Renegotiate NAFTA? Not anytime soon

"No truck nor trade with the Yankees" was the slogan that swept the federal Conservatives to power in 1911.

It's amazing how 100 years, a vanished empire, industrialization, two world wars and mass urbanization can refine thinking.

"If you really want to protect your workers and you really want to protect an industry, you open up the doors of opportunity," International Trade Minister Stockwell Day told the Toronto Board of Trade in February 2009.

"You increase their chances to market their products. You don't slam those doors."

Since the adoption of the North American Free Trade Agreement on Jan. 1, 1994, Canada has become more reliant than ever on the open doors of its neighbour. U.S. trade with Canada totalled about $560 billion in the first 11 months of last year. China was in second place but well behind at about $379 billion.

So it's no wonder the inclusion of a "Buy American" provision in U.S. President Barack Obama's $787 billion US  stimulus plan has Ottawa nervously waving the NAFTA agreement around.

3.4% annual growth

NAFTA phased out tariffs and eliminated barriers with the goal of expanding trade and investment among Canada, the United States and Mexico. The Canadian government says the economy has grown by an average of 3.4 per cent annually and generated 2.5 million jobs since NAFTA went into effect. Three main business groups in Canada, the U.S. and Mexico jointly declared NAFTA an "extraordinary success for all three countries."

Labour has been a lot less enthusiastic. The Canadian Auto Workers complain of factory job losses to Mexico. The Canadian Labour Congress estimates that total employment in manufacturing in Canada is below pre-NAFTA levels while wages have stayed the same or declined. 

The Economic Policy Institute in Washington published a report titled "NAFTA: Still Not Working for North America's Workers" that claimed unemployment in Canada for the first 15 years of NAFTA was about the same as the 15 years before NAFTA. Only those in the top one per cent of the income scale saw significant growth in their earnings, the report said. The AFL-CIO, a federation of more than 50 American and international labour unions, said the U.S. trade deficit with Mexico and Canada has almost quadrupled since NAFTA went into effect, costing more than three-quarters of a million jobs.  

Politically, even as late as February 2008, it was clear controversy over NAFTA still raged at the very top.

"I've said that I will renegotiate NAFTA, so obviously, we'd have to say to Canada and Mexico that that's exactly what we're going to do. We will opt out of NAFTA unless we renegotiate it," said then presidential hopeful Hillary Clinton. "I'm confident that as president, when I say we will opt out unless we renegotiate, that we will be able to renegotiate."

During the presidential campaign, Obama had no dispute with his rival over NAFTA.

"Senator Clinton's answer on this one is right," he said. "I think we should use the hammer of a potential opt-out as leverage."

Both candidates felt the agreement had cost thousands of American jobs. Clinton wanted tougher enforcement of labour and environmental standards and said she would remove the ability of foreign companies to sue the U.S. over its protection of workers. Whether all this was political posturing or whether it was heartfelt doesn't matter much now. The subprime crisis and the credit crunch have cost about 3.6 million U.S. jobs since December 2007. More than 11.6 million Americans and about 1.3 million Canadians are unemployed.

It was bad mortgages, not NAFTA, that were responsible for most of this carnage. But does Washington now believe NAFTA must change to get Americans back to work?

Prime Minister Stephen Harper phoned Mexico's president, Felipe Calderon, as the "Buy American" clause was being debated in the U.S. House of Representatives. The two leaders agreed that yielding to protectionism would be a mistake for their economies and that the best way to speed up economic recovery was by improving competitiveness. But Calderon says when he met with Obama in January, the subject of revising NAFTA never came up.

'We're not expecting that they would roll back provisions that have been in place as far back as 1933.' — Stockwell Day, Canada's international trade minister

The U.S. economic stimulus package would have barred foreign-made goods and equipment from being used in public works projects financed with the $800 billion US of government money. While at first, it seemed NAFTA might be sacrificed in the protectionist spasm, the U.S. Senate agreed to water down the measure. The new language suggests the "Buy American" provisions must not contravene international trade agreements.

Obama confirmed the U.S. committment to NAFTA when he spoke with the CBC's Peter Mansbridge on Feb. 17, 2008. Obama said Canadians should not be "too concerned" that a "Buy American" clause is still included in the recovery plan.

"My administration is committed to making sure that even as we take steps to strengthen the U.S. economy, that we are doing so in a way that actually over time will enhance the ability of trading partners, like Canada, to work within our boundaries," he said.

Obama expects "a lot of governors and mayors" will demand the stimulus projects buy products and services from U.S. companies, instead of foreign competitors.

"But … we are going to abide by our World Trade Organization and NAFTA obligations just as we always have," Obama said.

But the fact is, encouraging domestic purchasing for government programs has been a U.S. policy since the 1930s. The Canadian steel company ADF Group found out not much had changed when it challenged the federal Surface Transportation Assistance Act, which required federally funded state highway projects to use only domestically produced steel.

It sued under Chapter 11, a NAFTA provision that allows private companies to sue the federal governments of any of the three countries if a member country enacts laws that "expropriate" their profits. ADF sought $90 million US in damages.

But in 2003, a U.S. Tribunal rejected all of ADF Group's claims in their entirety. As far as state projects were concerned, the trade wall was not about to be scaled by NAFTA.

Even Canada's international trade minister recognizes the NAFTA limits. 

"We're not expecting that they would roll back provisions that have been in place as far back as 1933 ... but we are saying, 'Stop, it's gone far enough,' " Day recently told the Vancouver Board of Trade.   

While it's sometimes hard to tease out the truth about whether NAFTA has been good or bad for Canada, a 2006 Statistics Canada study was unequivocal.

It concluded NAFTA provided Canada and all of its regions with better access to the large North American market and all regions benefited through improved productivity performance, higher wages and higher output growth — especially Ontario.

The study found that deepening trade integration with the United States increased productivity by 1.2 per cent per year for manufacturing in Ontario from 1988 to 1999. In other regions, not so much. Trade integration raised productivity in manufacturing by 0.4 per cent a year in Quebec, 0.3 per cent in Western Canada and 0.2 per cent in Atlantic Canada.

Down Mexico way

The 2006 study found there was not much truth to worries that trade integration might cause more Canadian firms to relocate to the larger U.S. market. It found trade with Mexico didn't explode either. It called trade lacklustre despite the NAFTA deal and although Canadian exports to Mexico have quadrupled since 1993, Canada's trade with China has far outperformed that with Mexico.

In fact, a number of studies suggest NAFTA hasn't been the best fit for Mexico. The World Bank, a major supporter of free trade and globalization, reports that a wide gap between rich and poor remains intact in Mexico. Poverty, it said, had not been significantly reduced in the country even though NAFTA did speed up the transfer of U.S. technology to its southern neighbour. A report from the Carnegie Endowment for International Peace said NAFTA failed to generate the promised Mexican jobs. Hundreds of thousands of subsistence farmers lost their livelihoods when they couldn't adjust to the rapid reductions in tariffs. Many moved north, contributing to the U.S.'s illegal immigration problem.

Interestingly enough, the recession seems to have slowed this stream of immigrants since many don't appear to think it's worth the risk to venture into the recession-ridden north.

But mostly, when Canadians think of NAFTA, they think of the $1.5 billion-a-day trading relationship with the U.S.

When the prime minister and the U.S. president meet in Ottawa on Feb. 19, they'll have lots to discuss: lost jobs, reduced investment, shortage of credit, bank bailouts, stimulus packages and infrastructure spending.

But reopening NAFTA? For now, there are bigger fish to fry.