Articles

IF WE HAD FREE TRADE WITH BRITAIN

February 1 1958
Articles

IF WE HAD FREE TRADE WITH BRITAIN

February 1 1958

IF WE HAD FREE TRADE WITH BRITAIN

Articles

We startled the British by suggesting we’d switch fifteen percent of our imports from the U.S. They startled us by proposing complete free trade. What would it do to us? BLAIR FRASER reports the latest views

Last autumn, for the first time in forty-seven years, Canada was offered free entry to a tremendous new market.

Britain’s proposal of complete free trade, to be introduced gradually over a dozen years, sounded like an answer to Canadian prayers. It meant fifty million customers for Canadian goods. It meant a chance to do more business with Britain and less with the United States, something the new Canadian government had set as a major objective. It meant a chance to build up the economic strength of the Commonwealth by letting Britain earn more dollars.

Consumers in Canada, all sixteen million of us, w'ould have got immediate benefits in lower prices. British woolen cloth, which supplies about half the Canadian market already, would sell here for about fifteen to twenty-five percent less. British clothing of all kinds would come down in price by a quarter to a third. All sorts of manufactured goods, from heavy machinery to baby’s new shoes, would be cheaper.

Primary producers, such as farmers, miners, lumbermen and paper-makers would have gained indirectly. Most of them have free entry into the British market already, but the market itself is limited by Britain’s supply of dollars. If Britain earned more dollars and expanded her own production, she could buy more from Canada.

Manufacturers in Canada were scared out of a year’s growth by the British offer. They called it "catastrophic . . . ruinous . . . murder . . . Nothing could be worse for Canada.’’ One Canadian textile man went so far as to suggest the British made their free-trade proposal only because Diefenbaker’s speeches in behalf of Empire trade embarrassed them at a time when they were trying to build closer trade with Europe. Their real ambition, according to this cynical view, was to make so extreme and impractical an Empire-trade proposal of their own that everybody, including Diefenbaker, would be only too glad to drop the subject.

But the British argued—and still argue—persuasively that even the manufacturers in Canada, or some of them at least, w'ould gain in the end by free trade with Britain.

"This is the biggest opportunity for expansion

that Canadian industry ever had,” they say, in effect.

"American styling is the fashion all over the world today. Your Canadian goods are made in American style. If they had free entry into the British market they’d have a terrific head start over our own British makes.”

Goods like these are now kept out of Britain by import licensing. Last year only tw'o Canadian refrigerators were sold to Britain—yet Canadian prices are about the same as the British charge for a smaller, less convenient model. Canadian makers have been complaining for years that they need a bigger market to operate economically; free trade with Britain w'ould quadruple their market immediately.

Why then has no Canadian voice been heard in favor of the free-trade offer? The manufacturers greeted it w'ith outrage, the government with a pained and stony silence: even the Liberal opposition. devoted lip-servers of free trade, kept remarkably quiet. What’s wrong?

Two things, apparently. One is that Canadians seem to think first of their interest as producers and not of their interest as consumers when they think of international trade. Nobody has talked about British low prices as a benefit, only as a threat.

The other is that the immediate effect on employment in Canada would be. bad. The industries that would gain in the end by free trade would feel no instant change, because most of them have free entry to Britain already. The industries that would suffer most would be not merely damaged, some w'ould .be w'iped out.

Here, industry by industry, is an analysis of what free trade with Britain would mean to Canada:

WHEAT would not be affected at all, one way or the other. Britain has no restriction at all on the wheat trade, which is entirely in private hands. Millers need no license to buy wheat anyw'hcrc in the world, nor is there any tariff on it. Canadian westerners occasionally proclaim that the British would buy more wheat if they had more dollars, and the government is urged to “sell wheat for sterling." but the British themselves insist that there is nothing in this idea. Their millers are already buying all the Canadian wheat they w'ant; should they want more, there is nothing to stop them from buying it. They bought two hundred million dollars’ w'orth in 1956.

FARM PRODUCTS generally, of which w'e sold about a hundred million dollars’ worth aside from wheat in Britain in 1956, would benefit slightly

"There is little doubt that the Canadian woolen textile

industry would be

extinguished

"It would mean lower prices for the things we all have to buy"

I "Heavy industries ¡

I are more alarmed by

§ British competition | I than by I

j |;

I American" I

I "Altogether at least one third of the million and a quarter

I Canadians employed in manufacturing would be affected"

1 II

■■ - " " " " " ■■ '• 8 ■■ - - ö: ■■ \ ' '• V

It would not be an exaggerated

I guess that a hundred thousand, I and perhaps twice that many,

I would be looking for other work"

but not much. Only a few items, notably cheese and apples, are restricted by British import quotas now; if we should double or even triple the three millions' worth we sold in 1956, it wouldn t make a very substantial change in the gross trade figures.

FISH is an item more talked about than sold. Britain has had some restriction on the import of canned salmon from British Columbia, but the fact is that the B. C. canners have had no surplus for several years and must even import Japanese salmon to meet the orders they have now. Free trade could hardly expand their sales to Britain much beyond the seven million dollars’ worth they sold there in 1956.

BASE METALS and non-metallic minerals — aluminum, nickel, asbestos and the like—are also sold without impediment in Britain already. They are Canada’s biggest export to the U. K., taken altogether, even bigger than agricultural products —about three hundred and twenty million dollars in 1956. Although sales have fallen off somewhat, this is because of a dwindling market, not restriction. These are the raw materials of industry and undoubtedly they would benefit, in the long run, by any expansion of industry in either Britain or Canada that might follow a free-trade agreement. In the short run, however, they would not be affected at all.

LUMBER and other forest products, except pulp and paper, have the same free entry into Britain as most other raw materials. No immediate expansion could be counted on.

NEWSPRINT, pulp and other paper are a big Canadian export, the biggest dollar earner of all,

and nominally these things are under import restriction in Britain. In actual fact, though, the British are buying less than their permitted quota now. All purchasing is done through a single company, privately owned, and newspapers draw a self-imposed ration from that source. Canadian newsprint companies say there is not the slightest hope that a removal of import restrictions would bring any rise in their sales to Britain; rather, they’re afraid of a cut.

Altogether these things, and other miscellaneous items on which there is no tariff or other restriction in Britain, account for about ninety percent of Canada's present exports to the United Kingdom. Of course, free traders point out, the remaining ten percent might well be multiplied if import restrictions were removed: they are now held down to ten percent by British import controls. But the industries above-mentioned are the big exporters now, and the ones most inclined to favor freedom of trade.

Some other industries that are tariff-protected against U. S. competition, and tend to be protectionist in their thinking, might expect some modest gain by free entry into Britain.

AUTOMOBILES are the big example. This is one Canadian industry in which the normal relation to Britain is reversed. British cars can and do enter Canada duty-free—twenty thousand were sold here in 1956. Canadian cars face a twentypercent duty and rigid import control in Britain. Canada sells only about a hundred a year there, compared with more than five thousand before the war.

British trade officials say we could find a market there again. Even a fairly cheap Canadian car looks big and luxurious among the smaller British models, and they think it could be sold as a not-too-costly luxury item.

The question is, would it be worth the trouble? British motor taxes penalize the heavy and the high-powered car, and would have some of the protective effect of a tariff. Canada produces 375,000 cars a year; it’s doubtful if the number sold in Britain would be enough to make much difference in jobs or wages to the forty thousand auto workers in Canada.

i w mmmm y v mmmmm #

I I

I "The question is, I

I p

I would it be worth the trouble?" I

I

INDUSTRIAL CHEMICALS are another borderline case. They meet duties and import restrictions in Britain now, though some Canadian firms manage to find a market there anyway. If we had complete freedom of trade, some of the products of Canada’s new chemical industry could certainly be sold in much greater quantity.

On balance, though. Canadian chemical men believe the advantage would lie with the British. Britain's chemical industry has fairly cheap and accessible raw material—British coal. Middle East oil—and its products can be carried by sea to eastern Canada. The Canadian chemical industry is either a long rail haul from its raw material, or a long rail haul from its market.

If they could have free trade with the United States as well as Britain, the Canadians would welcome it. But they can see only slight advantage and many drawbacks to free trade with Britain alone. They can’t see that it would add any to the fifty thousand jobs the industry now provides; more likely it would subtract some, they say.

HOUSEHOLD APPLIANCES have been mentioned already as something Canada could sell in Britain. Anyone who has ever seen an English kitchen would agree that here is indeed a virgin field for the appliance salesman. The British housewife has been neglected almost as much as the North American has been courted and pampered by her own manufacturers. If Canadians couldn’t sell stoves, washing machines and refrigerators in England today, we couldn’t sell anything anywhere.

One might expect the electrical industry, then, to be one exception in the otherwise solid front of Canadian manufacturers against the British free-trade offer. Its 457 plants have had trouble keeping all of their eighty-five thousand workers steadily employed, and one of the commonest complaints in this as in most industries is that the Canadian market is too small to permit low-cost mass production.

But in fact, the electrical industry is not an exception at all. A spokesman for Canadian Westinghouse, interviewed about the probable effect of free trade with Britain, called it “calamitous.” Others said it would be “especially” hard on the electrical manufacturers, though bad enough for all secondary industry in Canada.

Why should these harsh words have come from one of the few industries that could expect some immediate benefit? Because the advantage is limited entirely to the household-appliance field, relatively undeveloped in Britain. In the heavy electrical equipment that provides the biggest fraction of all jobs in the industry, the balance is all the

continued on page 36

If we had free trade with Britain

continued from page 21

HEAVY ELECTRICAL MACHINERY

can be made more cheaply in Britain, and still more cheaply in Switzerland, than in Canada. British imports have been capturing many Canadian contracts from the home manufacturer, notably in the Ontario Hydro-Electric Commission’s development of St. Lawrence Seaway power. James S. Duncan, Ontario Hydro Chairman, is also chairman of the Dollar-Sterling Trade Council and a great advocate of more trade with Britain: he was deputy leader of the Canadian mission that toured the British Isles in December, and he has placed massive orders for British generators and similar heavy equipment. Canadian-made generators are protected by a fairly substantial tariff — fifteen percent against British products, twenty-two and a half against foreign—but they will get very serious competition from the highly skilled and not-so-highly-paid British workman. To keep what business they have, Canadian makers of heavy equipment have cut their prices, sometimes to less than half the price of comparable American equipment.

Far from welcoming free trade with the British, Canadian electrical manufacturers feel they ought to get more protection than they have now. They have not, however, made any formal application yet for such an increase in protection. Some other Canadian manufacturers have done so, and with very good prospect of success.

WOOLEN TEXTILES, perhaps the lamest duck in Canadian industry, had a hearing before the Canadian Tariff Board in November, its second in three years. The Tariff Board was asked by the government for a quick report, and was try-

ing to have one ready before the end of January. Reason for the haste: Canada wants to re-negotiate the tariff on woolen cloth, bound under GATT by an agreement that runs out next June. It is a foregone conclusion that a higher tariff will be recommended.

Virtually all the competition threaten-

The mere suggestion of reducing or eliminating the tariff on British cotton makes Canadian textile men turn pale”

ing the Canadian woolen industry comes from Britain. The tariff against British woolen cloth is limited to a maximum of fifty cents a pound, compared to a dollar against foreign cloth. In spite of this tariff disadvantage, British cloth already accounts for nearly half of all woolen sales in Canada, and the Canadian industry claims to be on the brink of ruin.

If Canada had free trade with Britain, there is little doubt that the Canadian woolen-textile industry would be extinguished. It employs about twelve thou-

sand people in nearly two hundred factories, mostly in small towns of Ontario and Quebec.

COTTON TEXTILES are not as hard hit by British competition as are the woolen mills. Cotton imports come mainly from the United States, and have to surmount a slightly higher tariff than the British Preference rate. There seems to be no plan to re-negetiate cotton tariffs, in the talks now in progress at Geneva: they will probably remain as they are now.

However, the mere suggestion of reducing or eliminating the tariff on British cotton makes Canadian textile men turn pale. Only about a third of Canadian textile imports come from Britain now, but if the seventeen-and-a-half-percent tariff were removed, that proportion would undoubtedly swell.

Canadian cotton mills number about eighty and employ about twenty thousand people. It is not likely they would all be put out of business by free trade with Britain, but some would be ruined and all would be very hard pressed.

SYNTHETIC TEXTILES have the advantage of using Canadian raw material in some cases (rayon, for instance) and some of their forty-odd mills could survive unrestricted competition with Britain. Others would be knocked out. On balance, the industry would not be as hard hit as the woolen but probably harder than the cotton industry. Many of its thirteen thousand workers would be looking for new jobs.

SECONDARY TEXTILE industries, such as clothing, would have no cause to complain at the removal of tariffs on cloth: they’d get cheaper raw material.

However, this would be cold comfort for the removal of the tariff on British clothing, which is now twenty-five percent on most items. “Secondary textiles” are a very loose category, covering everything from silk dresses to pup tents, and it is hard to guess how many of their hundred thousand workers would be affected by free trade with Britain, but the fraction would be high.

Of course the Canadian textile industry is notoriously weak, and notoriously vulnerable to British competition. Anyone could have foreseen that this would be one area where free trade with Britain would create severe and special problems.

Others, like steel and industrial machinery, seem to get their competition mostly from the U. S. Canada buys eight times as much steel from the U. S. as from Britain, and nine times as much industrial machinery.

Indeed, this is the field most often mentioned as one in which Canadian imports could be diverted from the U. S. to Britain in accordance with the prime minister's expressed wish. When the Canadian trade mission left for Britain in November, Gordon Churchill, minister of trade and commerce, gave an interview for BBC television. Asked what particular items the Canadians hoped to buy in larger volume, he mentioned iron and steel products as the leading example.

In fact, though, these heavy industries are more alarmed by British competition than by American. This fact was discovered by the studies undertaken for the Gordon Commission on Economic Prospects. It has also been urged upon the Canadian Tariff Board, which last June recommended a set of tariff changes that will have a net effect of increasing tariff protection especially against British goods.

BASIC IRON AND STEEL tariffs are being re-negotiated by the Canadian delegation in Geneva at the present time, along the lines of the Tariff Board report. The reason why imports from Britain are a greater threat than the much larger imports from the United States is quite simple; American steel comes in over a tariff barrier that keeps prices high enough for Canadian steel plants to meet them. British steel comes in under a British Preference rate that varies from item to item, but in all cases is much lower than the rate against American steel. Many British items come in free.

Canadian steel men have no objection to imports as such. Canada is only able to supply three quarters of her own steel requirements, and must buy the other quarter abroad. But when, as at present, these imports can be brought in from Britain at lower than Canadian prices, there is no limit to the inroads they might be able to make here.

Tin plate is an ironic example. When the Canadian trade mission visited a British steel plant in Wales, Gordon Churchill remarked that Canada was a potential market for tin plate. The reaction in Hamilton. Ont., was immediate: steel-company spokesmen said Canada could supply all her own needs. Tin plate now comes in free from Britain; after the tariff is re-negotiated, the British Preference rate will be ten percent.

INDUSTRIAL MACHINERY is in the

same position. Canadian manufacturers now supply less than half the market here, and ninety percent of the balance comes from the U. S. But again, the price competition is British, because of the low British Preference tariff.

Steel is one of Canada's big industries —fifty companies employ about thirty-five thousand men, with about sixty plants in six provinces. Industrial machinery -is a smaller industry but a widely distributed one, more than three hundred individual firms, mostly Canadian-owned and mostly small, employing a total of twenty-three thousand people.

Steel men, making their case before the Tariff Board, said it is possible for British steelmakers to send their wares by sea to Vancouver and move them east by rail as far as Medicine Hat, Alta., before

freight charges catch up and they have to charge as high as Canadian prices.

What is true of heavy industry is equally true of light:

FOOTWEAR is made in Canada by plants employing twenty-five thousand people. There was a time when Canadian rubber footwear had an export market of its own, and was sold in sixty countries, but that time is long past. The Canadian product has priced itself out of foreign markets. It is limited by British import restrictions, but the limitation is purely

theoretical: the industry can't sell more than fifteen percent of its quota in Britain, because it can't meet British prices. It has great trouble meeting them in Canada, too, in spite of some moderate tariff protection. Free trade with Britain would undoubtedly put a large fraction of the Canadian shoe industry out of business.

MISCELLANEOUS small manufacturers not only suffer from British import competition. but have special reasons for resentment against the British govern-

ment. They have been excluded, ever since the war, from whatever British market they may once have had. The Nicholson File Company, of Port Hope, Ont., used to do a fairly thriving trade in Britain, but now the British workmen who knew and preferred the Nicholson file are dying or retiring; to recapture the market would be a major effort.

Even more exasperating was the fate of Canadian skate makers, who used to sell in Britain. They were barred by British import restrictions, British firms began to make their own skates, and now these British skates are coming into Canada to compete with the home product.

Altogether at least one third of the million and a quarter Canadians employed in manufacturing would be affected by free trade with Britain. How many would actually have to find new jobs is anybody’s guess; some industries would fold up, others might do better than they think

in the face of British competition. But it would not be an exaggerated guess that a hundred thousand, and perhaps twice that many, would be looking for other work by the time free trade with Britain became complete.

That would not, of course, be suddenly. It was made clear from the very outset that Britain was not proposing immediate free trade. Instead, the suggestion was that the tariffs and other restrictions be removed gradually, over a period of ten to fifteen years. Britain promised, moreover, that the British restrictions would be removed first.

Meanwhile, presumably, there would be expansion in other Canadian industries, the ones that can meet foreign competition and the others that could meet it if they had a bigger market.

Another point that is seldom mentioned: free trade with Britain would mean lower prices for the things we all have

to buy. Clothing is now protected by a twenty-five-percent tariff: presumably it would cost only three quarters of what it does now if the tariff were removed. But apparently Canadians think first of their interest as producers, and not at all of their interest as consumers, when they think about trading with other countries.

If we did think of ourselves as buyers we might begin to ask how much it costs to go on buying Canadian goods when the same thing can be bought more cheaply abroad. Those Canadians who do produce cheaply might get tired of paying for the support of their compatriots who don’t.

And if that time ever comes, no doubt some political party will take up the British free-trade offer and make a major issue of it, demanding that it be not merely “studied,” but accepted. But there’s nothing to indicate that the time has come now. ★