Free Trade Restructuring in Canadian Manufacturing: An Initial Assessment

The Canadian government’s decision in 1985 to embark on discussions leading to a bilateral free trade arrangement with the United States followed years of debate in academic and policy-making circles on the potential merits and disadvantages of this path (Macdonald Report, 1985; Whalley with Hill, 1985; Doern and Tomlin, 1991). Influential analysis showed that a key sector that would benefit from further trade liberalization was manufacturing. Manufacturing in Canada, as in other places, is characterized by a high market concentration and has the potential for increasing returns to scale. The view was that Canadian manufacturing is suffering from low productivity and poor technological performance due to limitations of the Canadian market and the inability to exploit the returns to scale. Free trade with the United States would provide major benefits to Canadian manufacturing in terms of rationalization of production, lower manufacturing costs, secure access to the main export market, increased international competitiveness, efficiency gains, domestic deregulation and more emphasis on market signals in the allocation of resources (Wonnacott, 1985).