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Free trade with the United States hasn't driven Canada's economy into recession, but instead has created more jobs and new markets for Canadian exports, a diplomat said here Tuesday.

Edward N. Ney, the U.S. ambassador to Canada, vigorously defended the 24-month-old U.S.-Canada Free Trade Agreement in a speech to a business group.

The historic pact, which seeks to eliminate trade barriers within 10 years, isn't a burning issue in Washington. But throughout Canada, it remains very controversial.

Ney blamed the media and political action groups for hiding the benefits of free trade from the Canadian people. "The simple truth is that free trade is working for Canada and the United States," he told 300 members of the Canada-U.S. Business Association.

"The figures themselves put the lie to the argument that the free-trade agreement is destroying or inhibiting Canada's ability to compete," Ney said. The ambassador challenged the assumption that the implementation of the trade pact two years ago resulted in plant closings throughout Canada.

"It's not a matter of jobs flying down to the United States," he said, noting that both countries have seen their blue-collar work forces decline over the last 40 years.

For example, manufacturing's share of Canadian employment fell to 17 percent in 1989 -- down five percentage points from 1974's 22 percent. Similarly, U.S. factory jobs represented only 18 percent of the nation's total work force in 1989 -- a significant drop from 15 years ago, when plants employed 24 percent of the country's workers.

"So, it's been a fact of life for some time now: less efficient manufacturing plants close sooner rather than later with tough competition around," Ney said. "The remaining plants upgrade, both in terms of employees' skills and the equipment they use."

He added: "In the world of tough, open competition . . . we either do that or watch our economies go into a tailspin, living off natural resources and sinking into economic decline."

While blue-collar workers have been idled throughout North America, the number of new jobs in the service industries has exploded. Service jobs currently represent 33 percent of Canada's work force -- up 7 percent from 1974.

"Critics ignore the fact that, overall, employment in Canada has increased since the free-trade agreement came into being," the ambassador said. Statistics Canada estimates that 240,000 new jobs were created in 1989. Moreover, an additional 136,000 people went to work during the first nine months of this year, the agency estimates.

Americans and Canadians also are buying more from each other. Canadian exports south of the border totaled $104 billion last year, and are expected to top $105 billion to $110 billion this year. In 1988, prior to free trade, Canada's exports to the United States totaled $102 billion.

U.S. companies are doing their part to fuel the world's largest trading relationship, Ney said. U.S. exports to Canada have grown from $88 billion in 1988 to a projected $90 billion this year.

"There is a growing positive trade balance of $15 billion for Canada," Ney said.

The ambassador also denied published reports that the Bush administration doesn't want Canada to participate in discussions about a free-trade agreement with Mexico.

During a trip to Mexico last week, Bush told the news agency Notimex that he wants to sign a deal with the Mexicans as quickly as possible. Canada would be included only as long as this did not lead to "unacceptable delays," the president said.

Bush's remarks and those of U.S. Trade Representative Carla Hills have sparked controversy in Canada. Some free-trade opponents have said Uncle Sam intends to give Canada the bum's rush.

"I would say, categorically, that we would like to see Canada in this arrangement," Ney said. "The only thing holding up the talks between the United States, Canada and Mexico is that it's more difficult to arrange a dinner for three than it is for two."

He said there was no secret deal cut between the negotiators of the free-trade agreement, adding that Washington did not require Ottawa to keep the value of the Canadian dollar high as a condition for approval of the historic pact.

"That's ludicrous," Ney said, when asked about an under-the-table deal. The high value of the Canadian dollar has caused many Ontario consumers to shop in U.S. border towns, like Buffalo and Niagara Falls.

Ambassador Ney said he wasn't sure the world trade talks being held in Brussels this week will result in an end to global trade barriers.

The major stumbling block to reforms of the General Agreement on Trade and Tariffs is a disagreement over agricultural subsidies. The Japanese and Europeans favor insulating their farmers from foreign imports, while Canada, the United States and much of the rest of the world are demanding an end to subsidies.

"If we fail to achieve meaningful agricultural reform in Brussels, protectionist pressures will likely rise everywhere, including the United States," Ney said.

He concluded: "Trade conflicts will probably multiply and we will begin to see . . . a world carved into regional trading blocks."

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