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The free trade deal is good.

CRITICS OF THE CANADA-UNITED STATES FREE TRADE Agreement (FTA) have taken every opportunity to link Canada's economic woes to the agreement.

The real culprits are high interest rates, a sharp economic downturn in Canada's major foreign market -- the United States -- excessive increases in unit costs in many Canadian businesses and an overvalued Canadian dollar.

Canada's overall trade picture with the United States has actually been improving since the FTA came into effect. By 1990, our exports to the U.S. had increased by almost eight per cent compared to 1988 levels -- and this despite very sluggish U.S. economic growth and Canada's strong dollar. Over the same period, our trade surplus with the United States, measured on a customs basis, jumped from $11.4 billion to an impressive $17.3 billion -- an increase of roughly 50 per cent. If the FTA has hurt Canada, as its critics maintain, why have our exports to the U.S. grown? And why is our trade surplus up by more than half compared to the most recent pre-free trade year, 1988?

What about investment? From 1987 to 1989, real business investment in Canada shot up by almost 35 per cent. Much of this investment surge was directly related to the FTA, as companies moved aggressively to improve their operations and strengthen their competitive position in anticipation of free trade. Also worth noting is the fact that Canada's net foreign direct investment position has improved since the FTA. Since 1988, net direct investment flows between Canada and the rest of the world have gone from -$2.5 billion to +$4.3 billion. This points to rising foreign confidence in the Canadian economy in the wake of the FTA. Again, this is inconsistent with the gloomy picture painted by critics of free trade.

It is amusing to note that Bill "knew" in 1987 that the Canadian dollar would appreciate under free trade. I know of no respected economic forecaster or major Canadian company that predicted, in 1987 or 1988, that our dollar would rise above 85 cents U.S. and remain there for an extended period of time. Nor did forecasters anticipate that Canadian interest rates would increase to the very high levels recorded in 1990.

While the FTA has had a favorable impact on Canada's overall trade and investment situation, without question the recession and our over-valued dollar have made it difficult for many companies to adjust to free trade or take full advantage of the opportunities it affords. High interest rates employed by the Bank of Canada to contain inflation have increased the cost of capital for Canadian business, hammered domestic demand and contributed to a steep appreciation of the Canadian dollar. But the causes of these problems are found in domestic economic imbalances and poor government policies, not in the FTA.
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Title Annotation:United States-Canada Free Trade Agreement
Author:Fraser, John
Publication:Manitoba Business
Date:Dec 1, 1991
Previous Article:The third era.
Next Article:Free trade is a horrible deal and should be cancelled.

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