Free Trade

trade:

cutting your
purchasing
power again

By SEAN GRIFFIN

The promise of reduced prices and
higher quality goods for consumers as a
result of the free trade agreement will
prove to be a hollow one:

At the very least, the cost reductions
will be far less than most consumers’
expectations, which the Consumers
Association of Canada and price experts
agree are “overly optimistic.”

That consumers have high expecta-
tions isn’t surprising since the corporate
association supporting free trade, the
Canadian Alliance for Trade and Job
Opportunities, has been on the road for
nearly a year selling the deal on the basis
of consumers getting wider selection and
lower prices under free trade. Similarly,
the Conservative government, in its bro-
chure, The Canada-U.S. Free Trade
Agreement and Canadian Consumers,
claimed: “Once the Agreement has been
fully implemented, all Canadian consu-
mers will benefit from the significant
price savings that will be brought about
by the elimination of tariffs.”

Those benefits will almost certainly
never materialize for a variety of reasons:

@ In the first place, the tariff reduc-
tions scheduled to take place under the
free trade agreement, whether they come
into effect immediately or are phased in
over a 10-year period, will involve small
percentage cuts, ranging from a few cents
to several dollars on items such as furni-
ture. For consumers to benefit, they will
have to depend entirely on manufactur-

ers, wholesalers and retailers to pass
those savings on — something that has
almost never happened in the past.

An example of what consumers can
expect from big American corporations
was recently demonstrated by the drug
industry. The drug companies, most of
which are U.S.-owned, promised that if
the federal government passed Bill C-22,
a bill giving them guaranteed patent pro-
tection, they would monitor drug prices.
But in the few months since the legisla-
tion was passed, drug prices have gone
up far faster than the Consumer Price
Index — in some cases from two to five
times faster.

@ The overwhelming majority of
American products coming from the
U.S. — some 80 per cent of the
total — currently enter Canada tariff-
free. There are a number of products that
will be affected by the trade agreement
but the prices will still be determined by
such factors as exchange rates — which
has the biggest impact on prices.

In addition, a wide range of consumer
goods imported into Canada — incl-
uding many stereos, cameras, computers
and articles of clothing — are not made
in the U.S. at all but in Japan, Taiwan
and elsewhere. Tariffs on those goods
will not be affected since only those pro-
ducts for which 50 per cent of the value
has been added in the U.S. or Canada
will be covered in the agreement.

@ On fresh fruits and vegetables, even
where prices might be temporarily forced

THE CANADA-U1S
FREE TRADE AGREEMENT

AND

TRADE: Securing Canade’s f ulure
~ Canad

GOV'T BROCHURE ...

benefits it claims could never be
realized, even if tariff cuts are passed
on.

down, most critics agree that it will be at
the expense of quality since the influx of
California and Washington produce will
put many local growers — whose pro-

duce is fresher but whose costs are °

higher — out of business. In the long
run, the loss of competition and the dom-
ination of the market by U.S. agribusi-
ness will force prices up.

In fact, it is likely that the free trade
agreement will bring about an increase in
costs to consumers right across the
board.

® Canadians will face increased costs
for energy, both directly and as part of
higher production costs because of pro-
visions in the free trade agreement which
will eliminate the two-price system for
domestic and export customers. The sys-
tem has enabled Canadians to get energy
at less than the export price.

A report prepared by the Ontario
Energy Ministry in January concluded
that Canadians would be forced to pay
more for oil, natural gas and electricity as
a result of the free trade deal and would
have a less secure supply because of
assured American access to Canadian
energy resources. It did not state what
cost increases might be, however, noting
that many factors were involved, making
it “virtually impossible to try to quantify
these impacts.”

® Prices of many Canadian wines and
liquor will likely increase. Differential
price markups for Canadian and
imported U.S. wines and distilled spirits
are to be eliminated under the terms of
the agreement, immediately in the case of
distilled spirits and over a seven-year
period for wines.

Since it is not tariffs, but the price
markup imposed by provincial liquor
boards which is being affected, it is
almost certain that Canadian producers
will lobby provincial governments to
increase the markup on Canadian liquor,
rather than reduce the U.S. markup, so

as to increase profitability. That would
effectively raise prices across the board
for most Canadian wines and distilled
spirits. ,

Beer is not directly affected by the free
trade agreement but it may be affected
indirectly as a result of a recent ruling by
the General Agreement on Tariffs and
Trade (GATT). GATT ruled last year
that differential markups on Canadian
and imported beer were in violation of
GATT rules. Although Canada cur-
rently has the option of vetoing the rul-
ing, that option will be eliminated under
the free trade agreement which makes all
GATT decisions binding on both coun-
tries.

If, as is expected, the ruling is con-
firmed later this month, provincial
governments across Canada will either
have to increase the markup on Cana-
dian beer, or reduce the markup on
imported beer. Again, it is almost certain
that the major breweries will press for an
increased markup since that would
increase their revenue without creating
any differences in prices between brands

- and without affecting market share.

© Although they haven’t seen the fine
print yet, Canadian consumers will be
paying more in federal taxes as a result of
the free trade deal. The revenue currently
raised through imposition of tariffs on
U.S. goods — some $2.1 billion — will
be replaced by a new sales or value-
added tax which will be introduced as the
next phase of Finance Minister Michael
Wilson’s so-called tax reform.

In a recent report analyzing the free
trade deal and its impact on consumer
prices, the United Electrical Workers
Union noted that supporters of the
agreement were claiming significant
reductions in consumer prices.

But “‘is this accurate?” it asked. “Will
prices in Canada fall significantly?

“The answer to both of those ques-
tions is ‘no,”” it concluded.

S2 « Pacific Tribune Supplement, March 16, 1988