Wednesday, October 17, 2012

Free Trade? at 25, USA and Canada

There is a scene from the John Candy movie Canadian Bacon, where American military types realize that 90% of Canada's citizenry live within 100 miles (~160 km) of the American border. They pretend to fear an invasion. The fact is Canadians invade the United States regularly, every weekend. But when Canadians 'charge,' they do it with a credit card.

This month marks the 25th Anniversary of the Canada-United States Free Trade Agreement (FTA).

Reciprocity, as it was once called, pre-dates Canada, back then it was limited to raw materials, but in 1911 the terms were broadened and Reciprocity or free trade, was defeated when the Borden Conservatives rejected a treaty signed by the Laurier Liberals. The same arguments used against free trade then, were used in 1987, when ironically, the Mulroney Conservatives signed the FTA. A national election in 1988 confirmed the deal, which was apposed by the socialist NDP and left Liberals of the day. I'm sure Laurier would have been sickened by those modern era Liberals.

So if free trade has been around for a quarter of a century, why do Canadians in ever growing numbers choose to shop in the nearby border towns of the United States? Why are there services that provide "border wait times," for travellers - mostly Canadian - here, here, and here? The answer is simple, just have a look at the tariff chart below that was published in the National Post recently.
from the National Post
If all those items are 7 to 18% more expensive in Canada, AND, each province (except Alberta) has a sales tax plus a federal GST, you can see why many Canadians go on US shopping jaunts particularly since the currencies have been close to par for sometime now. Where I live in Ontario, there is a 13% HST (harmonized sales tax, federal and provincial) that may be avoided with a 90 minute trip to New York State. The potential savings on an item of clothing would be upwards of 30%! Lets not forget that shopping in upstate New York provides more selection and good sales too, because of "the economy of scale."

That phrase: "the economy of scale" is often used by Canadian wholesalers and retailers (as an excuse - but I'm not blaming them) to explain their higher prices. Yet the population of the Greater Toronto Area (GTA) is far larger than upstate New York, aren't we big enough here if we were part of that same New York State market? The simple answer is yes, we are big enough, and yes, we could be part of that market, but the invisible boundary that separates us from our neighbours in New York, adds various government costs to "protect" our industries here in Ontario. Some free trade.

So our political masters here in Canada try to protect the brassier and panty hose industry, while at the same time hurting the rest of the population and in particular those least able to afford brassieres and panty hose.

In that National Post article I've mentioned above, Terence Corcoran explains why free trade is due for a change.

BTW, for your enlightenment here is the trailer to Canadian Bacon, enjoy:

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