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Towards a new nationalism : Canada and free trade Gordon, Russell Charles 1987

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T O W A R D S A N E W N A T I O N A L I S M : C A N A D A A N D F R E E T R A D E B y Russel l Charles Gordon B.A.(Hons . ) , Queen's Univers i ty , 1986 A T H E S I S S U B M I T T E D I N P A R T I A L F U L F I L L M E N T O F T H E R E Q U I R E M E N T S F O R T H E D E G R E E O F M A S T E R O F A R T S in T H E F A C U L T Y O F G R A D U A T E S T U D I E S Department of Poli t ical Science We accept this thesis as conforming to the required standard T H E U N I V E R S I T Y O F B R I T I S H C O L U M B I A October 1987 © Russell Charles Gordon, 1987 In presenting this thesis in partial fulfilment of the requirements for an advanced degree at the University of British Columbia, I agree that the Library shall make it freely available for reference and study. I further agree that permission for extensive copying of this thesis for scholarly purposes may be granted by the head of my department or by his or her representatives. It is understood that copying or publication of this thesis for financial gain shall not be allowed without my written permission. Department of ^ Q U T I C P K , S d £ ^ d 6 The University of British Columbia 1956 Main Mall Vancouver, Canada V6T 1Y3 Date OCT. \ S , l4V"r  DE-6(3/81) Abstract Canada has historically been both attracted to and suspicious of the United States. While closer relations have promised greater economic benefits, Canadians have long been wary of the influence wielded by Americans by virtue of their size and power, as well as a crusading sense of nationalism. Hence free trade, while economically attractive, has been rejected on no less than five occasions in Canadian history. However, despite the emphasis placed on autonomy by nationalists, Canada has from its very inception drawn closer to its only neighbour. Trade with the Americans steadily displaced British trade, a trend accelerated by the Second World War. The war brought Ottawa and Washington into particularly close cooperation, and the emergence of the United States as the leader of the Western alliance in 1945 further solidified their relationship. NATO and NORAD went a good distance toward integrating continental defence, while bilateral trade mounted, boosted further by the signing of the Auto Pact in 1965. Yet, even in the face of such cooperation, the nationalist impulse in Canadian politics has remained strong. Diefenbaker's pledge to divert 15 per cent of Canada's trade with the United States to Great Britain echoed Canadian concerns about their dependence on the U.S. and was clearly antagonistic to American interests, as were the string of highly nationalistic policies enacted under Trudeau. Autonomy has become more difficult to achieve, however. The global economy has become increasingly competitive, while the post-1945 liberal trading order no longer seems capable of ensuring open world markets. The relative decline of the United States evident since the mid-1960s, combined with the rising importance of regional trade blocs and the economic success of Japan and the NICs, acted to undermine the liberal trade regime established in the wake of World War II. No longer willing to trade off economic gains for security goals, Washington, beginning with the "Nixon shocks" of 1972-73, turned to u protectionism. Trade issues became crucial to the formulation of foreign policy, while states became increasingly vulnerable to the actions and policies pursued by others. The rising importance of trade to virtually all countries, due in large part to the post-war liberal trade regime, thus led to an increasing politicization of trade issues. The declining utility of force as an effective tool of foreign policy, given by the development of nuclear weapons and the ineffectiveness of conventional weapons demonstrated in Vietnam and Afghanistan, has heightened further the importance of economic issues. The traditional distinction between the "high politics" of security considerations and the "low politics" of economic issues has, for many states, been erased. Increasingly states are faced with trade-offs between security and economic values. This increased concern with economic values is evident in Canada's decision to pursue free trade with the United States. The sacrifices entailed in a nationalist political course have become more expensive both because of the rise of protectionism in the United States, and further because the intrinsic value of national economic performance has risen The trade-off between autonomy and wealth long recognized in Canadian politics remains, yet the value of affluence has increased. Indeed, Canadian nationalism has come to be defined increasingly in terms of Canadian performance in the world economy. iii Table of Contents Abstract i i Acknowledgements v 1. I N T R O D U C T I O N : A U T O N O M Y A N D W E A L T H 1 His tory 4 The Price of Autonomy 8 The Free Trade D i l emma 11 2. T H E O R E T I C A L P E R S P E C T I V E S 14 The Realist Parad igm 17 N e w Perspectives 23 Conclusions 31 3. C A N A D A A N D F R E E T R A D E 34 Ris ing Protectionism 37 The Impact of Free Trade 44 Conclusions 57 4. C O N C L U S I O N : S H I F T I N G V A L U E S 61 Bibl iography 66 iv Acknowledgements I would first like to thank m y supervisor, M a r k Zacher, who read numerous drafts, often at short notice, and the members of m y committee, Don Munton and A l a n Cai rns . I a m grateful as wel l to those who helped me over the summer. D a v i d Hag lund at Queen's Univers i ty , Chr is Thomas at the Depar tment of Trade and Commerce, and Michae l H a r t i n the trade negotiations office. E a c h provided some insight into a complex issue. I a m further indebted to Scott Nico l l , who gave me a couch to sleep on for much longer than I had ever intended, since I planned on being finished far earlier than I did. I should also thank the universi ty and the department for extending as much funding as they could. I a m not as deeply in debt as I might be. F i n a l l y I would like to thank those graduate students who became m y friends over the last thirteen months. Despite m y complaints, I now feel at home i n Vancouver . v Chapter One INTRODUCTION: A U T O N O M Y A N D W E A L T H The central issue in Canadian-American relations turns on safeguarding the viability and political integrity of the nation-state in a situation of close and growing interdependence. A b r a h a m Rotstein (1973) The nationalist impulse in Canadian politics has been strong and has tradit ionally been expressed i n terms of autonomy from the influence of the Uni ted States. "Canadian national life can almost be said to take its rise in the negative w i l l to resist absorption in the A m e r i c a n republic." 1 His tor ical ly , the Uni ted States has posed the greatest single threat to Canada 's existence as a sovereign entity, while the Americans have offered the possibility of greater economic prosperity to Canadians through access to the richest market i n the world. Security has traditionally required a measure of autonomy from A m e r i c a n influence, while the Uni ted States has a lways provided a strong economic attraction to Canadians. A s gaining access to the A m e r i c a n market has usual ly involved mak ing reciprocal concessions, the possibility of forming a free trade area wi th the Uni ted States has been strongly opposed by nationalists on the grounds that such an arrangement would inevitably erode Canadian political autonomy and national security as the economy became an extension of its Amer ican counterpart and thus Ot tawa a satellite of Washington. 1. S . D . C la rk , "The Importance of An t i -Amer i can i sm i n Canadian Nat iona l Feel ing," Canada and Her Great Neighbour, ed. H . F . Angus (Toronto: The Ryerson Press, 1938) p. 234. 1 Introduction: Autonomy and Wealth The ideals of nationalism have become increasingly difficult to main ta in , however. Nat iona l independence from a wide range of foreign influences and transnat ional processes has been eroded by rising interdependence, par t icular ly among industrial ized states. A dramatic growth in the means of transportation, communication, and exchange of goods, money and ideas has allowed for unprecedented interconnectedness among societies, while liberal economic theory has provided justification and incentive for rap id ly growing international transaction rates. State autonomy, central to tradit ional conceptions of international politics, has been sharply curtailed by pressures originating outside national boundaries. Indeed, in the modern world, the au tarky described by realists and advocated by nat ional ism no longer seems a realistic representation nor a viable option. The post-war liberal economic order fashioned by the Uni ted States, w i t h Canadian cooperation, represented a deliberate attempt to avoid the nationalistic, protectionist policies which were identified wi th the war . Under the auspices of the General Agreement on Tariffs and Trade ( G A T T ) , tariff rates have gradually been revised downward , while international trade flows have increased markedly. A s all industrialized countries have become increasingly reliant on exports, trade issues have gained greater prominence in the formulation of foreign policy. Fur ther , wi th the acceptance of Keynes ian economic principles and the massive growth of the state following the Second Wor ld W a r , economic issues in general have acquired greater political significance. Also , largely due to the advent of nuclear weapons and the effective means for their delivery, the incidence of violence among industrialized states has decreased. Hence the "low politics" of economic issues have come to challenge the tradit ional prominence of security issues on the foreign policy agenda. The result, as Richard Cooper has pointed out, is that trade policy has become central to the formulation of foreign pol icy . 2 2. Richard Cooper, "Trade Policy is Foreign Pol icy ," Foreign Policy 9 (Winter 1972-73) 2 Introduction: Autonomy and Wealth At the same time, the relative decline of the United States has left the liberal economic order without clear leadership. No longer willing or able to sacrifice economic gains for strategic goals, the United States has become increasingly sensitive to a recurrent balance of payments deficit and has reacted by shielding American producers from what is deemed to be unfair foreign competition. The success of the Japanese and the Newly Industrialized Countries (NICs) in penetrating American markets, as well as the rising importance of regional trading blocs, led by the European Community, have left Americans feeling exposed. The result has been to foster an upsurge in protectionism particularly threatening to Canada. "An undeclared trade war is in progress. With 30 per cent of our national income involved in foreign trade, we, of all countries, are in really serious, difficult trouble... we must do something to protect our markets."3 Access to the American market has become crucial to the Canadian economy, while a declining liberal trade regime and rising American protectionism threaten to isolate Canada further. The burden of autonomy has thus become increasingly difficult to bear. The possibility of negotiating a liberal trade agreement with Washington has therefore appeared increasingly attractive in Ottawa, despite the historic reservations of Canadians about drawing too close to the United States. On September 5 1985, the Royal Commission on the Economic Union and Development Prospects for Canada, otherwise known as the Macdonald Commission, produced its $20 million report, its major recommendation being for free trade with the United States. On September 26 1985, Prime Minister Mulroney announced that he had spoken that day to President Reagan "to express Canada's interest in pursuing a new trade agreement between our two countries." He promised further that "political sovereignty, our system of social programs, our commitment to fight regional disparities, our unique cultural identity, our special linguistic 3. Richard Lipsey in "Free Trade: Sell-Out or Necessity?" The Whig-Standard Magazine March 14, 1987. p. 9. 3 Introduction: Autonomy and Wealth character — these are the essence of Canada. They are not an issue in these negotiations." 4 Despite the assurances of P r ime Minis te r Mulroney , i t is apparent that a more liberal trading arrangement w i th the Uni t ed States w i l l result in further Amer i can influence i n the lives of Canadians. The trade-off between autonomy and weal th long recognized in Canadian politics remains. W h a t has changed, as the willingness to negotiate a free trade deal wi th the Amer icans indicates, is the extent to which Canadian leaders are wil l ing to forgo autonomy in re turn for economic benefits. Independence and security from the Uni t ed States, historically powerful motivators in Canadian politics, are no longer as appealing, while an expanding economy has become increasingly crucial to Canadians. History Free trade wi th the Uni ted States has been a recurr ing theme in Canadian history. The repeal of the Corn L a w s by the Peel government in Great B r i t a in , signaling the end of the system of colonial preferences, left Canada 's chief exports to the Uni ted Kingdom exposed to competition from Amer i can producers and provided the impetus for serious talk of reciprocity in the provinces of Upper and Lower Canada. Since that time Canada has on at least five separate occasions contemplated the formation of a free market w i th its neighbour to the south. Free trade has promised access to the enormous and hugely weal thy market provided by the Uni ted States, thus offering Canadians the prospect of increased prosperity which would l ikely result through the rationalization of the Canadian economy. Y e t reciprocity has also been seen by many Canadians as threatening to Canadian nationhood. 4. Cited in D a v i d Bercuson, J . L Granats te in , W . R. Y o u n g Sacred Trust? Prime Minister Mulroney and the Conservative Party in Power (Toronto: Doubleday, 1986) p. 265. 4 Introduction: Autonomy and Wealth The removal of the Canadian economy from the protection offered by the old colonial system, combined wi th a worldwide recession i n the late 1840s which witnessed an accelerating rate of bankruptcy i n the Canadian provinces along wi th an escalating public debt, led to a cal l for reciprocity and even talk of annexation. In 1849, the Legislature of Upper and Lower Canada passed an act offering reciprocal free trade to the Amer icans , a gesture which remained unanswered in Washington. Y e t when the Br i t i sh introduced a policy of protecting the Atlant ic fisheries i n 1852-53, a positive demand for reciprocity emerged in the Uni ted States among fishing interests, lumber buyers, Great Lakes traders, and from members of the Democratic administrat ion. In addition, many of the Nor thern states saw reciprocity as eventually leading to annexation, a process which would swamp the South wi th anti-slavery states. The result was the Reciprocity Trea ty of 1854, which provided for the reciprocal free admission of major natural products, including grain , lumber, coal, livestock, meat and fish. The treaty did increase trade between the two countries markedly, or so contemporaries believed. 5 Trade and transportation l inks began to develop as Canadian and Amer i can businessmen dealt wi th each other wi th increasing frequency. Y e t the balance of payments was not a lways favourable to the Amer icans , and when the Br i t i sh began to allow raiders from the South the use of Canadian territory during the C i v i l War , the Amer icans gave notice of abrogation .of the treaty, and reciprocity ended in M a r c h 1866. The abandonment of reciprocity by the Americans helped to lead the Br i t i sh Nor th Amer i can provinces to Confederation which seemed, on economic grounds, the only resort. Y e t the new Dominion of Canada soon tried to secure a new reciprocity treaty. In 1874 the L ibe ra l government of Alexander Mackenzie worked out a draft treaty wi th the 5. It is difficult to tell for certain since the worldwide depression which had preceded the treaty was followed by an upsurge. See J . L . Granats te in , "Free Trade between Canada and the Uni ted States: The Issue Tha t W i l l No t Go A w a y , " The Politics of Canada's Economic Relationship with the United States, ed. Denis Stairs and Gilbert R. W i n h a m (Toronto: Univers i ty of Toronto Press, 1985) 5 Introduction: Autonomy and Wealth administrat ion of President Grant , but the agreement stalled in the Senate and eventually died. F ina l ly , the government of S i r John A . Macdonald, returned to power in 1878, turned to protection. Al though Macdonald 's Nat iona l Policy was strongly nationalistic, i t was motivated, i n part , by a desire to get the Americans to negotiate. The Americans , S i r John argued, " w i l l not have anything like reciprocity of trade wi th us unless we show them it w i l l be to their advantage... It is only by closing our doors and by cutting them out of our markets that they w i l l open theirs to us . " 6 Y e t the Nat iona l Policy proved to be a powerful tool i n nation building. In 1891 the Libera ls campaigned unsuccessfully for reciprocity; it would not be the last time Canadians would reject closer economic relations wi th their southern neighbours. Another chance at reciprocity was not very long in coming. In 1911 the Laur i e r government reached an agreement wi th the Uni ted States which provided for free entry for agricul tural products to the A m e r i c a n market and substantial concessions on f a rm machinery entering Canada. Y e t in the election of September 1911 the Conservatives, led by Robert Borden under a banner of "no truck or trade wi th the Yankees ," defeated Laur ie r ' s L ibera l s , k i l l ing the agreement. Whi le the death of reciprocity i n 1911 was i n substantial measure a victory for Cent ra l Canadian business interests protected by the Nat ional Pol icy, i t also represented a victory for nascent Canadian nationalism. Canadian unease wi th close economic relations wi th the Uni ted States has been expressed on numerous subsequent occasions in Canadian history. Amer ica ' s emergence from the Second W o r l d W a r as the clear leader in the world economy combined wi th Canada's close economic and polit ical relationship wi th Washington fostered during the war provided O t t a w a wi th another opportunity for free trade wi th the Uni ted States. The war had shifted Canada 's economic focus. "The B r i t i s h market was increasingly less important to C a n a d a and the A m e r i c a n more so. B r i t i s h investment counted for less and 6. Cited i n Granats te in , "Free Trade between Canada and the Uni ted States," The Politics of Canada's Economic Relationship with the United States, p. 17. This logic, i ronical ly, is identical to that employed by advocates of protectionism in the Uni ted States. 6 Introduction: Autonomy and Wealth less, and Amer i can for more and more. N e w Y o r k , not London, had become the financial centre for Canada . " 7 In 1948 secret negotiations began toward a free trade arrangement, and a deal was worked out whereby Canada was granted v i r tua l ly free access to the Amer i can market on most goods immediately, and allowed Canadian manufacturers five years to prepare for free trade. Al though it appeared, even at the time, a s ingular opportunity to l ink Canada on favourable terms with the A m e r i c a n economy, Mackenzie K i n g refused the offer. Despite the urging of advisors, K i n g saw economic union wi th the Americans as a political mistake. He would not be known as the P r i m e Minis ter who sold out to the Yankees . Throughout the 1950s Canadian trade wi th the Uni ted States boomed, displacing commercial exchange wi th other countries. In 1955, 60 per cent of Canadian exports were bound for the Amer ican market and 73 per cent of its imports originated in the Uni ted States . 8 Coming to power in 1957, Diefenbaker pledged to divert 15 per cent of Canada 's trade wi th the Uni ted States to Great Br i t a in . While it was clear that the promise could never be fulfilled, Diefenbaker's concern wi th Canadian reliance on the Amer ican marke t was widely shared. W h e n in the early 1960s the Br i t i sh applied for admission to the European Economic Communi ty , the Diefenbaker government protested strongly, fearing that Western European economic uni ty would serve to further increase reliance on the Amer i can market . The pressure to draw closer to the Amer icans was not ignored by Diefenbaker altogether however, and in 1958 Canada secured Amer i can agreement to a defence production sharing arrangement, offsetting the heavy purchases made by the Canadian forces i n the Uni ted States and tacitly acknowledging Canadian reliance on Amer i can mi l i ta ry technology for its defence. 7. Granats te in , "Free Trade between Canada and the Uni ted States," The Politics of Canada's Economic Relationship with the United States, p. 36. 8. Cited in Jock A . Finlayson, "Canadian International Economic Policy: Context, Issues and a Review of Some Recent Li tera ture ," The Politics of Canada's Economic Relationship with the United States, ed. Denis Stairs and Gilbert R. W i n h a m (Toronto: Univers i ty of Toronto Press, 1985) 7 Introduction: Autonomy and Wealth Canadian economic links wi th the Uni t ed States again became a major issue in the late 1960s and early 1970s. Al though Canada took a step toward economic integration in signing the Canada-United States Automotive Products Agreement in J anua ry 1965, which provided for essentially free trade (albeit wi th certain production safeguards) in the automotive and automotive parts industries, the election of the L ibe ra l Trudeau government in 1968 brought new concerns about the extent of Amer ican investment in the Canadian economy and Canadian reliance on A m e r i c a n markets. This concern was reflected in what have been tagged the most nationalist policies since the Nat iona l Pol icy -the Canadian Development Corporation in 1971, the Foreign Investment Review A c t in 1973-74, Petro-Canada in 1975, the cu l tura l protectionist measures i n B i l l C-58 in 1976, and the Nat iona l Energy Program i n 1980 . 9 The clearest statement of Canada 's impulse to distance itself from the Uni ted States at this time came in response to the ten per cent surcharge on imports by the N i x o n administration in Augus t 1971, par t of the so-called " N i x o n shocks", which led to the wr i t ing of the "Th i rd Option" paper . 1 0 In it the Trudeau government explicit ly rejected closer economic relations with the Uni ted States as an alternative for Canadian trade policy, and settled instead on the " third option"; to reduce reliance on the Uni ted States by looking elsewhere for markets. The failure of the third option to balance Canada 's trade reliance on the Americans once again opened the free trade debate. 9. K i m Richard Nossa l , "Economic Na t iona l i sm and Continental Integration: Assumptions , Arguments and Al terna t ives ," The Politics of Canada's Economic Relationship with the United States, ed. Denis Stairs and Gilbert R. Winham (Toronto: Un ive r s i ty of Toronto Press, 1985) 10. Canada, Department of Ex t e rna l Affa i r s , Foreign Policy for Canadians (Ottawa: Minis te r of Supply and Services, 1973) 8 Introduction: Autonomy and Wealth The Price of Autonomy The nationalist impulse which has pervaded Canadian history has extracted a cost. In choosing to do business along east-west lines rather than following the natural north-south axis of continental trade, Canadians have forfeited economic efficiency in the interests of political integrity. Legislat ion designed to increase Canadian ownership or control, such as enacted by Trudeau between 1971 and 1980, has been passed at the expense of foreign investment in the Canadian economy, while protective tariffs have fostered inefficient industry. Y e t the trade-off between national autonomy and nat ional welfare has long been recognized, and Canadians have traditionally shown themselves wi l l ing to bear the price of independence from the Uni ted States. A s Charles Dor an points out, "Whi le the economic nationalist argument has a lways admitted that the cost of less U . S . trade and capital is a lower Canadian standard of l iv ing , this cost is viewed by some as justifiable i f i t leads to greater political au tonomy." 1 1 The saw-off between autonomy and wealth has shifted, however. In the first place, national economic performance has become more important to a l l states as government has come to play a larger role in economic management. The growth and acceptance of the welfare state has greatly increased the economic burden of government as the state has undertaken a wide range of responsibilities formerly considered to be str ict ly private concerns. Hence employment, health and general economic welfare have come to be regarded as fall ing wi th in the sphere of the state. Secondly, in a wor ld of interdependence, amalgamation, and homogenization, the economic cost of independence has risen substantially. Excluded from secure access to any significant markets , Canadian producers are l ikely to lose ground in an increasingly competitive world market , unable to achieve the economies of scale necessary to compete successfully. The incentive to secure access to the A m e r i c a n market has therefore increased, par t icular ly in light of r i s ing 11. Charles F . Doran , Economic Interdependence, Autonomy, and Canadian/American Relations (Montreal: The Institute for Research on Public Policy, 1983) p. 9. 9 Introduction: Autonomy and Wealth Amer ican protectionism, which threatens not only expanded trade, but exis t ing trade links as wel l . Whi le the price of a free trade arrangement w i th the Uni ted States in terms of Canadian autonomy is not yet clear, i t is evident that any agreement w i l l significantly increase A m e r i c a n access to the Canadian economy and thereby expand U . S . influence in Canadian affairs. In entering into bilateral negotiations, Canada is par t icular ly vulnerable to pressures which might be brought to bear by Washington. Indeed, while trade with Canada is significant to the Uni ted States, accounting for some 22 per cent of U . S . exports and 20 per cent of its imports in 1984, it is not nearly as dependent on such trade as is Canada, which relied on the Uni ted States to purchase 76 per cent of its exports that y e a r . 1 2 In order to counter the bargaining power wielded by the Uni ted States, O t t awa has generally favoured a mult i lateral approach as the most effective means of protecting Canadian international commercial interests. There is a growing perception, however, that exist ing structures, most notably the G A T T , are no longer efficient i n solving current disputes or opening new markets. This is due in part to the past success of the G A T T in removing the most obvious barriers to trade, leaving the more complex issues of non-tariff barr iers to be dealt w i t h . 1 3 The growing significance of regional trade blocs, part icularly the European Community , has further served to undermine the principle of non-discrimination, central to any l iberal trade order. Indeed, a successful free trade deal might further this trend by creating yet another preference area, albeit without the positive integration which has marked the E C . The effectiveness of the G A T T has also been undermined by the decline in the relative economic power of the Uni ted States, which has left the global trading system without clear leadership and called into question the Amer i can commitment to t ru ly liberalized trade. 12. Cited in Michael M . Har t , Canadian Economic Development and the International Trading System (Toronto: Un ive r s i ty of Toronto Press, 1985) p. 38. 13. See I . M . Destler, American Trade Politics: System Under Stress (Washington: Institute for International Economics, 1986) p. 48. 10 Introduction: Autonomy and Wealth The current protectionism, par t icular ly visible in Washington, is symptomatic of broader trends which threaten to render world markets even more inaccessible. Whi le the increased salience of economic issues to v i r tua l ly a l l states and the success of the post-war liberal trade regime have resulted in an international order highly dependent on trade and capital flows, a by-product of this dependence has been a growing politicization of trade issues. Interdependence has produced a permeabili ty of political boundaries such that domestic policies in one state are increasingly relevant to other states and the foreign policies of a l l countries have greater domestic impact than previously. Nowhere is this permeabili ty greater than wi th regard to economic issues, and as a result economic concerns have come increasingly to dominate the foreign policy agenda, par t icular ly in industrialized states. These changes call into question the tradit ional preoccupation of international relations theory wi th the problem of war and the mi l i t a ry capabilities of states. Indeed, among developed nations, economic issues are increasingly at the core of international disputes as trade flows have become crucial to the operation of modern societies. The Free Trade Dilemma The historic di lemma faced by Canadian policy-makers remains, yet it has been brought into sharper relief. Liberal izat ion of t rading relations wi th the Uni ted States m a y be necessary not only in order to expand the national economy, but to mainta in access to the A m e r i c a n marke t and ensure the performance of Canadian industry in an increasingly competitive global market . Thus free trade m a y be necessary to mainta in Canada 's standing in the world economy as an economically advanced country. A t the same time, technological developments in the t ransmission of ideas and capital have magnified the homogenizing effects of transnational economic, cultural and political flows. Removing the barriers to such influences is l ikely to threaten the cul tural and political integrity of the state. Y e t the value of economic welfare has increased for many states as government has 11 Introduction: Autonomy and Wealth been called on to play a larger role i n economic management. Nat iona l i sm is increasingly understood in economic terms, and national economic performance taken as the measure of statehood. The decision in Canada to pursue free trade wi th the Uni ted States, it is the contention of this paper, reflects these broad changes in the nature of states and of the international system. Removing the barriers to continental trade promises to expand the national economy and to streamline Canadian production, thereby renewing Canada's global competitiveness. Y e t l iberalizing economic flows between Canada and the Uni ted States wi l l entail a significant sacrifice of Canadian autonomy. Given the relative power of the Amer ican economy and the size of its market , Canadian political, social and cul tural differences would be hard-pressed to survive in the face of unfettered trade and investment flows. E l imina t ing restrictive trade legislation wi l l inevitably turn attention to other forms of market distortion, most of which relate to the activities of government. Since Canadians generally accept a more active role of government in society than do Amer icans , Canadian social welfare and regional assistance programs, among others, are l ikely to be seen by Amer icans as unacceptable under a free trade arrangement. Fur ther integration wi th the Amer i can economy is therefore l ikely to result in greater Amer i can influence in Canadian affairs. The pursuit by Canada of a formal trade agreement wi th the Uni ted States thus represents a change from traditional notions of nationalism which stress the desirability of state autonomy in favour of an understanding of the world in which an interdependence of states is a given reali ty of contemporary life and national economic performance the measure of Canada's success in the international environment. Such an understanding represents a significant shift in Canadian thinking, as Canadians have long been suspicious of Amer ican influence and valued their autonomy even at considerable economic cost. This is not to say that Canadians have lost altogether their wi l l to remain distinct from the Uni ted States - the intensity of the debate generated by the trade negotiations 12 Introduction: Autonomy and Wealth with Washington attests to the continued unease Canadians feel at the prospect of greater continental integration ~ but rather that national wealth has become more important than formerly and autonomy less so. The shift in the autonomy-wealth trade-off is representative of a broader trend in world politics which challenges the traditional assumptions of international relations theory, par t icular ly real ism, in explaining the motivations and behaviour of states. The dominant theoretical approach since the end of the Second W o r l d War , rea l i sm focuses on the problem of w a r and stresses the pr imacy of power, understood largely in mi l i t a ry terms, in defining international relations. Economic considerations are relegated to the realm of "low politics", only relevant to the realist vision i n as much as they contribute to power ends. This view has been challenged by what are broadly termed " l ibera l" thinkers, who have stressed the growing importance of linkages among states, par t icular ly in the economic sphere, and the declining ut i l i ty of force in relations among the majority of industrialized countries. Indeed, for many states, economic issues have come to r i v a l the traditional foreign policy concerns of power and security. Since dependencies tend to foster vulnerabilities, state security has a lways required a large degree of autonomy, and as economic performance demands relat ively open trade and capital flows, policy makers are forced to make trade-offs between economic and security issues. Such is the d i lemma for Canadian policy makers in choosing to pursue a comprehensive l iberal trade agreement wi th the Uni ted States. 13 Chapter Two THEORETICAL PERSPECTIVES While some may argue that we have organized a field called international relations/politics because the phenomena are 'there'; the truth is that we study them because of a deeply held normative concern about the problem of war. K . J . Hols t i (1985) The phenomena of war has tradit ionally occupied the focus of international relations theorizing. F r o m Thucydides to Rousseau to Morgenthau, the problematic, while approached differently, has remained constant. The so-called "great debates" of the discipline have revolved around how to look at international relations, rather than what is being looked at. The dominant paradigm since the Second Wor ld W a r , and drawing heavily on the experience of that debacle, real ism has retained the traditional concern wi th the phenomena of war . For Hans Morgenthau, the dean of the realist school, the question of what is being studied is a straightforward one: " A l l history shows that nations active in international politics are continuously preparing for, actively involved in , or recovering from organized violence in the form of w a r . " 1 The central i ty of war to the study of international relations has more recently come into question, most obliquely in the work of radical analysis inspired by M a r x i s t constructs (which would include dependencia, centre-periphery and world-systems l . H a n s J . Morgenthau, Politics Among Nations, 5th ed. (New Y o r k : Alf red A . Knopf, 1973) p. 36. 14 Theoretical Perspectives analysis), as wel l as by what might broadly be described as "l iberal" l i terature. While those of the radical camp reject altogether the notion that war is the mot iva t ing force in international politics, liberals have questioned the pr imacy awarded to strategic/security matters in realist thought. Tha t international theory should revolve near ly exclusively around the international states sys tem and the activities of the great powers, especially as they relate to war and peace, is no longer an article of faith i n either academic or government circles. "The challenge to the classical tradit ion comes," notes K a l Hols t i , "not from scientific act ivi ty, but from scholars and practioners whose normative priorities differ fundamentally from those inhabiting the classical t rad i t ion ." 2 The challenge to the realist school stems i n large part from changes in the international environment since its ascendancy. The contemporary world is, in many important respects, different from that which emerged from the Second Wor ld War . Securi ty from armed confrontation, once the preponderant concern of v i r tua l ly a l l states, is now r ivaled by economic considerations as the p r imary motivator of foreign policy making among the majority of advanced industrialized countries. The development of strategic nuclear weapons and the realization of their full implications has rendered warfare, at least between the superpowers and their respective alliances, al l but obsolete as a useful instrument of foreign policy. A t the same time, the growth of global interdependence in various dimensions has further raised the potential cost of armed conflict. The very nature and role of states has changed dramatical ly in the post-war years. The modern state is expected to manage the national economy, redistribute weal th , provide health care and education and perform a myr iad of other tasks to ensure the economic, political, and cul tural welfare of its citizens. The economic affairs of the state have thus gained enormous stature as a consequence of this recently acquired intrinsic political significance as wel l as the burgeoning commercial interdependence i n the relations among developed countries. F ina l ly , the configuration of the international system has changed. 2. K . J . Hols t i , The Dividing Discipline: Hegemony and Diversity in International Theory (Boston: A l l e n and U n w i n , 1985) p. 39. 15 Theoretical Perspectives The Uni ted States, once economically and mi l i ta r i ly preponderant in the post-war order, is today faced wi th a Soviet mi l i t a ry capable of balancing Amer ican might, while Japanese and European firms compete successfully wi th the Americans for worldwide markets . The result has been a breakdown in the l iberal economic consensus responsible for the rapid expansion in international trade following Wor ld W a r II, accompanied by the politicization of trade issues and the r ising threat of protectionism. These changes call into question the continued relevance of the traditional concerns of international politics to modern statesmen. The realist distinction between the "high politics" of security considerations and the "low politics" of economic issues in part icular seems to deviate from present practice. If, as E . H . C a r r remarked, "theory does not (as the U t o p i a n s assume) create practice, but practice theory," 3 then real ism might properly be subject to revision. The question is, how useful is a theory of international politics preoccupied wi th the politics of power and the possibilities of war in a world where power is increasingly difficult to define and w a r is less and less a viable option? The evolution of realist th inking, the advent of "neorealism" or "structural real ism", has to some extent been successful in addressing the difficulties encountered by the original in the face of a changing international environment. Y e t the fundamental tenets of the realist tradition remain intact, wi th the focus on security considerations, while largely ignoring the economic dimension of international politics. However , the separation of the economic from the political in the study of international relations would appear an increasingly untenable construct i f theoretical notions are to be a useful guide to understanding and practice in the international political arena. This is not to say that questions of power and security have been rendered irrelevant, for clearly the economic and political well-being of the state are contingent upon its continued existence. Y e t i n an increasingly interdependent world, the notion of security itself has changed. No longer can the modern state insulate itself from the influences of 3. E . H . Car r , The Twenty Years Crisis: An Introduction to the Study of International Relations (London: M a c M i l l a n , 1939) p. 63. 16 Theoretical Perspectives the international environment in order to enhance national security. Economic and technological considerations play an increasing role in maintaining the integrity of the state and require a relatively free flow of goods and ideas. The distinction drawn by realists between high and low politics no longer reflects that quality realists have long claimed to capture - reality. In relegating economic matters to the realm of low politics realists have not only assigned such concerns a secondary role in their theoretical vision, but have largely ignored the relevance of non-security issues altogether. Yet increasingly the viability of the modern state is dependent upon economic considerations. Thus the low politics of economics have become merged with the high politics of security issues. Faced with finite resources, policy makers are forced to make trade-offs between considerations of security and economic welfare. The Realist Paradigm In the immediate post-war period, realism came to dominate the study of international politics as the answer to idealism which was apparently unable to explain the anomaly of the Second World War. The war effectively shattered the idealist notion that a harmony of interests between states was being brought into line with perceived interests through increased international cooperation demonstrated by the growth of international law, the creation of the League of Nations, and increased cultural, social and economic links. Realism represents, at one level, a philosophic rejection of idealism as possessing an unrealistically optimistic understanding of human possibilities; what has been termed "thinking on wishing." Realists claim a scientific status in that realism is supposedly governed by objective laws having their roots in human nature. "This theoretical concern with human nature as it actually is, and with the historic processes as they actually take place, has earned for the theory presented here the name of realism,"4 boasts Hans 4. Morgenthau, Politics Among Nations, p. 4. 17 Theoretical Perspectives Morgenthau, whose Politics Among Nations (1948) has come to be regarded as the definitive work of realist theory. Whi le a concern with the world "as i t actually i s " captures the broad philosophic orientation of the realist school (with the obvious implicat ion that other perspectives are lacking i n this quality), i t hardly provides a clear means of demarcating i t from its competitors. A s Robert Tucker has observed, " I f a concern wi th real i ty, a commitment to see things as they actually are, is the principal mark of political real ism, it is hardly a very distinctive one." 5 A t its core, real ism contains three assumptions. F i r s t , nation-states and their governments are the most important actors in international politics. Second, there exists a fundamental distinction between domestic and foreign policy, and th i rd , international politics is p r imar i ly about the inter-state struggle for power. Indeed, for Morgenthau, "the ma in signpost that helps political real ism find its w a y through the landscape of international politics is the concept of interest defined in terms of power ." 6 The struggle for power is not, for the realist, a means to some further end such as security or freedom, but is an end in itself. In the realist conception states are maximizers of power. Power itself is defined almost exclusively in terms of mi l i t a ry power, as economic issues are relegated to the realm of low politics, significant only in so much as they represent "capabilities" to be mobilized for power ends. The assumption that states act so as to maximize their power has, however, proven problematic for realist thinkers. In the first place i t belies the lesson that realists drew from the Second Wor ld W a r - that states had not acted to maximize power but were dangerously legalistic and moralistic in their approach to international politics. Fur ther , realist th inking was unable to account for much international behaviour i n the post-war era. Given that power was defined almost wholly i n mili tary-strategic terms and states 5. Robert W . Tucker, "Poli t ical Real i sm and Foreign Pol icy ," World Politics 13 (Apr i l 1961) p. 461. 6. Morgenthau, Politics Among Nations, p . 5. 18 Theoretical Perspectives seen as power maximizers , international politics was understood by realists as a zero-sum enterprise, making international cooperation (with the exception of mi l i t a ry alliances) al l but impossible. Indeed, for the realist au tarky represented the na tura l state of the international environment, since collaboration tended to raise the vulnerabi l i ty of the state, and constrained its ability to act in the national interest. Y e t cooperation in the international r ea lm was evident, part icularly involving economic issues. Such successes as the General Agreement on Tariffs and Trade ( G A T T ) , the International Moneta ry Fund ( IMF) and the W o r l d Bank demonstrated the possibility of cooperation not prompted entirely by strategic or security motivations. While realists considered such behaviour to be peripheral to the p r imary function of states, economic issues were clearly gaining relevance to the statesmen of the day. While prompted by security considerations, the formation of the European Communi ty took on far greater importance as an economic entity than as a mi l i t a ry one, as the failure of the European Defence Communi ty and the success of the E E C were to illustrate. The foundations of realist th inking have remained largely intact however, and continue to exert considerable influence in the current literature on international relations. Par t icular ly influential has been Kenne th Wal tz ' s Theory of International Politics (1979), which has served to renew the realist tradition while at the same time attempting to address the inadequacies of conventional realist theories in explaining the behaviour of states in the 1960s and 1970s. The three assumptions of realist thought outlined above remain largely intact, wi th the exception that the struggle between states is understood less in terms of power and more in terms of security. Indeed, for W a l t z the only common a im of a l l states is the surv iva l of the state itself. Perhaps more fundamentally, structural real ism represents a shift from what Wa l t z describes as a "second image" to a "third image" model . 7 A s the name suggests, s tructural rea l ism is concerned wi th the impact of the international structure (third image) on states and issue areas, rather than wi th states 7. See Kenne th Wal t z , Man, the State and War: A Theoretical Analysis (New Y o r k : Columbia Univers i ty Press, 1959) 19 Theoretical Perspectives themselves (second image). Fo r Wal tz , the international system acts as a constraining and disposing force, and thus states operating within such a structure wi l l tend to produce outcomes that fall wi th in expected ranges. "Structures l imi t and mold agents and agencies and point them i n ways that tend toward a common quali ty of outcomes even though the efforts and aims of agencies v a r y . " 8 F o r s tructural realists, therefore, the possibilities for collaboration and cooperation are contained in the nature of the international system rather than in the motivations and intentions of states. Beyond a surv iva l motive, the aims of the state m a y be endlessly varied, yet outcomes wi l l be constrained and motivated by the structure of the international system. Since structural real ism places less emphasis on the role of power, par t icular ly mi l i t a ry power, than does conventional real ism, as we l l as allowing for an almost infinite range of motivations on the part of states (save that they desire to survive), the prospects for cooperative arrangements amongst states, economic or otherwise, would appear to be enhanced considerably than is the case under strict realist assumptions. Y e t the constraints provided by the international structure, in part icular the operation of the security di lemma, continue to make collaboration difficult and stress the need for state autonomy. Whi le s t ructural real ism is able to accommodate international cooperation as long as i t is not threatening to the security of any states involved (directly or indirectly), the nature of the international system is such as to render those occasions rare. Because the international system is characterized by anarchy, i t is necessarily a system of self-help. A s Wa l t z points out: 8. Kenne th Wal t z , Theory of International Politics (New Y o r k : Random House, 1979) p. 74. 20 Theoretical Perspectives To achieve their objectives and mainta in their security, units in a condition of anarchy -- be they people, corporations, states, or whatever, ~ must rely on the means they can generate and the arrangements they can make for themselves. Self-help is necessarily the principle of action in an anarchic order. A self-help situation is one of high risk - of bankruptcy in the economic rea lm and of war in the world of free states. 9 Because self-help situations are of such great r isk, and because cooperation often entails r isk, the chances of cooperation in such situations are reduced considerably. Indeed, in a condition of anarchy, m a x i m u m autonomy is the most secure strategy for a state to follow, since collaboration is l ikely to raise dependence and vulnerabil i ty. Added to the high risk associated wi th systems of self-help is the security di lemma: many of the means by which a state tries to increase its security decrease the security of others. Because international relations is widely viewed i n zero-sum terms, any move toward complete security by one actor wi l l st imulate reactions which raise the level of threat in proportion to measures taken. Thus, i n situations where the security d i lemma is acute, the chances for collaboration w i l l be min ima l . The security di lemma is obviously most severe in those areas where the state is most vulnerable, yet because state security may be linked to political and economic issues as wel l as strategic ones, the security di lemma is often pervasive. Wi th in such a system, where the use of force is a constant possibility, considerations of economic gain are subordinate to those of security. Al though seemingly better able to accommodate evidence of international cooperation, s t ructural real ism has retained the normative orientation of its predecessor. The pragmatic approach to international politics espoused by Morgenthau is reflected in the work of Wal tz and tends to objectify the realist position. Morgenthau claims for real ism a "realistic" understanding of human nature "as it actually i s" , while Wa l t z offers a positivistic view of theorizing i n political science. Thus, for Wal t z , the measure of any theory lies in its power to explain r e a l i t y . 1 0 A theory is not properly discredited by analyzing the accuracy of its underlying assumptions, nor can a theory be disproven on 9. Kenne th Wal t z , Theory of International Politics, p. 111. 10. Kenne th Wal tz , Theory of International Politics, ch. 1. 21 Theoretical Perspectives empirical grounds alone. Rather, a theory m a y only be overthrown by a better theory, that is , a theory which is better able to explain or predict reali ty. A s Richard Mansbach and Ya le Ferguson point out, however, theoretical debates among polit ical scientists reflect differing normative commitments through competing claims over which authors should be studied, which level of analysis is most appropriate, which variables are cri t ical , and which issues are most p ress ing . 1 1 The difficulty is that how one sees real i ty is very much dependent upon which normative lenses are being used. Rea l i sm came to dominate the field of international relations at the end of Wor ld W a r II because, according to realists, Western leaders in the interwar period had deprecated power i n favour of legal and mora l solutions to the problems of their time. In so doing the idealists had confused theory wi th practice and confounded normative wi th scientific a n a l y s i s . 1 2 Y e t there is little reason to believe realists could have fared any better. While for the most part the statesmen in question were aware of the balance of power as a concept, such an understanding provided little in the w ay of policy prescription. Fur ther , Morgenthau himself is unable to offer any reliable measure of power. Thus , while history revealed to the realists, as it did to the idealists, the mistakes of the interwar statesmen, there is little reason to believe realist thinking would have proven more successful in avert ing the war . Indeed, that factor for which interwar statesmen were least able to account, the motives and personality of Hi t le r , who did not behave according to the dictates of balance of power thinking, is equally baffling to realists. The point is that theorizing in political science does not move forward in the same sense that i t does i n the natural sciences, but rather reflects the normative concerns of those who engage in it. While realists are frequently accused of amoral i ty , their apparent pragmat ism only thinly veils a clear set of moral and prescriptive rules which the official 11. Richard Mansbach and Ya le H . Ferguson, "Values and Parad igm Change: The Elus ive Quest for International Relations Theory," paper for the 26th annual meeting of the International Studies Association, Washington D . C , M a r c h 1985. p. 4. 12. Mansbach and Ferguson, "Values and Parad igm Change," p. 6. 22 Theoretical Perspectives decision makers of the day are to follow in seeking to serve the national interest. Likewise , neorealism sets out constraints wi th in which policy-makers must operate in fulfilling the national interest. O f course, as numerous critics have pointed out, the concept of 'national interest' is so vague that its interpretation cannot but involve a highly subjective judgment. W h a t leads to a shift in political dialogue has less to do wi th the evolution of political theory, as Wal tz would have it , or the appearance of anomalies, than wi th a change in the normative temper of an era. Thus the preoccupation of real ism wi th the value of security m a y be understood as reflecting the experience of Wor ld W a r II; a preoccupation manifest in the overriding salience of a single issue following that conflict, the Cold W a r . " H a v i n g emerged from a catastrophic conflict that had been inflicted by the aggressive behavior of a smal l group of dissatisfied and expansionist actors, publics and governments were ready to embrace policies and theories that focused upon the prevention of war through s t rength ." 1 3 New Perspectives The world of today is in many respects different than the one which gave rise to real ism. The Un i t ed States is no longer clearly preponderant. M i l i t a r i l y its capabilities are offset by those of the Soviet U n i o n , while economically the Amer i can share of the world market continues to be eroded by Europe, Japan , and the N e w l y Industrialized Countries (NICs). The uti l i ty of A m e r i c a n mi l i ta ry power has been called into question in , among other places, V ie tnam and Iran, while Soviet forces continue to be bogged down in Afghanis tan. The specter of nuclear annihilation has changed the very conception of war , thereby altering that problem to which international relations has tradit ionally addressed itself. The pr imacy of mi l i t a ry power has further been undermined by the increased importance accorded to welfare issues in all states. The responsibilities of modern 13. Mansbach and Ferguson, "Values and Parad igm Change," p. 20-21. 23 Theoretical Perspectives government have been extended to include a whole range of functions previously left in private hands. The result has been to saddle the state wi th economic and welfare burdens, w i th the consequence that economic performance has become far more crucial than previously. F ina l ly , the Second Wor ld W a r is now more than forty years i n the past, and the hostilities of the Cold W a r have been blunted by a decade of detente, both of which have undermined the normative appeal of power politics. The twenty years immediately following W o r l d W a r II were marked by the global domination of the Uni ted States i n both economic and strategic terms. Al though the Uni ted States lost its monopoly on nuclear weapons in 1949, it managed to retain a clear preponderance of nuclear forces unt i l the end of the 1960s, a capability brought to light dur ing the 1962 Cuban Miss i l e Cr i s i s . The enormous power of the Uni t ed States in international affairs provided an unusual degree of stabil i ty and order in global economic relations as well as al lowing A m e r i c a n foreign policy unprecedented freedom of action. Dominant in the world economy, the Americans remained paradoxically insulated from it. The Uni ted States had the abili ty, as wel l as the will ingness, to trade off its external economic interests in order to further its major foreign policy objectives, the most important of which was the containment of the power of communist regimes. This was evidenced in the late 1950s when the Uni ted States actively promoted European economic integration despite the fact that the formation of the European Communi ty harmed Amer i can export prospects in Western E u r o p e . 1 4 The N i x o n surcharge of 1971, coupled wi th a number of other measures to restrict the flow of Amer i can dollars abroad, signaled the a r r iva l of a more nationalistic and protectionist style of A m e r i c a n foreign economic policy. Amer i can organized labour, abandoning its traditional l iberal economic stance, openly embraced protectionism, putt ing pressure on legislators, par t icular ly of the Democratic Pa r ty , to adopt a s imi la r attitude. 14. Jock A . Finlayson, "Canadian International Economic Policy: Context, Issues and a Review of Some Recent Li te ra ture ," Canada and the International Political/Economic Environment, ed. Denis Stairs and Gi lber t R. W i n h a m (Toronto: Univers i ty of Toronto Press, 1985) pp. 21-22. 24 Theoretical Perspectives The deterioration of the competitive position of the U . S . economy meant that A m e r i c a n policy makers were less wi l l ing to forgo economic interests for the sake of broader foreign policy objectives. "Trade and trade policy concerns would henceforth car ry greater weight i n the thinking of both the executive branch and even more so of Congress . " 1 5 The economic decline of the Uni t ed States mirrored a decline in its relative mi l i t a ry power. The Strategic A r m s Limita t ions Ta lk s ( S A L T ) acknowledged Soviet par i ty i n strategic nuclear capabilities, while the V i e t n a m war called into question the effectiveness of conventional A m e r i c a n mil i tary force. Perhaps even more importantly, the easing of Cold W a r hostilities i n the late 1960s and 1970s weakened Western consensus i n the mi l i t a ry sphere and undermined Amer i can leadership of the At lant ic Al l iance . B y the mid-1970s the hegemony of the United States in the international system showed every sign of coming to an end. The decline of the global influence of the Uni ted States has been identified by several analysts as responsible for a breakdown in the post-war liberal economic consensus. Charles Kindleberger views the existence of a hegemon as a requisite, i f not sufficient, condition for open world trade. In order for the world economy to be stable, i t needs a stabilizer; a country that would undertake to provide a market for distress goods, a steady flow of capital , and a rediscount mechanism for providing liquidity when the monetary system is i n pan ic . 1 6 N o longer wi l l ing or able to forfeit economic gains for security goals, Amer i can policy makers have become increasingly concerned wi th the politics of domestic wealth and welfare. The result has been the erosion of the globalized t rading arrangement presided over by the Uni t ed States since the end of World W a r II and a dissolution of the barrier between economic and political issues. A s ear ly as 1972, in an article entitled "Trade Policy is Foreign Pol icy ," Richard Cooper foresaw the consequences of a decline of the l iberal trading order: 15. Jock A . F in layson , "Canadian International Economic Pol icy ," Canada and the International Political/Economic Environment, p. 48. 16. Charles Kindleberger, "Dominance and Leadership in the International Economy," International Studies Quarterly, 25. p. 250. 25 Theoretical Perspectives The breakdown of the old coalition in support of l iberal trade, and of the failure to replace it wi th a new one or by a persuasive rationalization for the present state of affairs, is l ikely to result not only in more protectionism of a clear and straightforward kind, but also a greater intrusion of foreign trade issues into general foreign re la t ions . 1 7 The increased sensitivity of the Uni ted States to foreign trade issues is not par t icular ly surpr is ing given its changing position in the world economy. The Amer ican share of world exports dropped from 22 per cent in 1950 to 10 per cent i n 1980, while exports as a proportion of U . S . gross national product rose from about 5 per cent to 10 per cent over the same pe r iod . 1 8 The increasing reliance of the Uni ted States on global trade is hardly unusual . While between 1960 and 1983 world national production grew at the unprecedented rate of 5.5 per cent per annum, over the same period world trade grew at an average rate of about 8 per cent . 1 9 Clear ly the mul t i la tera l t rading institutions founded in the wake of Wor ld W a r II have proven successful in reducing the r isks of protectionism and isolationism by encouraging the evolution of an open world trade and payments system. The tw in pil lars of the G A T T and the I M F , dedicated to the establishment of a l iberal mul t i la tera l order based on the free flow of goods and services, and on convertible currencies that would permit mult i la teral settlement of accounts, have affected profoundly the global t rading and political environment. The success of the liberal t rading order since 1945 has not come without cost, one which the Uni ted States, by virtue of its enormous economic and mi l i t a ry strength, felt last. Indeed, the Americans sacrificed little in re turn for access to international markets since the war had effectively shattered the economies of its former competitors. Y e t i t was logically inescapable that the creation of strong mul t i la tera l institutions in the interests of liberalized trade would entail some sacrifice of national autonomy. " A n international 17. Richard Cooper, "Trade Policy is Foreign Pol icy ," Foreign Policy, 9 (Winter 1972-73) p. 31 . 18. Canada, Roya l Commission on the Economic U n i o n and Development Prospects for Canada, Report of the Royal Commission on the Economic Union and Development Prospects for Canada, vol . 1 (Ottawa: Minis te r of Supply and Services, Canada, 1985) p. 225. 19. Cited in Richard G . Ha r r i s , Trade, Industrial Policy and International Competition (Toronto: Un ive r s i ty of Toronto Press, 1985) p. 1. 26 Theoretical Perspectives economic system based on specialization and the free flow of goods and services imposes restrictions on each country's r ight to pursue its own part icular goals and pol ic ies ." 2 0 A s trade and investment flows have increased in response to liberalization, the sensitivity of national economies to international events have risen. H i g h interest rates in one nation affect interest rates and exchange values i n another country; high exchange values create pressures on trade balances; and falling trade balances can expand problems of international debt. A s Edward Morse points out, the creation of interdependencies among societies has resulted i n the externalization of domestic policies and the internalization of foreign policies. "The two are l inked not only by the general characteristics of interdependence, whereby predominantly domestic policies have recognizable external effects, but also by the creation of policy instrumentalit ies that are used for the attainment of both domestic and foreign goals . " 2 1 The distinction between domestic and foreign policies has become difficult to mainta in in a l l but the most abstract sense because polit ical and nonpolitical interactions take place across societies at high levels and because transnational phenomena are so significant that terri torial , political, and jurisdictional boundaries are extremely difficult to define. A clear result of this growth in interdependence has been the erosion of state autonom}\ The high mobility of capital and technology combined wi th an increasingly competitive world market has had a strong homogenizing effect on policy. Interest rates, taxation levels, and social welfare policies, to name only a few, are bound to effect the costs of production in a given country and thus its competitiveness in the international economy. Relat ively high levels of taxat ion are therefore l ikely to result in an exodus of capital and a decline in standards of l iving. A s Richard Cooper points out, "interdependence, by joining national markets, erodes the effectiveness of [domestic] 20. Canada, Report of the Royal Commission, p. 281. 21. E d w a r d L . Morse, Foreign Policy and Interdependence in Gaullist France (Princeton: Princeton Univers i ty Press, 1973) p. 13. 27 Theoretical Perspectives policies and hence threatens national autonomy in the determination and pursuit of economic objectives." 2 2 The inabil i ty to distinguish clearly between domestic and foreign policy issues has been accompanied by a decline in the ut i l i ty of force as a principal tool of foreign policy. Mos t significant in this respect has been the development of nuclear weapons and the effective means for their delivery. Al though atomic weapons had come into existence in 1945, their full impact would not be realized for some time. The rapid development of nuclear technologies in the 1950s and 1960s led to new capabilities and limitations. The development of I C B M forces, the submarine launched ballistic missi le, hardened silos and the general proliferation of nuclear weapons amongst the superpowers, a l l contributed to a changing conception of warfare where both offensive and defensive capabilities had evolved to a point where neither side seemed sufficiently invulnerable to withstand the destruction which could be inflicted by the other i n the event of an all-out nuclear confrontation. The Soviet attainment of strategic nuclear pari ty wi th the Amer icans underlined the vulnerabi l i ty of the Uni ted States and, indeed, of the entire planet. The nuclear era rendered war, at least involving the superpowers, i r rat ional . The irrat ional i ty of full-scale war has been added to by the development among advanced states of multiple relationships of dependence, or what Robert Keohane and Joseph N y e have referred to as "complex interdependence". 2 3 Situations of complex interdependence are characterized by three major traits. F i r s t , multiple channels connect societies. These channels include i n addition to interstate relationships assumed by realists, trans-governmental and transnational relations. Second, the agenda of interstate relationships consists of multiple issues that are not arranged in a clear or consistent hierarchy. Th i rd , mi l i t a ry force is not used by governments within the region or on those issues where complex interdependence prevails. Force is not seen as a viable policy when 22. Richard Cooper, "Economic Interdependence and Foreign Policy i n the Seventies," World Politics 24 (January 1972) p. 164. 23. Robert Keohane and Joseph N y e , Power and Interdependence: World Politics in Transition (Boston: Li t t le , B r o w n and Company, 1977) 28 Theoretical Perspectives conditions of complex interdependence prevail because wi th in those areas or over those issues interstate, trans-governmental or transnational l inkages are mutual ly beneficial and the use of force would threaten profitable relationships. Keohane and N y e main ta in that, part icularly among industrialized, pluralistic countries, the perceived margin of safety has widened and consequently the ut i l i ty of force has diminished. Indeed, as Bruce Russett points out, there has been a marked decline in the use of force between advanced states in the post-war era: The absence of interstate w a r is indisputable, and by fair ly early on i n the postwar era even preparation for, and expectation of, war among capitalist countries had diminished nearly to the vanishing point. B y the end of the 1950s one could say wi th reasonable confidence that a "security community" or "stable peace" had been established everywhere i n the O E C D area, even between tradit ional enemies . 2 4 The decline in the uti l i ty of force between industrialized states has been matched by an increase i n the relevance of economic issues to the modern state. Par t icu la r ly since the end of Wor ld W a r II, the state has undertaken a whole range of responsibilities previously considered to be private concerns. Management of the economy, health care and education, the redistribution of weal th and even the provision of employment have become important to governments of v i r tua l ly al l states as welfarist policy objectives have become central concerns of the contemporary state. Increasing interdependence among states, par t icular ly in the economic sphere, has meant further that economic relations have increasingly become the focus of international politics. A result of these and other changes in states and the system of states has been the formation of alternative conceptions of the world which reflect a differing normative orientation. Richard Rosecrance sees the world as moving away from the "polit ical-mi l i ta ry" , i n which states compete for pr imacy in terms of power and terri tory, toward a "trading w o r l d " . 2 5 The trading world is composed of states differentiated in terms of 24. Bruce Russett, "The mysterious case of vanishing hegemony; or, is M a r k T w a i n real ly dead?" International Organization 39 (2) (Spring 1985) pp. 215-216. 25. Richard Rosecrance, The Rise of the Trading State: Commerce and Conquest in the Modern World (New Y o r k : Basic Books, 1986) 29 Theoretical Perspectives function, as opposed to the realist conception which sees states as differentiated only i n terms of their relative power capabilities. E a c h m a y seek to improve its condition, but because nations supply different services and products, in defence as well as economics, they come to depend on one another. A s wi th complex interdependence, the incentive to wage war is absent in such a system, for war disrupts trade and the interdependence on which trade is based. In a s imi lar vein, Edward Morse argues that the increased salience of economic issues, combined wi th increased interdependence has led to a requirement for increased international cooperation in order to at tain domestic policy goals. "If in an earlier period cooperation took place in a p r imar i ly conflictual context, now, under the impetus of modernization, conflicts among states tend to take place increasingly in a context which is p r imar i ly cooperative." 2 6 The costs of cooperation may be high however, at least i n tradit ional terms. Whi le further increases i n interdependence are l ikely to raise the costs of war between industrialized states, state autonomy is bound to suffer. A s nations increasingly depend on products, funds, and even security contributed by other states, i t becomes harder to solve national problems by strictly national means. The preservation of the independence or external sovereignty of individual states is, according to Hedley B u l l , a fundamental goal of the international order. W h a t any particular state hopes to gain from participation in the "society of states" is recognition of its independence from outside authority, and of its supreme jurisdiction over its subjects and terri tory. In re turn for such recognition, the state must give recognition of like rights to independence and sovereignty on the part of other s ta tes . 2 7 The shift toward a trading world seen by Rosecrance implies a decline i n the independence of states in return for greater economic benefits. Since trade cannot operate in the face of heavy restrictions, tariffs, exchange controls, quotas, restraints (voluntary or 26. E d w a r d Morse , Modernization and the Transformation of International Relations (New Y o r k : The Free Press, 1976) p. 85. 27. Hedley B u l l , The Anarchical Society: A Study of Order in World Politics (London: The M a c M i l l a n Press , 1977) p. 17. 30 Theoretical Perspectives involuntary), competitive devaluation of currencies and other instruments which act to l imi t the amount of trade among nations wi l l have to be dispensed wi th . A t rading system is thus l ikely to exact, at the very least, a certain basic social or governmental cost. Since opening one's t rading and financial centres to foreigners gives them access and a role in the economic outcome in one's own country, i t is not a step l ightly taken. The d i lemma faced by policy makers is therefore acute, and involves a normative choice between differing visions of the world: A government may wish to foster political integration in those areas where interdependence is high; or it m a y w i s h to restrain further growth in interdependence, perhaps even at the cost of hindering the achievement of fundamental domestic goals. The first option is made difficult to accept since it requires that the government give up aspects of sovereignty, never an easy thing to do. The latter option is, however, equally difficult, in that i t would weaken the government's legit imacy by causing a growth i n public dissatisfaction wi th governmental performance. 2 8 Conclusions It is difficult to argue that the normative concerns expressed i n realist l i terature are no longer relevant to the contemporary international order. Fo r a significant number of states, even some advanced industr ial nations (Germany and Israel, for instance), considerations of power and security remain paramount. However , for many other countries, economic and social welfare concerns have come increasingly to dominate the policy agenda. In an age where the very legit imacy of the state m a y be linked to its abili ty to provide for its citizens, national economic performance has become a pr ior i ty for v i r tua l ly a l l governments. A t the same time, at least among the majority of industrialized countries, the threat of armed confrontation has receded. The potential for global annihilation brought about by the development of nuclear weapons has rendered the use of force, at least on a large scale, incredible. More l imited uses of force, such as i n V i e t n a m 28. E d w a r d Morse , Modernization and the Transformation of International Relations, p. 125. 31 Theoretical Perspectives and Afghanistan, have proven ineffective in attaining foreign policy objectives. Power, it would seem, may not be measured simply by assessing military capabilities. The utility of force has been further eroded by a growth in interstate, trans-governmental and transnational relationships. These linkages among societies have flourished in the liberal trading order established in the wake of World War II. In virtually all industrialized countries, foreign trade makes up an increasing share of Gross National Product (GNP). In fact, the value of world trade in 1980 reached some $2,000 billion (U.S.), a sixfold increase in real terms since 1950, while the proportion of goods and services which crosses national boundaries has more than doubled, from 11 per cent of world output in 1950 to 21 per cent in 1980.29 The increase in international transactions has worked to inhibit the use of violence among states with mutually beneficial relations. As welfare issues have increased in importance and as foreign trade has made up an increasing share of GNP in most states, the value of international trade and the interdependence on which it is based has also grown. Thus, while traditional security concerns have diminished, at least for most industrialized states, a new emphasis has been placed on what Morse has termed economic security. In order to assure the stability of government, modern policy makers must ensure the continual economic growth of the state, particularly as demands on the state increase. The shift in the normative concerns of international politics implied by a focus on economic issues further entails a change in the conduct of foreign policy. To adopt a vision of the world in which states are truly interdependent is to reject traditional assumptions about the value of state autonomy in favour of economic welfare. The liberalization of trade and investment which has occurred since the Second World War, largely under the auspices of the GATT and the IMF, has succeeded not only in multiplying international trade flows, but has further resulted in political constraints on those states which have 29. Canada, Department of External Affairs, A Review of Canadian Trade Policy: A Background Document to Canadian Trade Policy for the 1980s (Ottawa: Minister of Supply and Services, 1980) pp. 18-19. 32 Theoretical Perspectives participated. The more freely goods and other factors of production flow between countries, the greater are the pressures placed on traditionally national policies by the operation of an international economy. "Growing interdependence between states has meant that realization of domestic priorities and objectives for many countries is becoming more and more closely related to constraints and opportunities flowing from the international economic environment ." 3 0 Hence, interest levels, exchange rates, regional subsidies and even social welfare expenditures may come under the hostile scrutiny or even the sanctions of economic partners. In contrast to the nat ional ism implied by realists ' stress on the zero-sum issues of power and security, economic issues offer variable-sum solutions at the expense of national autonomy. Trade liberalization promises expanded international trade and increased global productivity through more efficient allocation of resources. Certa inly the unprecedented expansion of the global economy in the l iberal t rading environment of the post-war order seems to bear out l iberal economic thinking. B y the same token, the drift toward an integrated global economy has led to the domestication of foreign policy and the externalization of domestic policies. The hierarchy of issues assumed by realists is unable to allow for the trade-off between guns and butter — or more accurately, between autonomy and welfare. Y e t the increased salience of economic and welfare issues for modern states combined wi th a less threatening international environment for many countries has made the latter option not only possible, but, i n many cases, preferable. 30. Canada, A Review of Canadian Trade Policy, p. 201. 33 Chapter Three CANADA AND FREE TRADE ...this Commission believes that Canada stands at a turning point in its economic history, and that a new era demanding innovative foreign and domestic economic policies is about to dawn for Canadians. This new era will require our governments to develop and implement policies which will facilitate adjustment in the Canadian economy to a rapidly changing and increasingly interdependent world. Commission on the Economic U n i o n and Development Prospects for Canada The changes in the international order highlighted by liberal thinkers in their criticisms of real ism are broadly paralleled in Canadian-American relations and specifically the Canadian decision to pursue a comprehensive trade agreement wi th Washington. The increased salience of economic issues accompanied by a decline in the urgency of security considerations has made close economic relations wi th the Uni ted States not only possible but desirable. Indeed, trade liberalization wi th the Uni ted States, evident since the mid-1980s, has progressed in steady fashion, despite a powerful nationalist impulse which has called for greater domestic control of an increasingly integrated continental economy. In drawing Canada st i l l closer to the A m e r i c a n economy, free trade is almost certain to impose further l imitations on Canadian independence, yet promises to foster economic expansion. In the calculus of modern states, however, the trade-off is worthwhile and hence free trade, in the words of Pr ime Minis te r Mul roney , "is in the national interest ." 1 The autarky i n international politics apparent to realists and applauded by nationalists has, i n the Canadian case, been contradicted by an evident cooperation among states in which economic issues are paramount. 1. Maclean's, M a r c h 23, 1987, p. 16. 34 Canada and Free Trade Trade has a lways been v i ta l to the health of the Canadian economy. Confederation was, at least i n part , prompted by the failure of the provinces to regain reciprocity wi th the Uni ted States, and the Nat iona l Pol icy aimed at pushing the Americans toward a trade agreement. In i t ia l ly linked to Great B r i t a i n and the Empi re , the end of the colonial preferences and the decline of the Br i t i sh Empire shifted Canadian attention to the Uni ted States and continental trade. Y e t Canadian political and cultural values retained a strong Br i t i sh orientation, further distinguished by a French element and the incalculable effects of Canada's northern geography, which differentiated Canadians from their neighbours. The impact of A m e r i c a n political and cultural values, propelled by a vigorous economy and expansionist spiri t , has long been of concern to Canadians who have seen closer relations wi th the Uni t ed States as threatening to Canadian identity and political autonomy, and has been opposed by nationalist legislation, usual ly i n the form of protectionism, designed to counter A m e r i c a n influence in Canadian society. Despite the history of the issue, the decision to pursue free trade taken in September 1985 had solid popular and political support. Opinion surveys by Environics Research Group, published in the Globe and Mail, showed that in June 1984, 78 per cent of a national sample favoured free trade, and only 17 per cent disagreed. The next June, support for free trade, while slipping, remained strong wi th 65 per cent in favour and 30 per cent against . 2 Al though the N e w Democratic P a r t y opposed liberalization of trade with the Uni ted States, the Liberals , for the most part, endorsed the Conservative initiative. Indeed, the Liberal-appointed Macdonald Commission's recommendation for free trade was indicative of the broad support for trade liberalization wi th politicians, bureaucrats and academics alike. A m o n g the provincial premiers, free trade received v i r tua l ly unanimous support, wi th the possible exception of Ontario premier D a v i d Peterson who, while not opposed to negotiations, worried about the implications of any agreement on the Auto Pact. 2. Cited in D a v i d Bercuson, J . L Granatstein, and W . R. Young , Sacred Trust? Prime, Minister Mulroney and the Conservative Party in Power (Toronto: Doubleday, 1986) p. 265. 35 Canada and Free Trade Y e t Peterson's skepticism was somewhat muted by the fact that most analysts foresaw Ontario as reaping the greatest potential benefits of freer trade wi th the Americans . A trade deal wi th Washington has been rendered more urgent by a Congress increasingly disposed to implement protectionist legislation i n order to shield A m e r i c a n producers from foreign competition. A s the A m e r i c a n share of the world market has declined, and in the face of a perennial balance of payments deficit, the U . S . has turned wi th increasing frequency to protectionist measures. This slipping commitment to the principles of l iberal trade has also been felt at the mult i la teral level, par t icular ly the G A T T , where the Uni ted States remains the p r imary sponsor. Thus various trade barriers have been given legit imacy under the rules of the G A T T while existing l iberal trade codes have been diluted, effectively undermining the pursuit of liberalized trade on a global level. Fur ther , the r i s ing importance of regional trading blocs, most notably the European Economic Communi ty , has left a fractured world economy, wi th Canada excluded from significant markets . Ot tawa has therefore elected to pursue trade negotiations on a bi lateral basis, in the a im of gaining exemption from A m e r i c a n protectionist legislation and further enhancing Canadian access to the U . S . market . The impact of a comprehensive trade arrangement wi th the Uni ted States is difficult to estimate. In the first place, any specific agreement has yet to be articulated, and even i f i t were, its long-term implications would l ikely remain obscure. Second, and more important, any measure of the effects of free trade, i f i t is to be at a l l meaningful, must be given in relation to the probable state of events in the absence of an agreement. The point is that the lack of an agreement does not imply a lack of change, and m a y i n fact result in greater change than would be the case given free trade. Indeed, in as much as i t represents an attempt to secure access to Amer i can markets, Canada's trade initiative seeks to mainta in Canada 's exist ing relationship wi th the Uni ted States in the face of growing protectionism. Fur ther , even in the absence of a trade agreement, Washington w i l l continue to exert considerable polit ical and economic influence in Canada 36 Canada and Free Trade solely by virtue of its economic and political clout. In some sense, therefore, free trade represents an attempt to regulate the Canadian-American t rading relationship in the face of turbulent change. A t a different level, however, free trade represents a departure from Canadian political tradition. The decision to pursue a l iberal trade agreement wi th Washington is significant for various reasons. In the first place, it flies i n the face of a strong nationalist tradition in Canadian history, and one which has identified the Uni ted States as the principal antagonist. The defeat of Laur ie r ' s Liberals in 1911, Mackenzie King ' s feelings about the political populari ty of free trade in the late 1940s, the support given Diefenbaker's nationalistic vision in the late 1950s, and the populari ty of Trudeau's nat ional ism in the late 1960s and 1970s, a l l suggest either an overt antagonism or at least a healthy skepticism toward the Uni ted States has figured prominently in Canadian history. Moreover, i t is a definition of nation in which autonomy is highly va lued . 3 Second, given the historic and political sensitivity of the issue, the commitment to free trade implies an alternate vision of the international environment i n which r is ing interdependence and the increased salience of economic issues are fundamental. In such an understanding of the world, the trade-off between autonomy and economic welfare has shifted away from the former and toward the latter. Nationalism and the United States The economic advantages to be had in freer trade wi th the Americans appear, by most accounts, to be good. Al though there are l ikely to be short-term dislocations i n those industries that continue to be viable only given protection from Amer i can producers, the 3. K i m Richard Nossa l , "Economic Nat iona l i sm and Continental Integration: Assumpt ions , Arguments and Al ternat ives ," The Politics of Canada's Economic Relationship with the United States, ed. Denis Stairs and Gilber t R. W i n h a m (Toronto: Un ive r s i t y of Toronto Press, 1985) p. 90. 37 Canada and Free Trade majority of economic studies predict a long-term expansion of the economy in a l l regions. 4 Indeed, the major point of contention among economists revolves around exactly how much G N P w i l l rise and where it w i l l rise the most, rather than whether it w i l l rise at a l l . W h a t appears far less tangible and a good deal less certain are the political and cul tural effects of free trade. A n y economic change of such magnitude entails a measure of r isk , a fact recognized by Donald Macdonald who, while endorsing free trade, warned that i t would eventually require a "leap of fai th." It is not a jump all Canadians have been wi l l ing to take, as free trade appears to many as certain to erode Canadian political autonomy and cultural identity. Canadian nationalism has long found definition in a sense of distinction, polit ically, economically and cultural ly, from the Uni ted States and from Americans . "Without at least a touch of ant i -Americanism, Canada would have no reason to exist. O f al l the general definitions of the Canadians, this is the most nearly valid: twenty mil l ion people who, for anything up to twenty mil l ion reasons, prefer not to be Amer icans . " 5 G iven its location, not only sharing the longest border i n the world wi th the Uni ted States, but further hav ing the overwhelming majority of its population l iv ing wi th in 200 miles of that border, the ant i -American nationalism often exhibited by Canadians may be understood at least par t ia l ly as a defensive reaction. Indeed, the very existence of Canada as a separate entity from the Uni ted States is unexpected. The natura l lines of trade run perpendicular to the actual stretch of the country, and the expansionist history of the Amer icans rendered Canada an obvious target of annexation. The Nat ional Policy defied both those realities, yet Canada has a lways appeared a precarious nation. "The forefathers always knew that Canada, as a colony or dominion, was a very uncertain experiment, that we 4. See, for instance; Canada, Standing Senate Committee on Foreign Affa i rs , Canada-United States Relations, vol . 2: Canada's Trade Relations with the United States (Ottawa: Queen's Pr inter , June 1978); Economic Council of Canada, Looking Outward: A New Trade Strategy for Canada (Ottawa: Information Canada , 1975); and various volumes of the Macdonald Commiss ion research. 5. B l a i r Fraser , The Search for Identity: Canada, 1945-1967 (Garden Ci ty : Doubleday and Company, 1967) p. 301. 38 Canada and Free Trade r isked the wra th of the Americans by cutting their manifest destiny in half, that the Br i t i sh would be very reluctant to defend us, and that a transcontinental economy wi th rudimentary transportation facilities was a gamble." 6 Despite its improbabili ty, the Canadian experiment was successful i n as much as it managed not only to survive, but thrive as a nation distinct both from its B r i t i s h heritage and the growing influence of the Uni ted States. Al though Canada retained close l inks wi th Great B r i t a in , keeping, in a very real sense, the Br i t i sh flag, political institutions, monarch and a host of other loyalties which marked Canadians as B r i t i s h subjects, it was evident even prior to Confederation that the Uni ted States would provide Canada its most logical trading partner. Canadian cultural and political attachments thus diverged from its geographic and economic partnership, a fact which accentuated Canadian sensitivity toward a growing Amer ican presence, economically, polit ically and cul tural ly on the Nor th Amer ican continent. Beginning wi th Macdonald's Nat iona l Pol icy, Canadian legislation on a range of issues from cultural affairs to transportation, has been directed, at least in part, at preserving a political community distinct from the Uni ted States. The fundamental differences i n political philosophies, cul tural background and historical experiences which exist between the two countries are manifest i n very real differences in national character and outlook. Whi le the Uni ted States came into being art iculating the egalitarian and populist principles of the Declaration of Independence which were burned into the Amer i can consciousness by the struggle of the Amer ican Revolution, Canada lacks any such founding myth . A s W . L . Mor ton points out, Canada "arr ived at freedom through evolution in allegiance and not by revolutionary compact," making its "f inal governing force...tradition and convention." 7 Fur ther , Canadian politics rested on differing assumptions than the highly individualistic Lockean tradition of Amer i can politics. According to George Grant : "To be a Canadian was to bui ld , along wi th 6. John W . Holmes, "Divided we stand," International Journal 31(3) (Summer, 1976), p. 387. 7. W . L . Mor ton , The Canadian Identity 2nd ed. (Toronto: Univers i ty of Toronto Press, 1972) p. 86. 39 Canada and Free Trade the French , a more ordered and stable society than the liberal experiment i n the Uni ted States ." 8 The lack of any powerful founding m y t h in Canadian history as wel l as the broad ethnic background of its people has rendered Canadian nationalism somewhat uncertain, yet a sense of identity is given in contrast to the Uni ted States. P a r t of this identity is evident in the comparatively collective orientation of Canadians who have shown themselves far more wi l l ing than Amer icans to support government intervention in almost any aspect of l i fe . 9 While the N D P are considered moderate by Western European standards, the Uni ted States is notably lacking in any significant socialist movement, and has lagged behind Canada in its adoption of welfarist policies. In a study of welfare state development in Nor th Amer i ca , Robert T . Kudr l e and Theodore R . M a r m o r found that Canadian programs were adopted earlier, financed more progressively, and/or were more income redistributive in the areas of old age security, unemployment insurance, family allowances and medical care. The authors note that "the ideological difference - slight by international standards -- between Canada and the Uni ted States appears to have made a considerable difference in welfare state developments." 1 0 The comparat ively collective nature of Canadian culture and politics is given further by much stronger trade union membership in Canada than the Uni t ed Sta tes . 1 1 In spite of these differences in political and cul tural character, Canada has d rawn steadily closer to the Uni ted States, most notably i n its economic relations, but politically and cul tural ly as wel l . Par t icular ly since the Second Wor ld W a r , Canada 's relationship wi th the Uni ted States progressed rapidly. Pol i t ical ly the war and ensuing struggle wi th 8. George Grant , Lament for a Nation: The Defeat of Canadian Nationalism (Toronto: M a c m i l l a n , 1978) p. 4. 9. Seymour M a r t i n Lipset , "Canada and the Uni t ed States: The Cu l tu ra l Dimension," Canada and the United States: Enduring Friendship, Persistent Stress, ed. Char les F . Doran and John H . Sigler (Englewood Cliffs: Prent ice-Hal l , 1985) p. 141. 10. Robert T. Kudr le and Theodore R. M a r m o r , "The Development of the Welfare State i n N o r t h A m e r i c a , " The Development of Welfare States in Europe and America, ed. P . F l o r a and A . J . Heidenheimer (London: Transaction Books, 1981) p. 112. 11. In 1983, 20 per cent of the non-agricultural labour force in the Uni t ed States belonged to labour organizations compared to 40 per cent in Canada. 40 Canada and Free Trade Communi sm brought the two countries into close cooperation, most notably under N A T O and N O R A D which went a good distance toward integrating continental defence. The protectionism exhibited by both countries for the first third of this century began to dissolve in the mid-1980s wi th the Ot tawa Agreements and the Amer i can Reciprocal Trade program, and continental trade continued to accelerate after the war as barriers to trade were lowered or removed altogether. The Defence Production Shar ing Agreement of 1958 and the Canada-Uni ted States Automotive Products Agreement of 1965 offer the most explicit instances of continental economic cooperation. Cul tura l ly , the development and proliferation of electronic media, part icularly television, had a homogenizing effect, orienting Canadians further toward the Uni ted States. "The two Nor th A m e r i c a n nations...now moved into a more comprehensive transnational relationship than any two independent nations have previously k n o w n . " 1 2 The growing pul l of the Uni ted States, par t icular ly i n its post-war role as leader of the Western alliance, was met wi th considerable resistance by those who saw the homogenizing influence of Amer i can power as threatening to Canadian identity. Indeed, as B a r r y B u z a n points out, political threats to the state m a y take on a strongly menacing nature, as the state is predominantly a political entity. Ar i s i ng from "the great battleground of ideas, information and the traditions which is the under lying justification for international ana rchy , " 1 3 political threats are apt to be elusive, and are difficult to identify in the same sense as mi l i t a ry threats. The task of defending the nation against such threats has fallen to the state as the p r imary vehicle for asserting and mainta ining the separate existence of the nation. The state's sovereign political authority and its monopoly over members of c iv i l society located wi th in its terr i tory give the state apparatus a capabil i ty, unmatched by any other group, to create and foster the symbols and sentiments of nationhood. A s K i m Richard Nossa l points out, i t is the responsibility of the 12. J o h n Sloan Davey, Canada and the American Presence: The United States Interest in an Independent Canada (New Y o r k : N e w Y o r k Un ive r s i t y Press, 1975) p. 17. 13. B a r r y Buzan , People, States and Fear: The National Security Problem in International Relations (London: Wheatsheaf Books, 1983) p. 77. 41 Canada and Free Trade state, from the nationalist perspective, to pursue the three political ends of nat ionalism: the maintenance of the separateness of the nation from others (nations, states, or other groups); the maintenance of an abil i ty of the nation to be self-determining, and the fostering of an adherence on the part of the nation's cit izenry to the normative goodness of the nation as the natural basis for the political organization of the community to which they belong. 1 4 The nationalist impulse has tradit ionally been strong in Canadian politics, and has long relied on Ot tawa to promote its ends. The Na t iona l Pol icy, while prompted by a failure to gain access to the A m e r i c a n market , began a tradition of intervention in the economy designed to promote Canadian development and independence. Discr iminat ion by legislation and practice; the creation of "infant industries" behind tariff barriers; regulation of foreign investment; legislation of ownership requirements; nationalization of key sectors of the economy; the use of the state to promote (or inhibit) or direct external trade; these, among many others, are policies by which the government has influenced economic act ivi ty in order to encourage nationalist sentiment and enhance Canadian autonomy. In spite of an evident gravitat ion toward the Uni t ed States, such nationalist policy has often been highly antagonistic toward A m e r i c a n interests. The rejection of free trade in 1891, 1911 and 1948, Diefenbaker's pledge to divert 15 per cent of Canada's trade wi th the Uni ted States to Grea t B r i t a in , and the highly nationalistic policies of the Trudeau e r a , 1 5 are indicative of a strong resentment of growing Amer i can influence in Canadian affairs. The only apparent wa y to counter such influence, as George Gran t observed, is through government participation in , and direction of, the economy. "After 1940, nationalism had to go hand in hand wi th some measure of socialism. On ly nat ional ism could provide the 14. K i m Richard Nossal , "Economic Nat iona l i sm and Continental Integration," The Politics of Canada's Economic Relationship with the United States, p. 62. 15. Fo r example, the Canadian Development Corporation (1971), the Foreign Investment Review A c t (1973-74), Petro-Canada (1975), B i l l C-58 (1976), and the Nat ional Energy Policy (1980). 42 Canada and Free Trade political incentive for planning; only planning could restrain the victory of cont inenta l i sm." 1 6 A t the same time, however, there have evolved substantial interests which favour a strong bi lateral relationship. While the protection offered by the Nat iona l Pol icy was, for a considerable period, welcomed by Canadian producers as a necessary shelter from their larger Amer i can counterparts, the development of a more mature economy has rendered government participation i n and regulation of the market an increasing burden on Canadian business as wel l as a deterrent to foreign investment. The success of the post-war trade regime in lowering tariffs worldwide meant both that Canada had improved access to global markets and that its own markets were more open. A s wi th the Uni ted States, the arrangement suited Canadian interests i n that the Canadian economy was one of the few to emerge from the war fully intact. Support for open trade was given further wi th the growth of powerful economic actors wi th a strong interest in international trade. Transnat ional corporations and international banks benefited tremendously from the trade and financial l iberalization which occurred in the post-1945 period, and thus have tended to oppose government actions which threaten trade and investment f l ows . 1 7 The growth in the Canadian manufactur ing sector in the 1970s, largely accounted for by the Auto Pact, has further committed Canadians to bilateral trade. In fact, the Canadian Manufacturers Associat ion, long a proponent of protectionism, is today f i rmly committed to free trade. A s Jock F in layson points out, "i t is essential to recognize that the changing views of Canadian business, par t icular ly in the manufacturing sector, have weakened greatly what historically has been the most potent source of opposition to freer Canada-U.S . t rade ." 1 8 16. George Grant , Lament for a Nation p. 15. 17. Michae l C. Webb and M a r k W . Zacher, "Canadian Expor t Trade in a Changing International Envi ronment ," Canada and the International Political/Economic Environment, ed. Denis Stai rs and Gilbert R. W i n h a m , (Toronto: U n i v e r s i t y of Toronto Press, 1985) p. 92. 18. Jock A . F in layson , "Canadian International Economic Policy: Context, Issues and a Review of Some Recent Li tera ture ," Canada and the International Political/Economic Environment, ed. Denis Stairs and Gilbert R. W i n h a m (Toronto: Univers i ty of Toronto Press, 1985) p. 61 . 43 Canada and Free Trade The Canadian-Amer ican relationship has become closer in other respects as wel l . The polit ical and mi l i t a ry cooperation exhibited by the two countries throughout the Second Wor ld W a r and in shaping much of the post-war order resulted in unusual ly close relations — what has come to be known as Canada's "special relationship" w i th Washington. The special relationship meant that Canada acknowledged Amer ica ' s pre-eminence in the Western alliance, and would defer to its foreign policy positions, keeping, for the most part, any reservations i t might have for friendly discussions behind closed doors. In return, Ot tawa received special consideration i n Washington and was given privileged access to strategic inte l l igence. 1 9 Canadian participation in N A T O and N O R A D was further indication of its allegiance to the Western cause, a cause part icular ly closely identified wi th the Uni ted States throughout the Cold W a r . Cul tura l ly , the impact of the Uni ted States in Canada was expanded greatly wi th the advent of television, exposing Canadians as never before to A m e r i c a n tastes and values. The post-war era thus oriented Canada more than ever toward the Un i t ed States, displacing almost entirely the Br i t i sh role of a previous generation. Rising Protectionism Canada 's special relationship wi th Washington has become somewhat more ordinary as the Uni ted States has become increasingly incapable of car ry ing an escalating trade deficit. The " N i x o n shocks" of 1971, which freed the Amer i can dollar from the gold standard and placed a 10 per cent surcharge on imports, were aimed at balancing the A m e r i c a n current account, yet were part icularly horrifying to Canadian producers. Equa l ly unsett l ing was the fact that Canada had not been granted exemption from the surcharge, cal l ing into question the specialness of Ottawa's relationship wi th Washington. The relative economic decline of the Uni ted States, evident since the mid-1960s, has given 19. Stephen Clarkson , Canada and the Reagan Challenge: Crisis and Adjustment, 1981-85 (Toronto: James Lor imer and Company, 1985) p. 6. 44 Canada and Free Trade rise to growing protectionism as Amer ican producers have fought to retain markets in the face of escalating global competition. A s the Uni ted States is further the p r imary sponsor of the l iberal trade order, its eroding commitment to the principles of open trade has contributed to a decline in the effectiveness of mult i la teral institutions, most notably the G A T T , aimed at increasing global trade flows. The rise of regional trade blocs, led by the European Communi ty , has further eroded the l iberal trade regime by restricting access to major world markets. Such protectionism has proven deeply threatening to Canada which is highly dependent on trade, and severely l imited its foreign policy options. The need for a l iberal world trade order which would allow Canadian producers access to international markets has, at least since the mid-1980s, been recognized by Ot tawa. Canada has thus given strong support to the liberalized mul t i la tera l international t rading system and its institutions, p r imar i ly the G A T T , believing such a sys tem to be Canada 's best chance for reducing foreign trade barriers and allow for the expansion and diversification of Canadian expor ts . 2 0 The mult i la teral forum provided by the G A T T fit in wel l w i th Canada 's self-image as a middle-power, allowing i t to pursue Canadian trade interests while at the same time preserving national independence. A s pointed out in the Department of Ex te rna l Affa i rs 1983 review of Canadian trade policy: This has contributed to reducing the political differences between the two options so frequently debated throughout Canada 's history as a nation, i.e. whether or not to seek greater economic integration wi th the Uni ted States in order to obtain greater economies of scale and significant increases in productivity (i.e., a Canada-United States free trade area or customs union), or to retain our national economic independence and somewhat less potential for a productive economy. 2 1 Access to world markets, despite the G A T T , is becoming increasingly uncertain, and is par t icular ly serious for Canadian producers who, along wi th the Aus t ra l ians , are the only industrialized countries without guaranteed access to a marke t of 100 mil l ion or 20. Michae l C . Webb and M a r k W . Zacher "Canadian Expor t Trade in a Changing International Environment ," Canada and the International Political/Economic Environment, pp. 88-89. 21 . Department of Ex te rna l Affairs A Review of Canadian Trade Policy: A Background Document to Canadian Trade Policy for the 1980s (Ottawa: Minis te r of Supply and Services, 1983) p. 9. 45 Canada and Free Trade more. The principle of non-discrimination, which is the foundation on which any mult i la teral t rading system must be based, has been deeply threatened by the establishment of preference areas or regional t rading blocs. B y far the most important is that formed by the European Communi ty . This bloc now includes several Medi terranean members, as wel l as developing countries in Afr ica , the Caribbean and the Pacific, and is further tied by industr ial free trade agreements to the countries of the European Free Trade Associat ion ( E F T A ) . Roughly one-fifth of world trade now takes place wi th in the EC-centered preferential trading s y s t e m . 2 2 Other preferential trading systems include the Association of South-East A s i a n Nat ions ( A S E A N ) , the Caribbean Common M a r k e t ( C A R I C O M ) , and the Generalized Sys tem of Preferences. While such discrimination violates the spir i t of the G A T T , i t has generally been legitimized either by waivers from G A T T obligations, or by application of Ar t ic le 24 of the General Agreement. The clearest danger to Canada in the growth of regionalism is that Canadian products wi l l be excluded from an increasing number of markets. The European Communi ty ' s discrimination against non-members has directly affected Canadian exports to Europe. Canadian exports of wheat to formerly large markets in Br i t a in and continental European countries have been severely reduced by the Communi ty ' s Common Agr icu l tu ra l Pol icy (CAP) which subsidizes E C production behind a common external tariff. Indeed, the C A P has contributed significantly to a collapse in global agricultural prices and r is ing levels of agricultural subsidization elsewhere (particularly in the Uni ted States), further distorting the global market . Another negative consequence for Canada of the tendency toward regionalism is a growing propensity for Japan , the Uni ted States and the European Communi ty to settle issues of world trade policy on a tr i lateral basis, giving Canada l imited opportunity to voice its concerns. E v e n when a mult i lateral framework is employed, however, Canada now has few opportunities to influence outcomes by a l ly ing 22. Canada, Report of the Royal Commission on the Economic Union and Development Prospects for Canada vol . 1 (Ottawa: Min i s t e r of Supply and Services, 1985) p. 244. 46 Canada and Free Trade i tself w i th other medium-sized states. A m o n g smaller industrialized countries, only Canada, Aus t r a l i a and N e w Zealand stand alone. The impediment to international trade presented by the evolution of large t rading blocs have largely been sanctioned by the G A T T as have a number of other barriers. The increased competitiveness of Japan and the N I C s has stimulated protectionist pressures in those markets where penetration has been greatest. Between 1960 and 1980 Japan 's share of total world G N P increased from 3 to 10 per cent, while its share of world exports rose from 4.5 per cent in 1965 to 8.4 per cent in 1984. The N I C s , including Korea , T a i w a n , Singapore, B r a z i l and Mexico, have increased their share of world exports from 6 per cent in 1970 to 9.3 per cent in 1980 and 11.4 per cent i n 1 9 8 3 . 2 3 There is further a perception, wi th some justification, that this competitiveness has been obtained unfair ly . Bar r ie rs to trade and investment remain relat ively high in these countries, while competitors have been undermined by dumping in their markets . A s Michae l Webb and M a r k Zacher point out: the shift to J a p a n and the N I C s has been one of the most important causes of the weakening of the GATT-centered , mult i la teral , rule-based international t rading system, and thus has influenced the prospects generally for al l Canadian export-oriented sectors. 2 4 The Uni ted States and Western Europe in part icular have proven sensitive to such competition and have prevailed within the G A T T to legitimate certain barriers, so long as they are imposed in a part icular manner and follow specific procedures. The result has been to encourage member states which had not employed certain types of barriers to a r m themselves wi th the full range of G A T T rights in order to defend themselves against other members. 23. Cited in I . M . Destler, American Trade Politics: System Under Stress (Washington: Institute for International Economics, 1986) pp. 46-47. 24. Michae l C. Webb and M a r k W . Zacher "Canadian Expor t Trade i n a Changing International Environment ," Canada and the International Political/Economic Environment, p. 96. 47 Canada and Free Trade The decline in the relative power of the Uni ted States has hindered further l iberalization of the international trading system. Whereas in past years U . S . participation in the G A T T was as much inspired by polit ical and strategic considerations as by trade and economic factors, the latter are now far more important. The 1970s and 1980s saw U . S . firms and workers become far more exposed to foreign competition in both domestic and overseas markets. In the Amer ican understanding, par t icular ly in regard to the Japanese and Europeans, they have been vict ims of past generosity. It is a role they are unwi l l ing to continue playing: The Uni ted States no longer considers that there is any strategic advantage in "going first". It is not prepared to open its market further unt i l it is clear that other markets w i l l be significantly more open, and that greater discipline w i l l be imposed on unfair trade prac t ices . 2 5 A s the Uni ted States remains the principal sponsor of the G A T T , and Amer i can trade law already provides Amer i can business interests broad scope to harass foreign competitors, the U . S . call for more rules and greater discipline in international trade relations is hard ly reassuring for countries such as Canada which are heavi ly dependent on trade. In order to "level the p laying field", the Amer icans have at their disposal a range of legislation which might be used to protect domestic producers from foreign competition deemed to be unfair. The An t i -Dumping A c t provides an instrument of defence against the import of products at prices below those charged in the exporter's economy i f this causes economic injury. Whi le the Kennedy round of the G A T T led to the 1967 adoption of an international anti-dumping code which gave relat ively clear definition to injury and causation i n the event of dumping, this code was defied by Congress in the 1974 Trade Ac t , and at the Tokyo Round the G A T T was brought into line wi th this weakened leg is la t ion . 2 6 The 1974 Trade A c t provides a second line of defence whereby the government can impose temporary quotas, tariffs or other restrictions i f it is determined that an i tem is a substantial cause of injury or threat to domestic competitors. Under 25. Canada, Report of the Royal Commission vol.1 p. 285 26. Stephen Clarkson Canada and the Reagan Challenge: Crisis and Adjustment, 1981-85 (Toronto: James Lor imer and Company, 1985) p. 118. 48 Canada and Free Trade section 303 of the 1930 Tar i f f Ac t , the president is authorized to impose countervail ing duties on products which have received a foreign government subsidy, at no matter what stage of the production process. Fur ther , under section 301, any policy of a foreign government which reduces Amer i can exports may be subject to retaliation. These are but a few of the legal weapons in the Amer i can trade arsenal. In addition, the new omnibus trade bi l l current ly in front of the Congress promises to substantially broaden the definition of subsidies and thus expand further the reach of Amer ican trade legislation. Wha t is of concern to Canadians is what Rodney Grey has described as "the excessive degree of arbitrariness or administrative discretion that seems implici t i n the s y s t e m . " 2 7 Y e t even in those instances when contingency protection or other aid offered to Amer i can producers is in direct contravention of the G A T T , there is little that m a y be done since the G A T T has no means to enforce its rulings. The Uni ted States thus ignored a G A T T panel's decision that the Domestic Investment Sales Corporation (DISC) program violated the subsidies code under article 16 of the General Agreement . 2 8 Given the concern for Canadian producers in obtaining barrier-free marke t access, which is sufficiently stable and secure from future political and legal challenges as to allow expanded investment on production intended for export, the erosion i n the mult i la teral trading order witnessed in the last twenty years is far from reassuring. The failure of Trudeau's T h i r d Option in diversifying Canadian export markets underlined concerns wi th the international t rading system as well as Canadian competitiveness abroad. Without access to larger markets , however, it w i l l remain difficult to enhance the abili ty of Canadian industry to compete internationally. The desire to pursue bi lateral negotiations wi th the Uni ted States may thus be understood as a response to increasingly competitive international markets as wel l as the inabil i ty of the mult i lateral t rading system to deal effectively wi th current concerns. F a r and away the most important market to Canadian 27. Cited in Clarkson , Canada and the Reagan Challenge p. 121. 28. See F red L a z a r The New Protectionism: Non-Tariff Barriers and Their Effects on Canada (Toronto: James Lor imer , 1981) p. 5. 49 Canada and Free Trade exports, the Uni ted States threatens to become increasingly inaccessible. The countervailing duties proposed in the fall of 1986 to apply to Canadian exports of softwood lumber and recent sanctions against potash exports point convincingly to the threat contained in Amer i can protectionism to the Canadian economy. Without some guarantee of access to Amer i can markets, Canadian producers and in turn the Canadian economy appear bound to suffer. The Impact of Free Trade Possessing a relatively smal l , open economy, Canada has a lways been dependent on trade in order to sustain a high standard of l iv ing . More than 30 per cent of Canadian G N P is generated by exports of goods and services , 2 9 a greater proportion than any of the seven major Western economies. Canadian economic health is thus highly dependent on open markets as wel l as competitive industry. Since resources have tradit ionally formed the bulk of Canadian exports, the competitiveness of Canadian industry was largely given by the natural wealth of the country. More recently, however, trade in finished manufactured goods has accounted for an increasing share of Canadian exports, nearly doubling in volume between 1971 and 1981, and accounting for the expansion of Canadian trade which took place in the 1970s . 3 0 Mos t significant has been an increase in fully-finished manufactured products, part icularly sales of automobiles and parts taking place under the Auto Pact , which now accounts for nearly a third of Canadian exports. G iven increased global competition in p r imary products which has acted to depress commodity prices, it seems l ikely that gains in trade, par t icular ly for an advanced industr ial economy such as Canada's , are to be best realized given a competitive secondary sector. 29. Canada, Department of Externa l Affairs A Review of Canadian Trade Policy p. 3. 30. Canada, Report of the Royal Commission p . 226 50 Canada and Free Trade Without secure access to a reasonably large market , however, Canadian manufacturers are unlikely to achieve economies of scale sufficient to render their products competitive on a global scale. G i v e n the declining ut i l i ty of the mult i la teral trading system in expanding or even holding markets open internationally, maintaining access to the Amer ican market has become v i t a l to the Canadian economy both because the Uni t ed States is by far the largest purchaser of Canadian exports and because without such access Canadian producers wi l l be incapable of matching the efficiency of foreign producers wi th assured access to large markets . In fact, m a n y of those who favour a free trade deal wi th the Uni t ed States have argued that by creating a more competitive economy, open continental trade w i l l actually increase Canadian independence by making Canadian products viable in other markets besides the Uni t ed States, hence making a ' third option' strategy workable. " A n economically strong Canada is in a much better situation to mainta in political and cul tural independence than an economically weak C a n a d a . " 3 1 While a comprehensive trade deal wi th the Uni ted States is l ikely to improve the fortunes of Canadians by rat ionalizing continental production and trade flows as wel l as ensuring a large and relatively secure pool of consumers, it appears less l ikely that such an arrangement might work to increase Canadian independence from Amer i can influence. Rather than creating international entrepreneurs, free trade, by granting Canadian producers privileged access to the A m e r i c a n market , w i l l br ing Canadian industry under the umbrel la of Amer ican protect ionism. 3 2 Canada might thus come to depend upon and identify wi th A m e r i c a n trade legislation in the same way as U . S . producers, since such legislation would give Canadian companies a distinct advantage over competitors outside of Nor th A m e r i c a , yet Washington would retain the power of terminat ing access. The Amer icans , as they did in 1865, w i l l retain the option of abrogating any treaty. A s D a v i d Haglund points out, senatorial politics have a history of despoiling the best of plans, the 31. Canada , Senate Committee on Foreign Affa i r s , Canada-United States Relations: Canada's Trade Relations with the United States (Ottawa:Queen's Pr inter , 1980) p. 122. 32. This point was suggested by A l a n C . Ca i rns . 51 Canada and Free Trade rejection of the Versai l les Trea ty being only the most significant instance. "Treaties once signed, the mora l is, do not necessarily get ratified; and treaties once ratified can be abrogated." 3 3 Ronald J . Wonnacott argues that a free trade agreement would be much more reversible for the Uni ted States than for Canada, since Canada only comprises 10 per cent of the N o r t h Amer ican market and its absence would mean much less to A m e r i c a n producers than the reverse. "Thus the threat of termination of a free trade agreement would give the U . S . a bargaining lever that would be very difficult for Canada to resist and might conceivably be used to influence Canadian policy in quite unrelated noneconomic areas ." 3 4 E v e n given a relat ively secure agreement, trade liberalization wi l l almost certainly have a homogenizing effect, b lurr ing differences in polit ical philosophy, values and culture. A s mentioned above, such distinctions have resulted in differing political traditions which are bound to conflict given a more open trading relationship. Mos t significantly, the Canadian tradition of state intervention is unl ikely to be acceptable to the Amer icans who view such act ivism not only as un-American, but, as U . S . trade legislation shows clearly, unfair. In light of its ongoing current accounts deficit, the Amer ican preoccupation wi th "fair trade" is understandable, yet it embodies a notion of fairness part icular to Amer ican political and economic culture. Given the relative size of the Amer i can economy and market , i t seems farfetched to think that Canadian governments might continue, as in the past, to take an active role in the economy in the face of open trade. 33. D a v i d G . Haglund "Unbridled Constraint: The Macdonald Commission Volumes on Canada and the International Poli t ical Economy," Centre for International Relations Occasional Paper no. 14 (Kingston: Queen's Univers i ty , 1987) p. 14. 34. Ronald J . Wonnacott "Canada /U.S . economic relations: A Canadian V i e w , " Canada/United States Trade and Investment Issues, ed. Deborah Fre tz , Robert Stern, and John Whal ley (Toronto: Ontario Economic Counci l Special Research Report, 1985) p. 85. 52 Canada and Free Trade . . . i t does seem plausible that as the smaller partner w i th proportionally the more elaborate system of federal economic intervention, Canada w i l l have to do the bulk of adjusting to pressure for "fairer competition." In that sense Canada would surrender a measure of political independence to the Uni ted States wi th free trade, as the Canadian socio-economic policy environment would have to be brought into and kept in rough accord wi th that of the much larger neighbour . 3 5 A free trade agreement, once arr ived at, is l ikely to heighten Amer i can expectations that Canada w i l l or should obey U . S . rules regarding fair t rading practices and the proper role of the state in the economy. "It would, i n essence, strengthen the conviction of offended Amer ican interests that i n protesting Canadian governments' intervention i n support of our own economy, they were acting from jus t cause ." 3 6 Pressure to change Canadian policy would thus mount, while Amer ican arguments would l ikely make such appeals more difficult to resist. The Canadian desire for some form of bilateral dispute resolution mechanism and freedom from the protectionist measures contained in Amer i can trade legislation would presumably work to contain excessive A m e r i c a n influence over Canadian public policy. Although Simon Reisman and Pr ime Min is te r Mul roney have stated that both are conditions for any potential trade deal, the Amer icans , including President Reagan, appear unwil l ing to consider such terms acceptable. The largest s tumbling block appears to be Congress which is unl ikely to grant Canada immuni ty from trade legislation i t sees as justified, and unwi l l ing to lend authority over foreign policy issues to an institution outside of the U . S . government. Evident ly a good deal of what is said in the midst of negotiations amounts to mere posturing, yet it is doubtful that, whatever bilateral institutions might be established and whatever exemptions O t t awa might negotiate, the relative economic power of the Uni ted States w i l l cease to make itself felt. 35. Charles Pent land, "Nor th A m e r i c a n Integration and the Canadian Poli t ical System," The Politics of Canada's Economic Relationship with the United States, ed. Denis Stairs and Gilber t R. W i n h a m (Toronto: Univers i ty of Toronto Press, 1985) p. 116. 36. Canada, Report of the Royal Commission p. 358 53 Canada and Free Trade More broadly, greater A m e r i c a n access to the Canadian economy and unbridled competition for the Nor th A m e r i c a n marke t that would result from trade liberalization is bound to increase the already powerful influence of Amer i can culture and economics over Canadian life. "Our problem is not fundamentally w i th the policies of the Uni ted States government but wi th the transnational impact of the explosive force of Amer ican economics and Amer ican cu l tu re . " 3 7 W i t h the continuing evolution of transportation, communications and other technologies, t ransnational influences are bound to increase st i l l further, and without legislated protection, Canadian society w i l l feel, more than ever, the full impact of the A m e r i c a n economy and culture. No t only wi l l Amer i can television, l i terature and technology be allowed greater access to the Canadian market , but further, in order to compete successfully wi th such products, Canadian producers and governments w i l l be forced to cater to Amer i can tastes and emulate A m e r i c a n policies or r isk being cut out of 90 per cent of the N o r t h A m e r i c a n market . In order to remain economically attractive, Canada w i l l have to compete at a political level wi th the Uni ted States. A n y legislation which effectively increases production costs in Canada, such as safety regulations, wage legislation or environmental protection, w i l l have to be measured against comparable Amer i can policies i f Canadian products are to be competitive i n a continental market . Given comparative levels of spending on social welfare programs and taxat ion rates, it seems probable that Canadian government spending would have to be cut in order to attract investment. A s Charles Pent land points out: Once the barriers to free movement of goods, people, capital and services have been removed, attention natura l ly turns to other forms of market distortion, most of which relate to wha t governments do: procurement policies, tax structures, equalization payments, regional subsidies, environmental regulation and other such ac t iv i t i es . 3 8 37. John W . Holmes "Divided we stand," InternationalJournal 31(3) p. 397. 38. Charles Pentland " N o r t h A m e r i c a n Integration and the Canadian Poli t ical Sys tem," The Politics of Canada's Economic Relationship with the United States, p. 116. 54 Canada and Free Trade Such influences appear part icularly threatening to the Canadian sense of nat ionalism, which has always distinguished i tself from the Uni ted States and further prided itself in possessing a greater sense of community than the individualistic, anti-collective ethos of Amer i can l iberal ism. Socialist and labour groups have therefore felt par t icular ly threatened by liberalized trade. Not only are Canadian social welfare policies vulnerable to the influence of Amer i can ideology, but further it appears probable that free trade would result i n an erosion of Canadian labour legislation in order to render Canadian producers more competitive. "In the light of harsh economic policies, in a world where capital and technology are highly mobile, workers are properly suspicious that comparative advantage wi l l be defined on the basis of who w i l l work for the lowest wage . " 3 9 In eroding the comparatively interventionist nature of Canadian government, free trade thus threatens not only the historic character of Canadian politics, but further one of the means by which Canada has ensured its autonomy from the Uni ted States. A s pointed out above, the na tura l economic attraction of continentalism has, beginning wi th the Nat iona l Policy, been countered wi th government intervention designed to promote nationalism by fostering east-west rather than north-south l inks. " A society only articulates itself as a nation through some common intention among its people." 4 0 Nat iona l i sm is v i ta l to autonomy in that without a perception of national identity, a feeling of shared values and intentions which are identified wi th a national group, there is reduced cause for independence. This is not to say that free trade threatens the Canadian state. A s A l a n Cairns has pointed out, governments tend to be more adaptive than much sociological theory suggests and are l ikely to persist despite a lack of national d is t inc t ion . 4 1 Y e t su rv iva l in the contemporary world is contingent, more so than ever before, on possessing the requisite economic means. Autonomy, therefore, is increasingly disposable, 39. M e l Watk ins "Reservations Concerning a Free Trade A r e a Between Canada and the Uni ted States," Canada and United States Free Trade, ed. John Whal ley (Toronto: Un ive r s i ty of Toronto Press, 1985) p. 86. 40. George Grant , Lament for a Nation p. 68. 41. A l a n C. Cai rns , "The Governments and Societies of Canadian Federa l i sm," Canadian Journal of Political Science, December, 1977. 55 Canada and Free Trade as the existence of adequate economic resources is far more v i t a l to the security of government than the existence of a distinct national group over which to govern. M u c h of the discussion concerning the effects of free trade must necessarily remain speculative, par t icular ly as any trade agreement between Ot tawa and Washington which might be reached has yet to be articulated. Whether or not Ot t awa is able to arrive at an acceptable accord wi th Washington w i l l very much depend on wha t safeguards to the Canadian economy are amenable to both sides. The apparent unwillingness of the Uni ted States to consider the creation of a body to settle bi lateral trade disputes independently of either government indicates that the Amer icans are unl ikely to exempt Canadian goods from trade legislation, something Ot tawa clearly desires. "The trade remedy laws," Mulroney has said, "cannot apply to Canada , pe r iod . " 4 2 The problem is that Canada has little w i th which to induce the Uni ted States. A n y agreement would obviously exempt U . S . f irms from Canadian safeguards and countervail procedures, but Congress is unl ikely to see this as an equal concession. Such irr i tants as drug patent legislation, border broadcasting regulations, and copyright differences might be eliminated, but they are considered unfair by Amer ican standards anyway . The one inducement which would l ikely prove adequate to the Uni ted States is to open investment flows into Canada. I f Canadian companies were owned by U . S . parent firms there would be little interest in Washington in restr ict ing their exports and thereby curtai l ing profits. Expanding A m e r i c a n trade and investment opportunities sufficiently to get Washington to agree to a free trade arrangement may, however, prove costly. "Nothing short of sweeping concessions seems capable of inducing the Uni ted States to exempt Canada from its normal trade l a w s . " 4 3 Unhindered A m e r i c a n investment i n such v i ta l sectors as energy, banking, and health services is thus a possibility, yet one which would probably prove politically sensitive. 42 . Cited in B . B . K y m l i c k a and R . A . Young , "Free-trade br inkmanship m a y be costly for Canada," The Globe and Mail, M a y 21, 1987.. p. A 7 . 43. B . B . K y m l i c k a and R . A . Young , The Globe and Mail, M a y 21 , 1987. 56 Canada and Free Trade A free trade deal thus appears likely to render Canada more vulnerable to A m e r i c a n pressures. In the first place, Ot tawa is not bargaining from a position of strength in seeking secure access to the Amer ican market , par t icular ly given the protectionist inclinations of Congress. Thus i t seems unlikely that Canada w i l l be able to negotiate strong protections for Canadian culture and institutions in any deal acceptable in Washington. Second, increased A m e r i c a n access to the Canadian market w i l l expand its already considerable influence in the Canadian economy. Direct competition wi th the Amer icans is further bound to foster pressures for reduced government participation and intervention in the economy, from both Amer ican and Canadian producers. Canadian social welfare programs are also l ikely to come under pressure as Canada competes wi th the Uni ted States for investment. B y threatening to restrict access to its market , Washington might further exert its influence over Ot t awa i n areas unrelated to continental commerce. Autonomy, therefore, seems an inevitable casualty of a free trade deal. Conclusions The Canadian economy has a lways been heavily reliant on trade, and has become increasingly so, while the Uni ted States has provided Canadians with their largest foreign market for most of this century. The r is ing importance of regional trade blocs, par t icular ly the E C , has not only deprived Canada of equal access to important markets, but further undermined the liberal trade regime established in the wake of the Second Wor ld W a r . Canada has thus been faced wi th narrowing access to overseas markets and relied increasingly on the Uni ted States to purchase its products. The protectionist trend i n Amer i can trade policy evident since the early 1970s is thus understandably troubling to Ot tawa, par t icular ly as the Uni ted States remains the p r imary sponsor of the international trade order presided over by the G A T T . The failure of the T h i r d Option, Canada 's attempt in the mid-1970s to diversify its markets, is therefore hardly surpris ing and has brought about a re-evaluation of Canada's trade options. 57 Canada and Free Trade The impetus for free trade is thus apparent. No t only would a trade deal w i th the Uni ted States ensure continued access to Canada 's most lucrative foreign market, but, as economists are quick to point out, liberalized trade wi th the Uni ted States would actual ly br ing about an expansion in the Canadian economy through the rationalization of continental production. Even further, given secure access to the Amer ican market , Canadian manufacturers would be able to achieve sufficient economies of scale to render Canadian products internationally competitive. G i v e n the increased salience of economic issues in al l industrialized states, the attraction of a free trade deal and the nat ional prosperity such an arrangement promises has proven sufficient to overcome the historical reservations of Canadians. A t the same time, gaining access to the Amer ican marke t entails grant ing reciprocal access at the very least, and more than l ikely involves opening investment flows as wel l . In order to escape sanctions, Canadian producers and governments wi l l almost certainly be required to alter their behaviour so as to conform wi th A m e r i c a n perceptions of free enterprise. Amer i can trade legislation is indicative of the determination in the U . S . to ensure that foreign competition is granted access to Amer i can markets only on the condition that i t competes on an equal footing wi th Amer ican products. However , the concept of "fair trade" embodies a distinctly A m e r i c a n philosophy as to what constitutes legitimate commercial practice. Deviations from the free enterprise ideal are l ikely to be penalized, par t icular ly i f Canada is unable to convince the Amer icans of the need for a trade dispute resolution mechanism independent of either government. Government participation in the Canadian economy is therefore l ikely to be curtailed under a free trade agreement. Y e t such activity has been crucial on the past in mainta ining Canadian independence and enforcing the more collective orientation of Canad ian society. Government participation i n the economy has tended to encourage nat ional ism by promoting Canadian products and activities, often at the expense of A m e r i c a n competitors. Social welfare programs have been further developed and formed a 58 Canada and Free Trade larger role in Canadian politics than is the case in the Uni t ed States. N o t only would such act ivi ty be seen as unfair by Amer icans , but the tax base needed to mainta in social welfare policies might prove too much of a burden on the Canadian economy i n the face of direct competition wi th the Amer icans . L ikewise , government regulation of environmental concerns, labour practices and a range of other issues might render Canadian producers uncompetitive in a continental economy. The burden of adjustment, given a free trade deal, w i l l rest wi th Canada. Compris ing only a tenth of the N o r t h A m e r i c a n economy and seeking access to the A m e r i c a n market at a time when Washington is showing itself as par t icular ly defensive on trade issues, it is unl ikely that Canada w i l l be able to extract many concessions. Besides more l iberal investment rules, O t t awa has little w i th which to entice the Amer icans . Simon Reisman's suggestion that Canada sell off its fresh water is indication of the scarcity of bargaining chips wi th which he has to play and suggests that Canada is l ikely to have to make political concessions in securing any kind of trade deal. Access to the A m e r i c a n market m a y therefore only be possible provided Canada plays by Amer i can rules. The decision to pursue a free trade deal does not necessarily signal the end of Canadian nationalism, but i t m a y be indication of a differing conception of nation in which the interdependence of modern states and the need for economic welfare are crucial . In such an understanding, national identity is given in terms of national prosperity. In their introduction to the Report, the authors of the Macdonald Commission offered this view of Canadian identity: W e are convinced that i n the modern era, one of the crucial components of a satisfying Canadian identity is to be found in our economic capacity to perform at a high level in a competitive world. A long-run decline in our relative growth performance, compared to that of other nations w i th which we habitual ly compare ourselves, is a recipe neither for meaningful independence nor for a satisfying sense of se l f . 4 4 44. Canada, State, Society and Economy: An Introduction to the Report (Ottawa: Min i s t e r for Supply and Services, 1985) p. 4. 59 Canada and Free Trade This contrasts clearly wi th the nationalism of George Grant or M e l H u r t i g in which autonomy from outside influence, par t icular ly the Uni ted States, is crucial , no matter what the economic costs. International politics thus becomes increasingly an economic competition i n which protectionism undermines national identity by subverting the competitive position of the Canadian economy. The pursui t of a comprehensive trade agreement wi th Washington is significant because i t implies a shift in the orientation of Canadian politics. The long-standing trade-off between autonomy and wealth has not changed, yet the significance assigned national affluence has r isen. A growing interdependence among states, undermining national autonomy, has been accepted as an unavoidable consequence of contemporary statehood, par t icular ly as the importance of trade to vi r tual ly a l l countries has r isen. The l iberal trade order buil t i n the aftermath of Wor ld W a r II has successfully increased international trade flows, yet has further rendered a l l states more vulnerable to the actions of others. " A n international economic system based on the free flow of goods and services imposes restrictions on each country's right to pursue its own part icular goals and pol ic ies ." 4 5 The benefit lies i n an expanding national economy. W h a t has changed is not the trade-off between autonomy and wealth which has long marked Canadian history, but rather the value placed on economic performance. 45. Canada , Report of the Royal Commission vol.1 p. 281. 60 Chapter F o u r CONCLUSION: SHIFTING VALUES ...interdependent relationships will always involve costs, since interdependence restricts autonomy; but it is impossible to specify a priori whether the benefits of a relationship will exceed the costs. This will depend on the values of the actors as well as the nature of the relationship. Robert 0. Keohane and Joseph S. N y e (1977) The change i n political atmosphere which has rendered a formal liberalized trade agreement wi th the Uni t ed States desirable in the eyes of Canadian decision makers may be better understood in reference to broader changes that have marked v i r tua l ly al l advanced industr ial nations since the close of the Second Wor ld W a r . The widespread acceptance of Keynes ian economic principles combined wi th greater attention to issues of national welfare has required of government far more concern than previously wi th national economic management. In an age where employment, health and welfare are no longer considered str ict ly individual concerns, the performance and even the legitimacy of government are more l ikely to be judged on economic grounds than wi th reference to the more traditional demands of foreign policy. Indeed, issues of state security, while remaining vi ta l to a l l countries, have lost much of their urgency in many nations in light of nuclear proliferation and the growth of interdependence. 61 Conclusion: Shifting Values Increased interdependence is most evident in international commercial relations. The success of the post-war trading order in substantially increasing trade and capital flows between western nations has led to a growing reliance on trade for v i r tua l ly al l states, and a consequent interdependence of national economies. Exchange rates, interest levels and national debts have thus become international as wel l as national concerns. Increasing industrial ization has further placed growing stress on the environment, often wi th international implications. W a r itself may no longer be confined to the combatants alone. In its most extreme form it threatens the existence of the entire planet, yet even at conventional levels, w a r is bound to jeopardize international interests. The increased salience of economic issues and the declining uti l i ty of mi l i t a ry force as a tool of foreign policy has shifted the guns versus butter trade-off away from the former and toward the latter. A further result has been the growing politicization of trade issues as economic gains become increasingly important to al l states. In this light the growing protectionism of the Uni ted States m a y be understood as a consequence of the r is ing competitiveness of the world economy which challenges Amer i can dominance. No longer wi l l ing or able to trade-off economic benefits for strategic ends, Amer ican sponsorship of the liberal trade order has become increasingly tenuous. The growing importance of regional trade blocs to international commerce has further acted to fragment the global economy, and has left Canada part icular ly vulnerable to r is ing protectionism. The impetus for a trade deal wi th the Americans is thus apparent. The cost of independence is increasing while the gains to be had in further integration, at least in economic terms, appear substantial. Y e t the price of l inking the Canadian market wi th the A m e r i c a n w i l l be extracted i n terms of Canadian political and cul tura l autonomy. Indeed, Canada is par t icular ly vulnerable to Amer i can pressure since access to the Canadian economy offers comparatively little to U . S . producers and investors. While economists foresee a sizable expansion of the Canadian economy given relatively unrestricted access to the Uni ted States for Canadian goods, the impact of such a deal in 62 Conclusion: Shifting Values the Uni t ed States w i l l be slight by comparison. Hence Washington has little to lose in asking concessions of Ot tawa, and shows little understanding of Canadian cultural and political concerns. E v e n given a deal wi th safeguards acceptable to Canada , free trade is l ikely to erode Canadian independence. Oriented toward a N o r t h A m e r i c a n market , Canadian policy w i l l face increasing pressures to abandon programs that might distract from Canada 's attraction to investment. Hence the relatively collectivist ethos of Canadian politics which has resulted in more progressive welfare, labour, environmental and other legislation might be abandoned in order to ensure successful economic performance. Fur ther , programs which the Amer icans have already identified as unfair, such as government sponsorship and protection of cul tural activities and subsidization of regional development, w i l l almost certainly have to be forfeited i f A m e r i c a n trade sanctions are to be avoided. Free trade w i l l thus require a re-orientation of Canadian policies in such a way that they conform wi th Amer ican perceptions of what constitutes "fair trade". Clear ly , most of what the Americans object to concerning trade wi th Canada revolves around government participation in the productive process. Hence countervail ing duties were applied to tires produced by Michel in in N o v a Scotia because the plant in question was the recipient of federal subsidies designed to encourage regional development, and sanctions were threatened against softwood lumber in Br i t i sh Columbia because government stumpage rates were perceived to be unfair. Free trade, in as much as it would require of Canada greater conformity to A m e r i c a n commercial practices, w i l l erode political independence. T h a t Canada is wil l ing to forfeit independence in the expectation of economic expansion is telling. In the first place, Canadians have historically placed a high premium on independence from the Uni ted States, although they have periodically flirted wi th the idea of free trade. The political price has, however, a lways proven prohibitive. Thus 63 Conclusion: Shifting Values Nor th A m e r i c a n trade liberalization, at Canadian init iative, represents a significant step from a nationalism which has long contained a strong current of ant i -Americanism. Given such antagonism, the decision to pursue free trade suggests further a change in the relative value of economic performance to the state. Thus, as the economic demands on the state have grown, independence has become an increasing burden. G iven these changes in the international political environment, the tradit ional concerns of international relations appear less and less pressing to contemporary statesmen. For the majority of industrialized states, mi l i t a ry power is of little ut i l i ty in resolving the foreign policy dilemmas wi th which they are faced, and might i n fact destroy profitable relations w i t h other countries. Thus real ism, s t i l l the dominant paradigm i n the field of international relations, is faced wi th mounting difficulties in explaining the behaviour of contemporary states. The problem lies in what k ind of questions are being asked. In the realist understanding, issues of economic welfare lie outside the core issues of security and power, except insofar as they contribute to power ends. Y e t for many modern states, economic issues r iva l security considerations and may in fact supersede them. In the case of Canada, the traditional concern wi th autonomy has receded in the face of economic considerations. Canadian nationalism, long associated with independence from the Uni ted States, has been replaced by an alternate vision of the world. Integrationists see increasing world interdependence as a fact of life to which Canada w i l l have to adapt in order to mainta in its economic and political health. Indeed, in such an understanding, i t is only by maintaining a vigorous economy that Canadian independence may be assured, as economic power has become vi ta l to maintaining the goals of the welfare state. Y e t economic integration wi th the Uni ted States is l ikely to diminish the range of policy options open to Canadian decision makers as production in Canada wi l l need to conform to standards and practices in the Uni ted States i f market access is to be assured. The trade-off is thus one of autonomy for economic gain. 64 Conclusion: Shifting Values The increased importance of economic goals over political autonomy revealed i n the Canadian desire for a free trade accord wi th Washington parallels the realist-pluralist debate in international relations. Security and power goals have been discounted i n the face of the increased relevance of economic issues to the modern state. Nat iona l autonomy is being eroded by r i s ing interdependence which acts to externalize domestic policy and internalize foreign policy. Trade issues have thus become increasingly politicized, threatening the l iberal t rading order in which modern states have an increasing stake. Excluded from major markets , Canada has been dr iven to seek a bilateral trade deal w i t h the Uni ted States i n order to ensure its economic security. 65 BIBILIOGRAPHY Angus , H . F . ed. Canada and Her Great Neighbour. Toronto: The Ryerson Press, 1938. Bercuson, Dav id ; Granatstein, J . L . ; Y o u n g , W . R. Sacred Trust? Prime Minister Mulroney and the Conservative Party in Power. Toronto: Doubleday, 1986. B u l l , Hedley. The Anarchical Society: A Study of Order in World Politics. London: The M a c M i l l a n Press, 1977. Cai rns , A l a n C . 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