Background Starting in 1855, while Canada was under British control, free trade was implemented between the colonies of
British North America and the United States under the
Reciprocity Treaty. In 1866, a year before
Canadian Confederation, the
United States Congress voted to cancel the treaty. Canada's first Prime Minister,
John A. Macdonald, attempted and failed to reinstate reciprocity, after which the government of Canada moved to a more protectionist policy, the
National Policy. Fears grew among many politicians that closer economic ties with the United States would lead to political
annexation. The
Liberal Party of Canada had traditionally supported free trade. The most significant of these agreements was the 1960s
Automotive Products Trade Agreement (also known as the Auto Pact). After the signing of the Auto Pact, the Canadian Government considered proposing free-trade agreements in other sectors of the economy. However, the United States government was less receptive to this idea, and in fact, wanted to phase out some guarantees in the Pact. Canadian attention turned to the question of a broader free-trade agreement between the two countries. During the next two decades, a number of academic economists studied the effects of a free trade agreement between the two countries. Several of them—
Ronald Wonnacott and
Paul Wonnacott, and Richard G. Harris and David Cox—concluded that Canadian real GDP would be significantly increased if both U.S. and Canadian tariffs and other trade barriers were removed and Canadian industry could consequently produce at larger, more efficient scale. Other economists on the free-trade side included John Whalley of the University of Western Ontario and
Richard Lipsey of the C. D. Howe Institute. Others were concerned that free trade would have negative effects, fearing capital flight and job insecurity because of international outsourcing, and also that closer economic ties with the "Giant to the South" might risk an erosion of Canadian sovereignty. Opponents included Mel Watkins of the University of Toronto and David Crane of the
Toronto Star, one of Canada's leading newspapers. A number of government studies drew increasing attention to the possibility of a bilateral free-trade negotiation: Looking Outward (1975), by the Economic Council of Canada; several reports of the Senate Standing Committee on Foreign Affairs (1975, 1978, and 1982); and the 1985 report of the
Macdonald Commission (formally, the
Royal Commission on the Economic Union and Development Prospects for Canada), chaired by former Liberal politician
Donald Stovel Macdonald. Macdonald declared that "Canadians should be prepared to take a leap of faith" and pursue more open trade with the United States. Although Macdonald was a former Liberal Minister of Finance, the commission's findings were embraced by Prime Minister
Brian Mulroney's Progressive Conservative Party, even though they were opposed to a free-trade initiative in the
1984 Canadian election campaign. The stage was set for the beginning of free-trade negotiations.
Negotiations US President
Ronald Reagan welcomed the Canadian initiative and the
United States Congress gave the President the authority to sign a free trade agreement with Canada, subject to it being presented for Congressional review by October 5, 1987. In May 1986, Canadian and American negotiators began to work out a trade deal. The Canadian team was led by former deputy
Minister of Finance Simon Reisman and the American side by Peter O. Murphy, the former deputy United States trade representative in
Geneva. The agreement between the two countries ultimately created substantially liberalized trade between them, removing most remaining
tariffs, although tariffs were only a minor part of the FTA. Average tariffs on goods crossing the border were well below 1% by the 1980s. Instead, Canada desired unhindered access to the American economy. Americans, in turn, wished to have access to Canada's energy and cultural industries. In the negotiations, Canada retained the right to protect its cultural industries and such sectors as education and health care. As well, some resources such as water were meant to be left out of the agreement. The Canadians did not succeed in winning free competition for American government procurement contracts. Canadian negotiators also insisted on the inclusion of a dispute resolution mechanism.
Debate and implementation The debate in Canada over whether to implement the negotiated agreement was very contentious. The opposition
Liberal Party vociferously opposed the agreement, with Liberal leader
John Turner saying that he would "tear it up" if he became prime minister, and the
New Democratic Party under leader
Ed Broadbent also strongly opposed the agreement. Both parties contended that the agreement would erode Canadian
sovereignty, arguing that Canada would effectively become the "
51st state" of the US if the agreement was implemented. They also raised concerns about how Canada's
social programs and other trade agreements such as the
Auto Pact would be affected. The legislation to implement the agreement was delayed in the
Senate, which had a Liberal majority. Partly in response to these delays, Mulroney called an
election in 1988. The Trade Agreement was by far the most prominent issue of the campaign, prompting some to call it the "Free Trade Election." It was the first Canadian election to feature large third-party campaign advertising, with supporters and opponents using lobbyists to buy television advertisements. It was also the first Canadian election to use much
negative advertising; one anti-free-trade advertisement showed negotiators "removing a line" from the Free Trade Agreement, which at the end of the advertisement was revealed to be the
Canada–US border. Although some opinion polls showed slightly more Canadians against the Agreement than in favour of it, Mulroney's
Progressive Conservatives benefited from being the only party in favour of the agreement, while the Liberals and NDP split the anti-free trade vote. In addition, future
Quebec Premiers Jacques Parizeau and
Bernard Landry backed the agreement which was seen as a factor for the PC party support in Quebec. Mulroney won a governing majority and the agreement was passed into law, even though a majority of the voters had voted for parties opposing free trade. The Free Trade Agreement faced much less opposition in the US. Polls showed that up to 40% of Americans were unaware that the agreement had been signed. The Agreement implementation act was given to the Congress for "
fast-track" approval by President Reagan on July 26, 1988, President Reagan signed the Act on September 28, 1988. It became Public Law No: 100–449. ==Effects==