1960
1965
1970
1975
1980
1985
1990
1995
1999
2
7
2
1
3
8
3
2
4 10
4
3
6 12
6
4
9 15 10
8
26 36 42 21
59 71 115 45
56 63 88 49
100 100 100 100
145 139 108 152
160 131 115 175
Exports
Total
a
Ag Mi Mf
9 26 18
5
13 30 27
7
18
41 39 11
26 50 49 17
41
61 77 29
52 65 79 42
68 86 91 58
75 90 79 72
100 100 100 100
136 126 126 137
174 143 147 182
Production
Mf
World
GDP
37 29
13
42 37 19
49 45 24
55 60 35
63 76 49
72 82 60
78 99 75
90 86 84
100 100 100
109 109 106
118 115 122
19
25
30
39
50
61
73
84
100
108
120
Total Ag Mi
18
24
30
41
54
65
78
86
100
107
120
Notes: World merchandise production differs from world GDP in that it excludes services and construction.
Ag = agriculture products; Mi = mining products; Mf = manufactures
a Includes unspecified products.
Source: World Trade Organization, International Trade Statistics 2000 (Geneva: WTO, 2001), table II.1.
428 Canada in a Globally Integrated Economy
During the first few postwar decades, integration was most pronounced among
the OECD economies, but since the early 1980s Asia and, more recently, Latin
America have begun to participate more actively in this integration process. Open
economies have shown markedly faster progress in economic development, with a
number of them converging on OECD income levels by the 1990s. Among OECD
economies, only Japan has not increased its participation in the global economy,
remaining stagnant at a level of around 10-11 percent of GDP being exported. Among
non-OECD economies, those in central and eastern Europe were only just beginning to show improvement by the end of the 1990s, while those in Africa and the
Middle East remained mired in earlier economic patterns.
Although continuing growth in world trade levels is the most obvious indicator
of expanding integration, increases in flows of foreign direct investment (FDI) reveal the same thing. World FDI inflows exceeded US$865 billion in 1999, with developing and transitional economies accounting for nearly a quarter of the inflow
of world investment. The impact of these investment flows is illustrated by three
developments: the rising proportion of trade represented by intra-industry trade,
the increasing importance of trade in intermediate inputs, and the growing share
of transactions occurring on an intrafirm, intranetwork, or other interrelated corporate basis. The value of production by the foreign affiliates of global firms now
routinely outstrips the value of world trade in goods and services.
The most important but most difficult indicator of integration to measure is the
flow of information and technology. The last quarter of the twentieth century saw
not only an explosion in the absolute amount of knowledge and technology but
also, more significantly, a rapid increase in its availability and usefulness to a growing share of the world’s population. An unknown but large quantity of information
and technology is being traded within private and proprietary networks, adding to
the ability of firms to do business globally. Only a proportion of this trade is captured within official trade statistics, which thus underestimate the true value of
world trade and the full richness of new patterns of economic integration.
By the 1990s, many countries had reached the stage at which an increasing share
of national economic activity was conditioned by extranational transactions and
influences. Few goods, services, capital, and technology were still produced wholly
within a single national economy. At the same time, the border regimes in place in
most countries acted as little more than nuisances to extranational transactions.
Having escaped the limitations of time, space, and resources, firms were also finding ways of escaping the reach of national regulation or finding that national regulation in one jurisdiction conflicted with that in another. The national regulatory
structures so painfully built up over the previous century and a half were beginning to serve as impediments to further economic development rather than as adjuncts or facilitators. They were more likely to lead to conflict than to harmony.
In the competition for investment in employment-generating facilities, for example, governments increasingly found global firms claiming that various regulatory
Canada in a Globally Integrated Economy 429
requirements stood in the way of favourable investment decisions. The choice was
either to join a race to the bottom by easing regulatory requirements or to lose new
investments. In response, governments have begun to consider ways to recapture
democratic control over the market, but in a manner geared to the new reality of a
global economy rather than of a group of interlinked national economies. There
are, of course, those who argue that one of the happy by-products of globalization
is that some of the less sensible regulations and policies adopted by governments in
the past may need to be reconsidered. Examples of past regulatory excesses have
not been difficult to find, but few argue that government regulation has no place or
deny the clear benefits to governments’ determining standards of competition, consumer protection, or labour practices. What is being questioned is the detail and
extent of regulatory activity, not its existence.
The challenge for governments is to determine the extent to which globalization
has undercut their ability to regulate market behaviour and develop a regime that
will allow them to maintain governance through cooperative action. An international regime might well recapture the political authority that has been lost as a
result of the silent integration flowing from deepening globalization. Even more to
the point, cooperative, jointly agreed international rules may provide an effective
antidote to the tyranny of unilateralism by the powerful. The most potent threat to
the sovereignty of most nation-states in the twenty-first century may not come
from the fruits of cooperative action but from the extraterritorial application of
unilateral definitions of appropriate standards by the United States and other powerful actors.
Lessons from the Recent Past about the New Rule Making
Trade agreements have traditionally dealt with the policies and programs that governments use to influence the quality and quantity of goods, services, capital, and
technology that flow across national frontiers. That was still what trade agreements
were largely about by the beginning of the 1990s, but, slowly and steadily, governments have begun to consider how, in a more globalized economy, decisions about
where to invest and to what purpose are influenced by a much broader range of
policies and measures than in earlier periods. The primary goal of trade liberalization agreements has always been to reduce barriers to international transactions
and thus to contribute to economic growth and prosperity. Meeting this goal has
political and social as well as economic impacts which, as the global economy becomes more open and integrated, are becoming sharper and more important.
As previously noted, the decade 1985-94 witnessed a variety of initiatives aimed
at upgrading the old trade and payments regime and making it more responsive to
the demands of a more integrated global economy. In Europe, the EC-92 program
and a number of related initiatives sought both to deepen and to broaden the impact of the European integration program first launched in the 1950s. New directives and new agreements transformed the European Community of ten nations in
430 Canada in a Globally Integrated Economy
1980 into a European Union of fifteen nations by the turn of the century, each
committed to an extensive range of integrating rules and institutions. A further
dozen or more countries were actively preparing themselves for eventual membership. In North America, first the FTA and then the NAFTA provided a different
blueprint for cooperation. Institutionally less integrative than the EU, the NAFTA
may eventually require steps to make it more responsive to the forces of silent integration. Additionally, talks among the thirty-four democratically elected heads of
government in the Americas suggest the potential for an integration agreement
among all the nations of the western hemisphere. In Asia, various subregional arrangements may prove precursors and confidence-builders for as-yet-undefined
regional integration schemes. Multilaterally, the Uruguay Round substantially upgraded the GATT-based trade relations system into a more comprehensive and more
modern set of rules, institutions, and procedures. A new round of negotiations,
launched in November 2001 at a ministerial meeting in Doha, Qatar, is likely to
deepen and extend these rules.
The decade 1985-94 also saw a fundamental reversal in the attitudes of developing countries toward a global economy and toward rule making. The GATT/IMF
trade and payments regime may have served the interests of OECD members, but it
failed to prepare developing countries for the realities of an international, let alone
a global, economy. By acquiescing in their quest for special treatment, the old regime
had relegated the LDCs to second-class citizenship. OECD members had reaped the
benefits of internalizing a set of liberalizing and converging external obligations,
but developing countries continued to run isolating import-substitution policies, with
the full blessing of a trade regime fundamentally at odds with those very policies.
Most developing countries had turned their backs on this strategy by the opening years of the 1990s. Many adopted unilateral reforms that opened their economies and welcomed trade and investment. During the Uruguay Round, developing
countries accepted a range of new obligations and agreed that, in many instances,
special and differential treatment should be limited to the least developed. Mexico
accepted the full range of obligations in the NAFTA and successfully sued for membership in the OECD. The sterile intra-LDC agreements of the 1960s were replaced
by more outward-looking and more realistic agreements. Latin American countries appeared ready to take on new responsibilities within the formal confines of
regional agreements, while Asian countries, because of different values, experiences,
and priorities, seemed to prefer less formal approaches. All, however, were actively
engaged in experimenting with new obligations.
These developments are both a response to the changing nature of commerce in
the global economy and a basis for further expansion of global rules. If nothing else,
regional and multilateral discussions are providing governments with critically
important negotiating and administrative experience. The intellectual property
provisions in the NAFTA and WTO, for example, marked an important new departure in rule making. Governments agreed to extend a specified level of protection
Canada in a Globally Integrated Economy 431
to the owners of intellectual property and to use trade sanctions to enforce them.
Protection is extended to all owners of intellectual property rights, regardless of
their residence or place of business. Governments agreed that in a global economy,
the terms of trade that apply include a guarantee of the property rights of owners
of intellectual property. It is not difficult to conceive how a similar pattern of rule
making can be applied to other kinds of private rights and conditions.
Similarly, the investment provisions in the NAFTA reflect a much broader appreciation of investment rules than was evident in earlier agreements. They are geared
to the whole range of factors involved in international business, including trade in
goods and services, the transfer of technology, and strategic alliances, and they cover
the conduct of business rather than just investment. They involve an integrated
and extensive set of generic rules as well as important new provisions for investorstate dispute resolution. Efforts to negotiate a similar agreement among all the
members of the OECD failed in 1998, largely because the problems experienced by
OECD members in their investment relations were minimal and the resultant commercial payoffs would, as a result, have been minor relative to the political problems perceived or anticipated.2 Negotiating about such issues on a broader scale,
however, may lead to more positive results.
The NAFTA side agreements set out an interesting experiment in rule making as
it relates to environmental protection and labour market regulations. Rather than
negotiating substantive rules about these issues, the three participating governments put in place dispute settlement mechanisms that allow interested parties to
ensure full compliance with existing domestic laws and procedures in all three jurisdictions. These mechanisms recognize the interface between trade and social
issues and acknowledge that differing regulatory regimes can have trade and investment effects, but also accept that trade agreements may not be the best place to
establish detailed rules to govern international environmental cooperation.
Not all the new experiments in rule making, however, have been constructive.
The governments of economically powerful states have sought to implement solutions that export their political problems by penalizing divergent policies practised
in other jurisdictions. In many cases, preferred solutions could lead to new barriers
to trade, with countervailing duties and similar restrictive measures being the weapons of choice. Calls for new rules to address environmental protection and fair
labour standards, for example, include worrisome protectionist elements that could
result in the segmentation of markets rather than their further integration.
The old debate about fair trade may be entering a new and more difficult phase.
A whole range of policy differences among states is being cited as creating unfair
competition. Those worried about unfair trade seek the adoption of measures that
safeguard a country’s own policy preferences while penalizing the choices of other
nations by excluding their products from the marketplace. An idea that has been
around for some time is being retooled for new circumstances, with consequences
that may not always be intended.
432 Canada in a Globally Integrated Economy
To forestall these unintended consequences, trade policy analysts have begun to
consider whether international rules – globally or regionally – could be negotiated
to constrain the ability of powerful states to act unilaterally. In return, smaller states
might need to bring their policies more into line with those of the powerful. In
short, in order to avoid the tyranny of the powerful, it might be in the interest of
smaller countries to behave cooperatively and thus constrain the coercive capacity
of larger countries. The challenge is to find the balance between coercion and cooperation that would appeal to the political needs of both the small and the large.
The New Political Economy of Trade Negotiations
In the 1950s and 1960s, as governments negotiated the trade agreements that established and nurtured a more open and stable multilateral trading order, the political
economy of trade negotiations involved determining appropriate trade-offs between import-competing and export-oriented commercial interests. Indeed, much
of the GATT’s strength derived from its ingenious formula for harnessing the interests of export-oriented sectors to overcome the opposition to liberalization from
import-competing sectors. The cumulative impact of this gradual, and thus politically acceptable, approach to trade liberalization has been a world in which virtually every productive sector of the economy accepts an open economy as a given;
support for a liberal, rules-based multilateral trading system is now widespread
among business interests. Opposition to trade agreements now comes from broader
societal interests, fearful that liberal trade and international rules will erode the
capacity and willingness of governments to address other societal problems. The
new political economy of trade seeks to redefine the age-old conflict between
allocative efficiency and distributive justice, between proponents of equality of opportunity and equality of results.
These competing perspectives are critical to understanding the emerging political economy of international trade. For corporate and related interests, the equality
of opportunity perspective clearly dominates. While some business leaders may
secretly harbour dreams of a truly open economy where markets determine all
outcomes, most are quite happy to see governments play a role to protect the competitive process, to ensure fair play, or to establish basic standards. They know that
the future of their firms lies in vigorously competing for market share – at home
and abroad – on the basis of price, quality, design, delivery, and service within a
framework of national and international rules that allows markets to work efficiently but fairly. Thus they are enthusiastic about the achievements of the regional
and global trade agreements concluded between 1985 and 1994 and are prepared to
consider further efforts at rule making to govern investment and competition policy.
These agreements all share the objective of enhancing equality of opportunity by
letting transnational markets work efficiently but fairly. Their concepts of efficiency
are well grounded in neoclassical economics, and their concepts of fairness reflect
Western concepts of law, order, and due process.
Canada in a Globally Integrated Economy 433
When it comes to concluding agreements on such issues as international fair
labour standards or global environmental protection, however, business leaders
become more sceptical. They are reluctant to extend to the international arena domestic rules and procedures that they have found of dubious value at the national
level. Although not prepared to condemn the existence of national labour market
regulations or of environmental protection laws, they would be prepared to live without many of them. At this stage, they see little value in extending them internationally.
Business leaders who attach great value to the convergence and even harmonization of regulatory regimes related to customs rules and procedures (e.g., classification, valuation, and rules of origin), product and process standards, the protection
of intellectual property, or government procurement procedures, see little value in
establishing global norms relating to labour market practices or environmental
protection. Businesses at the forefront of calls to standardize the regulation of the
telecommunications sector and to create more uniform approaches to controls over
financial institutions are fully prepared to let markets alone determine the evolution of national approaches to the regulation of labour markets and the protection
of the environment.
Over time, business leaders may reassess these policy attitudes, particularly as
integration deepens and the cost of regulatory divergence increases. Equally, they
may see the value of global rules that ensure basic standards but that constrain
governments from pursuing discriminatory policies to restrict trade and investment with countries that exhibit social and other preferences at odds with prevailing attitudes in the importing or home country. In the meantime, business appears
to have withdrawn from active engagement in delineating the contours of the new
trade policy. Content with the achievements of the past fifty years and suspicious of
many aspects of the emerging agenda, many business leaders refuse to be drawn
into discussions on the merits of various proposals being advanced by governments.
Populist groups, on the other hand, tend to assess these issues differently.3 Often
attracted to a command-and-control perspective, they are uncomfortable with
market outcomes and suspicious of a more integrated global economy. They see
the trade regime as too committed to letting markets determine outcomes. Whether
promoting the achievement of human rights, the protection of the environment,
the social preferences of a particular polity, or the cultural values of indigenous
peoples, they are convinced that only national governments can deliver what they
seek. While their own vision and influence have been greatly enhanced by
transnational networks, they are adamant that national borders have become too
porous and that steps need to be taken to shield national economies from the debilitating effects of international or global competition. They criticize international
trade agreements for undermining the will of the people. At the same time, on
issues on which they are not making progress with voters at the national level, from
environmental rules to human rights, they are eager to use international bodies to
impose their policy preferences on democratically elected governments.
434 Canada in a Globally Integrated Economy
While generally still hostile to the lowering of tariffs, the elimination of nontariff
barriers, and the convergence in or harmonization of standards and national regulatory regimes, some populist groups are determined to pursue human rights and
environmental issues through the trading regime. Groups with this approach hope
to harness the trade regime to ensure greater attention to the promotion of human
rights and the protection of the environment. Committed to specific, measurable
results, they see great utility in the coercive power of trade sanctions to achieve
them. The discriminatory nature of some of these measures and the probability of
ambiguous economic impacts are of little consequence to groups that view market
outcomes with indifference or even repugnance.
Within pluralist democracies, the essence of governance involves finding the most
politically persuasive balance between these elements, a quest that is constantly in
flux as societal preferences and priorities respond to changing circumstances. In
international economic rule making, the balance has traditionally tilted toward
allocative efficiency, on the assumption that individual national governments can
address the demands of distributive justice within their own jurisdictions. The globalization of production patterns and consumption choices, however, is straining
the ability of governments to maintain this traditional line of demarcation. As a
result, competing perspectives now complicate how governments approach issues
in the international economy. In the coming years, as the process of international
rule making intensifies, we are likely to see how these differing perspectives, when
applied to specific issues, can become sources of conflict between governments and
between governments and their electorates. In the words of the late Harvard scholar
Ray Vernon, “The great sweep of technological change continues to link nations
and their economies in a process that seems inexorable and irreversible ... Yet, the
basic adjustments demanded by the globalization trend cannot take place without
political struggle ... So the world is likely to be in for a long period of learning as
nation-states grope for adequate responses to the problems of openness ... To shorten
that struggle and reduce its costs will demand an extraordinary measure of imagination and restraint from leaders on both sides of the business-government divide.”4
The global economy is rapidly becoming “denationalized,” but governments continue to govern on the basis of national goals and frontiers. Over the decade 198594, governments quietly began to forge a new world order to accommodate the
disjunction of a world in which political frontiers bore little resemblance to economic activity. They took a number of steps – some consciously, some less so – to
create a post-cold-war order centred in the World Trade Organization. Making the
new order effective will not be easy. Governments will need to develop consensus
on a potentially difficult group of issues, many of which challenge traditional concepts of sovereignty. New negotiating tools and techniques may be required as well
as even more robust institutions and approaches to the resolution of conflict. Efforts are likely to continue to consolidate and deepen governance of the global
economy.
Canada in a Globally Integrated Economy 435
Patrick Chappatte, “World Government.” Chappatte, like many others, is suggesting that
progress in establishing institutions of world governance appears to have slowed following
establishment of the WTO.
Trade policy thus seems poised to become the focal point of a new, post-coldwar international relations system based on promoting sustainable economic growth
and development. During and immediately after the Second World War, the Allies
developed a set of institutions and rules to govern interstate behaviour aimed at
preventing a repetition of the cataclysms of the previous thirty-five years: two world
wars and a disastrous global depression. The hub of that system was the United
Nations. Within it, economic development and similar matters were assigned to a
range of specialized, functional agencies with a mandate to consider matters of low
policy, i.e., the kinds of problems that require technical expertise and to which
there are technical solutions. Matters of high policy, such as peace and security,
requiring the attention of political leaders and their immediate advisors, were reserved for the Security Council.
The grand institutional design of the United Nations never worked as intended,
but the cold war era did ensure that peace and security would be the crux of high
policy and the main determinant of political relations among states. Economic
welfare and other functional issues remained the focus of low policy, discussed
among technicians. Politicians and their immediate advisors only became involved
to provide broad direction. The end of the cold war in 1989, however, effectively
436 Canada in a Globally Integrated Economy
ended this particular understanding of interstate relations. While at the level of
detail, this perspective had already become more romantic than real, at the level of
grand strategy it still commanded respect. Today, peace and security are more and
more the work of a relatively small group of technicians dealing with issues such as
peacekeeping and the gradual dismantling of the nuclear arsenal. By the late 1990s,
the issues that dominated international meetings among political leaders and their
immediate advisors were economic, whether meetings of the G7, bilateral summits, or regional summits in Latin America or Asia-Pacific. During the cold war,
relations between the Soviet Union and the United States revolved around disarmament and the status of Berlin. By the beginning of the twenty-first century,
the issues had become Russia’s accession to the WTO and the IMF’s latest loan
guarantees.5
The trading system and its many constituent agreements organized on the principles first embodied in the GATT are steadily becoming the main rules of the game
governing interstate relations. The protection of the environment and the promotion of human rights are among the leading issues about which polls show rising
public concern. Individually, there might be a limit to what political leaders can do
to satisfy such concerns. The reality of a global economy and of economic interdependence makes it more difficult for even the largest powers to act unilaterally.
Collectively, however, governments are beginning to address these issues, and trade
agreements might prove the most potent forums for doing that. Thus ministerial
meetings of the WTO in Singapore, Geneva, Seattle, and Doha acted as lightning
rods for dissatisfaction with the new regime. In keeping with this new reality, the
meetings attracted not only ministers, officials, and media, but also a horde of
nongovernmental organizations (NGOs) dedicated to the full range of issues potentially on the agenda. Many of these NGOs are ahead of governments and the
media in reading the transformation in high policy. Many of them appeal to the
same individuals who were at the forefront of the fight to ban the bomb or otherwise promote peaceful coexistence a generation ago; they now see the international
agenda in terms of human rights and environmental protection. For them, the core
of high policy has already shifted from peace and security to economic welfare and
sustainable development.
Governments may eventually prove as successful in implementing and developing a WTO-based trade relations system as an earlier generation was in implementing and developing the GATT-based regime. To grasp this opportunity, however,
governments must recognize that rule making for a global economy is fundamentally different from rule making for an international economy. They will have to
adapt international negotiations to the radically different circumstances created by
globalization. The new order may need to be built on the foundations of the old,
but it is likely to focus on rules, institutions, and procedures that have more in
common with existing domestic than past international regimes. It will be preoccupied less with liberalization and more with governance. The benefits from new
Canada in a Globally Integrated Economy 437
rules, while real, may prove less direct and could require more difficult and protracted negotiations. For Canada, it will require further strategic thinking in the
full knowledge of what has worked and what has not.
Choices and Opportunities for Canada
Canadians have a large stake in the success of efforts to define the new regime for
governing interstate relations. Indeed, as a result of both economic and policy developments in the 1980s and 1990s, their stake has become significantly greater.
Trade and related matters now loom larger than ever as determinants of Canadian
prosperity (see table 15.2). Canadian capacity to contribute to the further evolution
of rules and institutions to govern international trade has similarly grown. The
lessons learned from more than a century and a half of trying to make the most of
their geographic and demographic circumstances should serve Canadians well in
the future.
Canadian ministers have begun to respond to the demands of the new political
economy of trade, by committing the government to consultations with all sectors
of society. Following the federal government’s positive experience, in the Tokyo
Round of GATT negotiations (1973-9), of consulting closely with the provinces and
business interests, ministers developed a disposition to consult ever more widely
before enunciating Canadian policies and priorities. They also became comfortable with a more transparent process of decision making, prepared to share a wide
Table 15.2
Trade and the Canadian economy, 1997-2000
Value ($billions)
Year
Share of GDP (%)
Exports
Imports
Total GDP
Total trade in goods and services
1997
345
1998
371
1999
412
2000
474
331
359
385
426
878
902
958
1039
Trade in goods and services with the US
1997
1998
1999
2000
282
315
358
413
223
245
259
274
Exports
Imports
39.1
37.5
41.2
39.8
43.1
40.2
45.6
40.1
Share of total (%)
Exports
Imports
81.8
84.8
86.8
87.2
67.5
68.2
67.3
64.3
Source: Statistics Canada, National Income and Expenditure Accounts (Catalogue 13-001-PPB); and Canada’s
Balance of International Payments (Catalogue 67-00-XPB), 4th Quarter 2000.
438 Canada in a Globally Integrated Economy
range of previously restricted information and analysis. The advent of the Internet
further allowed governments to shape and share information and analysis on the
broadest possible basis. By the turn of the century, virtually every level of government routinely made material available that less than a generation earlier would
have been considered sensitive and privileged.
At first confined to business and related interests, by the end of the 1990s consultations encompassed the full range of societal players. Ironically, as consultations
expanded, they also became less effective. To recapture their earlier effectiveness,
ministers may need to reconsider both the intent and process of consultations. As
Denis Stairs has indicated, there are two kinds of consultations: political and bureaucratic.6 The priority for ministers and parliamentarians is to determine whether
Canada should negotiate and to what purpose. These are political questions on
which only politicians can be fully engaged. Both before and after the government
has determined its answer to these questions, a second level of consultations can
come into play, focused on how, when, where, and what to negotiate. These are
technical questions well suited to the skills and expertise of officials. Confusing the
role of politicians and officials can lead to frustration on the part of both those
consulted and those doing the consulting. Complexity requires expertise; democratic accountability requires political oversight. Effective consultations in an era
of broad public participation and interest, therefore, require a partnership between
politician and expert, each with important roles to fulfil.
In order for Canada to continue in the role that it played so effectively in the early
postwar years, Canadian ministers and officials will need a renewed vision of Canada’s place in the global economy and a new appreciation of the appropriate balance
between domestic and international governance. Consultations may help to inform such a vision, but, more critically, it needs to emerge from a clear assessment
of Canadian strengths, weaknesses, and interests. To date, Canadian governments –
federal and provincial – have been tentative and defensive in their responses to the
demands of a more integrated global economy, more prepared to follow than to
lead. In the waning years of the twentieth century, energies appeared to be more
focused on implementation and consolidation than on analysis and innovation.
In the opening years of the twenty-first century, even though little substantive
progress was being made, governments were experimenting with a wide range of
processes to test the scope of and demand for new negotiations. Canadian participation in the elaboration of a Free Trade Area of the Americas (FTAA), the agenda
of Asia-Pacific Economic Cooperation (APEC), a new round of WTO negotiations,
further Canada-US bilateral or NAFTA trilateral discussions, and bilateral freetrade discussions with newer trading partners may provide a basis for developing
new ideas and proposals faithful to the achievements of the past but attuned to the
demands of the future. Some of these initiatives, however, also illustrate well the
emergence of trade policy as high policy: political factors frequently outweigh economic and commercial considerations.
Canada in a Globally Integrated Economy 439
For Canada, most of these experiments will prove of limited economic or commercial value. The FTAA discussions, for example, are symbolically important to
the nations of the Americas, but they are unlikely to achieve the kind of agreement
that early public discussions suggested. Successfully concluding and implementing an FTAA will require that all participants accept obligations that go well beyond their existing WTO obligations. That is a larger step than most of the countries
of the region appear ready to take at this time. The absence of US fast-track negotiating authority throughout the preparation period and early negotiations invested discussions with a surreal quality, and the rivalry between competing US
and Brazilian visions underlined their geopolitical nature. In any case, the discussions have been of considerable value in developing and deepening trade and political relations among the nations of the Americas, in providing the Caribbean,
Central, and South American participants with a process to deepen their understanding of rules-based trade, and in enhancing their capacity to participate in
such a system.
APEC similarly contributes to the intellectual capital and political momentum
needed to move the international trade and investment agenda along. Like the FTAA
process, discussions in APEC are in many ways the equivalent of discussions in the
Commonwealth in earlier decades. They are characterized by a deep spirit of cooperation and a commitment to common objectives. To date, the results have been
more modest than some of its more enthusiastic participants had hoped, but they
have clearly been positive. Some of APEC’s most important work has been to validate and complement the work of other forums. Over time, APEC’s contribution is
likely to continue to be constructive, adding to the forces leading to a more liberal,
rules-based, better-functioning global economy.
For Canada, APEC and the FTAA are not likely to lead to significant breakthroughs
in access to the markets of Asia and Latin America or in negotiating new trade and
investment rules. Rather, they will contribute to ensuring that Canadian-based firms
can take advantage of the access that exists, to identifying problems in access, and
to proposing remedies, most of which will be addressed elsewhere. More importantly, both forums provide unique opportunities to strengthen ties with future
trading partners that could contribute to future trade and investment opportunities and growth.
Developing and transitional economy countries may eventually become more
important trading partners for Canada. Some will offer very large markets and a
capacity to absorb more Canadian goods and services; others will provide Canadians with a range of attractive and competitive products. To get there, however, there
need to be many more changes than we have seen to date. Most of these countries
are now headed in the right direction; however, many do not have the wherewithal
to complete the journey. Canada needs a robust and well-functioning global trade
and investment regime. To remain viable, such a regime will require the active and
constructive participation of developing and transitional countries. To that end,
440 Canada in a Globally Integrated Economy
Canada can usefully place itself at the forefront in helping them gain the capacity to
meet this challenge.
Bilateral free-trade discussions with some of the emerging markets, including
Chile, Costa Rica, the rest of Central America, Singapore, the remaining members
of the European Free Trade Association (Norway, Switzerland, Liechtenstein, and
Iceland), and others serve similar modest, long-term objectives. They expand the
reach of freer, rules-based trade on the basis of, by-now, well-established patterns.
They foster relationships with countries that offer interesting, if modest, new trade
and investment opportunities. They strengthen geopolitical ties that might otherwise remain dormant. But they are largely peripheral to the mainstream of Canadian trade and investment interests. These are to be found, as they have for many
years, in relations with the United States and in further elaboration of the multilateral trade and investment regime.
Members of the World Trade Organization held their fourth Ministerial Meeting
in Doha, Qatar, in November 2001. Since the ill-fated Seattle meeting at the end of
1999, governments and their officials had worked to find the basis for renewed commitment and expanded horizons. Preliminary negotiations on agriculture and services, as required by the 1994 Marrakech agreements, helped to clear the way. At
Doha, ministers agreed to launch a new round of multilateral negotiations. The
ultimate shape and scope of these negotiations, however, remain obscure, suggesting that they will take many years to define and complete. As during the Uruguay
Round, governments need to tackle some of the most difficult questions left over
from previous rounds, particularly agriculture, and find ways and means to address some of the newer issues, from competition policy to environmental protection and labour regulation. In between, there is a full range of other thorny issues.
For Canada, WTO negotiations will serve a dual purpose. First and foremost,
they will strengthen the systemic base for all of Canada’s trade relations, including
with the United States. Additionally, they will provide the best basis for pursuing
stronger rules and better access commitments for trade with Europe, Japan, and
the rest of the world. It is sometimes tempting to look to bilateral negotiations with
the EU and Japan to effect change in these relationships, but experience has demonstrated that the degree of mutual interest in solving bilateral problems is not
sufficient to overcome a host of complicating factors, including asymmetry in size
and interest, sectoral sensitivities, concern about setting precedents for other relationships, and more. Multilateral negotiations are well suited to building coalitions
and finding common cause to overcome some of these problems. Europe and Japan remain large and potentially important markets. They are now marginal trading partners, for reasons of both omission and commission, on Canada’s part and
theirs. There may be room for some modest initiatives to explore the scope for
doing more, but the most important breakthroughs are likely to come through
multilateral bargaining.
Canada in a Globally Integrated Economy 441
Canada’s first priority remains the United States. That market represents some 85
percent of Canada’s trade and economic relations. Canada’s trade in goods and
services with the United States adds up to about a third of its total economic activity and about a third of its total consumption. Canadians increasingly accept that
living next door to the largest, most dynamic economy in the world is an asset to be
nurtured and protected. This means that trade irritants, trade relations, trade promotion, and trade negotiations with the United States will remain at the top of
Canada’s agenda.
Together with the Mexicans, Canadians have a free-trade agreement with the
United States. The reality, however, is that the three countries have reached a level
of integration closer to that of a customs union, but without the institutions and
rules to make sure that they are getting the full benefits of this level of integration.
New York Times reporter Anthony DePalma posits the interesting thesis that, despite their disparate histories and characters, the three countries of North America
have more in common than they think and NAFTA is drawing them ever closer
together. Based on his experience as the Times bureau chief in Mexico City and
Toronto, he concludes that “our border will not disappear, not any time soon. But
what may fade away are the misunderstandings and ignorance that have plagued
North America for so long.”7
If nothing else, DePalma captured well an issue gaining increasing attention in
Canada. Given developments in the global economy, the intensification of privatesector-led integration in North America, and the stresses created by diverging
Canada-US economic performance, a growing number of analysts believe the time
has come for Canada and the United States to consider jointly whether they can
take steps to remove or constrain remaining barriers to cross-border trade and
investment. The combined success of the FTA, NAFTA, and WTO negotiations has
exposed policies and practices that do or might impede further growth in trade
and investment. These policies and practices go beyond what can be resolved on a
piecemeal, issue-by-issue basis and are of a type and nature unlikely to receive the
attention they require in future WTO multilateral negotiations or ongoing regional
FTAA or APEC discussions. They are most likely to be resolved on the basis of a
comprehensive initiative that can capture the imagination of political leaders on
both sides of the border and generate the level of support necessary to overcome
narrowly focused opposition.
Such a comprehensive initiative is most likely to be considered initially on a bilateral Canada-US basis, without prejudice to the advisability or necessity of including Mexico or of incorporating the results of any discussions into the NAFTA
framework. The two governments are likely to conclude that it is more important
to define the issues and the feasibility of their resolution than to focus on their
form or the institutional basis for administering the results of any new commitments. Similarly, they are likely to conclude that it is not necessary in the early
442 Canada in a Globally Integrated Economy
stages to determine Mexico’s role. That issue is more likely to be addressed later on
the basis of the results of preliminary discussions and in light of Mexican interests
and capacity.
Over the next decade, therefore, it will not be surprising to find Canada and the
United States engaged in efforts to complete the work they started in the early 1980s
to achieve a seamless market governed by a single set of rules, implemented and
administered by the two governments to achieve their common interest in a wellfunctioning North American economy. Canadians will be asked to agree that such
an initiative represents a prudent way for Canada to manage its deepening economic relations with its giant neighbour to the south. Americans will need to decide whether this is a good way for the United States to demonstrate to its other
trading partners that it remains committed to rules-based internationalism and
that it is prepared to adapt that system to the challenges and demands of deeper
integration. For both, reducing the impact of the border may prove the best way to
preserve Canada’s status as an independent, reliable, and vibrant partner of the
United States in the pursuit of common trade, economic, and security interests.