“Canada is open for Business Again” – Prime Minister Brian Mulroney (1984)

The economically turbulent era of the 1970s marked a shift in bilateral relations between Canada and its primary trading partner, the United States. By the early seventies, escalating concerns regarding Canadian economic dependence became the forefront theme of Canada’s foreign policy agenda. Attempts to bolster and diversify Canada’s domestic economy were actualized through the implementation of the Foreign Investment Review Agency (FIRA) and the National Energy Program (NEP) during the Trudeau era. Despite these regulative measures, the triumph of the conservative party of Canada – under Prime Minister Brian Mulroney – in the 1984 election altered the trajectory of Canadian economic policy. Mulroney’s political agenda was characterized by an inclination to mend relations with the U.S. through economic deregulation and the revision of preceding policies, which had posed as a consistent source of tension. Shortly after his election, Mulroney staunchly declared “Canada is open for business”. This momentous statement – although frivolous at the time – became a guiding maxim for consequent economic measures. Through analysis of Canada’s foreign policy during Mulroney’s reign, this paper uncovers the stark shift in Canadian approaches to foreign investment and trade. I begin by laying the economic and political climate of the 1970s, characterized by the establishment of regulatory measures. Comparison of Trudeau’s restrictive economic policy and Mulroney’s counter regulation illustrates Canada’s shift in foreign investment attitudes. Furthermore, I uncover how Mulroney’s strategies propelled Canada towards free trade and deregulation; leaving behind a lasting legacy on Canada’s economy.

 

In order to fully grasp the significance of Mulroney’s victory and subsequent policies, it is vital to understand the increasingly complex bilateral relationship between Canada and the United States during the 1970s. The stage is best set by Peter Dobell, who highlights the United States’ growing concentration on domestic issues combined with “a disenchantment with foreign involvement” during the 1970s. In Canada, Dobell emphasizes the growing issue of economic independence and the growing desire for distinction from the United States. The establishment of a new economic policy under Richard Nixon – also known as the “Nixon shocks” – proved to be a catalyst in exacerbating already severed ties (Dobell). The Nixon measures were designed to revive the national economy, and tackle their “balance of payment” issues. More importantly, Canada was not exempt from Nixon’s proposed import surcharge. This violated the Canadian perception that “a special relationship existed between the two countries” and after Ottawa’s failed attempts at renegotiation, the new American doctrine propelled Canada to re-assess its relations with the US. As part of this reassessment the minister of national revenue, Mr. Gray, tabled a task force report called Foreign Direct Investment in Canada. At the time, Gray’s report appealed to the radical factions of the Canadian government, namely the “Waffle faction” of the NDP. In short, the report outlined a significant and rapid growth in the degree of foreign ownership within Canadian industries, especially in the area of manufacturing and natural resources (Dobell, 252). More critically, it called for a cohesive industrial strategy for Canada to control foreign capital. Lastly, it proposed a review agency which could screen foreign takeovers and new foreign direct investment in Canada, in an effort to “obtain the maximum benefits possible for Canada from FDI” (Ibid., 253).

 

Gray’s latter proposition marked the birth of the Foreign Investment Review Act (or ‘FIRA’) in 1974. In sum, the act prohibited foreign takeover of Canadian companies without the direct approval of the Canadian government. FIRA screened each corporation by analyzing their product, the Canadian market, their source of income, and domestic job opportunities. The most important factor, however, was whether the foreign investment provided substantial contribution to Canada. As a result, a centralized investment screening mechanism was created; limiting the degree of foreign investment and ensuring Canadian economic protection. The coordination of a unified mechanism complemented the centralized aspirations of then-PM Pierre Trudeau. The fear, however, was the potential decline in inward foreign investment due to the restrictive nature of FIRA. In retrospect, FIRA did not mark a drastic reduction of FDI within Canada. Instead, it served as a symbolic display of Canadian nationalism and foreign investment strategy. Ironically, it also served as a source of tension with the United States.

 

Similar to FIRA, the National Energy Program (or ‘NEP’) became another major source of friction between Canada and the U.S. in the late seventies. According to Leyton-Brown, the NEP was designed to achieve domestic security of supply, increase Canadian participation in the petroleum sect, and alter revenue sharing among governments (19). Like FIRA, the NEP was also signed into power by the Liberal Trudeau government, in response to the fluctuating conditions of the global oil market. The goal for revenue sharing deeply angered the oil-producing province of Alberta, who was already in political deadlock due to provincial-federal clashes. The controversy surrounding the NEP triggered bitter protests from the U.S., involving their appeal to the GATT (General Agreement on Tariffs and Trade) shortly after NEP’s implementation. By 1981, global oil prices had fallen and the initial motives for the NEP slowly evaporated. However, it was not until the election Brian Mulroney where the final remnants of the NEP were symbolically shattered.

 

As demonstrated in the preceding paragraphs, the period prior to Mulroney leadership presented serious challenges in mending Canada-US ties. While components of government regulation, such as the NEP and FIRA, were motivated by mere Canadian domestic interest, they proved to further injure economic diplomacy with the United States. Mulroney’s famous statement, that Canada is “open again”, indirectly points to the barriers posed by previous regulative economic policies. In keeping to his campaign promises, Mulroney announced a series of new initiatives for economic reform grounded in market liberalization. His determination was reaffirmed, when FIRA was terminated and replaced with Investment Canada in 1984. This new agency aimed to encourage FDI within Canada, rather than regulate and restrict it.  Additionally, the National Energy Program was formally terminated by Mulroney during the same time. Thus, Mulroney’s statement that “Canada is open for business” was subsequently backed by these immediate actions.

 

In the following decade, Canada was surely “open for business”. The Mulroney government’s foreign policy focused on enhancing multilateral initiatives, especially with the United States. In 1989, Mulroney launched a “going global” initiative by increasing investments within Europe and Asia. The Pacific 2000 Plan targeted Japan as a main country to strengthen FDI relations with; resulting in a dramatic increase in Japanese investment. During this time, the growing integration between Japan and the US increased Canadian incentives to trade globally. Mulroney’s de-regulatory economic strategy manifested during free trade talks with the U.S. in 1989, which marked the birth of the Canada-US Free Trade Agreement. It is critical to note that while Mulroney’s pro-US & pro-free trade attitudes accelerated market liberalization in Canada; the global super powers – Britain under Thatcher and US under Reagan – were also heading in this direction.  The global progression towards market liberalization and decentralization demonstrated that states were finally willing to “hold hands with the devil” (Churchill).  This age of ‘new pragmatism’ countered the confrontational period of the 1970s with a deeper recognition of the value of multinational corporations. The mentality of this new era is best captured by Susan Strange in the late 90s, who famously quotes: “the one thing worse than being exploited by multinational corporations is not getting exploited by multinational corporations.”

 

 

In the end, however, the global influences of market liberalization combined with Mulroney’s foreign policy altered Canadian economics for the decades to follow. Likewise, it shaped bilateral relations with Canada’s most critical trading partner: The United States. While Canada today does not possess a formal industrial policy on inward or outward FDI, a constant trend seen in every era is the increase in U.S. FDI.  The regressive economic policies of the Liberal government during the seventies immensely hindered Canada-US bilateral relations. Mulroney’s landslide victory and “open for business” attitude fostered the foundation for the Canadian market today. The overarching global direction towards market liberalization also played a critical role in altering Canada’s economic trajectory. This paper juxtaposed the restrictive era of the 1970s with Mulroney’s economic pragmatism. Quite literally, Mulroney “opened” Canada for business. He halted the National Energy Program, and encouraged FDI through the re-establishment of Investment Canada. His personal ties with U.S. president Ronald Reagan helped to secure Canada’s first comprehensive free trade agreement with the US.  More prominently, Mulroney’s famous statement ‘Canada is open for business again’ proved to be convincing and substantial by the end of his leadership.

 

Reference:

Susan Strange (1991) “Big Business and the State,” Millennium, 20, 2 (1991)

David Leyton-Brown, “Canadianizing Oil and Gas: The National Energy Program, 1980-83,”

Peter Dobell, “Reducing Vulnerability: The ‘Third Option,’” from Don Munton & John Kirton.eds., Canadian Foreign Policy: Selected Cases.

Kenichi Miyashita and David Russell (1994) chapters 1 and 2, from Keiretsu: Inside the
Hidden Japanese Conglomerates, New York: McGraw Hill.

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