16
The singing summit: Flanked by two entertainers, Brian Mulroney, Mila Mulroney, Ronald Reagan, and Nancy Reagan sing “When Irish Eyes Are Smiling,” Quebec City, 17 March 1985.
The 1980s began with the bang of Trudeau’s re-election in February 1980. They continued with a whimper, as the economy sank into the worst recession since the Second World War. While Trudeau may be remembered for his confrontation with Quebec and his reform of the Canadian constitution, what was equally troubling at the time was rising unemployment and soaring interest rates.
Trudeau and his government didn’t cause the recession. Canada’s economy trailed other Western economies, and Canada’s economic policies resembled those of larger countries, especially the United States. Suffering from the same problems, Canadians tried the same solutions. Canadian GDP fell between 1981 and 1982, and of course per capita income fell as well, not recovering to 1980 levels until 1984. Virtually every country in the Western world participated in the economic downturn, and in some countries, like France and Germany, unemployment rose to a permanent, and high, plateau. Governments helped to foster this development, raising interest rates to the point where inflation could be squeezed out of the economic system. So it was, but at a considerable cost in plant closures, collapsing retail sales, and unemployment.1
Monetary policy is seldom an issue in electoral politics, and it was natural that Trudeau and his ministers were fixated on other things. Oil prices were rising, thanks to a revolution in Iran, and heading, it was believed, for $60 a barrel. This posed problems for Canada’s two-price system for oil, in which the domestic price for oil and natural gas was less than half the world price—the price at which petroleum could be exported to the United States.2 But what was a problem was also an opportunity. The federal government was already running a deficit, in part to pay for the two-price system. Why then should the federal government not profit from the oil bonanza, help pay for its oil-related deficit, and also use the occasion to make the Canadian oil industry more Canadian-owned?
The Trudeau government proceeded to do just that. Failing to agree with Alberta on oil pricing (as the brief Progressive Conservative Clark government had also failed), it proclaimed a National Energy Program (NEP) in the federal budget of October 1980. Ottawa set the domestic price itself, anticipating a rise from $16.75 a barrel in 1980 to $66.75 a barrel in 1990. This calculation projected a much higher world price, and assumed that the oil producers’ cartel, OPEC, would continue to dominate the world oil market. A combination of subsidies, special pricing, and tax incentives encouraged Canadian ownership of oil production. Ottawa gave itself the right to take a 25 percent interest (called a “back-in”) on existing oil-lands leases in the “Canada Lands”—offshore and in the federally administered Territories. Ottawa had changed the rules, to the surprise and discomfiture of investors who had poured money into oil production with quite different expectations. Put another way, foreign-owned oil companies were discriminated against, and thus encouraged to sell to Canadian companies, including the federally owned Petro-Canada (established in 1975). The federal government had the power to impose its will because of its control over interprovincial and international trade, as well as its purported ability to legislate for “the peace, order and good government of Canada.”
The objective was to give Canada greater control over its energy supply, let the federal government share in the oil-price bonanza, and keep profits at home through domestic ownership. The Toronto Star, Canada’s leading liberal-nationalist organ, called the NEP a “comprehensive energy program that can pay enormous dividends for this nation in the years ahead. It deserves the support of all Canadians.”3
The Alberta government, the oil industry, and the provinces generally took the NEP rather badly. The provinces owned their natural resources under the constitution, and consequently had the power to dispose of them as they saw fit. Albertans saw the NEP as the appropriation of the resources of what until very recently had been a have-not province, in the interest of richer and better-developed central Canada. The West had a deep-seated grievance over what it saw as the tendency of populous central Canada to rearrange the country’s economic affairs to its own advantage. A hundred years of the National Policy convinced western Canadians that eastern Canadians preferred to sell their own products dear, under tariff protection, while buying Western resources cheap, at world prices. Now for the first time the world priced a Western product high, and the East was, typically, reacting in its own narrow economic best interest.
The Alberta government’s policies also tended to reflect the attitudes of the oil industry, largely headquartered in Calgary, and the oil industry saw the back-in provision of the NEP as confiscation of its property. “The real gamble,” claimed the Edmonton Journal, “is that given Ottawa’s bent towards confiscation and nationalization, the industry and the investment community will still feel it is worthwhile to develop Canada’s oil and gas.”4 Premier Peter Lougheed of Alberta certainly had the support of most people in his province when he reduced Alberta’s oil production rather than pay money to Ottawa. “Let the Eastern bastards freeze in the dark” appeared on Alberta bumper stickers.
Despite the heated rhetoric, much of which he himself had stimulated, Lougheed was not ultimately averse to a compromise with Ottawa. Less production, after all, meant less revenue for Alberta, and if the federal projections were right, and the international price rose, there would be plenty of revenue for everyone. A complicated series of arrangements was negotiated that allowed “new oil” to get close to the world price and provided other fiscal concessions to the province. And so a deal was struck between Ottawa and Edmonton (as well as parallel arrangements with Saskatchewan and British Columbia).5
The 1981 arrangements did not last long. International oil prices proved to have peaked in 1980, and were already on their way down, below $20 a barrel by 1985, and on down to $11 by 1987. Revenue followed, to the dismay of both the federal and provincial governments. Investors who had harkened to Ottawa’s alluring NEP incentives and borrowed to buy in the energy field found themselves with falling incomes and rising interest rates. Bankruptcy became the common theme of the Alberta oil patch, and it is the economic hardship of 1981–82 and its aftermath that would be remembered long after the NEP had vanished from the statute books. In fact, much of the misery would likely have occurred even if the NEP had never existed. Alberta prosperity followed the international oil price south after 1981, along with the oil rigs and exploration teams who departed the province as a direct consequence of the NEP regime. The direct, ascribable consequences of the NEP became muddled with the effects of other phenomena, over which Ottawa had no control. Nevertheless, it was the NEP that was remembered, and not the vagaries of the market. As an exercise in political theatre, the NEP had practically no equal, but whether it was tragedy or farce remains debatable.
By 1984 the NEP and the assumptions that lay behind it were in ruins. Trudeau had gambled and lost, not merely economically but politically, and the consequences were long-lasting. First, they contributed to the Liberal defeat in the 1984 federal election. Only two Liberals were elected west of Ontario, and one of these was the new party leader, John Turner. There was more. In the West, but especially in Alberta, the NEP became the equivalent of the conscription issue in Quebec in the thirty years after 1917. When Trudeau died, in 2000, Alberta newspapers ignored most of his accomplishments to zero in on the original sin of federal intervention in the oil patch.
That kind of intervention, the opposition Progressive Conservatives trumpeted, would vanish with the Liberals. “Canada is open for business,” the victorious Tory leader, Brian Mulroney, proclaimed. His first order of priority was to dismantle the remnants of federal intervention and control over oil. This pleased Alberta greatly—and of course Mulroney had won every one of the province’s seats in 1984 and would repeat the performance in 1988. It did not displease Ontario, even as the two-price system for oil came to an end. Oil prices were lower and getting lower still, and the pain of adjustment was consequently not acute. But what Mulroney could deliver to the oil patch he could not easily manage for the rest of the country.
MULRONEY, POLITICS, AND TRADE, 1984–1993
Brian Mulroney was the fifth prime minister to come from the province of Quebec; there had once been another anglophone Quebecker in the job, in 1891–92, Sir John Abbott, but except for the name of a junior college, he had been forgotten. Mulroney came from Quebec’s distant hinterland, the north shore of the St. Lawrence east—far east—of Quebec City, in the town of Baie Comeau. Born of Irish-Canadian parents, Mulroney was educated locally and at St. Francis Xavier University in Nova Scotia, where he added conservatism to his native Catholicism. A former law partner observed that Mulroney was a “minority within a minority,” the kind of person who never saw himself as a member of the establishment.6 And yet Mulroney did have some establishment credentials. He was already fluent in French, and it was a natural choice to migrate, eventually, to Laval University law school, where he mixed easily with its overwhelmingly French-Canadian clientele. Upon graduation he moved to Montreal, where he became a prominent labour lawyer while continuing to be active in Conservative party circles.
Mulroney adapted easily to labour law. Reconciling labour demands with management concerns came naturally to him. He had charm, a certain ruthlessness, and obvious ambition. He also had a flair for publicity, and was well enough known to be a plausible candidate for the national Conservative leadership in 1976. Beaten by Joe Clark, he bided his time, while enhancing his reputation and his prosperity by becoming president of the Iron Ore Company of Canada, an American-owned firm dedicated to the extraction of iron ore from Ungava for transport to the steel mills of the American Midwest. He became something of a figure in Montreal society, and carefully cultivated his Conservative connections there and elsewhere. In 1983 he used these to assist Joe Clark out the door as Conservative leader; Mulroney was his natural replacement.
In Canada’s system of alternating parties, the Conservatives were the inevitable replacement for the Liberals. A new Liberal leader, John Turner, did not impress the electorate—not enough for voters to forget twenty years of grievances against Trudeau and his party. Mulroney trounced the hapless Turner in a televised election debate—these events had by then become fixtures of federal election campaigns—and led his party to a majority of the popular vote and a seat total of 211 out of 282 in the House of Commons. Turner did manage to win his own seat, in Vancouver, and was condemned to soldier on at the head of his much depleted party, which had almost been overtaken by the third party, the NDP, in seats.
Mulroney’s first order of business, as we have seen, was to get rid of the hated NEP. But what would he do next? The government’s policy cupboard proved to be almost bare. Like most opposition parties, the Conservatives had campaigned against waste and extravagance, and Mulroney did set up a study group under his deputy prime minister, Erik Nielsen, to winkle it out. But waste and extravagance function as kind of cosmetic in politics, to rouge the corrupt face of power. Compared with the big-ticket items of government, like social spending, waste and extravagance dwindle in importance, and so it was with the Mulroney government. Mulroney had sought to reassure Canadians that he wouldn’t touch their social welfare programs, like pensions and medicare, and he didn’t. Accordingly, there would be no conservative revolution in public finance. Though the Conservatives benefited from better economic times, they found themselves stuck with a large deficit and a growing national debt.
Mulroney and his ministers were becalmed, while the first hints of scandal whispered around his government. Their accomplishments were few. The Canadian armed forces got new uniforms—on the old tri-service model that had been abolished in the 1960s. At the same time, Mulroney’s defence minister was forced to resign after he left his briefcase, with its presumable cargo of state secrets, behind in a German nightclub. The prime minister began to look for a new policy, some striking initiative, that would lend purpose and positive character to his government.
There was one, and it was as old as the country: free trade with the United States. Canada had been partly founded on free trade’s rejection by the United States, in the 1860s, and it remained a lively issue in Canadian politics—though not in American—for the next fifty years. Gradually, trade relations with the United States had improved to the point where, by the 1980s, more than 80 percent of Canadian exports to the Americans landed duty-free south of the border.
Federal officials concerned with Canada’s trade worried. The United States economy was more vulnerable and less uniquely prosperous than it once had been. The Americans ran a perennial deficit on trade, while their nation’s industrial heartland, south of the Great Lakes, withered, as jobs departed for the sunnier, union-free South or Southwest, or left the country altogether for Mexico. Mulroney didn’t have to be told that: declining shipments of iron ore from Baie Comeau to Cleveland recorded the decline in American steel production and its substitution by imports from abroad. American legislators began to invent new ways of protecting U.S. producers against foreign competition, and some of those ways impinged on Canadian exports. Seen from this perspective, the 80 percent–plus of Canadian exports destined to the United States could be as much a liability as an asset, should the Americans move to choke off trade.
Canada was not without friends in the United States, and chief among them was the American president, the Republican Ronald Reagan (1981–89). Reagan didn’t know a lot about Canada, but what he knew he liked. Some of his friends in his previous career as a Hollywood actor had been Canadians like Mary Pickford and Glenn Ford. Reagan knew that Canadians generally resembled Americans, that relations across the border were always peaceful and generally friendly, and that trade with Canada was important. As a Californian, Reagan was also conscious of the much closer neighbour, Mexico, and he linked Canada, Mexico, and the United States in a project he called “the North American Accord.” Nobody, certainly not his staff, knew what that meant.
Reagan’s main interest was strategy, the place of the United States in a world defined on communist/anti-communist lines through the Cold War with the Soviet Union. Canada fitted on the American side of that chasm, though with Pierre Trudeau as Canada’s prime minister, Reagan’s advisers sometimes wondered. Trudeau gave the impression that he saw the United States and the Soviet Union as “equivalent,” and that it was only the hazard of geography that had put Canada on the American side.
There was no doubt where Mulroney stood. Raised in a town enriched by American investment, working in the iron ore business (though at head office, far from the ore mines), Mulroney had a strong notion of the importance of Canadian–American links and the beneficial nature of the connection with the United States. He wanted great relations with the United States, he told audiences in the 1984 election. And he needed something—an idea, a policy, an initiative—to shore up his sagging government. Suddenly, in 1985, his civil servants recommended such a policy—free trade. It was true that he’d explicitly repudiated any such idea in the course of the election campaign, but it was easy to convince himself that he’d really meant something else.7
A summit meeting with President Reagan was in the offing in Quebec City in March 1985. It would later be best remembered for a quartet of the prime minister, the president, and their wives singing “When Irish Eyes Are Smiling,” a piece of unalloyed sentimentality that would for years afterward be considered a landmark of bad taste among Canadian intellectuals. (It seems not to have been noticed by American intellectuals.) That did it no harm with Mulroney, and indeed it wasn’t exploited by the opposition parties in future elections, which suggests that the gesture was not unpopular among Canadians. Mulroney mentioned to Reagan that free trade was something that should be looked at, and Reagan agreed. After a summer of study and preparation, Mulroney and his cabinet finally agreed to risk a negotiation. In September 1985 the two countries formally agreed to negotiate free trade, and Congress very narrowly agreed to let the process begin. American law mandated two things for the future agreement: the negotiations must be concluded within two years, and when complete the agreement would be subject to a strict up- or down-vote in Congress, without Congress adding any last-minute unilateral amendments.
Mulroney had two objectives. First was free trade, meaning the abolition of tariffs along the border on products made in the two North American countries. As important or more important, Mulroney wanted the agreement to deal with non-tariff barriers, which by the 1980s were a fearsome obstruction to unfettered commerce across the border. As tariffs dwindled and the protection they afforded became more and more insignificant for domestic interest groups, producers in the United States and elsewhere came to rely on “anti-dumping” legislation, or in American parlance, “countervail.” This was actually a Canadian idea, dating back to Laurier’s finance minister, William Fielding. To prevent dumping, or subsidized imports, the Canadian Parliament enacted special antidumping duties. Other countries, especially the United States, admired Fielding’s ingenuity and devised anti-dumping duties of their own, to be applied to any import that was unfairly priced (dumped), or unfairly subsidized in its country of origin.
No two countries agreed on what precisely constituted dumping, or what a subsidy really was. That was left to national laws, which could be changed from time to time in response to domestic pressures. It was all in the interest of establishing a “level playing field,” and having not merely free trade but fair trade as well. Thus the United States could take the lead in pressuring other countries to lower tariffs and extend “national” treatment to foreign investors, while maintaining trade barriers if trade harmony, or an international liberal trading system, went too far.
Ideally, the United States and Canada would abolish their respective anti-dumping and countervail measures, but if that was too much to hope for, then to regularize them by applying a standard method of interpretation to what were, after all, extremely specialized and complicated regulations. Mulroney therefore plumped for a “dispute resolution mechanism” that would bind both countries in the future.
Mulroney and Canada did not get what they wanted. Mulroney had staked a large part of his political future on the achievement of a free trade agreement. He appointed Canada’s most experienced, and highest profile, trade negotiator, Simon Reisman, to head the Canadian team. Reisman wanted a comprehensive agreement, and he wanted it badly. The American side, it appeared, did not. They may have been waiting for Canadian concessions, but those were not forthcoming. Negotiations dragged, to the point where, in September 1987, the Canadian negotiators abandoned them and flew home from Washington. This handed the game back to the politicians on both sides, who had to decide, with time pressing, whether anything could be salvaged. There wasn’t much doubt that Reagan and his treasury secretary, James Baker, wanted something positive to emerge and, eventually, something did.
The Free Trade Agreement (FTA) of 1987 provided for the progressive abolition of all remaining tariffs on Canadian- and American-produced goods between the two countries. It provided a dispute-resolution mechanism as well, but with a restricted mandate—to determine whether each country was properly applying its laws regulating trade. The United States was free to change its statutes governing countervail whenever it chose, and there is every indication that Congress would agree to nothing less. Mulroney and his advisers considered the deal a triumph, and the government sought its immediate passage through Parliament.
What was opportunity, even salvation, for the government was also opportunity for the opposition Liberals, under their leader, former prime minister John Turner. Turner didn’t like the deal, and knew that it wouldn’t protect Canada or Canadian interests against future changes in U.S. law. Turner was politically weak: his party was divided and his leadership uncertain. He did have one advantage, however. The Liberals had a majority in the appointive Senate, and they used it to block the FTA’s passage. Mulroney was forced into an election, in which free trade would be the dominant issue.
The election was called for 21 November 1988. At first it seemed that the Liberals were doing their best to defeat themselves. Some prominent Liberals even suggested that Turner should resign as leader while the election was on in order to stimulate confidence in their party—surely the most incredible suggestion ever made by apparently serious people in Canada’s political history. The Liberal government of Quebec approved of free trade, as indeed did Quebec separatists, for it reduced Ottawa’s control over trade and provided a free-standing market for Quebec exports. Federal Liberal support in Quebec accordingly shrank.8 The leader of the NDP proclaimed that the Liberals’ hour was done, and that his party would take over the opposition and, in Canada’s alternating political system, eventually the government. Much depended on Turner’s performance during the campaign, and especially in the televised leaders’ debate.
In a dramatic reversal of fortune, Turner rolled over Mulroney in the debate. Canada, he argued, represented the triumph of politics over geography, the conscious imposition of an east–west axis across the continent to offset the natural attractions of north–south trade. Mulroney proposed to end that, and to substitute a regime of political and economic dependence on the United States. The prime minister’s spluttering protests were lost against the rhetorical force of Turner’s argument.
The Liberals supplemented their debating victory by clever television advertising. The most effective ad depicted the negotiation of the free trade agreement through a conversation between two negotiators. Only one line needed changing, the “American” negotiator observed. Which one, the surprised “Canadian” replied. This one—showing the American erasing the border. Public opinion polls picked up an immediate reversal in the public mood. The Liberals surged, while Mulroney’s Conservatives fell behind. “The allegations and fears promulgated about free trade became more outrageous by the hour,” one of Mulroney’s supporters later wrote.9 Canadians’ fears were plainly aroused. Free trade was now in danger of defeat.
The Conservative riposte showed what effective politics could be. Money flowed into the party’s coffers from an alarmed business community, most of which fervently supported free trade. New Conservative party ads were run showing “typical Canadians” (actually party workers) denouncing Turner as a liar. In a hundred subtle (and unsubtle) ways Canadians were informed that their prosperity and even their jobs hung in the balance—no free trade, no job, because business X or factory Y could no longer afford to stay in Canada. Even if some industry or some area was disadvantaged by free trade, the Conservatives promised they would identify the problem and deal with it—after the election, of course. Now it was the Conservatives’ turn to pull ahead, and the trend held all the way to election day.
On 21 November the Conservatives won a majority of seats (169 to 83 for the Liberals and 43 for the NDP) in the House of Commons, and a mandate to pass free trade as soon as Parliament could be convened.10 Parliament duly passed the necessary legislation, and on 1 January 1989, Mulroney and Reagan signed the documents putting the FTA into effect.
Mulroney had got his legislation and a second majority, though with only 43 percent of the popular vote. He would carry on as prime minister for another four years. John Turner had lost the election, his second as Liberal leader. Custom and personal preference dictated his departure, and he duly resigned his post, to be replaced by a party convention in June 1990. Nevertheless, the Liberals had doubled their seat total, achieved a respectable share of the national vote, and remained the alternative government. The NDP were the real losers of the election. They had missed their chance to displace the Liberals, despite their highest-ever seat total in Parliament. If the Conservatives’ star waned, it would be the Liberals who would have the advantage in the next election.
The FTA of 1987–89 wasn’t the last of Mulroney’s achievements in trade policy. The United States was also interested in a free trade pact with its other neighbour, Mexico, and under Reagan’s successor, President George H.W. Bush, negotiations were begun. The Canadian government was at first disinclined to join in, but reversed itself and participated in what became a tripartite negotiation.11 The reasoning behind its decision was straightforward—Canada preferred a three-way trading relationship to a hub-and-spoke affair in which the United States would be the hub and its trading partners the spokes. Nevertheless, as one observer put it, Canada was “a less than eager participant” in the trade talks.12 To get into the talks at all, however, Canada relied on the very close personal relations between Prime Minister Mulroney and President Bush. “I found him easy to talk to,” Bush later wrote, “gregarious, and possessed of a great sense of humor.” Mulroney was, in Bush’s opinion, “a strong leader for Canada and a true friend of the United States.”13 The decision to admit Canada or exclude it was Bush’s to make, and he made it in favour of Canada and his friend, Mulroney.
The NAFTA negotiations weren’t completed until late 1992, and ratification of the agreement took rather longer. NAFTA was an issue in both the American and Canadian general elections of 1992 and 1993; it may well have contributed to the defeat (among many other factors) of George H.W. Bush by Bill Clinton in 1992 and to the defeat of the Progressive Conservatives in Canada in 1993. The most important consideration was that Mexico had a much lower standard of living than either Canada or the United States; consequently, as one American politician argued, there would be a “great sucking sound” as jobs vanished from high-wage and highly regulated economies in the north to the low-wage culture of the south. It was also true that Mexico had a different political and institutional culture from Canada and the United States; democracy Mexican-style was a recent and feeble phenomenon, and there were doubts about the rule of law in Mexico.
These weren’t the only concerns, either in the original Canada–U.S. treaty or the later NAFTA version. Besides lowering tariffs and establishing mechanisms for review and appeal of the application of trade laws, the agreements dealt with questions of energy and investment. In what could be termed the anti-NEP clause of the Canada–U.S. agreement, both sides promised not to cut off energy supply to the other, and, if reductions in supply had to be made, they would be pro-rated according to existing trade patterns.14 Similarly, both countries guaranteed “national treatment” to each other’s investors, once established—which meant that anything like the “back-in” provisions of the NEP would in future be prohibited. On the other hand, given the fact that Canadian investment in the United States was larger, proportionately, than American investment in Canada, Canadian investors south of the border received some extra protection.
One clause, Chapter 11, of the NAFTA agreement has received considerable attention. This clause allows non-national investors (in Canada, meaning from the United States and Mexico) to sue for damages in case government regulation interferes with their probable profits. The clause has been used in all three countries by investors to squeeze compensation from governments over environmental regulations, or to force governments to rescind such regulations. Paradoxically, domestic companies couldn’t access the provision—only investors from the other two NAFTA countries. This usage came as a surprise to at least some of the original negotiators of NAFTA. As the deputy chief negotiator for the United States later put it in an interview, “I can see how you can take that particular set of phrasing and say, oh, well, what business is saying is if I’m—if you regulate and make me less profitable, pay me off. I’m not sure whether that was the intent….”15
The effects of the original free trade agreement and of NAFTA were less economically disastrous for Canada than opponents feared, and probably less definitively favourable than fervent free traders would wish. Vintners in British Columbia and Ontario rejoiced, as their wines not only survived but flourished. Competition could also prove to be beneficial. “In 1989, I said publicly that free trade would really hurt our company,” an Ontario furniture manufacturer told The Washington Post. “I would have said privately that it was necessary to get the industry on its feet—and it was. It’s a pretty good industry now [1999]. Without free trade, that wouldn’t have happened.” Not every company was so fortunate; a third of Ontario’s furniture manufacturers didn’t survive. In some cases, American firms closed their Canadian warehouses, or their Canadian branch plants: the Canadian market could now be serviced from south of the border. But overall, trade and exports grew, so that by 1998 “an astounding 40% of [Ontario’s] GDP” was exported to the United States, compared to 20 percent in 1989. The same was true of Quebec, which experienced a “huge growth” in exports to the U.S. Yet employment in manufacturing declined by 10 percent.16
The FTA and NAFTA did bring order and predictability to Canadian–American trade, thanks in large part to the dispute-resolution mechanism. And thanks to Chapter 11 of NAFTA they brought uncertainty too, as governments and the political classes in all three countries debated how, or whether, they could still exercise the power necessary to enforce such things as pollution standards, or to run government enterprises like the post office—the subject of a Chapter 11 challenge in Canada.
Dispute-resolution panels could only do so much. They could interpret existing statutes, and definitely could not limit what sovereign legislatures or parliaments could pass into law. The most notorious, though not the only, case in point was Canadian softwood lumber. By the 1980s, the American construction industry relied heavily on Canadian softwood lumber exports, harvested off provincial lands in Canada and sent south to feed the American appetite for suburbs. (Softwood is usually pine and spruce.) Canadian provinces employed various systems to enable lumber companies to harvest wood; some of their arrangements, for example in the Maritimes, were similar to those typically used in the United States. Other provinces, especially Quebec, Ontario, and British Columbia, used what was called “stumpage,” a fee charged to lumber companies for the right to harvest wood off public lands.
The problem was that Canadian softwood was very competitive with American softwood, and Canadian exports attracted the ire of U.S. lumber companies. In 1982, pre-FTA, American companies petitioned their government for a countervail on “subsidized” Canadian lumber. Their argument failed, but the issue didn’t go away. Instead, the aggrieved Americans formed a more effective special-interest lobby and returned to the charge in 1986—very inconveniently for the FTA negotiations that were proceeding at just that point. This time they got their countervail, stringent duties on Canadian lumber exports (though not those from the Maritimes), and indeed had they not done so it might have meant more trouble for the future FTA in Congress. That meant trouble for Brian Mulroney, since the softwood lumber case underlined and highlighted what wouldn’t be covered by the free trade agreement. Under pressure, Canada agreed to an export tax in 1986, let it expire in 1991, and then negotiated another export tax in 1996. When it lapsed in 2001, the war resumed, with no prospect for resolution until one side or the other surrenders. Even Jimmy Carter, the former American president—who on most issues had views entirely compatible with a majority of Canadians, but who was also the owner of a softwood lumber plantation—argued that Canadian stumpage practices were a disguised subsidy, designed to maintain full employment in the Canadian lumber industry.17
The power and political effectiveness of the American lumber lobby meant that it dictated U.S. trade policy on softwood. Canada could appeal to trade tribunals through first the FTA, then NAFTA, and finally the newly founded World Trade Organization (WTO), but the American position remained the same. Canada must either accept American tariffs or enforce its own export tax or a strictly limited quota (about a third) of the American market. As usual in trade and tariff disputes, the consumer’s interest was largely forgotten, because consumers were so widely dispersed as to be ineffective; because the American tariff was an indirect and unseen tax; and because the U.S. lumber coalition could concentrate its lobbying and its influence in key states from the Atlantic (Georgia) to the Pacific (Washington). Canadians might huff and puff in response (as they did) and call down the wrath of the free trade gods on the Americans, but Canadians didn’t vote in American elections. Free trade remained … mostly free, and the American government’s commitment to the FTA’s dispute-resolution mechanism had a large exception—softwood.18
TOXIC FEDERALISM
Mulroney’s second ambitious project was to reform Canadian federalism. If he had a notable skill, it was his ability to bring people together, and to cajole them into compromises that, left to their own devices, they would have ignored or rejected. Federal–provincial relations seemed made to order.
Canadian federalism couldn’t function without a fair amount of compromise between the layers of government. Some federal powers couldn’t be exercised without provincial consent and cooperation, and some provincial responsibilities couldn’t function without contributions from the federal government. At the same time, there had always been competition between the provinces, or some of them, and the federal government. In the nineteenth century, federal–provincial disputes centred on Ontario, the largest and richest province, whose Liberal government battled with Sir John A. Macdonald’s Conservatives over everything from water power to its interprovincial boundary with Manitoba. In the twentieth, Ottawa fought with the Prairie provinces over control of their natural resources, with Ontario over water power (again, and eternally), and with Quebec over the great issues of war and peace during the 1930s and over Ottawa’s ability to spend in areas of provincial jurisdiction.
After 1960 Quebec became the focus of federal–provincial concerns. Trudeau’s record with Quebec we have seen, but he did manage both an amendment formula for the constitution and a Charter of Rights and Freedoms that bound the provinces as well as the federal government. Politically, Trudeau so demoralized Premier René Lévesque that his government began to come apart as its members quarrelled over what they could do now, independence being no longer an option. Lévesque resigned in October 1985, and was succeeded briefly by one of his ministers, Pierre-Marc Johnson, the son of the Union Nationale premier of the 1960s, Daniel Johnson. Johnson in turn was swept out of office in December 1985 by a revived provincial Liberal party under Robert Bourassa, who had returned from the political wilderness and personal exile in Europe to lead his party. In Europe Bourassa had studied the European Economic Community and its institutions; he concluded that cooperative institutions and a cooperative policy with the rest of Canada would benefit his province, and that separatism would not. On the other hand, Bourassa had never accepted the Trudeau style of federalism and was determined that he would, if possible, alter Trudeau’s legacy, which was widely understood in Quebec to be centralization.
Mulroney was attracted to Bourassa’s vision. Like almost all other anglophone Quebeckers, he had supported the provincial Liberals in their struggle for federalism against separatism, but by 1984–85 he was no fan of Trudeau or Trudeau’s approach to Quebec, which he argued weakened rather than strengthened federalism by driving away moderate nationalists who would be satisfied by a reasonable compromise. He could do better, given the right partner, and Bourassa was that partner.
Bourassa argued that Trudeau’s constitutional package of 1982 was legal but not legitimate, because it hadn’t been accepted by the Quebec government of the day or ratified by Quebec’s legislature. He and his justice minister, Gil Rémillard, proposed that this gap could be made whole by trading Quebec’s ratification for an amendment to the constitution embodying five conditions. These were recognition of Quebec as “a distinct society”; restoration of Quebec’s veto over constitutional change, traded away by Lévesque back in 1981 as part of his failed constitutional negotiation; greater power for Quebec over immigration (meaning, notionally, more immigrants for Quebec to balance the English); reduction of the federal spending power (never again a Canada Pension Plan or medicare); and provincial participation in the naming of Supreme Court judges.
Mulroney and his ministers carefully canvassed the provinces. There was some concern in the West, especially in Alberta where Senate reform had become a panacea for redressing the balance between the populous East and the resource-rich West. Here the subtext was “no more NEP,” which could have been prevented by a Senate that was Equal (the same number of senators for every province), Elected (free of the control of the prime minister of the day and presumably more responsive to local demands), and Effective (more like the American Senate). This added up to the slogan Triple-E, which one enthusiastic farmer plowed onto his wheat field so that it could be seen by aircraft far above. Mulroney persuaded Alberta’s Progressive Conservative premier, Don Getty, to deal with Quebec’s agenda first; then Alberta’s turn would come.
The premiers convened at the government’s rural retreat at Meech Lake, Quebec, in the Gatineau Hills north of Ottawa, in April 1987. Mulroney wanted consent to Quebec’s five points, and he got it. This wasn’t surprising, since Mulroney offered the provinces, collectively, a glittering bundle of concessions. The federal government’s power to make appointments to the Supreme Court and the Senate was handed over to the provinces; henceforth the prime minister could appoint justices and senators only from lists handed in by the provincial premiers. Quebec would get a veto over constitutional amendments, as demanded, but so would every other province. And to ensure that this constitutional package wasn’t the last, the premiers and prime minister—the “First Ministers”—would convene every year to discuss … the constitution. All this suggested that Canada would have not so much a constitution as a kaleidoscope. Quebec specifically would be designated a “distinct society,” and this phrase would be entered in the preamble of the amended constitution. Experts differed on whether this positioning would or would not give Quebec’s distinctiveness a privileged position in the interpretation of the clauses that followed; but that was certainly a possibility.
The amendments took the name of Meech Lake, though they wouldn’t be finally agreed upon until a later conference in Ottawa in June. Using his formidable negotiating skills, Mulroney brought the premiers, one after another, on side. The last to come over was Ontario’s Liberal premier, David Peterson, but eventually Peterson too bought the argument that he should agree for the sake of national unity. (Peterson had some misgivings over what Quebec would do to assert its “distinct society.”) At dawn on 3 June 1987, Mulroney announced to a bedazzled media the completion of the “Quebec Round” of constitution-making, while the premiers staggered back to their hotels to go to bed.
Meech Lake was an act of confidence and trust: trust in Quebec, trust in the provinces, trust in goodwill—blind trust in the eyes of its opponents, who were not slow to speak up. Pierre Trudeau was Meech Lake’s most trenchant critic. In French and English he condemned the accord as an unacceptable weakening of the federal government’s ability to speak for Canada. “In addition to surrendering to the provinces important parts of its jurisdiction (the spending power, immigration),” Trudeau wrote in a statement published in La Presse and the Toronto Star, “in addition to weakening the Canadian Charter of Rights, the Canadian state made subordinate to the provinces its legislative power (Senate) and its judicial power (Supreme Court); and it did this without hope of ever getting any of it back (a constitutional veto granted to each province). It even committed itself to a constitutional ‘second round’ at which the demands of the provinces will dominate the agenda.”19
In testimony before a joint parliamentary committee, the former prime minister damned Meech Lake as incoherent and its supporters as weaklings. Committee members waxed indignant that Trudeau could so characterize Meech Lake’s political parentage; but in the words of a journalistic critic, Peter Trueman, the current generation of Canada’s political leaders were at best “merely ordinary … and some of them we wouldn’t allow in our own living rooms.”20
At first the critics hardly mattered. Prime minister and premiers agreed that the agreement had to be swallowed whole, without amendments except of the most technical kind, where the drafting had been in error. All three federal parties, Progressive Conservatives, Liberals, and NDP, were agreed that Meech Lake was a good thing, and that its passage was essential for national unity. Their provincial counterparts—at least the provincial governing parties—took the same view. There would be committee hearings in Ottawa and the provinces, but the committee members were instructed only to hear, not listen.
Meech Lake had to be passed under the rules set down in the 1982 constitution. An amendment of this kind required unanimous consent, and thus had to be passed by the federal Parliament and every provincial legislature. It must be passed within three years of the first ratification by a province—and that ratification came on 23 June 1987, by Quebec.
With three years to go, the ticking of the constitutional clock wasn’t audible at first. Yet it was only the governments that were in office in June 1987 that had agreed to pass Meech Lake. The first of those governments disappeared in October 1987 when the Progressive Conservatives of New Brunswick were erased at the polls (rather literally—the premier and all members of his party were defeated by the opposition Liberals). The new premier, Frank McKenna, wasn’t a supporter of Meech, though as events would show he wasn’t exactly opposed either. The government of Manitoba also went to the polls, and was replaced by a three-party house of minorities with one party, the Liberals, taking its cue from Pierre Trudeau and breathing defiance. The Manitoba government, like New Brunswick’s, postponed the question.
The other provinces, one after another, fell into line and ratified Meech. It seemed that Manitoba and New Brunswick must eventually follow, but in April 1989 something quite different occurred. The Progressive Conservative government of Newfoundland was defeated at the polls by the Liberals under Clyde Wells. Wells was a constitutional lawyer, and a strong supporter of federal power; he believed that Meech Lake would not only reduce the federal government’s ability to act on issues important to his province, but would reduce Newfoundland’s influence on the national stage. He promised that he would rescind Newfoundland’s ratification of Meech Lake, and he proved as good as his word. The Newfoundland legislature cancelled its earlier ratification of Meech on 5 April 1990.21
There were now three provinces that hadn’t ratified Meech. As pressures mounted, Mulroney appeared insouciant. He thrived on pressure— especially the application of pressure to others. Rumblings began to be heard that refusal of Meech would insult Quebec, abandon Quebec federalists, and put the future of the country at risk. Only Meech would make the constitution legitimate in Quebec—an argument repeated in that province by Mulroney, Bourassa, and their supporters. As 23 June 1990, the deadline for the ratification of Meech, approached, the public mood, fed by an excited media, became alarmed.22
In New Brunswick, McKenna buckled and ratified Meech. That left two holdouts, Manitoba with its minority government, and Newfoundland. The premiers were convened to Ottawa, packs of journalists gathered, and as the crisis bubbled behind closed doors television mounted the portentous and endless coverage reserved for solemn occasions.
Finally, Wells and the Manitoba delegation (all three Manitoba parties were represented) appeared to give way. They would present Meech to their legislatures, and in the overheated atmosphere of the time, it was expected that the resulting votes would approve the deal.
Mulroney exulted. In an interview with two journalists after Meech’s triumph seemed certain, he stated, “I told [my advisers] a month ago when we were going to [meet]. It’s like an election campaign; you count backward. [I said], ‘That’s the day we’re going to roll the dice.’”23 It was an unwise remark. Public gloating is never well advised; premature gloating is definitely a poor strategy. “Rolling the dice” with the country’s future reminded many Canadians that their prime minister was often unnecessarily self-congratulatory—and that he had a shallow understanding of how to direct the country.
Mulroney attempted to undo the damage, visiting St. John’s to encourage Newfoundlanders to roll the dice with him, one more time. But it was too late there, and too late in Manitoba, where a Cree NDP member of the legislature refused the unanimous consent that was necessary to get Meech debated and passed. The agreement was dead.
Mulroney and Bourassa had sown the wind and summoned the storm clouds. No one was really surprised when the storm broke. In Quebec, where the political class—except for Trudeau and a few of his supporters—was virtually unanimous, the failure of Meech was taken to be the latest and worst humiliation served up by the English and their allies to the long-suffering Québécois.24 Mass demonstrations took place, the separatist opposition, now led by the “pur et dur” separatist Jacques Parizeau, dominated the agenda, and Bourassa had nothing to put in Meech’s place. In Ottawa, Mulroney’s party split, as one of his most talented ministers, Lucien Bouchard, resigned and expressed his sympathies for separatism.
The Liberals were coincidentally holding their leadership convention in Calgary. One candidate, Paul Martin Jr., was pro-Meech; in the spirit of the times, his supporters accused his rival, Jean Chrétien, of being a “vendu,” a “sell-out,” to the English, and when Chrétien won, some of Martin’s Quebec supporters walked out and joined Bouchard. As a consequence, for the first time an organized separatist group, the Bloc Québécois, sat in the federal House of Commons.
THE END OF MULRONEY
The Mulroney government had three more painful years to live. While scrambling to catch his breath after Meech, the prime minister faced another crisis: a Mohawk rebellion on reserves strategically placed north and south of Montreal. The revolt began because of a property dispute over land the Mohawks considered improperly alienated and then improperly used. Developers proposed to place a golf course over a Native cemetery. Confrontation, police intervention, and violence followed, in which the Quebec provincial police, the Sûreté, were driven off and lost one man to gunfire. The Mohawks blockaded provincial roads passing through their reserves, including one that was a major access route from Montreal’s southern suburbs to Montreal Island. Premier Bourassa appealed for the second time in his career for the intervention of the Canadian army, and the army was duly deployed. Mohawks and soldiers glared at one another, tempers rose, rock-throwing incidents followed. Fortunately, common sense and the passage of time eventually prevailed: the blockade was lifted, the golf course didn’t happen, and life returned more or less to normal.
It was a changed normality. The Meech Lake agreement and the way in which it was handled, mainly by Mulroney, had produced the exact opposite of what had been intended. Quebec was in ferment, a condition that the cautious Bourassa did not favour. Bourassa too played for time, appointing commissions, holding hearings, issuing ultimatums with retractable deadlines, threatening to hold a referendum on separatism, allowing an excited and disappointed population to let off steam. Mulroney too appointed a commission headed by Keith Spicer, which perambulated around the country allowing Canadians to “vent” at it.
Mulroney and the premiers tried yet another constitutional round in response to one of Bourassa’s deadlines. This produced an agreement named the Charlottetown Accord, after its place of origin. Charlottetown was complicated, incomprehensible, and quite possibly unworkable, but it was an agreement, it did have Quebec in, and Canada’s official political leaders recommended it. Put to a referendum in October 1992, it was rejected, both in Quebec and in Canada as a whole. The constitution would not be amended, and Mulroney and Bourassa would not be remembered, after all, as the re-founders of Canada—or Quebec.
Mulroney was responsible for one other major reform. For decades Canadian governments had employed a federal sales tax on manufactures. The tax was widely regarded as inefficient and harmful to Canadian manufacturing, which it handicapped. It didn’t bring in enough revenue, but such as it was, the government needed it—Mulroney was running deficits, every year. Imitating New Zealand, which in the 1980s and 1990s was a beacon of fiscal and economic reform to the English-speaking world, the Mulroney government proposed a much more comprehensive federal sales tax, the Goods and Services Tax, or GST. New taxes were always politically volatile, and it did no good to argue that the GST was better than what it replaced. After a wild and woolly battle in Parliament, in which Mulroney took advantage of an obscure provision of the constitution (never before used) to appoint extra senators, the tax passed.
There is no doubt that the GST played a part in the political decline of the Mulroney government, and that it was especially unpopular in western Canada, including the Conservative heartland of Alberta, where, unique in Canada, there was no provincial sales tax and the idea of any sales tax was unspeakable. Though the Mulroney cabinet had a number of strong and prominent ministers from western Canada, western Canadians distrusted the prime minister’s propensity to play to Quebec and favour that province in his policies. That was particularly the case with a lucrative maintenance contract for the air force’s newly acquired fleet of F-18 fighters (bought by the Trudeau government). The air force, on the grounds of economy and efficiency, favoured a Winnipeg firm; the government in 1987 awarded the contract to a Montreal company in order to reinforce that city’s aerospace industry. Critics suspected, reasonably, that Quebec was being paid off. Bourassa had used the slogan “profitable federalism,” and this was certainly profitable federalism—for Quebec. (Given that Quebeckers believed that their province lost economically in remaining in the Canadian federation, Mulroney was addressing their perception.) Politics, in a particularly crass form, had trumped economics.
The decision had consequences far beyond what Mulroney had anticipated. Discontented Westerners gathered in Vancouver for an exploratory talk, which eventually resulted in a political movement that consisted mostly of ex-Conservatives, including Stephen Harper, the former political assistant to a sitting Conservative MP. The leader and focus of the discontent, however, was Preston Manning, the son of a former Social Credit premier of Alberta, Ernest Manning. In the 1988 federal election Manning fielded over seventy candidates under the banner of “Reform,” and while they failed to win any seats—they weren’t well enough known or organized for that—they promised trouble for the future.
Sniffing the political winds, Mulroney made a reasonable calculation. With his party’s approval rating in opinion polls fixed firmly and irretrievably in the cellar (as low as 15 percent in 1991), he announced he would retire in the spring of 1993. A Progressive Conservative convention in Ottawa chose as his successor Kim Campbell, who had been national defence minister and then minister of justice, over Jean Charest, one of Mulroney’s younger ministers.
Campbell’s authority was brief. An election had to be held by the fall of 1993, when the 1988 Parliament’s mandate expired. Campbell delayed to the last possible minute, and called the election for October. She had enjoyed a brief blip in the polls—she was brainy and fresh—but too fresh as it turned out, when she unwisely told the press that an election was no time to debate serious issues. Her advisers set to quarrelling among themselves, the media caught the smell of political death, and Canadians settled in to watch a foregone conclusion on election night, 25 October.
It was quite a night. The Progressive Conservatives lost, massively, reduced from 169 seats in 1988 to precisely two in 1993. (They had held 151 seats just before the dissolution of Parliament.) Campbell lost her own seat as Conservative voters fled in all directions, though her erstwhile rival, Jean Charest, did win his. In Quebec, they went to Lucien Bouchard’s new Bloc Québécois, in the West to Reform, mostly, and where they did not, and in Ontario and the Maritimes, they went to the Liberals. The NDP collapsed, plunging from its greatest number of seats won in 1988 to its lowest, nine, in 1993.
The Liberals won by default. They picked up 41 percent of the popular vote and a majority of seats, 177. No other party had even 20 percent of the vote total. The separatist Bloc Québécois (BQ) came second, with 54 seats, and became Her Majesty’s official opposition in the House of Commons. Reform, with Preston Manning, came third, with 52, though with a higher vote total than the BQ’s. The NDP’s miserable results were attributed not so much to the party’s federal performance, though that was unmemorable, but to the record of the NDP governments in British Columbia and Ontario, where the party’s ideology and policies were unsuited to coping with the economic recession which, to be sure, also helped undermine the federal Conservatives.
The election result showed a fractured country. Only one of Canada’s traditional omnibus parties, the Liberals, emerged intact from the election, with seats in every province including, miraculously, four in Alberta, their best performance in that province in a generation. But Quebec, which for most of the twentieth century had been the Liberals’ bastion, was lost to the BQ. The BQ was a purely regional party, and, in fact, a purely French-speaking party, though it claimed, without much plausibility, to welcome English speakers too. Reform also had pretensions to being a national party, and did manage to elect an MP in Ontario; even if it wasn’t a purely regional creation, it was ideologically limited to areas and voters that favoured the right or the traditional in politics—and that was far from being a majority.
It was up to Jean Chrétien, a very traditional politician, to see whether the customary arts of compromise and balance could restore Canada after the wild ride of the eighties, the recession of the nineties, and the catastrophe of Meech Lake. It was a formidable challenge.