NAFTA

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23 December 2010

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North American Free Trade Agreement Finds

Supporters and Critics

The trade agreement that most affects Canada is NAFTA, which ties the United States, Mexico, and Canada together in a rules-based trading system

In effect since 1994, there are still questions about how well Canada came out of the North American Free Trade Agreement.

The Downside of NAFTA

Generally, business supports NAFTA, while labour does not. Carrying the banner into battle for anti-NAFTA forces is Mel Hurtig. In his 2008 book, The Truth about Canada, he makes the case that NAFTA has been bad for Canada. When he compares where we stood in the two decades prior to free trade to the two decades after, he says it doesn’t add up to success.

Hurtig says we’re worse off in terms of per capita income, family income, Gross Domestic Product increases, and share of the U.S. market. The way he sees it, the more corporations take over the country, the lower our social and economic justice.

A conclusion echoed by left-wing columnist Rick Salutin who writes about the way in which good-paying manufacturing jobs have been swapped for poor-paying service jobs: “Wages haven’t grown at all since the original free-trade deal in 1988.”

In the past, he says, wages went up with productivity. The top brass in companies have done well, but most workers haven’t: top chief executives in 2005 made 237 times more than the average wage, doubling the gap before NAFTA.

Wages as a portion of the economic pie declined while profits rose. The top 0.1% of earners doubled their income to $1,641,000; the bottom 95 percent saw their share of the pie drop.

The notion that health care and education would improve under NAFTA didn’t hold either: governments have slashed social programs by 26 percent in Canada. Even in the U.S., Mr. Salutin says most Republican voters think free trade has harmed them. Mexicans disapprove of NAFTA two to one, the reverse of 10 years ago.

The Upside of NAFTA

In Vancouver, The Fraser Institute, a conservative think tank, disagrees. In June 2008, it pointed out the benefits to Canada’s economy: “Over the past decade, Canada sold $2.6 trillion of manufactured goods to the United States, with a $600 billion surplus. That created a lot of pay cheques in Canada.”

The Institute went on to say that if the government listened to the pleas of trade union leaders to cancel NAFTA, “the Canadian economy would now be in tatters with unemployment soaring.”

The Fraser Institute is joined by other NAFTA boosters, such as U.S. presidential candidate John McCain. In a speech to Ottawa’s Economic Club in 2008, he said, “Since the agreement was signed, the United States has added 25 million jobs and Canada has added four million. Cross-border trade has more than doubled since NAFTA came into force.”

Supporters insist that studies have repeatedly shown that trade has thrived and all three NAFTA signatories have benefitted since the deal took effect.

Even the industrial state of Ohio, which has lost 185,000 factory jobs (in auto, steel, and tire-making industries), has a lower jobless rate than it did before the deal was signed: factory output has gone up and exports have grown by nearly 10 percent every year.

Merchandise trade among the three countries more than doubled between 1993 (the year before the deal went into effect) and 2006, from $297 billion to $883 billion.

All three countries have created more jobs and grown more rapidly in the years since NAFTA than in those before. From 1994 to 2006, the Canadian economy expanded an average of 4.1% a year, the United States 3.8%, and Mexico 3.5%.

The NAFTA partners did more trade with each other and with the rest of the world. They do $1.7 million in trade among themselves every minute.

Ottawa paints a rosy picture of the deal, boasting that NAFTA created the largest free trade area in the world; it covers some 360 million people and nearly $500 billion in yearly trade and investment. Canadian product exports to both Mexico and the United States roughly doubled between 1994 and 2000, from $1 billion to $2 billion to Mexico, and from $183 billion to $359 billion to the United States. And, it says, NAFTA has made Canada more attractive to foreign and domestic investors.

Not all Credit Goes to NAFTA

But, while supporters have figures to back up their positive view of the deal, numbers themselves don’t explain the whole story, and NAFTA doesn’t deserve all the credit. Many say North America was well on its way to freer trade and greater economic integration before the deal. And, the massive technological and globalization revolution during the 1990s shifted jobs among regions, countries, industries, and skills. Many jobs vanished, and many more were created.

According to one expert (Gary Hufbauer), yes, the deal expanded U.S. trade with Canada and Mexico, with benefits flowing to all three. But, it had little impact on investment in all three countries.

Mr. Hufbauer is a former top U.S. Treasury official and is now a senior fellow at the Peterson Institute for International Economics in Washington. He points out that NAFTA has created a net gain of 60,000 U.S. jobs a year in an economy that creates and destroys 16 million jobs every year.

And, while many highly paid, unionized manufacturing jobs have declined in some regions, low-cost suppliers such as China have hurt more than NAFTA. Factories have been closed and padlocked, a situation made worse by the financial crisis of 2008 and the Great Recession that has followed it.

The Council of Canadians says point blank, NAFTA is not good for Canadians. It says it wants a better, fairer trade policy. In its publication Canadian Perspectives (Spring 2007) Jean-Yves LeFort writes “the notion that NAFTA has been good for average Canadians, Americans, and Mexicans is a lie. The truth is that NAFTA has been responsible for growing poverty, the creation of a new underclass called the ‘working poor,’ and the concentration of wealth in the hands of fewer and fewer people.”

The Council quotes a September 2006 study by the Economic Policy Institute (EPI), which found that Canadian exports to the U.S. peaked in 2000 and started falling in 2001 and 2002. They have since risen again, but only because of a commodities boom particularly related to the minerals, forestry, and energy industries. And, another study showed that most of the export surge in the 1990s was due to the low Canadian dollar.

Other points it makes include:

In Canada, the middle class has taken the biggest hit. Wage growth has been almost flat since 1989 – it grew at a low rate of 0.63% per year;
NAFTA defenders point to the creation of “millions” of new jobs since the agreement was implemented. However, a 2004 study by the Canadian Centre for Policy Alternatives (CCPA) questions the quality and stability of those jobs. According to the CCPA, 560,000 jobs were created in 2002, but 40 percent were part-time and 17 percent represented self-employed persons. The CCPA study reinforces an argument that the labour movement has been making for years: free trade eliminates unionized, steady, well-paid jobs and replaces them with temporary, non-unionized, and largely part-time “McJobs;”
Canadians aren’t the only ones suffering. Despite a flood of investment in the manufacturing sector along the Mexican border with the U.S., the real value of the minimum wage has dropped in Mexico by 18 percent. A 2003 study by the Carnegie Endowment for International Peace points out that while the manufacturing sector in Mexico created 500,000 jobs between 1994 and 2000, the agricultural sector, where one-fifth of Mexicans still work, has lost 1.3 million jobs since 1994. And now, many of the manufacturing jobs are leaving Mexico for China, where wages are even lower;
The U.S. middle class has also been devastated by job losses in recent years. Between 2001 and 2003, 2.9 million manufacturing jobs were lost in the U.S. According to Forbes Magazine, the United States’ largest employer is now Wal-Mart, which pays its employees an average wage of $7.50 per hour.

The much-celebrated “NAFTA labour side agreement” – an after-the-fact peace offering that was supposed to keep the U.S. labour movement calmed down and quiet – has proven too weak to enforce labour rights in Mexico. The mechanisms it created to defend workers have no enforcement powers so there has been little impact on the lives of the people the agreement was meant to defend.

Public Citizen (PC), a Washington-based consumer group agrees that NAFTA promoters – including many of the world’s largest corporations – sold the deal on the promise of better living standards all round; the reality is something else.

In January 2004, on the tenth anniversary of the agreement’s implementation, PC said it’s misleading to call NAFTA a trade deal. It’s really an investment agreement designed to give foreign investors “a remarkable set of new rights and privileges that promote relocation abroad of factories and jobs and the privatization and deregulation of essential services, such as water, energy, and health care…

“Remarkably, many of NAFTA’s most passionate boosters in Congress and among economists never read the agreement. They made their pie-in-the-sky promises of NAFTA benefits based on trade theory and ideological prejudice for anything with the term ‘free trade’ attached to it. Now, ten years later, the time for conjecture and promises is over: the data are in and they clearly show the damage NAFTA has wrought for millions of people in the U.S., Mexico, and Canada.”

Critics continue to shatter what they say is a myth of shared prosperity from free trade. A December 2007 study by the Canadian Centre for Policy Alternatives says “While large corporations and business elites have done spectacularly well, for a majority of Canadians the promise of prosperity has turned into an era of economic insecurity.”

Image credit

Kenn W. Kiser

Sources

“Please Don’t Throw us out of the NAFTA Patch.” Rick Salutin, Rabble, March 7, 2008.

“Anti-NAFTA Lobby Threatens Canadian Economy.” Fred McMahon, Fraser Institute, June 13, 2008.

“McCain Speech on Relationship between U.S. And Canada.” CNN, June 27, 2008.

“Free Trade’s Big Lie.” Jean-Yves LeFort, Canadian Perspectives, Spring 2007.

Updated December 2010

British journalist and economist Philippe Legrain sees unrestricted free trade as the only way out of poverty for the world’s poor. And, he thinks the rich should do more to help the poor: one way to do that is to allow people to move as freely as goods.

In his 2007 book, Immigrants, Your Country Needs Them, he says open migration will lead to economic justice. Obstructing the free movement of people, he says, amounts to declaring war on the Third World’s poor.

SECURITY AND PROSPERITY PARTNERSHIP

Closing the door to criminals and opening it to trade is what the Security and Prosperity Partnership (SPP) is all about. Tidying up boring bureaucratic details, cutting down on paperwork, and standardizing packaging and the like are other aspects. Who could be opposed to this? Quite a lot of people it turns out.

The Council of Canadians held a peaceful protest against the SPP in June 2008. The occasion was Republican presidential candidate John McCain’s visit to Ottawa to meet with Canada’s business elite. The same group demonstrated at a leaders’ summit the year before in Montebello, Quebec.

The SPP talks started in March 2005. Nineteen working groups were set up to look into such subjects as standardizing food safety across the three nations, improving the efficiency of border crossings, and disaster planning. The SPP process is not a treaty like NAFTA so it doesn’t require parliamentary oversight or a vote.

The Council of Canadians objects to the make up of the working groups; members are almost exclusively corporate leaders and government officials. “Where,” asks the Council, “are representatives of ordinary people, environmentalists, trade unionists, and civil society groups?”

There are other opponents. The CBC says: “Liberal Leader Stephane Dion has demanded that (Prime Minister Stephen) Harper reject trade deals involving bulk water exports and insist that the U.S. crack down on gun smuggling into Canada.” The New Democratic Party wants public input into the SPP and the involvement of Parliament.

Right wing groups in the United States are also opposed. They say the SPP will cut into American sovereignty, and that’s a sentiment echoed in Canada. Maude Barlow, who heads the Council of Canadians, says Canada will be drawn closer into the U.S. orbit. Eventually, it will lose its independence in foreign policy, defence, social programs, and many other areas.

CHANGING NAFTA

When still a presidential hopeful Barak Obama hinted he would try to renegotiate parts of NAFTA such as labour and environment standards. Many think Canada should seize the opportunity to renegotiate the agreement, and prepare its own list of issues it wants to change.

Author Gordon Laxar says (Globe and Mail, June 2008) “At the top of the list should be getting out of the ‘energy proportionality’ straitjacket whereby Canada has to offer a majority of its oil and gas to the United States, even if Canadians freeze in the dark.”

Mr. Laxar is Director of the Parkland Institute at the University of Alberta, and a professor of political economy. He co-authored (with John Dillon) the report, Over a Barrel: Exiting from NAFTA’s Proportionality Clause, and says no other developed country in the world denies its citizens first access to their own resources. But, he says, the agreement was made when everyone thought “the world had plenty of cheap oil, and there were no limits to ever-increasing energy consumption. Few had heard of the catastrophe of climate change. Pre-September 11 (terror attacks), security of energy supplies was on few people’s minds.”

Given all the changes of the last two decades, Professor Laxer thinks NAFTA’s proportional, mandatory-exporting clause should go, so we can regain control over our energy.

Another beef Canada would have is the deal’s dispute-resolution mechanism, which failed to solve the long-running softwood trade war between Ottawa and Washington.

While the Mexican corn crop has grown from 18 million tonnes before NAFTA to 24 million tonnes in 2007, some experts say that’s not necessarily a good thing: it takes lots of water, land, and mechanization to grow corn, and subsidies to Mexican farmers have encouraged them to grow corn instead of more profitable and labour-intensive crops, such as fruit and vegetables.

“It is safe to say that no other country in the world has, in time of peace, signed away so completely its energy resources, present and future. In 1994, the FTA was expanded to NAFTA to include Mexico. Mexico refused to sign the energy clauses Canada had signed.”

David Orchard, author of The Fight for Canada—Four Centuries of Resistance to American Expansionism

The Globe and Mail, September 2005

CANADA

THE BIG LOSER?

In an online survey carried out by Angus Reid in August 2010, Canadians expressed a very negative view of NAFTA.

The pollster reports that “40 percent of Canadians think the United States has gained the most from being in NAFTA, 30 percent say Mexico has enjoyed the most benefits, and only eight percent say Canada has gained more than the other partners.”

On the other side of the border “41 percent of American respondents believe Mexico has gained the most from NAFTA, 17 percent say the U.S. has benefitted most, and nine percent think that Canada has been the biggest winner.”