Questionable Faith


Environmentalists are linking up with unionists and other critics to oppose
the Free Trade Agreement and force the Federal Tories to hold an election.

By David McRobert

The cover of the January 1988 Progressive Conservative Youth Newsletter encapsulates the debate over free trade with prophetic accuracy. In a front page article titled "Free Trade: A Question of Faith," the conventional wisdom espoused by the federal Tories is laid out in crystal clear language. For believers free trade is a panacea that will solve all sorts of problems. For those that lack faith, free trade is a disaster.

While economists and labour leaders argue about the implications of the deal, the free trade debate is taking on increased importance for environmentalists as well. To some, the FTA is reminiscent of mega-projects like the James Bay water diversion scheme and the Mackenzie Valley Pipeline in the 1970s. These projects provided a rallying point and awakening for many Canadians about the environmental and social implications of the massive development projects. But to others, the FTA is merely an international trade agreement with few implications for the environment.

Classical economic theory would suggest that FTA will probably accomplish at least one of the goals of its advocates - to increase the amount of wealth on the continent. The basic idea is that the removal of barriers to trade will result in a greater amount of exchange between certain regions in the two nations. In theory, this will enhance productivity and efficiency among producers in the different regions by reducing labour costs and other factors of production. This was the view promoted by Adam Smith in his classic text, The Wealth of Nations, and it remains the key issue in the debate over free trade between Canada and the US.

Since the development of mercantilism in the seventeenth century, access to cheaper factors of production has been a crucial aspect of economic development in Western societies. Economic historians such as Harold Innis have argued that development in Canada was shaped by the imperative of raw material extraction intended to fuel Britain's Industrial Revolution. Subsequent scholars such as Mel Watkins have noted that foreign controlled staples production of lumber, minerals, fish, and wheat has continued to provide the basis of economic development in Canada's modern era. To advocates for the FTA, this pattern of dependency has provided Canada with a comparative advantage on world markets. To critics, it has amounted to a resource giveaway that will be institutionalized under the FTA.

One problem with the simplistic promotion of trade as a basis for economic development is that it fails to acknowledge the hidden costs that make staples production of furs and wheat attractive in the early period of mercantilism. For example, early cashcropping in North America had devastating ecological implications and resulted in the destruction of many plant and animal species. Moreover, production often relied on slave labour or the exploitation of local native peoples.

Another hidden cost of international trade is the enormous amounts of resources required by modern transportation technology. In the pre-industrial era, wind and human power supplied most of the energy required. However, valuable hydrocarbons are devoured shipping foods to distant markets at the expense of local producers in the modern era. For this reason, many environmentalists feel the necessity to promote bioregionalism. In short, bioregionalism emphasizes consumption of local agricultural produce and goods. It is a major aspect of the policies of most Green parties and is gaining increased recognition as a structural solution to many global environmental problems.

Given the popularity of the notion of comparative advantage among traditional economists, it should not be surprising that deep divisions have emerged in Canada on the implications of free trade for resource development. In Western Canada, many politicians and academics argue that there is a need to secure an agreement with the US to ensure access for our resources. These perspectives are well represented in a publication released last December by the Canadian Institute for Resources Law titled Trading Canada's Natural Resources. Most of the contributors to this volume feel that free trade with the US is both inevitable and desirable. They rest their arguments on the premise that the alternative to trade liberalization will be increased protectionism in the US.

The consequences of protectionism were apparent during the softwood lumber dispute between Canada and the US in 1986. US producers argued that Canada subsidized its forestry industry with generous reforestation contracts and grants for mill renovations. As a result, cheaper products from BC were flooding US markets. US producers were able to successfully argue their case before the relevant American tribunal and a 30% duty was slapped on Canadian imports. After some wrangling and high level negotiations, Canada eventually imposed its own duty on the wood products. Moreover, the British Columbia government intervened, went to Washington and agreed to boost the stumpage fee paid by producers, something multinationals have fought against for more than a decade.

The softwood lumber dispute is a confusing example of how trade is being reshaped between US and Canada in the 1980s. It also represents a departure from the continentalist policies that have dominated Canadian resource management since the late 1940s. These policies are reflected in a report prepared by a US presidential committee after the Korean War titled Resources for the Future. According to this report, Canada had twelve of the twenty-two resources that the US needed to secure their position as guarantors of global democracy and economic prosperity. Consequently the US government began to encourage greater allegiances between the two nations on both military issues and economic development. Part of this plan included the full-scale invasion of the Canadian Arctic by the American military establishment. Distance Early Warning (DEW) line stations were established throughout the north resulting in considerable disruption to many native communities. In addition, Americans began to invest heavily in Canadian industries.

Among those they invested most heavily were the oil and gas, farm implements, forestry, and mining sectors. An adjunct phenomenon was the establishment of branch plant manufacturing, a practice where the US parent establishes a Canadian subsidiary to maximize tax breaks and subsidies while draining Canada of the profits reaped and minimizing indigenous research and development activities.

By the late 1950s, many Canadians began to realize there were serious problems with hooking future Canadian development to an American engine. They began to advocate a reduction in foreign control of Canadian industry and a substantial increase in decision-making power over Canadian resources. This advocacy escalated throughout the 1960s as the Vietnam war began to demonstrate the extent to which economic development in the US was dependent on military expenditures.

To a certain degree, part of the 1968 election platform of the Trudeau Liberals reflected a desire to distance Canadian economic and social policy from that of the Americans. In turn, Prime Minister Trudeau attempted to promote greater indigenous control over resource development through measures like the establishment of the Foreign Investment Review Agency or FIRA. This symbolized a new approach to policy-making, on that relied on increased government intervention in the economy to achieve broad policy goals.

Throughout the early 1970s, the federal government experimented with various models of intervention and regulation in the economy. Many of the proposed experiments such as tax reform only served to alienate the business community, however. One of the areas where the Trudeau Liberals tried to develop new policies was the energy sector. In the process, the federal government created one of the most bitter struggles in Confederation between Ottawa and the provinces. This conflict was especially intense between Ottawa and Alberta over energy pricing and exports. The federal government argued that they needed to control pricing in the "national interest." To provinces, this seemed only another example of eastern domination and a direct attempt to undermine jurisdiction held by provinces under the Constitution Act. Hence the current dislike of substantial government intervention in the economy, an attitude that has been buttressed by the lobbying of the huge multinationals that control the energy industry in Canada.

While many Western academics endorse the concept to freer trade with United States, their Eastern counterparts do not appear to share their enthusiasm for the FTA. This was borne out at a series of events held at the Faculty of Environmental Studies (FES) at York University in January 1988 on free trade and the environment. The first of these, a workshop organized by Frank Tester of FES in cooperation with Pollution Probe, The Council of Canadians and the Coalition Against Free Trade, attracted environmentalists, unionists, and academics from all over Ontario.

Debate over the past few months has clarified the general contours of the FTA but the environmental implications remain unclear. One of the most dramatic concerns that has spurred considerable debate is the prospect of water exports.

After the MacDonald Commission was first released, the issue began to receive increasing attention. In anticipation of a Quebec election, provincial Liberal Leader Robert Bourassa began to flog a series of megaprojects for the James Bay area. One of these, the Grand Canal Project, would supply fresh water from the James Bay basin to other regions in the United States and Canada which are experiencing water shortages or have contaminated their own water supplies with toxics and other pollutants.

Environmentalists expressed outrage at the prospect of water exports from James Bay and began to lobby to ensure that water exports were not a part of the free trade negotiations. Fears escalated considerably when Simon Reisman was hired as chief negotiator by the Canadian government. Prior to this appointment, Reisman had worked as an advisor to Bourassa and was known to be a leading advocate for water exports.

Another issue which has received considerable media attention is the impact of the energy provisions of the FTA on Canada's future energy security. In general, the energy provisions commit Canada to providing the United States with a reliable and accessible supply of energy for decades to come. Specifically, Canada has agreed to eliminate a test devised by the National Energy Board over the last few decades. This test requires that industry prove a surplus of energy exists to supply Canadian consumers before it can export energy resources to the United States. It was devised by the NEB to ensure Canadian markets were protected from severe international supply fluctuations and its importance was confirmed during the "energy crisis" of the early 1970s.

Another example which illustrates how the FTA will influence environmental policy-making is provided by a successful experiment in the Yukon with sustainable development. In May 1985, an NDP government under the leadership of Tony Penikett was elected. This government has revived the territorial economy through promotion of sustainable economic development strategies in tandem with more conventional approaches. For example, the territorial government has encouraged the resurgence of a local furniture manufacturing sector through procurement policies. This approach, known as import substitution, has been advocated by alternative economists such as E.F. Schumacher. In essence, import substitution is premised on subsidizing or encouraging local production for local consumption because this approach generates jobs and other spin-off benefits.

The FTA threatens this approach to reviving the Yukon economy according to Penikett. In February, Penikett told a Toronto audience that the subsidies provided to local agriculture producers and other northerners will probably be regarded as non-tariff barriers to American goods produced in the much larger Alaskan economy. As a result, it is feasible the Yukon will be thrust back into a more dependent situation because of the FTA.

The complexities of the FTA for environmental policy-making are compounded by the Meech Lake Accord. Under this agreement the federal government has transferred considerable powers to the provinces in order to encourage Quebec to finally agree to the the provisions of the repatriated Constitution Act. While few would suggest that Quebec should have remained outside the new constitutional deal, others feel the price of this realignment has been too high.

Critics claim that the Meech Lake Accord will result in the erosion of federal standards in many spheres of public policy, including social and environmental matters. For example, the Meech Lake Accord will accelerate the dismantling of federal subsidy programs that are important for new infrastructure needed by municipalities to deal with growing problems such as garbage disposal and sewage treatment. Under the Meech Lake Accord, it is possible that pollution havens will develop in regions that are economically disadvantaged.

To some, this may seem like scare-mongering. But the recent expression of interest by the community of Elliot Lake in radioactive waste produced by southern Ontario suggests that this is not a far-fetched scenario. Indeed, it is feasible that the Canadian Shield will become a repository for all sorts of hazardous wastes from the US. It is well known that Atomic Energy Canada Limited (AECL) has been exploring the possibility of storing radioactive waste in old salt mines in Manitoba for several years. With this in view, Frank Tester argues in a recent article that the FTA amounts to trading "green for garbage."

To some opponents of the FTA, the neglect of environmental considerations is a major deficiency. They argue that a minimum requirement should be that the federal government undertake an environmental impact statement to examine the costs and benefits of the FTA. However, the only study prepared to date by the federal government is a meager report titled Freer Trade and the Environment. This document was issued by the Canadian Environmental Advisory Committee, a body which examines various issues on behalf of the federal Minister of the Environment and produces advisory reports. This report was released when negotiations were commencing in June 1986. Six areas of concern about the impact of free trade are identified including water exports, the need for Canada to maintain unique resource management policies, and perceived pressures to remove subsidies to corporations for pollution control equipment. Curiously, none of these impacts were viewed as inevitable by the Council even though little evidence in support of this position is cited.

The FTA is also having other effects which its authors would probably not have predicted, In their desire to see the FTA undermined, environmentalists who oppose it are working closely with unionists. This situation is encouraging new alliances which parallel those that have developed in the past between environmentalists and Indians in their efforts to oppose development on South Moresby Island in BC and recently in the Temagami region in Northern Ontario. No matter what the result of the FTA debate, these alliances promise to have long-lasting effects on environmental policy-making in Canada.


From Obiter Dicta, Monday March 28, 1988