THE CASE FOR SCRAPPING NAFTA (II): U.S. Never Honoured Trade Deal, So Canada Can Live without It

By Walkom, Thomas | CCPA Monitor, October 2005 | Go to article overview

THE CASE FOR SCRAPPING NAFTA (II): U.S. Never Honoured Trade Deal, So Canada Can Live without It


Walkom, Thomas, CCPA Monitor


The North American Free Trade Agreement is effectively dead. Canada, in spite of all its free-trade anguishing over the years, didn't kill it. Washington did.

This doesn't mean that trade is dead or even that some form of free trade is dead. Nor does it mean that Canadians should gnash their teeth and anticipate poverty. It just means that this specific deal, which originated with the Canada-U.S. Free Trade Agreement of 1989 and was expanded five years later to include Mexico, is, to all intents and purposes, history.

The death of NAFTA was confirmed in August when Washington refused - again - to obey a trade tribunal requiring it to let Canadian softwood lumber into the U.S. duty-free. Yet the dying has been going on a long time. In some ways, it's as if NAFTA never lived.

Canada's federal government finds this hard to accept. The governing Liberals, once stoutly opposed to the Canada-U.S. free trade deals, now swear by them. Prime Minister Paul Martin seems to think a light slap on the American wrist-say, punitive duties on California wines applied at some vaguely indeterminate time in the future-will pressure the U.S. into doing what Canada wants. But the point is that the U.S. is not abiding by NAFTA rules because, in a fundamental way, it does not intend to-and never did.

This is not because George W. Bush, the current U.S. president, is uniquely pig-headed. Rather, the American attitude to NAFTA reflects the long-established approach of a country so big and rich that it has not had to worry overmuch about international trade - and even less about trade with Canada.

Historically, the U.S. has been willing to abide by trade rules when they are to its benefit, or at least to the benefit of key American interests. But it insists that such rules, whether under NAFTA, the World Trade Organization, or the General Agreement on Tariffs and Trade before that, provide exceptions for politically important U.S. industries. And when it thinks the rules are still managing to interfere with these industries, it either ignores them or demands that they be changed.

As the 24-year-long lumber saga shows, this is certainly the case with NAFTA. From Ronald Reagan on, Republican and Democratic presidents have made it clear that, in the crunch, Canada-U.S. trade will always be trumped by the domestic concerns of U.S. timber barons. But U.S. special interests have also used their political clout to impede other Canadian exports - from wheat to potatoes to beef.

So, no. As a coherent, rules-based treaty designed to assure rational market access, NAFTA never lived. Still, its now widely perceived demise is causing much unease in Canada. A myth has taken hold that the pact is uniquely responsible for Canada's current level of prosperity. Business groups like the Canadian Council of Chief Executives are so wedded to this mythology that they want to increase the extent of Canada-U.S. integration even further.

But those who have seriously studied the effects of free trade have come to a different conclusion. In the long run, both supporters and critics say, the deals have not made that much difference to the Canadian economy.

In one oft-cited review, University of Toronto economist Daniel Trefler-a free-trade fan-concluded that NAFTA and its predecessor, the FTA, made Canadian business marginally more efficient and raised some manufacturing wages slightly. But, while Canadian exports to the U.S. did surge after the trade deals were signed, Trefler wrote, most gains were in industries that already enjoyed free-trade access to the American market.

NAFTA critic [and CCPA research associate] Andrew Jackson of the Canadian Labour Congress came to similar conclusions. Citing the federal government's own internal studies, he noted that 90% of the growth in Canadian exports to the U.S. in the 1990s had nothing to do with NAFTA. Rather, exports grew because the Canadian dollar was low (making Canadian goods cheaper in the U.

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