The Third Option was a 1972 pronouncement by Mitchell Sharp, secretary of state for external affairs, calling for a lessening of US economic and cultural influence on Canada. It appeared in a paper by Sharp, "Canada-U.S. Relations: Options for the Future" (International Perspectives, 1972). Noting an increasing nationalism on both sides of the border, Sharp addressed the question of how to live "distinct from, but in harmony with" the US. He rejected 2 options, status quo and a deliberate policy of "closer integration with the United States." Instead, he argued for a "third option" which would "develop and strengthen the Canadian economy and other aspects of its national life and in the process reduce the present Canadian vulnerability." This was to be achieved through trade diversification abroad and an industrial strategy at home which emphasized specialization and Canadian ownership and, as a consequence, increased self-sufficiency.
In the cultural sphere, Sharp believed policies involving government subsidies and Canadian content regulations should be extended. The third option, Sharp insisted, was not anti-American; a stronger, more self-confident Canada would be a better neighbour.
Although the third option was easier to applaud than to implement, official Ottawa regarded it very seriously, particularly in the period 1972-76, when the Foreign Investment Review Agency and Petro-Canada were established and Canadian businesses were discouraged from advertising on American radio and television stations. A "contractual link" was signed with the European Economic Community in 1976, but this and other efforts at trade diversification have not been notably successful. Any pretence to a third option was dropped in the Mulroney years, as the Conservative government enthusiastically embraced closer ties with the US through the Free Trade Agreement and NAFTA. The percentage of Canada's trade with the US remains well over 75%.