Canada and the United States are two interdependent economies in the sense that bilateral trade flows remove demand and supply unbalances in each country and in the sense that more than 80 percent of that trade will be tariff-free after the implementation of the Tokyo Round agreements by 1987. However, there is more and more talk in Canada that the national industrial policy should move more aggressively towards free trade with the United States, either completely or along a sector-by-sector approach. If it were adopted, such a move would mark a basic departure From the original National Policy of 1879, which relied on tariff protection to establish "infant" industries in Canada by stimulating interregional trade along transport lines in an East-West manner. As a consequence, there has been a form of regional specialization in Canada: the Centre (i.e., Ontario, and to a certain extent Quebec) has developed a fairly diversified manufacturing sector, white the West and the Maritimes have seen their development more concentrated in the agricultural and resource sectors. As explained by the Eastman and Stykolt [15] hypothesis, Canadian consumers in ail regions have subsidized this development by paying higher prices for products.
