Cato Policy Analysis No. 105 May 3, 1988

Policy Analysis

The Canada-U.S. Free Trade Agreement:
Now Or Never

by Michael I. Krauss

Michael I. Krauss is a professor of law at George Mason Uni- versity. He holds joint Canadian and U.S. citizenship and from 1978 to 1987 was a professor of law at the University of Sherbrooke in Quebec.


Executive Summary

Before moving to Washington in June 1987, my family lived in Quebec's Eastern Townships, about 12 miles from the Vermont border. To us, the adjacent communities of Rock Island, Quebec, and Derby Line, Vermont, were constant testimonials to the inefficiencies of barriers to choice. The larger community (population 5,000), in high-tax, high-tariff Canada, is almost entirely bereft of shops and service stations; the Canadian side of its only factory (which straddles the border) is vacant despite the available work force, a near majority of which receive generous provincial welfare payments. In the smaller U.S. village (population 800), stores and gas stations cater to Quebec residents who brave fines at random Canada Customs inspections. Since customs officers are particularly nasty about imported alcohol, the R‚gie des alcools du Qu‚bec (Quebec Liquor Commission) outlet in Rock Island does a thriving business selling mediocre domestic wines at inflated prices. High-quality California wines, available across the border at low prices, are nowhere to be seen in Rock Island because of discriminatory commission markups of up to 1,000 percent.

A continent away, southwestern British Columbia has been hurt by the departure, to the U.S. border town of Sumas, Washington, of four manufacturers of cedar shakes. The cause of the uprooting of these companies is U.S. protectionism--a hefty 35 percent tariff imposed, without any economic basis, by the Reagan administration on shake and shingle imports.(1) "We built a brand new treating plant in Abbotsford [British Columbia] and spent a couple of million on it," said the president of one of the companies. "Then, bingo, a year later there is a 35 percent tariff. You're talking about saving a couple of extra million dollars a year because of the move. We only had two choices. One was to shut down.

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