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Historical Foundations of Canadian Trade Policies

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Historical Foundations of Canadian Trade Policies. Geoffrey Hale Political Science 3 170 September 28, 2010. Outline. Unfinished business from Thursday Historical Evolution of Canadian Trade Policies Approaches to Policy Change Hall’s conditions for Paradigm Shifts (Macro) - PowerPoint PPT Presentation
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Geoffrey Hale Political Science 3 170 September 28, 2010
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Page 1: Historical Foundations of  Canadian Trade Policies

Geoffrey HalePolitical Science 3 170

September 28, 2010

Page 2: Historical Foundations of  Canadian Trade Policies

OutlineUnfinished business from ThursdayHistorical Evolution of Canadian Trade

PoliciesApproaches to Policy Change

Hall’s conditions for Paradigm Shifts (Macro)Kingdon’s “Agendas and Alternatives Model” of

Public Policy Making (Mix of Macro / Micro)Key Focusing Events / Turning Points

196os * 1980sNAFTA negotiations as two level game

Page 3: Historical Foundations of  Canadian Trade Policies

Managing “game breakers”,risks of “defection”Uncertainty, inadequate political / technical research

often critical factors in managing negotiations.Negotiators often “bluff” in order to convince

counterparts that their “win-sets” or “kinky” – reflecting limited capacity to sell compromises past specific point.

Involuntary defection – a negotiator or leader is unable to secure ratification of an agreementMay result from informal political processes (being

overruled by political superiors or colleagues) or formal political processes (legislative or electoral defeat).

e.g. Negotiations with U.S. government subject to ratification by Congress with independent powers, multiple veto points empowered by decentralized decision-making system.

Page 4: Historical Foundations of  Canadian Trade Policies

Managing “game breakers”,risks of “defection” IIVoluntary defection – the reneging on a bargain

by a “rational egoist” in the absence of enforceable contracts.Less likely when likelihood of repeated negotiations

on different subjects creates incentives for the cultivation of trust among political and bureaucratic actors.

Good faith may be reinforced by potential for political, diplomatic or economic costs.

Page 5: Historical Foundations of  Canadian Trade Policies

Summary (Game Theory)“Two-level” game theory provides general

model for analysis of international negotiationsBUT – use as predictive model depends on the

number of separate factors, actors involved in negotiations, ratification AND

Capacity of negotiators, policy analysts to identify accurately the key members of stakeholder coalitions, their priorities and conditions for ratification in highly dynamic, uncertain game.

Page 6: Historical Foundations of  Canadian Trade Policies

Historical Development of Canadian Trade Policies – Policy ParadigmsParadigm – intellectual framework that seeks to

explain some major dimension of the way the world works.

Policy Paradigm – unified set of ideas intended to provide explanation of some broad policy system in relation to a particular vision of the public good and the policy measures necessary to achieve or sustain it.

Page 7: Historical Foundations of  Canadian Trade Policies

Policy Paradigms IIParadigm – intellectual framework that seeks to

explain some major dimension of the way the world works.

Policy Paradigm – unified set of ideas intended to provide explanation of some broad policy system in relation to a particular vision of the public good and the policy measures necessary to achieve or sustain it.

New policy paradigms usually evolve in response to major internal or external policy challenges that can no longer be addressed effectively by the existing or previously dominant paradigm.

Page 8: Historical Foundations of  Canadian Trade Policies

Key Conditions for Paradigm Shift (Peter Hall)Economic viability

Does the policy address (or provide reasonable probability of addressing) the key economic challenges that the previous policy paradigm was unable to overcome?

Authoritative political or bureaucratic sponsorshipDoes the proposed policy shift have powerful or

authoritative sponsors within the relevant government?Institutional capacity / Administrative viability

Do relevant governments have the legal/constitutional authority and administrative capacity to implement the proposed changes without major difficulties?

Political viabilityCan the government secure sufficient political / public

support for the policy to secure election?

Page 9: Historical Foundations of  Canadian Trade Policies

Historical Development of Canadian Trade Policies ICanada Internationallate 19th century

emergence of protectionist National Policy in 1870sResponse to emergence

of U.S. protectionism, financial / trade depression of 1870s.

Import substitution industrialization (“infant” industry protection)

mid-late 19th century – interaction of British global trade hegemony based on free trade, gradualist emergence of protectionist economic development policies in U.S. (after 1866), Germany.

Erosion after First World War

Collapse during Great Depression of 1930s.

Page 10: Historical Foundations of  Canadian Trade Policies

Historical Development of Canadian Trade Policies IICanada International Post Second World War (1940s-

60s) Shift of Canada from British

(or mixed UK/US) trade orbit to U.S. sphere of influence

Complemented by expansion of foreign investment, domestic welfare state (“Embedded Liberalism”)

Rejection of FTA – 1947 in favour of multilateralism (WLM King veto). . . gradual liberalization reveals cracks in ISI policy paradigm

BUT – alternatives contested (e.g. debates within Gordon Royal Commission of 1950s)

Gradual liberalization of trade, investment under GATT following Second World WarAmerican dominance,

hegemony (guarantor state) provided strategic umbrella for re-emergence of int’l market system

Parallels of “Embedded Liberalism” (Ruggie) in U.S. domestic politics

Page 11: Historical Foundations of  Canadian Trade Policies

Kingdon’s “Agendas and Alternatives” Model of Policy ChangeProblem Streams

Significant problems or issues on public agenda (“Agenda-Setting” by governments, policy enterpreneurs or interest groups general or specialized)

Policy StreamsMajor policy options / alternatives under

consideration by key members of policy community (esp. inside government)

May reflect competing intellectual, bureaucratic or policy interests inside, outside government

Page 12: Historical Foundations of  Canadian Trade Policies

Kingdon’s “Agendas and Alternatives” Model of Policy Change IIPolitical Streams

Major political trends – may be reflected in “national mood”, public opinion, interest group pressures, election results, turnover in key decision-makers.

Policy WindowsOpportunities for problem, policy, and political

streams to converge in political / legislative decision-making process

May be driven by well-established institutional patterns (election campaigns / outcomes, budget processes) or by “focusing events” which capture popular and political imagination

Page 13: Historical Foundations of  Canadian Trade Policies

Historical Development of Canadian Trade Policies III1960s

Focusing event – loss of U.S. duty remission case (Modine Manufacturing) in 1964 threatens basis for expansion of Canadian auto industry Pressure from U.S. Treasury for comprehensive deal

open to sectoral customs union.Result cross-border industry / union coalition

supportive of sectoral free trade (Auto Pact) Political / bureaucratic leadership changes in Ottawa. “Managed Free Trade” agreement with Canadian

production floor (proportion of Cdn. auto sales in N. America)

Followed by major industry consolidation, expansion.

Page 14: Historical Foundations of  Canadian Trade Policies

Historical Development of Canadian Trade Policies IVCanada United StatesAttempted diversification of

trade in 1970s (“Third Option”), with minimal success

Economic nationalism in early 1980s prompts Congressional backlash

Multi-track proposals for negotiations with U.S. (Cdn. Senate 1982 etc.; DFAIT 1982-84;

Liberal proposals for expansion of sectoral free trade (1983-84) rejected

Decline in economic hegemony in 1960s, 1970s

Use of “continent protection” / trade remedy laws to combat “unfair” trade practices

Page 15: Historical Foundations of  Canadian Trade Policies

Historical Development of Canadian Trade Policies VFocusing events (1982-86)

Internal power shift to DFAIT from Industry, Trade & Commerce (1982)

Pro-free trade shift of major Cdn. business interests (BCNI, CMA) (1982-83) Election of Mulroney Government (1984) Presence of friendly U.S. administration receptive to

opening of talksReport of Macdonald Commission (1985)

Consistent with evolving, pro-market federal agenda, agendas of Quebec and most Western provinces.

Page 16: Historical Foundations of  Canadian Trade Policies

The Deal-Maker: Dispute SettlementCanadian position proposing automatic national

treatment, elimination of trade remedy jurisdiction over Canada seen as constitutional / political non-starter by U.S. government.

Presence of authoritative Congressional decision-makers (Ways and Means, Finance) open to procedural “fix” allowing for retention of trade remedy, combined with dispute settlement mechanism (details disputed).

Extensive haggling over details resulted in last minute agreement addressing each party’s core objectives.

Page 17: Historical Foundations of  Canadian Trade Policies

SummaryCUFTA provided genuine paradigm shift in Canadian trade

policies compared with incremental shifts of 1940, 1960s. Growth of U.S. contingent protection (trade remedy laws)

highlighted vulnerability of Cdn. manufacturers in era of trade regionalization (Problem Stream)

Collapse of Trudeau’s economic program demonstrated political, economic limits of ISI strategy (Problem Stream / Elimination of traditional alternative)

Macdonald Commission provided arms-length validation of alternative policy framework

Bureaucratic shifts, change of government provided authoritative political sponsorship after release of Macdonald Commission report

Policy window opening in USA with Reagan administration, cross-partisan support in Congress.


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