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The Progressive Economics Forum

The End of NAFTA?

Several articles in today’s Globe and Mail assume that the US Democratic Party’s desire to renegotiate NAFTA threatens Canada. On the contrary, Canadians should welcome this initiative.

Senators Clinton and Obama have called for limits on the ability of foreign investors to directly challenge public policy under NAFTA’s notorious Chapter 11. Canada has been the victim of more such challenges, and has paid more compensation to foreign investors, than either the US or Mexico. Removing or limiting Chapter 11 would serve the public interest in all three countries, especially Canada.

US Democrats also want to bolster NAFTA’s labour and environmental provisions. The current side agreements in these areas are vapid and unenforceable. Strengthening them would benefit workers in all three countries.

Trade Minister David Emerson and columnist Lawrence Martin have retorted that Canadian standards are already as good as, or better than, American standards. For this reason, Canada should be particularly supportive of measures that might help prevent “right-to-work” States or Mexico from creating unfair competitive advantages through lower standards.

NAFTA has served and will serve as a model for other trade deals. Versions of Chapter 11 have been inserted into many other agreements. Removing Chapter 11 and introducing meaningful social standards would not only improve matters in North America. Perhaps more importantly, it would also set a far better precedent for potential future trade deals with the rest of the world.

I suppose the Globe‘s concern arises from statements by Clinton and Obama that, if Canada and Mexico did not agree to these eminently sensible proposals, they would withdraw the US from NAFTA. Martin quotes free-trade negotiator Gordon Ritchie as saying, “Dismantling NAFTA would measurably affect the competitiveness of our exports to the United States.” However, Steven Chase quotes him as saying, “We could deal with it just fine. It wouldn’t be the end of the world.”

As Chase reports, without NAFTA, we would still have free trade with the US through the CUFTA that preceded NAFTA. The main differences would be that Chapter 11 would disappear and Canadian exporters might face less competition from Mexican exporters in the US market.

In theory, the US could also rip-up CUFTA but almost all of the American outcry has been about trade with Mexico and other low-wage countries. Canada has essentially had tariff-free access to the US market since before CUFTA. As long as such access continues, American restrictions on imports from third countries help Canadian exporters. American trade-remedy laws can harm Canada, as happened with softwood lumber, but CUFTA and NAFTA have done little to constrain these laws in any case.

The much-maligned spectre of “American protectionism” promises significant benefits for Canada: fewer corporate challenges of our public policies, stronger labour and environmental standards, and less third-country competition in the US market. As an added bonus, it has Emerson talking about alternative energy policy options.

UPDATE (Feb. 29): The following letter is printed on page A18 of today’s Globe and Mail.

NAFTA nub

Re Ottawa Plays Oil Card In NAFTA Spat (front page, Feb. 28): Your coverage assumes that the Democratic Party’s desire to renegotiate NAFTA poses a threat to Canada. In fact, we should welcome this initiative. Hillary Clinton and Barack Obama have called for limits on the ability of foreign investors to directly challenge public policy. So far, we’ve been the victim of more such challenges than either the U.S. or Mexico. Ms. Clinton and Mr. Obama also want to strengthen NAFTA’s labour and environmental provisions, which would benefit workers in all three countries and prevent any country from using low standards to create an unfair competitive advantage.

Ken Neumann, national director for Canada, United Steelworkers, Toronto

Enjoy and share:

Comments

Comment from Travis Fast
Time: February 28, 2008, 1:44 pm

Yep, and if CUFTA fell then there is always the WTO and the MFN principle. What the continentalists at the globe don’t want is their beloved “NAFTA” made the Liberals do it cover to be blown to the wind.

Comment from Wheatsheaf
Time: February 28, 2008, 2:03 pm

Well said Erin. The Left in Canada should not fear NAFTA but should look to renegotiating it. Your comments on Ch.11, labour and environmental issues are salient and would improve the agreement. It would also be an excellent opportunity to clarify the protection of Canada’s water resources and health services in the agreement.
On the other hand, can we trust this free-market oriented government to negotiate in the best interest of Canada?

Comment from leftdog
Time: February 29, 2008, 8:17 am

This is a breath of fresh air in the overall debate.

Comment from Kuri
Time: March 1, 2008, 1:33 pm

Yeah, getting out of NAFTA would probably be pretty good for Canada. Lifting restrictions on oil alone would have a huge environmental benefit.

I don’t get why exactly it’s an issue in the US, to be honest – the US seems to get away with picking and choosing when they want to comply with NAFTA anyway (softwood lumber, for example). Americans are suffering from globalization and corporatization, no doubt, but their problems, I believe are far more domestic than global.

I’ll be really surprised if either Obama or Clinton actually follow through with re-negotiating NAFTA, to be honest.

Comment from Phil
Time: March 3, 2008, 9:31 am

I suggest that NAFTA, on balance, has been good for Canada as well as the US and Mexico.

Before you slam me, look at the growth rate in our exports as well as imports: the rate increased after the FTA and its successor, the NAFTA. Those numbers infer growth and with it jobs.

Yes, there has been pain and I’m not disputing that. But governments should help in the transition rather than reinforce protectionist barriers.

Phil

Comment from Rick Battams
Time: March 3, 2008, 9:31 am

NAFTA should be ditched on principle, first and foremost. How is it in the least bit acceptable that investors, strengthened by these so-called free trade deals, can be a virtual senate overriding the decisions of ‘elected’ governments everywhere?

I hate that they are even called free trade deals, and that so many have accepted that and the redefinition of ‘free trade’ that has taken place. Wasn’t it the Wall Street Journal (which some here regard as not so great an authority these days/ I know nothing) that referred to these pacts as Investor Rights Deals?

Comment from Doug Hagar
Time: October 11, 2008, 12:16 am

Excellent article. I agree. Removing chapter 11 and strengthening labour standards would do wonders for all parties.

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