With respect to inadequate definitions of subsidies, I am afraid I am a bit of a cynic. On trade, America has the desirable market and it will always set the rules it wants, ad hoc if necessary. Critical industries will be forever subsidized in weird and wonderful ways around the world, and the resulting suits will keep trade lawyers well-fed for the foreseeable future. As a trading nation, we simply have to live and work with this reality. Certainly we leaped in with both feet without knowing exactly what the landing would look or feel like — a proud moment for an oftentimes timid country — but thank goodness we gave a number of Canadian firms the chance to operate in a freer trading environment as the global economy was emerging. Does it mean all will succeed? No. But we had fourteen billion-dollar-plus world-leading Canadian companies in 1985 prior to the fta and we have thirty-nine today. If that is “fallout,” I can live with it.
KA: Isn’t the FTA a misnomer? Free trade is the absence of tariffs and government regulations that hamper the exchange of goods and services. Didn’t the FTA opt out of this free market free-for-all because each country — especially Canada — wanted to protect certain aspects of its economy while securing access to external markets? It seems to me that we did reasonably well on the latter, not so well on the former. For this reason, I am less sanguine and more cynical about the US flouting trade panel rulings. Isn’t the key question still whether a country has the right, if not the responsibility, to restrict foreign corporate competition? I would have thought, for instance, that Canada’s mining sector was pretty secure, but ownership is shifting to foreign hands and we can only guess at the longer-term fallout. Furthermore, doesn’t chapter eleven in NAFTA preclude placing restrictions on foreign access and ownership? Given the obvious enthusiasm for Canada’s energy resources, wouldn’t a certain “Canadian exceptionalism” have been prudent for this sector? Isn’t it a bit warped that we can’t charge Americans more than Canadians pay for oil and gas?
Countries have a basic choice when contemplating more liberal trade: let trade dominate sovereignty or let sovereignty dominate trade. The members of the European Union (EU) traded sovereignty over borders, currency, economic policy, etc., to achieve far freer trade. If unanticipated and negative patterns of economic activity develop with respect to an EU country, that is basically tough luck because most of its sovereignty levers have been bartered away. Option two is what Canada did in the fta and nafta, partly because the notion of trade dominating sovereignty had virtually no public support. So, yes, we signed a convoluted agreement that allows any party to say, “Hey, I don’t like what’s happening, I am going to invoke clause X.”
Vis-à-vis American exceptionalism, I am more resigned than sanguine. I don’t like it but I can’t sit here and deny it. Nor can I imagine any trade agreement with the US that would cure our sovereignty anxieties. That doesn’t mean that we shouldn’t fight the Americans in court whenever they do a softwood-lumber-style mugging, but I just don’t expect the fta/nafta to solve the trade-versus-sovereignty conflict.
Certainly a country has the right to restrict foreign competition (unless it has bargained that right away, as the EU members largely did). However, if we restrict foreign competition others will take notice, and if they think we are engaging in actions that disadvantage them, they will retaliate. For Canada, this is tricky. The EU, US, and Japan are much bigger markets for us than we are for them (and Brazil, Russia, India, and China will all be much bigger soon.) So who has more to lose in a trade-restriction pissing match — the relatively small internal market or the much larger internal market? Canada, obviously. Size matters, and the three countries that did the best economically before the dramatic lowering of tariff barriers in the late twentieth century were the US, Japan, and Germany, the world’s three largest and most homogeneous home markets. If we’re going to apply a restriction, it had better be for something really useful.
With respect to the Canadian mining sector, I am never pleased when we lose internationally competitive companies. However, let’s remember that in its history, Canada has produced just six mining companies that achieved both $1 billion in annual revenues and top-five revenues in its industry segment globally — Barrick, Cameco, Falconbridge, Fording, Inco, and Teck Cominco — and that four of these are still firmly in Canadian hands. (Those who wish to exaggerate the “hollowing out” problem add Alcan and lower the ratio to four of seven, but if people view Canadian mining as digging stuff out of Canadian soil, Alcan does not qualify. It digs in Africa and South America, taking advantage of cheaper labour and abundant supply, and smelts the hell out of it in Canada, taking advantage of cheap power.) But let’s imagine that the mining sector does go. Is this worse for Canada than losing another sector? Those saying “yes” say so because we’re good at mining, we should protect our abundant mineral resources, and we have a global leadership position in the industry’s capital markets.
Except for a small concern about capital markets, I see the exact opposite. If I had to lose a sector, I would put mining nearer the top of my list than the bottom. It is not a growth industry in Canada. The growth in mining is in the developing world, because land and labour are far cheaper, and by and large environmental laws are far more lax. As such, Canada, with its high labour costs and relatively strict environmental-compliance laws, no longer has a natural advantage. Our rich deposits are great, and we aren’t a mining basket case, but to think of mining as a sector in which we have huge advantages is far-fetched.
As a thought experiment, compare two of Canada’s recently sold global leaders, graphics-chip maker ati (acquired by California’s amd) and Inco (acquired by Brazil’s cvrd). Let’s say we got into some catastrophic situation and wanted to reassert control over the operations of these companies. We race off to amd and tell them that we are going to tax every damn chip they make in Canada at 50 percent of the selling price since we helped fund ati with r&d tax credits. And we race off to cvrd and tell them that we are going to tax every damn pound of nickel they take out of their Canadian Inco mines at 50 percent of the selling price. Who would worry? Only cvrd. amd would simply close down its operations in Canada, not pay a penny of tax, and cost Canada scads of jobs. cvrd would pay the tax, because it can’t move Sudbury and Voisey’s Bay to Brazil. Canadian mining is safe because it is about mining in Canada. I would trade losing Inco and Falconbridge for keeping ati in a heartbeat.
Comments (1 comments)
Peter Brown: This was a very thoughtful interview. Thank you. My caveats have to do with Mr. Martin's somewhat tenuous grasp of North American business history. As Alfred Chandler's Pulitzer-Prize winning work The Visible Hand pointed out in the 1970s the large corporation was well established by the end of the 19th century, certainly not a largely post-World War Two experiment. Martin's explanation of the Depression as kicked off by a bill not yet enacted is not in line with most scholarship on the Great Depression — U.S. or Canadian. (Bernanke, who is regarded as the modern authority cites lack of liquidity, not isolationism.) And I'd like to know what major stockmarket bubbles have not been associated with economic downturns. The "nifty-fifty" in the 1970s, which caught such Canadian companies as Northern Electric, certainly preceded a very low period of productivity in the late 70s.
Anyway, it's a lively and thought-provoking piece. Thanks again. September 14, 2007 07:11 EST