Opposition to two FTAs: Canada/US 1987 vs Canada/EU 2013

I don't understand this.

In 1987 Canada negotiated a Free Trade Agreement with the US.

In 2013 Canada negotiates a Free Trade Agreement with the EU.

The US and the EU are both very big advanced economies.

Wikipedia confirms my memory of 1987: "The debate in Canada over whether to implement the negotiated agreement was very contentious." It certainly was. Many people saw the 1987 FTA as an existential threat to Canada. I remember some otherwise normal people wearing black armbands when it was clear their side had lost.

So far, I see nothing like the same level of contention and opposition in 2013. Why? Where are the black armband wearers of yesteryear?

Some possible answers:

1. The Canada/EU FTA will cause less substantive change to the Canadian economy than the Canada/US FTA. It's just not that big a deal.

2. Nobody knew about the Canada/EU negotiations, and it's taking some time for opposition to get organised.

3. The US is a much bigger existential threat to Canada than the EU, so an FTA with the US is a much bigger existential threat to Canada than an FTA with the EU.

4. The black armband wearers of yesteryear think that Canada died as an independent nation in 1987, and it can't die twice.

5. The sky didn't fall in 1987, so the people who were strongly opposed to the FTA with the US have changed their minds in the light of that evidence and are now much less strongly opposed to FTAs, whether with the US or the EU.

My hunch is that 5 is the most important explanation. What are your thoughts?

Comments

[You Look Like A Nail]

1987 was a long time ago. A significant percentage of the population grew up with NAFTA as a fact of life and doesn't really get why this would be a problem.

Additionally, the sort of people who react emotionally to free trade agreements are biased against the US in a way they aren't against the EU.

[Leo]

EU isn't perceived as a cheaper labour economy, so people are not worried about offshoring to EU.

Politically, the concern with US FTA was a slippery slide to further integration -- Canadian provinces becoming US states and the capital being Washington. An FTA with EU actually reduces the chances of Canada being ruled from Washington, while no one is particularly concerned about rule from Brussels.

[Nick Rowe]

YLLAN: "1987 was a long time ago."

26 years ago; a whole generation. (To me, like the fall of communism, it seems like only yesterday!) Some of those who opposed it will now be dead. But that raises the same question in a slightly different way: why didn't the opposition to the FTA "reproduce" itself? If the sky had fallen in 1987, I think the opposition would have reproduced itself, in the same way that people "remember" the Great Depression and WW2 even though they weren't born till later.

Leo: "EU isn't perceived as a cheaper labour economy, so people are not worried about offshoring to EU."

Maybe. But the US wasn't perceived as a cheap labour economy in 1987, IIRC. Perhaps you are saying that people's fears have shifted, away from fear of FTAs with advanced rich economies towards fears of FTAs with poorer low-wage economies. But I don't remember as much opposition when Mexico joined NAFTA, compared to the original FTA.

[Chris J]

For me personally, #5. I was wrong then.

[Ian Lippert]

It also seems like the only people harmed by this agreement are the dairy farmers. Since the implementation of nafta producers have successfully made the transition into a competitive market. The special interest groups of the 80s either chaned or died off and the producers left over see as many opportunities as they see challenges. There just isn't really any central issue for the critics to rally around other than the usual anti-trade rhetoric.

[Patrick]

My vote is for #5. NAFTA turned out OK. Also, the political left (my own political affiliation BTW) has a long love affair with Europe. The US, not so much. They are probably paralyzed by a sort of cognitive dissonance.

[R I]

Along the lines of Leo's comment, I think it's a sovereignty issue. Becoming like the US had always been a threat to the Canadian way of life, but I think becoming more like Europe isn't as offensive to people?

[Determinant]

History Calling. NAFTA addressed fundamental political issues in Canada that went back to Confederation. The EU agreement is just business.

Free Trade, formerly known as Reciprocity, was the central election issue of 1892 and 1911. The Liberals were for Free Trade, the Conservatives opposed. The Conservatives championed the National Policy of high protective tariffs favouring domestic industry. You have to remember the Liberals at the time were classic Gladstonian Liberals, they didn't do that icky social policy stuff.

It was history until the 1980's when we went back to that question. 1988 was a repetition of 1892 and 1911, with the reverse outcome. But by that time nobody feared takeovers of the west by US railways. The US had a large annexationist lobby in the late 1800's who thought Canada would ultimately be theirs. These people later went after Cuba and the Philippines. In the 1890's "Free Trader", "Continentalist" and "Annexationist" were the same.

The EU is far away, the trade volume is small compared to the US and the EU doesn't have the loaded trade history.

[Nick Rowe]

This sounds like mostly #5, with a bit of #3 too.

#3 is a bit strange though. The EU is an explicitly annexationist enterprise (though it's unlikely to want Canada to join). It's much more than a free trade area. So "europhobic" parties like (say) UKIP would seem to have something in common with those Canadians who opposed the 1987 FTA.

[hosertohoosier]

Free trade shifts employment from import-substituting sectors to export-oriented ones. For instance, the 1987 FTA was only possible because the 1965 Auto Pact had restructured Canada's auto industry into part of the US supply chain (which meant more assembly workers, fewer on the machinery end). A lot of the industry groups that might have led the charge against free trade have died off. Cheese is a rare exception - an industry not affected by 1987 that probably will be affected by 2013.

Also, one of the sticking points in 1987 was deep integration. Free trade opponents claimed that we would have to abandon our generous welfare state or lose all of our jobs in a free trade world. Since then we can see that A. that wasn't true and B. European states have more generous welfare states than we do.

[Livio Di Matteo]

I think a interesting counter-factual would be the following. Suppose in 1988 we had signed a Free Trade agreement with Europe. If in 2013 after two decades of successful free trade with Europe we had now embarked on a Free Trade agreement with the USA,would the level of opposition be similar to what happened in 1988?

[hosertohoosier]

Livio, free trade with Europe in 1988 probably would have reduced opposition to free trade with the US, but more marginally. Lefties fearing "deep integration" would still be afraid that Canada's public institutions would become weaker. Some of the transitions from import-substituting industries to export-oriented ones would have happened anyway, but the transition would be weaker because geography limits the extent of our trade with the Europe.

Additionally, some protectionist sectors might have survived Canada-Europe free trade, and lived to oppose trade with the US. Alternately some free trading sectors might not have grown as large. Think about petroleum as an example. Canada's oil industry is Pacific oriented (at least until they build a pipeline to the east). Alternately, free trade with Europe might have altered the development of our auto industry from north-south to east-west trade.

[Michael Trepas]

Playing a bit with Livio's idea about counterfactuals, I wondered what would happen if an up-to-date and interesting blog (like this one) posed such questions to us Europeans.

Here are the "results":

Level of opposition -- Low to non-existent

Reasons:

#1 No such a big deal (commenter Determinant explains it), plus that the two economies can be viewed as supplementary in the energy sector

#2 The subject is not known to the general public, but this is not something new: EU has a tradition of low "salience" in "technocratic" matters, such as trade policy.

[Derek]

I think the fact that NAFTA did not lead to the end of Canada (many opposed to it claimed it would harm Canadian identity and independence) has made people less fearful of trade agreements.

[Chris J]

While Determinant is correct, it is also true the sky didn't fall with FTA. Since trade with Europe is a small effect compared with trade with the USA, and the fears of the USA FTA weren't realized, then it follows there is nothing to worry about. Plus I heard wine will get cheaper.

[Nick Rowe]

Dumb question: *why* is Canadian trade with the EU so much smaller than Canadian trade with the US? A large part of the answer must be "transportation costs", since the US is so much closer, plus trucks and trains can get stuff there. But how much of the answer would be "because trade restrictions are higher for Canada/EU trade"? But one countervailing effect is that the EU is more different from Canada than is the US, and you would expect greater trade between economies that are more different (comparative advantage and all that).

In other words: how much will Canada/EU trade increase as a result of trade liberalisation?

[Michael Trepas]

Dumber answer (just kidding): The value of bilateral trade will increase by €25.7 bn (it was €61.8 bn in 2012)

http://trade.ec.europa.eu/doclib/docs/2012/november/tradoc_150129.pdf

[Nick Rowe]

Thanks Michael. That's around 2% of Canadian GDP. And the gains from trade will be some fraction of that. Not peanuts, but not a very big deal either.

[RPLong]

So far, only R I has said anything that resembles the true explanation.

There is an incredibly strong anti-US bias in Canada, and there always has been. This goes all the way back to before 1776. Anyone who has ever spent significant time on both sides of the border knows this.

By contrast, not only is there no anti-Europe bias to speak of in Canada, there is an enormous pro-Europe bias. I lived in Canada for 9 years and probably didn't go even one month without hearing Montreal described as being a "very European city." Anything cool in Europe is cool in Canada. Canada sees itself as more of an off-shoot of Europe than of North America.

Now, to a certain extent, I agree with some of the anti-US criticisms and a bit of the pro-Europe sentiment. But when it comes to Europe, Canadians really have rose-colored glasses on, and when it comes to America, the bias is so strong that it clouds Canadian judgement horribly and poisons political debate. Any lowering of tax rates or deregulation of industry or loosening of liquor laws is seen as "bringing an American-style system to Canada."

It's nuts, especially when you stop to think that on a great many issues, Canada is the economically freer nation than the US. (Not on average, of course, but on many individual issues.)

[Nick Rowe]

RPLong: I agree with you on many Canadians having a strong anti-US bias that clouds debate on policy questions. But how much of the opposition to the 1987 FTA was anti-americansim vs anti-free-trade-ism? This goes back to Livio's good question above, but I can't think of any way to answer it.

[RPLong]

Nick, IMHO many, many Canadians view the phrase "Americanism" and "free-trade-ism" as being synonymous. You can try to disambiguate, but that really dodges the source material. Canadians have an anti-free-trade-ism bias because they have an anti-Americanism bias. It's because Canadians have come to these beliefs in part from the (not illegitimate) anti-Americanism of the US draft-dodgers who settled up North, in part by the unambiguously anti-American work of Naomi Klein, and Margaret Atwood, etc. etc.

It's all wrapped up into one big thing now, that many people consider to be "Canadian culture." Separating the two seems incomprehensible to me.

[hosertohoosier]

Nick, comparative advantage isn't the only factor driving trade (and indeed, in the early postwar period you actually had the US exporting less capital-intensive goods: the Leontieff paradox). Rather, trade may be driven by economies of scale. In that sense - creating a bigger and more specialized production chain - geographic closeness may be a huge factor.

Think about Windsor. Could Windsor become integrated into the European automotive supply chain? Not easily (and indeed, many German/Japanese cars in North America are made with mostly domestic parts).

The other thing I suspect is that the Heckscher-Ohlin model's emphasis on broad factors of production is simplistic. Countries with the same factor endowments could have a comparative advantage in very different goods for idiosyncratic reasons. e.g. the US and EU make large jets, Japan doesn't. Why? Because Japan is geographically concentrated (less domestic demand) and has a statutory limit on defense spending.

And sometimes countries enact policies that trump their factor endowments altogether. China is the world's leading exporter of solar panels. Brazil is a contender for leadership in commuter jets (with Canada).

[Jacques René Giguère]

RPLong: one of the founding nations of Canada has a history of fighting the Americans since about 1632. The other since 1776 ( in fact it is made up of those who fought to not become American. Last time the U.S. Army prepared an invasion of Canada was the 1923 Plan Blue. At the time, the pasing of the torch in the Anglo world was taking place and these things are rarely calm ( witness passing of the central european leadership from Austria to Prussia in the middele XIXth century.) In the 1920's the American leadership, especially the Navy, was preparing for war against Britain. The interference of Germany in Europe and Japan in the Pacific led to an alliance where the British accepted their subservience without fighting the new leader...

[Bill Long]

I don't think we can discount a significant change in the media
environment from back in the day. Aside from a couple of lonely
voices at the Star and a handful of blogs that you have to seek
out, there are not many handles for economic nationalists or
business skeptics to hang their hats on these days.

[RPLong]

Prof. Giguere - Absolutely. The anti-American sentiment goes back centuries, and much of it is founded on entirely rational suspicions. It could be that Americans have made "free trade" such a big part of our national rhetoric that we have done more than our part to exacerbate the anti-American-anti-free-trade mental link in Canada. My point is that the cultural tendency exists, and plays an important role in why Canadians are more apt to favor free trade from a Eurocentric angle.

I think I saw someone making this claim on the CBC a couple of years ago, arguing that (1) Canadians see themselves as being more Euro than American, but that (2) when you look at the perspectives of all three groups, Canadians are "more European than the Europeans" (meaning Euros favor trade to a wider degree than Canadians). I wish I could remember the details of this interview so that I could link to them...

[Nick Rowe]

Bill Long: maybe. But isn't that a symptom of the same thing, rather than a cause?

I just checked the Progressive Economists' blog. They don't seem to be strongly opposed to it either.

[Jim Sentance]

There certainly are some undead opponents still around, mostly from what I can see in the Council of Canadians, but I think their profile and credibility have slipped a bit over the years.

[Jacques René Giguère]

How can you explain to the populace that the first effect of "free trade which brings down prices" will an increase in the price of medications?
And sometimes, opposition can hinge on small things. Setting off a section of the country against another is a bad idea. Trading better beef AB-SK access to Europe for possible harm to QC cheese makers is bad politics unless your intent is to shove it in someone's face ( and I don't think it is the case here.). Saying them to move into cattle is not a solution, QC never having been cattle country. Moreover, it remind the cheese sector of the raw milk affair of twenty years ago ( alluded to in one of my comments a few weeks ago on the thread Fiscal clout and federation redesign).) That it concern a few dozens people working and a few thousands eating said cheese can get you disproportionate results if the eaters happen to be members of the upper-class or the media.
http://worthwhile.typepad.com/worthwhile_canadian_initi/2013/09/fiscal-clout-and-federation-redesign.html#more

[Shangwen]

It seems unlikely to me that any but a tiny percentage of the '87 FTA had substantial knowledge about the issues. I have a hazy recollection of that period (high school) and recall that most people in polls believed this would lead to unrestricted water transfers to the US. The GST was brought in around the same time, and a huge number of people then though it meant "general sales tax" and applied to everything.

I think it's fair to assume that mass opinion on policy topics tends to be driven by uninformed tribalism rather than knowledge.

[hosertohoosier]

Shangwen, people don't need to be well-informed to vote as if they were. Rather, they can use heuristics that get them information with little effort. I may not understand comparative advantage, but if I'm an Ohio steel-worker, I know my union rep tells me free trade is bad.

And there are patterns to this kind of misinformation. "Free trade will create X-thousands jobs" is always about a made up number (most economists argue that trade doesn't create or destroy jobs). So are most of the hysterics about job loss. But mass opinion isn't random - you'll see concentrations of one ill-informed opinion or another in different parts of the country. Hence, in 1988 you saw protectionist sentiments in precisely the places you'd expect - the most urban parts of Canada (home to capital-intensive industries less able to compete with the US).

[John Dougan]

I'm thinking #3, coupled with #2.

I was an undergradute political junkie in 1987, so my memories are still pretty clear. It was the big issue of the day after all. I was a supporter, but only if a fair-enough adjudication mechanism was in place that had some teeth. At least in my circles, this wasn't that uncommon a position. The problem was, as it stil is, that the USA is a powerful, self righteous, and self centered actor and would run you over in pursuit of it's goals...occasionally without realizing it. The old sleeping-with-the-elephant quote comes to mind except many times when the beast rolls over it isn't that accidental. (I live in the USA now, and nothing I've seen in United Statesian political culture changes my mind. Even some of the no-foreign-entanglement libertarians have this massive evangelistic attitude.)

The EU as a whole doesn't have a history of that kind of policy with respect to Canada, though some of the component States do. Given the structure of the EU it is unlikely that it will come to match the USA any time soon.

I also think it is too early to tell what the response will be to the new agreement. Once the policy types have had a chance to evaluate the terms then we'll probably see more interest. I'm guessing the 2 year drug patent extension will be one of the issues that will see more spotlight. I also haven't heard anything yet about conflict adjudication processes.

[Mandos]

I was opposed to NAFTA then and am opposed now. It's about corporate citizenship and investor protection, and restriction of democratic control over the economy. It's about de-diversification and movement down the value chain (for Canada) to being hewers of wood and drawers of tar. "Efficiency" is not always a good thing---free trade has a terrible effect on system resiliency, for one thing.

Also, one of the sticking points in 1987 was deep integration. Free trade opponents claimed that we would have to abandon our generous welfare state or lose all of our jobs in a free trade world. Since then we can see that A. that wasn't true and B. European states have more generous welfare states than we do.

B will not be true for long. The EU is having an undermining effect on welfare states. The Eurozone is structured to force social reform on countries with no accountability. Its political legitimacy is rapidly weakening, because there is no democratic control on "technocratic" decision-making. Technocratic...isn't.

The reason why there isn't as much angst about it is: Canada has already lost much of its manufacturing sector, trade with the EU is smaller in the first place, and, most of all, the negotiators are much better at keeping the whole thing sub rosa. We live in a world where the left has been resoundly defeated, and we're all basically waiting to be eaten by the wolves, whether we know it or not.

All free trade negotiations should be done out in the open, under cameras and constant surveillance. It's the only way to make sure that it isn't an attack on democracy.

[Nick Rowe]

Mandos: "The EU is having an undermining effect on welfare states. The Eurozone is structured to force social reform on countries with no accountability. Its political legitimacy is rapidly weakening, because there is no democratic control on "technocratic" decision-making. Technocratic...isn't."

I sorta agree with Mandos on a lot of that. But I don't think an FTA with the EU will put Canada in danger. But if we joined the Euro....God forbid! (And thank God we never joined the Amero!)

[Simon van Norden]

Two possible reasons.

1) Ronald Reagan. The FTA in 1988 was an agreement with a political lightning rod that roused antipathy from the left wing for many reasons (a more aggressive military posture, attacks on organized labour, and rhetoric that emphasized cutting government regulation and intervention while promoting business interests.) In contrast, EU leaders do not stir such passions.

2) Balance. A central concern of skeptics of the FTA was the erosion of sovereignty in the face of a larger trading partner who might use access to its markets to sway Canadian policies. Adding a second trade agreement with a different (and larger) partner aims to diversify Canada's economic interests; that might reassure some of those original skeptics.

[Determinant]

And sometimes, opposition can hinge on small things. Setting off a section of the country against another is a bad idea. Trading better beef AB-SK access to Europe for possible harm to QC cheese makers is bad politics unless your intent is to shove it in someone's face (and I don't think it is the case here.)

I do. It's pretty clear that Harper has written off Québec electorally. He has five seats in the province and he's not likely to get more; at most 10. He got his majority without Quebec. But this is not a particularly smart move. There is a reason there have only been two majority governments without Quebec in Canadian history (The 1917 Union Government and 2011): it's hard to give your opponents a 70-seat advantage. Most would think it's silly, but there it is.

Really, Harper doesn't mind if he stuffs Québec; they've already stuffed him. How else do you explain that Josée Vernier (CON) lost to Aleandrine Latendresse (NPD) in Louis-St.-aurent in Québec City? BTW a Tory-NDP race is SOP west on Ontario, all of a sudden Québec City transformed into Yorkton.

This is why 2015 will be so interesting. The Liberal Party is uncompetitive west of Ontario except in Vancouver. Witness the joke of their recent candidate in Brandon. The Tories have written off the Québec seats they don't have, but the NDP is competitive across the country, both out west and in Québec. The NDP has the biggest base and the lowest threshold of victory; get more seats than the Liberals.

[genauer]

I love it.
Canadian cheese maker are afraid of the French.
French “cheese eating surrender monkeys”, at least until recently, when Obama let Hollande stand as the last war lord for Syria in the rain, are afraid of Canadian cheese.

The UK believe, they can use such FTA’s as tools against any further Euro market integration. Poland openly says so.

And, for once in a while, we Germans are not accused of any evil intentions : - )

Which is good, because until you find out, what our real intentions are, it’s too late, and

all your forests are belong to us

http://www.wilderness-international.org/agreement

and we will teach you real German environmentalism : - )

[Cornelius]

I suspect it's a combination of factors 1, 2, and 3.

I don't think that 5 is important at all, and the premise behind it is false. Nobody claimed that the 'sky would fall,' even so-called radicals like David Orchard. Nonetheless, the US-Canada FTA was a bad idea; we should have stuck to GATT rules, which at least try to level asymmetric power.