Few issues highlight the difference between conservatives and their free enterprise allies quite so starkly as trade—in particular, the dispute over sovereignty versus globalization. In Canada the early decades of Confederation were dominated by trade battles between the Conservatives, whose National Policy was based on high tariffs, and the Liberals, who advocated "reciprocity" with the U.S. Throughout the 1980s and the debates over the Canada-U.S. Free Trade Agreement and the Canada-U.S.-Mexico North American Free Trade Agreement (NAFTA), the Liberals remained staunchly opposed to continental free trade. With the coming of Jean Chretien to power in 1993, however, the Liberals have become born-again free-traders, passing NAFTA in 1994 and now advocating an even more controversial pact, the Multilateral Agreement on Investment (MAI), currently under negotiation in Paris by the 29 member nations of the Organisation for Economic Co-operation and Development.

But just as the Liberals have turned 180 degrees on liberalized trade, right-wingers—since the Second World War staunch supporters of free-trade—are now rethinking their support, both in Canada and the U.S. These "anti-globalist" right-wingers see MAI as a risk-fraught transfer of power from politicians to unelected tribunal members and foreign CEOs. The anti-globalists argue that the diminution of sovereignty that trade agreements entail may be justified in Canada's 20 bilateral trade agreements with such countries as the U.S., Chile and Israel, where Ottawa maintains a 50% partnership. But they argue that MAI would constitute nothing less than the creation of another layer of government. This multinational state would certainly be hostile to the concerns of communities, and might even be hostile to genuinely freer trade.

The fight against MAI has cemented a left-right coalition that first came together in the battles against NAFTA and the 1994 GATT agreement (see story, page 19). Left-wing opponents of MAI cite Canada's loss of control over cultural, environmental and labour policy, and have successfully pushed for a number of "carve-out" exclusions for these areas under the agreement—exclusions that could ultimately scuttle the deal. Last week U.S. trade representative Charlene Barshefsky, under pressure from Hollywood, threatened to withdraw from MAI before the April 27 deadline to finalize the deal, unless France and Canada gave up their insistence on a broad exclusion for cultural industries.

Conservative critics have a rather different complaint. Far from liberalizing investment regulations, they say, the agreement will have the opposite effect. The issue is not so much whether free trade is good or bad, but whether multilateral agreements are the best way to achieve it, says James Sheehan, research associate at the Competitive Enterprise Institute in Washington, D.C., a free market think-tank that lobbied against NAFTA. "In a globalized system, there is less opportunity for competition between nations," he says. "Global investment agreements allow governments to stifle competition between themselves."

Despite increased MAI criticism on the right, many free enterprisers such as the Fraser Institute and Reform trade critic Charlie Penson continue to support the deal—with the proviso that they have seen only preliminary drafts. They share Mr. Sheehan's concern that the ever-growing number of carve-outs, including cultural exemptions, will render MAI useless. Moreover, if the government adopts recommendations made last month from labour and environmental groups to a House of Commons standing committee on MAI—which call for inclusion of environmental and labour codes that would establish minimum standards of practice, and specifically prohibit others—the agreement could end up thwarting trade. "I agree with the U.S. position," says Mr. Penson. "Why have an agreement if it doesn't go far enough?"

International Trade Minister Sergio Marchi counters that MAI is critical to Canadian economic growth. In a statement last month he said that as a country with a population of 30 million producing $800-billion worth of goods annually, Canada needs secure access to foreign markets. NAFTA merely eliminated continental trade barriers. MAI goes further, tackling investment rules. Specifically, it would require that Canadian-owned corporations doing business in signatory nations be subject to the same opportunities and rules as domestic companies. "The investment climate in many of these countries is unpredictable, and Canadian firms would benefit from clear, enforceable rules," he said.

Of course foreign companies would receive the same treatment in Canada. In other words Canada would no longer be able to single out domestic companies for government contracts, loans and subsidies. Multinationals would be eligible for the same treatment. Provincial and municipal governments would no longer be able to impose local performance requirements, such as the hiring of local workers, or give preference in service contracts to small businesses; foreign companies would be ensured equal access to those contracts, resulting in the profits being funnelled to head offices outside Canada, rather than into local economies.

Mr. Penson argues the trade-off is worthwhile, given the fact that Canadians are now investing in foreign markets at a greater rate than ever. In 1997, for the first time in decades, Canada's outside investments outstripped foreign inflows ($194 billion to $188 billion), testimony to the success of NAFTA. Mr. Penson also notes that exports constitute 40% of Canada's GDP, compared to only 10% in the U.S. "The point is, the rules that govern trade benefit us a lot more than the U.S. It's very much in our interest to follow a multilateral approach."

But Progressive Democratic Alliance MLA Gordon Wilson says the increased protection for Canadian investors is not worth the loss of provincial jurisdiction. Ottawa is effectively committing the provinces to surrender economic powers without giving them a say in the deal, says Mr. Wilson. "This is a clear infringement on provincial jurisdiction," says Mr. Wilson, who suggests B.C. could mount a constitutional challenge of the agreement on that basis.

Among Mr. Wilson's concerns are that, as a result of the prohibition on local performance requirements, job creation initiatives such as the NDP's Jobs and Timber Accord could be challenged. Foreign companies could even challenge rate hikes approved by the B.C. Utilities Commission to support such things as B.C. Hydro's annual dividend to the province, on the basis that these constitute a local benefit.

"Good," responds Fazil Mihlar, director of regulatory studies for the Fraser Institute, who argues that the track record of government job creation schemes and performance requirements are a dismal failure. He cites the case of Alberta, where former premier Don Getty spent $2.6 billion on the establishment of crown corporations and loan guarantees to provincial businesses—all in the name of the public interest, and all unmitigated disasters. "MAI would tie governments' hands to go in and engage in these sorts of market-destroying activities," says Mr. Mihlar. "Firms are out there to make profits. You can't make firms do other things, like be good corporate citizens."

Mr. Mihlar argues that MAI would not penalize local businesses, but merely make everyone play by the same rules. Not so, counters Toronto lawyer Barry Appleton, a specialist in international trade law. That is because, as under NAFTA, foreign companies would be able to appeal any policies or regulations they consider discriminatory to a dispute tribunal, composed of representatives from the 29 OECD countries. Mr. Appleton explains, "This results in the situation that, in Canada, foreign investors and their companies are permitted to have access to the investor-state process to protect their rights while Canadians may not. In essence, foreign investors are provided with a better legal remedy than Canadians under these rules."

That legal remedy is particularly unfair in view of MAI's requirement for foreign companies to be compensated for any "expropriation" of their interests, says Union of B.C. Municipalities (UBCM) executive director Richard Taylor. He argues that the definition of expropriation under international law is much broader than under B.C.'s Municipal Act, including, for example, zoning bylaw changes. So not only would municipalities be barred from giving preference in service contracts to local tenders, they could face compensation demands from foreign companies, such as the U.S. retail giant Wal-Mart, for zoning changes that restrict business activities—compensation for which local firms are not eligible. Says Mr. Taylor, "It would lead to two sets of rules: one for international companies, and one for local businesses."

Mr. Mihlar responds that Canadian companies would have the same protections in other countries. For example, the refusal of a municipal government in Mexico to issue a civic licence for a waste facility to a U.S. firm is currently the basis of a $50-million NAFTA expropriation action.

But the UBCM's Mr. Taylor says foreign companies have an advantage over municipalities in the tribunal process, because municipal (and provincial) governments are excluded from the tribunals—all arbitration is at the national level. And even if they were included, small towns could hardly afford to send lawyers to Zurich to defend every zoning change. "Zebalis [a town in northern Vancouver Island] ain't going to a world court," he says.

One instance of how foreign investors could use the tribunal process to effect domestic policy changes is a pending $250-million claim that the U.S. Ethyl Corporation has filed under NAFTA against Ottawa for banning MMT, a fuel additive alleged to be harmful to health. The company alleges that because MMT is not banned in the U.S., it is suffering from an unlevel playing field in terms of exporting its product to Canada.

Many Americans share those sovereignty concerns. Journalist and two-time Republican presidential nomanee contender Pat Buchanan, a leading American anti-globalist, cites a legal challenge launched last May by the European Union against a planned merger of Boeing Inc. and the ailing McDonnell-Douglas. The EU invoked U.S. anti-trust laws, claiming the deal would give the new American entity an unfair competitive edge over Airbus Industrie, a government-subsidized consortium of European aircraft companies. Mr. Buchanan writes, "Since when did a merger of two U.S. companies or the sale of U.S.-built planes to U.S. airlines become any of Europe's business?"

In the Ethyl and Boeing cases, the issue is not so much whether Canada's environmental laws or the U.S. anti-trust laws are wrong, says the Competitive Enterprise Institute's Mr. Sheehan, a strong critic of American anti-trust legislation. The issue is the right of each country to dictate its own policy, for better or worse. The continuation of repressive trade policies among some members of the 29-nation OECD may indeed close some foreign markets to U.S. (or Canadian) investors over the short-term, he says. But if the market is indeed all-powerful, then those countries will naturally be forced to liberalize their investment rules over the long-term. "The point is, let America and Europe have their own trade policies, and see which is better. I suspect the country with the more liberal law will thrive in the marketplace."

Surprisingly, some multinational companies that have the most to gain under MAI are beginning to agree with Mr. Sheehan. The Pulp and Paper Association of Canada, which represents such foreign-owned companies as Fletcher Challenge, strongly supports Canada's right to maintain strong environmental and labour laws, says Steve Stinson, director of finance and business issues. Nonetheless, Mr. Stinson does not believe a multilateral investment agreement is the place to be legislating global standards in those areas, as groups such as the Sierra Club of Canada have proposed in submissions to the House of Commons.

Like Mr. Sheehan, Mr. Stinson is concerned MAI is degenerating into an agreement that regulates, not liberalizes, investment. "That's the danger of where this thing is headed. We might be better without it, and sticking to the plethora of bilateral agreements already in place."

The broad cultural exemptions Canada and France demand is another case in point, says Reform's Mr. Penson who, like U.S. representatives, favours replacing it with clearly defined, specific exclusions. A broad cultural exemption could be interpreted to include not just film and entertainment but any form of communication—everything from Internet service providers to computer support firms, business sectors that have nothing to do with culture. Mr. Penson notes IBM Canada has created 5,000 new jobs in the past five years. "Companies like that will begin looking elsewhere if they are included under the broad rubric of cultural exemptions," says Mr. Penson.

Mr. Mihlar agrees that the exemptions diminish the value of MAI, and predicts it will fail as a result, particularly given the stalemate over cultural exclusions. "That's a deal-breaker for the U.S. Frankly I think it's dead." He remains a believer in the concept of multilateral agreements, however, and says that Mr. Sheehan's "may the best trade policy win" approach presumes a perfect world. "Yes, the first, best world would be complete free trade. Fine, that would be great. But in the absence of such a world the question is, would this agreement improve our situation or not? You can go for all or nothing on the one hand, or take some improvement on the other."

Mr. Mihlar dismisses sovereignty concerns. He argues that any trade pact entails some diminution of sovereignty, but that this is done on a voluntary basis. "Nobody is holding a gun to the government's head," he says. "There is still a sovereign right for governments to bankrupt themselves, and to give money to companies—as long as foreign companies are not exempted. The point is, when we signed NAFTA, we put an end to all these legislative bullying tactics from the U.S. The international dispute mechanism is clearly helpful. We are no longer relying on the vagaries of the political system."

Pat Buchanan has an entirely different view of NAFTA's impact on Canada—one that would gladden the heart of left-wing MAI opponent Maude Barlow. While Mr. Buchanan acknowledges that NAFTA has undoubtedly boosted Canadian trade, he argues it has done so at the expense of the nation's future. As Canada strengthens its foreign ties, as epitomized by its annual trade surplus of $23 billion with the U.S., the ties that bind it as a nation are weakened. Salmon wars aside, B.C. now has more in common with Washington State than with Nova Scotia, in Mr. Buchanan's opinion. "Whenever a free-trade zone is established, national sovereignty is diminished—and its demise but a matter of time...the British and French are learning it now. Peaceful commerce is a powerful cement in binding citizens together...History will say that Canada sacrificed its birthright on the altar of trade."

—Dave Cunningham

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