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