Q&A: Free Trade at 30: A Conversation with Brian Mulroney

Brian Mulroney—the father of free trade in Canada.
Policy photo

Policy: Mr. Mulroney thank you for doing this. Mr. Trump, in a conversation with the president of Mexico, said that America’s trade relationship with Canada was balanced and fair. This is precisely the language that you have used to describe it.

Brian Mulroney: Yes, if you look at the numbers they bare out that statement. If you looked around the world and looked historically at trade agreements and looked for the one that best reflected growth, fairness, prosperity for both sides 99 times out of 100 you would come down in favour of the Canada-U.S. trading relationship.

Policy: And as you have pointed as well, while we have a merchandise trade surplus of US$11 billion with the Americans they have a $24 billion trade-in-services surplus with us, giving them a $12 billion surplus on this huge relationship.

Brian Mulroney: Yes, which they conveniently set aside when they are putting out the numbers. But as I had the occasion to point out, and I’m not alone in it, to the Cabinet in Ottawa earlier this year, NAFTA is an agreement in trade in goods and services. You can’t amputate the service sector numbers from your calculation and say, see you have a surplus with us. In fact, the American service sector is very much dominant not only with us but around the world, and it’s a very important component and a growing component of our trade with the United States. So, I think the Americans, when they look at it realistically, they’ll see that if weren’t not always in balance, they tend to have a small surplus with us.

Policy: Their number one priority as you know is reducing their trade deficits in this negotiation although I don’t know how that impacts on the law of supply and demand but would you say that Mr. Trump’s real issue is more with China, where they have a $350 billion merchandise trade deficit, than with Mexico, much less Canada?

Brian Mulroney: Well, obviously, but you know you can’t set out a policy the idea of which is reducing trade deficits by limiting trade. The growth that comes from trade should help strengthen your situation. Trade deficits are not automatically wrong or unhelpful to a country. They indicate a strong, growing economy and a desire of American consumers to purchase goods and services from around the world, particularly China, which is how they’ve got into this situation. But it is not lethal, they can work their way out of it.

Policy: I want to take you back 30 years. Here we are in 2017, 30 years ago in the momentous free trade election John Turner said in the leaders’ debate “I believe you have sold us out.” The NDP said we were going to lose our health care. You’ve often pointed this out. Here we are 30 years later and the Liberals are the big promoters of free trade and the NDP stakeholders, big labour, are at the table. It’s a very different table.

Brian Mulroney: I always thought in this issue, if you can live long enough you will see everything and I’m thankful that I’ve lived long enough to see this part. Yes, of course that’s what’s happened. You would be hard-pressed to find a legitimately influential organization or individual in Canada who will come out in opposition to NAFTA. But I think that’s good. That means that the original deal that we did on the Canada-United States Free Trade Agreement, followed by NAFTA, was extremely beneficial to Canada and of course it never works unless it is beneficial to the other two partners. It has been great for Mexico, great for the United States and great for Canada. I noticed that and compared it with the brutality of the 1988 election campaign, compare that with the harmony and the unanimity that these new negotiations have provoked, and I’m very pleased.

Policy: Do you remember the 1988 campaign meeting in Kingston, Ontario where the Holiday Inn was surrounded by demonstrators?

Brian Mulroney: I do indeed.

Policy: And it happened to be, I think homecoming weekend at Queen’s so a certain amount of alcohol had been consumed and the RCMP wanted you to go in by the back door and you said “No, we will go in by the front door” and you and your wife, Mila, were jostled all the way in.

Brian Mulroney: No, it was a brutal campaign. I remember that one particularly because of, as you say in a very polite way, the jostling. There was the shouted insults and the brutality of the mob, because it was a mob, and the things they said were unforgiveable really. I remember that and then I remember an incident that occurred in Charlottetown where we entered a hall and the people at the door, including a man with a little baby three months old, screaming out and they started to jostle Mila. She turned around and said to him “look after your baby, you shouldn’t do that with a baby”. The baby was three months old and terrified with what was going on. But that gives you an idea of the nonsense that was going on in the campaign in certain groups.

Policy: In 2017 as in 1987 the dispute settlement mechanism is a deal-breaker for Canada. Mr. Trudeau has said that, as you did at the time. Tell us about your famous conversation with Jim Baker on the evening of October 3, 1987 with the fast track authority of the president expiring at midnight and it was around ten o’clock in the evening, you were in your office in the Langevin Building and he was in his office at Treasury in Washington.

Brian Mulroney: Yes, and the Canadian negotiators were in an office that he had assigned to them. We had eight people down there led by Michael Wilson and Derek Burney. Eight key people and Jim Baker called me at Langevin and said “PM,” I don’t know why but he always called me PM—he said “PM we have done very well in our negotiations, I’m surrounded here by Lloyd Bentsen and other members of the House and the Senate and I think we have a great trade agreement for you and there is one item that is not going to fly” and I said “What’s that?” and he said “the independent dispute settlement mechanism.” And I said “Well, Jim, you’ve known from the beginning that this was a show-stopper for me. I have said publicly if there is no independent dispute settlement mechanism there’s going to be no deal because how can it be otherwise with, as you know, an economy 10 times the size of ours subjecting us to American courts and laws and litigation practices, we would never come out of this alive.” And he said “I’m sorry but the Congressional members who are with me view international trade as an exclusive jurisdiction of Congress under the Constitution and that this mechanism would dilute their authority, their constitutional authority and supremacy in international trade matters.” I said, “Well, Jim, I’m sorry to hear that and I really have nothing more to add except that I’m going to be calling the president at Camp David and I just have one question for him.” And he said, “What’s that?” I said, “I’m going to say to him ‘Ron, how can it be that the United States of America can sign a nuclear reduction treaty with your worst enemies, the Soviet Union, but you can’t sign a Free Trade Agreement with your best friends, the Canadians?’” There was total silence. Baker said to me, “PM, can you give me 20 minutes?” I said, “Sure”. Now what I’m going to tell you, he never called me back, what happened was that 20 minutes later he walked into the boardroom where the eight Canadians were and he hauled a piece of paper out of his pocket, a handwritten piece of paper and he threw it on the table and he said, “There is your goddamn independent dispute settlement mechanism, now can we get this up to Congress before midnight when fast track runs out?” That was it, that’s what happened and it almost ended the negotiations.

Policy: The Americans say they want to eliminate Chapter 19 and, to quote from their position paper, “Establish a dispute settlement mechanism that is effective, timely and in which panel determinations are based on the provisions of the agreement and submissions of the parties.” There is probably not a problem with that from our side, is there?

Brian Mulroney: The way I read it I don’t see a problem, there’s nothing sacrosanct about the independent dispute settlement language, you can find other language that can cover the reality of what we need. I think they may have done that in the WTO and they have done it in CETA and they were doing it in the TPP. I’m not hung up on the language of this. I’m hung up on the principle.

Policy: And the panels as opposed to the American courts.

Brian Mulroney: If the parties can come up with different language that reflects that principle I’ve no problem with it.

Policy: Minister Freeland, in her speech at the University of Ottawa, also added to our list of deal-breakers the cultural exemption, or the exemption for our cultural industries that you obtained from President Reagan in the FTA and I’ve often wondered—he was Mr. Hollywood and he had been president of the Screen Actors Guild, how did you get him to go along with that?

Brian Mulroney: I explained to him the fact that when you look at Canada and you look at the United States, now they have 320 million people, they would have had 275 or 280 million back then, all of them English-speaking. I said “You know Ron, you have to understand how fragile Canada’s cultural industries really are, let me explain.” We would’ve had about 30 million people max at the time, but I said, “You know, 20 million of them are English-speaking the other 9 or 10 million are French so both sides here have a vested interest. The English-speaking of only 20 million are under intense pressure from the United States, which is another English-speaking country and from Hollywood and your movies. How do we compete with this giant coming at us daily over the airwaves, the newspapers, the media and the movies and so we need an exclusion that will help us develop our industry, both English-speaking and French-speaking? Both of which are small, relative to you, and fragile, very fragile. So, I’ve got to have this exemption for them.”

Policy: And what did he say?

Brian Mulroney: He said, “Let me think about it.” That was the first time there was any acknowledgement of the possibility and he came back, in fact I think it was Jim Baker who was instructed to call me and say, “Okay the president understands this and he thinks we should be on.”

Policy: And he knew at some level too that you needed this to sell the Free Trade Agreement to the Canadian voters or to take that issue off the table at least.

Brian Mulroney: Its absence would have opened a large constituency with access to the media and so on and so there would have been unnecessary criticism from that quarter. In fact, even with it, that was part of the opposition to the Free Trade Agreement.

Policy: Your neighbour in Palm Beach, Wilbur Ross, the secretary of commerce, told you back in January that rules of origin and Chapter 19 were their two major re-openers. Rules of origin is very much in the news as these talks begin. As you know, North American content in automobiles needs to be 62.5 per cent in the assembly process both in the parts industry and the auto industry go back across the three borders six or seven times while they are being assembled, how can you change that rule and not disrupt the auto industry?

Brian Mulroney: Only with great difficulty. What is forgotten in this is that rule of origin really goes back to 1965 and the Auto Pact, which Simon Reisman negotiated on behalf of the government. That’s a long way back, so the integration of the North American auto industry was essentially a fait accompli when we began negotiating. We rendered more sophisticated certain trade provisions there and we cast in concrete the 62.5 per cent and so on. And as you know both Canadian and Mexican auto parts providers, for example, have profited enormously but so have Americans to an equal degree. So, I think, can you make changes in this, of course you can, but the people who are best qualified to work this are the Magnas of this world.

Policy: Magna and Linamar are in all three countries.

Brian Mulroney: All three countries and they do it every day and if they have to go back and forth for seven or eight times to produce a final product, it is all coming out of the same pocket and it is all going into the other pocket, which is namely jobs and profitability. So, I think the larger problem on that discussion is going to be the exclusion the Americans would like on input from other countries, particularly China. This is part of a larger campaign that the Americans are running and trying, understandably to some extent, trying to reduce that deficit of $350 billion a year in their trade with China and they don’t want the rules of origin provision to be a cover for anyone who is a stranger to these negotiations.

Policy: And there are other industries such as the apparel industry where, for example, Peerless Clothing is the largest maker of men’s and boy’s suits in the world partly because the rules of origin enable them to bring in fabric from Europe and Asia.

Brian Mulroney: Exactly, but then again you may remember that in 1987 and 1988 during the campaign it was said by the opposition that, for example, our apparel industry would be wiped out and our wine industry would be wiped out and our automotive industry would be wiped out and look what’s happened. So, I take a positive view of what may happen here. I’m not up to date on all the numbers but I think that it’s 9 million jobs created in America, 5.2 million created in Canada and 6 or 7 million created in Mexico. This is one hell of an achievement for these three countries and you know there is something else to be said because they are zeroing in on the Mexicans a lot. When George Bush and I discussed this, one of the factors that he raised which is very relevant, he said, “You know Brian,” we are in the Oval Office and we are having this conversation, after we have agreed on the thrust of NAFTA, he said “it won’t be mentioned but if we’re successful this will happen, namely that NAFTA will succeed to such an extent in Mexico that young Mexicans will cease trying to find employment in America and will start going home.” Well, last year was the first year in the last 25 years that that has happened and so there was a dimension of assistance to Mexico, because you had two G7 countries, highly industrialized giants, negotiating with a developing country and part of the inspiration was that it would be a model for others—that Mexico would become a developed country. That’s what NAFTA did for Mexico.

Policy: I wanted to ask you about some perennials in the trade file, supply management in dairy and poultry in particular, and softwood lumber, for which Minister Freeland says there is going to be a parallel negotiation. Not to mention California wines in Canadian stores. You’ve been in this movie before.

Brian Mulroney: I’ve seen the movie many times.

Policy: So what is your sense of supply management, because it’s on the government’s protected list, too?

Brian Mulroney: I think the Americans are going to come at this less vigorously than I would have thought initially. There is pro and con in it for them. Because they’ve got protection built in everywhere in their agricultural business. So, I think that this is not going to turn out in any way to be a deal-breaker. It’s going to be a tough negotiation but it’s not going to be a deal- breaker.

Policy: And softwood?

Brian Mulroney: Softwood, I was hoping that it would be solved, and I know that Wilbur Ross and Minister Freeland have been working hard on this all summer and I would have thought that it would have been settled today or tomorrow kind of thing. It’s not far from resolution and so the parallel negotiations that they are talking about should bring a settlement in softwood before the end of negotiations on NAFTA.

Policy: And the obvious trade-off is the Americans withdrawing the duties and the countervail that they have imposed and the Canadians accepting a smaller share than their 31 per cent current share of the U.S. market.

Brian Mulroney: Well in point of fact I don’t know how much of a hardship that would be for us, given the tragedy of those fires in British Columbia that has wiped out a significant part of our capacity to produce.

Policy: You’ve been consulted by Mr. Trudeau and his team. How do you think they are doing in managing this file and their relationship with the White House?

Brian Mulroney: I think that Prime Minister Trudeau has done, and his immediate advisers, have done a first-rate job in dealing with the situation from the beginning. They were caught flat-footed with the results of the election but they’ve made a strong comeback. They have been preparing diligently for this. They have sought to be inclusive by bringing in people of different backgrounds and political persuasions and so on and they have been thoughtful in their conversations with the Americans in advancing the cause and they have not taken the bait. The worst thing that the Canadians could have done or could do would be to respond to a tweet or a statement and get into a verbal fist fight with the Americans over something that is meaningless. My view was, and I’ve talked about it publicly, keep your mouth shut and your head down and prepare, prepare, prepare for the autumn negotiations. All of these things that cause a furor and headlines can be dealt with at the negotiating table.

Policy: So your advice to Mr. Trudeau and his team about Mr. Trump taking to Twitter on this, as he did on supply management in dairy last spring, would be policy isn’t made on Twitter.

Brian Mulroney: That is exactly right. A deal is not going to be made on the front page of the Washington Post. A deal is going to be made at the bargaining table. That can only be dealt with by those three negotiating teams and our team is very impressive. The Trudeau government has taken what we did early in 1985, 86, 87—the outreach to industry, suppliers and so on across the country—and brought them in and so I think they are well prepared to handle anything that comes up.

Policy: You’re advising Mr. Trudeau and his team on this. Here we have a prime minister of one party and one generation reaching out to a prime minister of another party and another generation—Mr. Trudeau to you. As you go around the country do you get a sense that people like that?

Brian Mulroney: Oh, yes, they do. I hear about it pretty well everywhere. In the last couple of months, I’ve travelled across the country from Vancouver to Nova Scotia and what I heard about most was that people like it. They are reassured by it. You know, I’ve said publicly when this thing began there’s no Conservative way to negotiate a comprehensive Free Trade Agreement with the United States and there’s no Liberal way. There is only a Canadian way, so the more talent and unanimity and solidarity you have behind you if you’re the Canadian negotiator, the better off you are when you confront the Americans and the Mexicans at the bargaining table. Their outreach, I think of the Prime Minister himself, his principal secretary Mr. Butts and Minister Freeland and others, they’ve done a terrific job of that. As you know, they invited me and Ambassador Burney to meet with the Cabinet, that’s probably a first in Canadian history. Everything else they are doing as a government, while it may be important, pales when compared to the success of the NAFTA negotiations.

Policy: Minister Freeland put two other progressive issues, as she termed them, on the table, asking for chapters on gender equality and Indigenous peoples. What are your thoughts on that?

Brian Mulroney: Well I haven’t seen the language behind those principles.

Policy: They haven’t provided specifics.

Brian Mulroney: I haven’t seen anything on it so I don’t know what that means. My own view is that while these are legitimate concerns I’m not sure that they will find priority acceptance in a trilateral trade negotiation where the deals that matter are over in excess of a trillion dollars a year by far. So, look, if we get the fundamentals right on this then we can deal with those matters in another forum if need be but if the Americans and the Mexicans want to deal with it, that’s fine by me.

Policy: I just want to end on this note from Chrystia Freeland’s speech in Ottawa referring back to 1987 and 1988, she said: “The Liberal party of that era, then in opposition, was against it, my own beloved mother who ran for the NDP in Edmonton-Strathcona, in Edmonton in 1988 was against it, Prime Minister Brian Mulroney, to give credit where due, staked his prime ministership on getting free trade passed and he was right.” This is coming from a Liberal minister of foreign affairs.

Brian Mulroney: Well, I’m glad to hear it. But you know, for anyone who participated in that election in 1988 it is something they will never forget, because if you compare what has happened in the last four or five elections here in Canada it’s all pretty milquetoast compared with the importance and the significance and the substance and the disagreements and the brutality of the ’88 election. Had we lost that election and the Free Trade Agreement, there would be no free trade. There would be no NAFTA. There’d have been no GST and where would we be today without all of those things? So it was a very consequential time and I’m happy to see Minister Freeland acknowledging that, you know, as is said in French la nuit porte conseil. After 30 years, people look at it and say “Maybe, he was right on that one.”

A conversation at the former prime minister’s Montreal law office, August 18, 2017.