NAFTA: Free market showpiece

THE North American Free Trade Agreement between Canada, the United States and Mexico marked its 10th anniversary on January 1 this year. Nafta is seen as an important step towards greater world economic integration and more free trade. Most of the studies have shown that workers in Mexico, the US and Canada have not profited from Nafta. But Canadian officials disagree.

By Madhavee Inamdar (TORONTO)

Published: Wed 14 Jan 2004, 12:29 PM

Last updated: Thu 2 Apr 2015, 1:19 AM

The governing Liberal Party, which came to power in 1993 partly on a platform of ‘reconsidering” Nafta, now supports the deal. In fact, only the New Democrats, the fourth-ranked party in Canada’s Parliament, oppose Nafta and globalisation, with most criticism of the deals coming from nationalist groups such as the Council of Canadians, trades union and think-tanks like the Canadian Centre for Policy Alternatives, which regularly issues studies into the impact of trade deals.

From 1994, the year Nafta took effect on January 1, through 2002, Canada’s gross domestic product almost doubled in size, outpacing US growth more than 60 per cent of the time. All of the growth in Canadian GDP has come from exports, mainly exports to the US. Chretien, who recently retired as prime minister after 10 years in power, has struggled to find other markets for the country’s goods.

Canada has not been successful in almost 10 years of repeated appeals to persuade the 15-nation European Union to start negotiations on a free-trade agreement, and shipments to the EU now account for only 5.2 per cent of Canada’s exports. That has prompted the Bank of Canada governor to criticise the country’s chief executives for rushing to the US market in the 1990s and turning their backs on a history of trading ‘much more globally”.

A June 2003 poll conducted by Ipsos-Reid found that 70 per cent of Canadians now back Nafta, up from 64 per cent in 2001 and 46 per cent in 1991, before the agreement was signed. Overall, Canada has been one of the world’s few economic success stories, generating 560,000 new jobs and growing 3.4 per cent in 2002, the fastest rate among the top seven industrial economies, according to the government statistics. US investments in Canada ballooned to US$166 billion in 2001, an increase of 150 per cent in the past 10 years, according to government figures. During the same period, Canadian investment in US companies jumped 230 per cent, to nearly $200 billion.

The difficulties in the Americas and World Trade Organisation talks have encouraged the Nafta countries to pursue bilateral and regional trade pacts on their own. Among them, the United States, Mexico and Canada have signed deals with more than 40 nations since Nafta took effect. Negotiations or informal talks are ongoing with about 50 more.

What is obvious from Nafta is that it is a whole lot easier to negotiate bilateral trade agreements than it is a multilateral trade agreement. Such bilateral agreements progressively whittle away at the privileges the three Nafta countries first gave each other in what was then a nearly exclusive trade club. But they offer obvious benefits as well: For Mexico and Canada, which each export more than 85 per cent of their goods to the United States, the new agreements could eventually help them be less influenced by the ups and downs of the US economy. US trade relations with Canada have run more smoothly, except for a bitter and intractable debate over lumber. This was one of the few areas notably absent from the Nafta package, and US producers continue to complain that Canada’s timber industry, subsidised by the provincial government, allows cheap northern wood into American markets, leaving US producers at a disadvantage.

Critics of the trade agreement say it has cost thousands of American jobs - particularly in the automotive, textile and chemical industries. In Washington state, 13,000 jobs have vanished - primarily in lumber and electronics, according to the Economic Policy Institute in Washington, DC. But Nafta’s supporters insist that its potential to bring consumers more variety at lower prices outweighs those concerns.

Other factors, such as globalisation and the recent slowdown of economies worldwide, have also contributed to employment shifts, making it difficult for economists to find out which effects are Nafta-driven.

Washington is more dependent on international trade than any other state in the country. One out of every three jobs there is tied to it. Therefore, exporters of agriculture, technology and lumber obviously embrace the Nafta wholeheartedly.

But even the supporters of Nafta acknowledge that its immense potential is as yet unrealised. Canada and Mexico entered free trade arrangements with the United States with the expectation it would lead to a significant narrowing of the gap in productivity performance and per capita gross domestic product with the United States. With the 10th anniversary of the Nafta, there is clear disappointment in both countries.

A major new research report from the World Bank, ‘Lessons From Nafta for Latin America and the Caribbean Countries” finds that while opening up markets and increasing the competitive environment through trade liberalisation is important, it is not enough. Building the Mexico-Canada relationship is important for both countries. While Nafta has brought benefits, it is not a panacea for every economic ailment.

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