Harmonization of economic policies under free trading arrangements: Issues for Canada

self-defeating policies of the present French government and put the leading western nations once again on the road to unity and strength. For Canada, this new scheme is a challenge, but also a very remarkable opportunity. Given the need for a reorganization of our industry, a free trade arrangement has much to commend it. The problems of a trading alignment with the United States alone being what they are, however , we would naturally find a wider grouping much more attractive. Britain is our second largest export market, and our tariffs against British goods, because of the Commonwealth preference system, are already fairly low. The other EFTA countries (the Scandinavian nations , Switzerland, Austria and Portugal) would give us far less competitive difficulty than would some of the Common Market members. Thus, a free trade zone with these partners is about as good a set-up as we could hope for. It would give us a chance to achieve a new competitive efficiency within a remarkably congenial association , from the point of view of Canadian business interests, so that we would then be in a strong position to take on the rest of the world when (as is inevitable sooner or later) the remaining barriers to international trade are ultimately removed. Harmonization of economic policies under free trading arrangements: issues for Canada HARRY G. JOHNSON The general theory relevant to the problem of harmonization of economic policies under free trading arrangements has been fairly thoroughly canvassed in recent years, in connection with both actual and proposed groupings of countries 16 NOTES 1. Ronald J. Wonnacott and Paul Wonnacott, Free Trade Between the United States and Canada: The Potential Economic Effects (Harvard University Press, Cambridge, 1967); also summarized in Wonnacott and Wonnacott, U.S.-Canadian Free Trade: The Potential Impact on the Canadian Economy (Canadian-American Committee, Montreal and Washington, 1968 ). 2. An interesting question is why the U.S. auto industry is centred in Detroit; there is really no satisfactory reason other than that Henry Ford lived there. Probably , if one were to start again from scratch, Detroit would not be the favoured location, but it is now inconceivable that the situation will be changed - just as it is inconceivable that expensive factories in Toronto or Montreal would be closed up right and left if there were Canadian-American free trade. 3. One of the perennial cliches of the unthinking protectionists is to the effect that "all the natural communications on this continent run north-south"; one wonders if such people ever look at a map, let alone read a history book. 4. Wonnacott and Wonnacott, op. cit. 5. Claude Julien, Le Canada, Derniere Chance de L'Europe (Grasset, Paris, 1965.) 6. Harry G. Johnson, et al., Harmonization of National Economic Policies Under Free Trade (University of Toronto Press, Toronto, 1968). 7. Principally, of course, in 1911, but also in 1891 when a Liberal bid for election, mainly on this issue, was defeated at the polls. 8. One of the first groups to advance this idea was the Canadian-American Committee, in its policy Statement A New Trade Strategy for Canada and the United States (Montreal and Washington, 1966). in such arrangements, and much of the detailed application of general principles to practical problems has also been researched. I myself have recently published a survey of these issues with particular reference to Canadian participation in an Atlantic free trade area, prepared under the sponsorship of the Atlantic Economic Studies Program of the Private Planning Association of Canada.1 I shall, therefore, deal very briefly with the general issues, and instead concentrate on what are likely to be the concrete issues involved for Canada. In so doing, I shall make reference primarily to issues in economic relations with the United States - which would Revue aetudes canadiennes inevitably bulk large in any free trade arrangement Canada would be likely to enter - and shall draw substantially on two forthcoming studies sponsored by the Atlantic Economic Studies Program, Munro on tn..nsportation2 and Shibata on tax harmonization.3 The general principles that have emerged from recent research into the harmonization problem may be summarized as follows: 1. It is useful to draw a distinction between...