Most economists would agree that free trade is an essential component of sound economic policy. By exposing national markets to international competition, free trade works to ensure that nations produce goods and services according to their comparative advantage. This encourages an efficient allocation of resources and allows individuals in each country to consume the largest possible bundle of goods and services.

Although the merits of free trade are widely accepted by economists and policy makers, criticism of free trade as sound economic policy is still widespread. In both Canada and the United States, critics of free trade attract substantial public attention. Protectionists and economic nationalists argue that free trade causes economic ruin and the loss of national identity. According to these critics, the Canada-United States Free Trade Agreement (FTA) and the North American Free Trade Agreement (NAFTA) among Canada, the United States, and Mexico are the source of significant economic hardship in both Canada and the United States. The public finds these claims persuasive because they have considerable emotive appeal and provide an easy explanation for particular economic developments.

Ten years have passed since the signing of the Canada-United States FTA. The time is ripe, therefore, to review the economic case for free trade and to scrutinize the arguments made by critics of free trade. A careful analysis of their arguments combined with an examination of the empirical data reveals that the claims made by economic nationalists and protectionists about the negative impacts of free trade on the Canadian economy are incorrect or exaggerated.

1. Jobs have not been lost as a result of either NAFTA or the FTA. Neither economic theory nor the empirical evidence give us reason to believe that there has been a net loss in employment on account of free trade. Job losses experienced in the early 1990s were due to a decline in overall macroeconomic conditions that was entirely unrelated to the free-trade agreements. Moreover, total employment has been rising, not falling, in both Canada and the United States over the past several years. In Canada, total non- agricultural employment has risen from 12.4 million in 1988 to 13.22 million in 1996. In 1997 alone, the Canadian economy created an additional 324,000 full time jobs. Hence, fears of massive job losses due to free trade are without empirical foundation.

2. Lower wages in Mexico have not caused jobs and investment to migrate to Mexico. Furthermore, free trade has not resulted in Canadian wages falling to Mexican levels because Canadian workers are considerably more productive than Mexican workers. Indeed, statistics from the Organisation for Economic Cooperation and Development (OECD) show that Canada's unit labour costs are lower than Mexico's. Furthermore, Statistics Canada data show that average weekly earnings and average hourly wages have been rising, not falling, in Canada over the past few years.

3. Canada's manufacturing base has not been destroyed as a result of the FTA or NAFTA. Manufacturing as a share of total output has remained fairly constant over the past several years. The share of Canada's gross domestic product (GDP) due to manufacturing was 19.2 percent in 1988 and declined only marginally to 17.3 percent in 1996. This does not signal the destruction of the Canadian manufacturing base.

4. Canada's agricultural sector will become more, not less, competitive as a result of free trade. Furthermore, losses to producers will be outweighed by gains to consumers in lower prices and increased product variety.

5. NAFTA will not undermine Canadian food-safety and health standards. If anything, NAFTA encourages upward harmonization of such standards across the three countries.

6. Canada will not become more vulnerable to arbitrary trade actions from Congress as a result of NAFTA or the FTA. Indeed the effect of NAFTA and the FTA is to increase the security of Canadian access to the U.S. market.

7. Environmental standards will not decline as a result of NAFTA. Both economic theory and the empirical evidence suggest the opposite. In Canada and the United States, environmental quality, as measured by a number of indices, has improved over the past twenty years. International trade fosters faster economic growth which in turn raises environmental standards. As Mexican incomes rise, environmental quality will likely improve there as well.

8. National sovereignty is not lost as a result of either NAFTA or the FTA. Globalization does not spell the end of the nation state. Indeed, government's share of GDP in Canada has increased from 13.3 percent in 1920 to 44.7 percent in 1996, in spite of increased international trade and investment over the same period. This pattern is mirrored in nearly every OECD country.