Canada Puts Microscope on Trade

Exports rise, but many Canadians still question 1988 pact with US and new Mexico deal

By , Staff writer of The Christian Science Monitor

THE uphill fight to convince a mostly skeptical Canadian public that it badly needs the new North American Free Trade Agreement has kicked into gear.

The agreement, called NAFTA for short, would link Canada, the United States, and Mexico in the world's largest trading group, a US$7 trillion market of 360 million people. It is supposed to be a key campaigning point for the conservative government of Prime Minister Brian Mulroney in elections expected next spring.

Earlier this month the government announced a $3.1 million (Canadian; US$2.5 million) campaign to rally public support for NAFTA, on the basis that it complements the 1989 Canada-US Free Trade Agreement (FTA).

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But it will not be an easy sell. In June just 28 percent of Canadians favored NAFTA and 65 percent were against it, according to Environics, a Toronto polling firm. A government survey last month, however, reported 46 percent in favor of the deal, a dramatic shift several independent pollsters question.

Both sides say that selling or dissuading the public on NAFTA requires evaluating the impact of the FTA. And here the fun begins, because the main tools for looking at the FTA's impact - and the presumed merits of NAFTA - are statistics.

Both sides are already picking over the data from the government's number-cruncher, Statistics Canada, to see how Canada has faired under the FTA, especially against the US, Canada's largest trading partner.

Anti-free-trade groups have been blaming free trade for the lion's share of roughly 350,000 lost manufacturing jobs and the 11.6 percent unemployment rate. But several economists say only about a quarter of the total are lost because of the FTA, the rest from the nation's long recession.

When second-quarter figures were released Sept. 17, the government pointed happily to the 8 percent rise in exports so far this year. Trade Minister Michael Wilson told Parliament that Canadian exporters have taken advantage of the fall in US tariffs. "It is why we have seen the significant increase in our export performance," he said. He spoke of exports as the future hope for building Canada's economy, predicting strong future increases.

Government forecasters have predicted a rise in Canada-Mexico trade from C$3 billion last year to C$5 billion by the end of the decade. But Mr. Wilson told Canadian businessmen Sept. 18 he expected it to reach the C$5 billion mark much sooner.

A labor economist, however, says export numbers adjusted for inflation are less impressive, and that export improvements must be taken in context with a fast-rising deficit in tourism and services.

"Canada's deficit in terms of tourism, trade, services has been increasing phenomenally," says Andrew Jackson, senior economist for the Canadian Labor Congress.

Statistics Canada records a negative C$18.7 billion balance with the US in "non-merchandise transactions" last year, a category that includes services, tourism, dividend and interest payments on debt. That outflow, combined with the C$13.9 billion merchandise trade surplus with the US last year, left a C$4.8 billion balance-of-payments deficit.

Peter Morici, an economist who heads the Canadian-American Center at the University of Maine, says, "Canada is out of balance for the right reasons." He cites the rise of net US direct investment in plant, equipment, and offices in Canada from minus C$18 million in 1988, the year before the FTA went into effect, to C$3.4 billion last year.

The FTA has forced a reorganization in Canadian business that has put it on a more competitive footing with the US, Morici says. Canada's total net international capital account, which includes flows of securities as well as direct investment, showed a surplus of C$35 billion last year, up from C$12 billion in 1988. This, he says, is evidence of "a recapitalization of Canada's manufacturing base."

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