NAFTA@10: Hold The Propaganda Please

Posted on Tuesday, December 23 at 11:25 by sthompson
Because these reports have a political motivation, not an economic one, they are about as useful to Canadian taxpayers as a federal ad contract in Quebec. The reasoning of the typical report – such as International Trade’s “NAFTA@10” study – goes as follows. Trade within North America has grown dramatically under free trade. Canada’s economy has grown during this time. Ergo, free trade is a success.

It’s a sunny but trite approach that deliberately ignores the key issues. Was the increase in trade due to NAFTA? (It wasn’t.) Did our economy grow faster than it did before NAFTA? (It grew slower.)

] The very titles of these studies show a government that is overreaching to deny any possible hint that free trade might be less than perfect. “NAFTA: A Resounding Success,” is the title of one Foreign Affairs document. Needless to say, you don’t need to bother reading the fine print to get the gist of the argument.

The Minister of International Trade even sponsored a contest for Canadian students to submit essays that “demonstrate the benefits of the Agreement.” Smart, well-read students whose research might find that NAFTA has not been beneficial need not apply. They used to do this in Albania, too: students who submitted the best essay on the leadership qualities of Enver Hoxha got a nice gift (namely, they weren’t executed).

I won’t win any prizes from the federal government for this essay, but here are ten ways NAFTA has failed Canada – one for each year of the treaty’s existence:

U.S. Market Share: Yep, we sure do export a lot more to the U.S. than we used to. The only problem is, so does every other trading nation in the world. That export growth was driven entirely by U.S. demand, not free trade with us. In fact, stunningly, our share of U.S. merchandise imports is actually lower than in 1988, before free trade.

Dispute Settlement: The latest pathetic development in the softwood lumber saga (whereby the U.S. would continue to collect billions in countervail despite repeated tribunal rulings in Canada’s favour) says it all: NAFTA’s dispute settlement system is not worth the paper it’s printed on. Sadly, we traded stuff of real value (like our energy) for that paper.

Energy: Speaking of energy, we are now America’s largest single source of oil, and we now produce more energy for Americans than we do for ourselves. It is becoming clear that Canada’s “comparative advantage” in free-trade North America is to be a gigantic gas station. This is great for oil company profits, but questionable for the rest of us.

High-Value Industries: Free trade has been no panacea for the high-tech industries so crucial to modern economic success. Basic goods (resources and raw industrial products) still account for half of our exports, far more than any G7 economy. The rare high-value industries where we once did well (auto, aerospace, telecommunications equipment) are all struggling.

Chapter 11: Privately, Canadian officials admit that NAFTA’s bizarre and offensive Chapter 11 (where foreign companies sue governments over hypothetical lost profits) is a disaster. But even after $5 billion (U.S.) worth of lawsuits, they still haven’t found the courage to change it.

Productivity: Back in 1988, free trade proponents touted economic studies which simply assumed Canada’s productivity would converge with the U.S. – thus producing huge economic gains. Unfortunately, you can’t just assume productivity growth: you have to build it, with real research and real capital. In fact, under free trade our productivity has fallen another 10 percent behind the Americans.

Foreign Investment: Our government has been pretending for 15 years that access to U.S. markets will spark a flood of investment into Canada. They forgot there’s another place with even better access to the U.S.: the U.S. itself. Canada’s share of global foreign direct investment has plummeted under free trade, while the U.S. share is growing.

Mexico: Our trade with NAFTA’s southern partner is a one-way street. We imported $10.5 billion more than we exported there last year, a deficit equivalent to some 40,000 lost Canadian jobs. This migration of jobs and investment to Mexico would largely have occurred even without NAFTA. But NAFTA’s rules leave us powerless to do anything about it.

Exchange Rates: Most of the ups and downs of our trade performance under free trade have been due to the rise and fall of our loonie. NAFTA doesn’t discuss exchange rates. And our central bank hasn’t figured out yet that having a consistently competitive one is important.

China: While they’re toasting NAFTA’s mighty achievements, all three countries are being hammered by the world’s new trade powerhouse. Even Mexico is losing tens of thousands of jobs to the unbeatable cost and forced discipline of Chinese plants. NAFTA is obviously not to blame for China’s rise, but it has done nothing to help North America meet China’s challenge.

Has NAFTA meant the end of Canada as we know it? Hardly. But it’s far from the triumph portrayed by Ottawa’s trade mandarins. And it’s increasingly clear that NAFTA stands in the way of the more effective policies we need to move beyond our current status as a technology and productivity laggard.

Enver Hoxha’s government eventually collapsed, despite those 99.9 percent majorities. And the economic and ideological credibility of NAFTA is steadily eroding away, regardless of the official party line in Ottawa.

A version of this article appeared in The Globe and Mail. See: Happy NAFTA to you! Er, why?

Note: Happy NAFTA to you! Er,...

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