A lot worse without NAFTA' The 20-year-old deal is a success, but critics say it limits industries

A lot worse without NAFTA'

 

The 20-year-old deal is a success, but critics say it limits industries

 

 

 

After two decades, the age lines are starting to show on the NAFTA trade deal that at one time made Canada, the United States and Mexico the globe's biggest and most affluent economic zone.

As the North American Free Trade Agreement celebrates its 20th anniversary of implementation Jan. 1, only a few voices would begrudge the pact's birthday congratulations.

Among the three countries, gross national product has ballooned, although Mexico appears to have gained the most traction. Trade flows have more than tripled - even accounting for the temporary retreat during and immediately following the deep 2008-09 recession.

Canadian Trade Minister Ed Fast suggests that if there is a problem with NAFTA it is that it was a "20th century free trade agreement," rather than a 21st century deal, like the one that Canada agreed to in principle with the European Union in October.

By that, Fast means it didn't include sub-national procurement, intellectual-property protection, regulatory co-operation, labour mobility clauses and some other "innovations." Still, it was at the time a model for the world.

"There were fear mongers back 25 years ago (when Canada signed NAFTA's precursor with the U.S.). They claimed we were going to lose our sovereignty over fresh water, we would lose our health care system, our culture, we were going to hollow out our economy and lose millions of jobs, it went on and on and on, and none of that came to pass," says Fast.

"History has shown us that freer and more open trade has been a boon to Canada's economy and a boon to Canada's long-term prosperity."

Bank of Montreal chief economist Doug Porter says Ottawa lobbied to create a NAFTA mostly as a defensive manoeuvre after it was clear the U.S. and Mexico would seek their own pact, which geographically would have put the U.S. in the catbird seat.

"In some ways we had no choice. Otherwise we really would have had a hub-and-spoke situation where the United States would have had a free-trade deal with both of us and we couldn't have benefited that much from each other," he said.

For many analysts, the arguments about free trade deals are not whether they are good or bad, but whether the world had to go in that direction.

Technological changes that revolutionized factories, the advent of mass communications and innovations in transportation that made moving products around the world faster and cheaper all pointed in one direction. Closed economies sheltered behind high tariffs and non-tariff barriers were going to lose the long game.

Not everyone sees it that way. Leading labour economist Jim Stanford of Unifor says a more targeted approach - such as sectoral arrangements with defined conditions, including the Canada-U.S. Auto Pact - would have brought larger benefits and without the disruptions that free trade pacts tend to cause.

"Canada can and should be a big player in the world, we should not be insular, but FTAs are not the only way to do that," Stanford says. "We should be developing strategies for world-beating industries, but FTAs limit governments' ability to do so and hence are actually inhibiting Canada and relegating us to secondary status in the world."

The numbers suggest NAFTA has boosted economic output overall, expanded bilateral trade, and transformed industries. In the case of Mexico, the transformation was virtually economywide.

For Canada, manufacturing has been in a free fall, but it's not obvious that NAFTA was mostly responsible. Advanced nations are losing manufacturing jobs throughout the world - FTAs or no - in part because with modern processes and robotics, fewer people are needed to produce more goods.

"Most of the impact on the loss of jobs has come from technology, not from trade," says Stephen Blank, a New York-based expert on North American integration. "People feel like it must be trade, but everybody's lost blue-collar jobs, nobody has gained jobs. Canada would be a hell of a lot worse without NAFTA."

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