A brief history of Canada-U.S. trade talks, as countries meet to write new chapter

CTV News Channel: Opening rounds of NAFTA Richard Madan reports that the first few days of NAFTA will likely remain collegial as leaders warm up for more intense negotiations later.

WASHINGTON -- A protectionist new government has been elected in North America, railing against free trade, and warning it will rip up a regional agreement. Across the border, baffled media pundits bemoan the self-defeating stupidity of the voters next door.

"The hands of the clock have been set back. Prejudice and delusion have triumphed," said one major newspaper editorial.

"The Canadian election is a triumph of reaction and ignorance."

Yes -- the election was in Canada. The newspaper was The New York Times. On Sept. 22, 1911, American commentators were beside themselves that Canadian voters had turfed Wilfrid Laurier's Liberals and plans for Canada-U.S. free trade.

The countries start writing a new chapter in their trade history Wednesday when they sit down with Mexico at a Washington hotel for Round 1 of talks aimed at new North American Free Trade Agreement.

Chrystia Freeland, Canada's lead minister in the negotiations alluded to that history Monday as she described how the Americans held off attacking the St. Lawrence River Valley during the War of 1812, possibly altering the course of the war, because cross-border residents depended on trade with each other.

Canada-U.S. trade eventually lapsed and, in 1911, Laurier wanted to restore an old reciprocity treaty. Robert Borden's Conservatives promised to rip it up. They were aided by the pangs of a timeless Canadian fear.

A senior U.S. lawmaker triggered those palpitations when he articulated his motivation for supporting free trade: a U.S. takeover of Canada. After the election, American newspapers identified the campaign turning point in the words of House Speaker Champ Clark who said, "I hope to see the day when the American flag will float ... clear to the North Pole."

Those comments played poorly in Canada.

Another Times column mocked Canadians for succumbing to fear-mongering and nationalist nostalgia steeped in British anti-Americanism: "Canadians have permitted themselves to be fooled and bamboozled against their own interests.... We did not think they would be so foolish."

It took another five decades and a half-dozen prime ministers for the countries to reach a free-trade deal in automobiles -- the 1965 Auto Pact. It took decades more for the engine of comprehensive free trade to lurch forward.

A young cabinet minister had a revelation.

It was 1981, in the waning days of the Pierre Trudeau era. The economy was in the tank, with high unemployment and high interest rates. And a 41-year-old trade minister noticed in his travels that his peers were talking about new regional blocs. North America's share of global trade was plummeting.

"It was unreal," recalls Ed Lumley, now chancellor at the University of Windsor. "I figured, 'Trade's gotta pull us out of this mess."'

Ronald Reagan had just proposed the idea of continental free trade in his campaign. The young minister asked Trudeau if he could go open up lines of communication with Reagan's new trade czar Bill Brock.

Trudeau gave him the go-ahead for the super-secret mission.

Lumley only told two officials about it. Even the federal cabinet was kept in the dark "because I knew it would be shot down," Lumley recalled in an interview. "Since Laurier's time, the Liberal position on trade was not very popular."

Brock was surprised by the outreach. Lumley recalls him saying: "'This is heresy in Canada, isn't it?"'

They started talking about a sectoral trade arrangement -- like the Auto Pact, extended to transportation and cattle. The one phrase that would never cross Lumley's lips was free trade: "Because once you said 'free trade,' that was the kiss of death in Canada."

The idea got off to a halting start under Trudeau. But the wheels kept turning.

A federal commission led by Donald Macdonald recommended free trade with the U.S., Brock remained U.S. trade czar, and one of the two officials informed of Lumley's secret was a civil servant authoring an internal study on trade policy.

His name -- Derek Burney, who became a top confidant to Brian Mulroney. The young Conservative prime minister initially campaigned against free trade, but reversed course.

Burney identifies a specific turning point.

March 18, 1985 -- the so-called Shamrock Summit. Everyone remembers Mulroney and Reagan warbling, "When Irish Eyes Are Smiling." Few recall the press release instructing bureaucrats in both countries to explore all possible avenues to increase trade and investment, and report back within six months.

"That was (where) the seeds were really planted for the free-trade negotiation," Burney says.

"It was a stepping stone to the free-trade negotiation."

The talks nearly collapsed.

Canadian officials actually did pull out in September 1987. It was just days before the deadline for reaching a deal, with the impending expiry of a U.S. fast-track law. Americans were refusing to let an international panel settle disputes.

The sides returned to the table when a U.S. senator proposed a compromise system. But talks almost collapsed again on the final night, when U.S. official James Baker informed Mulroney that Congress wouldn't accept the international panel.

"We were gonna lose fast track in two hours," Mulroney recalled in an interview.

"I said, 'Jim, all right, that's fine... I just want to tell you that I'm going to call President Reagan now at Camp David and I've got one question for him:... I'm going to ask the president how it is that the United States of America can conclude an understanding for the reduction of nuclear weapons with your worst enemy, the Soviet Union, and you can't reach a free-trade agreement with your best friend, the Canadians."'

Baker asked for a few minutes. He later returned to a room where Canadian officials were waiting. "He threw this piece of paper on the table and said, 'There's your goddamn independent dispute settlement mechanism -- now can we get this (agreement) up to the Hill (for a vote) before midnight?"'

Much has changed since then.

Mexico joined the agreement; new trade rules were created at the World Trade Organization; economic sectors were born; and, in recent years, the big Canadian political parties generally agree on trade. This time, it's Americans who elected a government threatening to scrap an agreement.

But one thing hasn't changed since 1987: the Americans still want to rip up that dispute-resolution system.