building a continental union

7/30/2019 Building a Continental Union

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Introduction

Free trade is a very controversial topic. Proponents of free trade argue that liberalization benefits

everyone, citizens, governments and businesses. Through free trade, firms can specialize in

producing goods for which they have a comparative advantage; goods which they can produce

relatively cheaper. Thus, when countries utilize their comparative advantage, exports increase,

profits increase, production becomes efficient and the economy grows, so the argument goes. In

reality, the results of free trade are often mixed. Cautious international trade experts warn that

free trade does not necessarily benefit everyone; free trade is not Pareto efficient. They argue

instead that free trade can lead to a Kaldor improvement; the benefits of free trade can be

redistributed more equally through social spending and taxation. Other economists and

opponents of free trade argue that free trade is actually designed specifically to benefit the

interests of capital; that is remove all barriers preventing the accumulation of capital and profits,

often at the expense of workers, democracy and the environment. Thus, debates over the merits

of free trade can become very heated, especially in North America with regards to the North

American Free Trade Agreement (NAFTA).

NAFTA is an agreement between the governments of Canada, the United States and Mexico to

create a free trade area on the North American continent. Signed by all contracting parties in

December of 1992, the agreement has a number of goals stated in Article 102: eliminate barriers

to trade, improve the flow of goods and services, promote fair competition, establish a dispute

resolution mechanism and provide a framework for more agreements to enhance cooperation

between the three countries (NAFTA Secretariat, 2010). Former Prime Minister Brian Mulroney

said The Free Trade Agreement and NAFTA will be regarded one hundred years from now as a


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major defining moment in the evolution of Canada. (Hurtig, 2009) He may be right, the

question remains, has NAFTA benefited Canada? Or has NAFTA been harmful to Canada?

These questions have been answered by a number of well known Canadian activists,

organizations and commentators, but they are of course hotly contested. This essay will argue

that NAFTA has indeed generated a great deal of economic gains in Canada but that proponents

have been wrong in claiming that everyone would benefit equally. This paper will examine the

various arguments and claims brought forward by proponents and opponents of NAFTA. The

first section will take a look at the arguments put forward by proponents of NAFTA and the

second section will look at the case against NAFTA. Let us begin by examining the claims

brought forward in support of NAFTA.

Supporters of NAFTA

To proponents of NAFTA, the agreement was simply a natural extension to the Canada-United

States Free Trade Agreement. Proponents of NAFTA argued that a continental free trade zone,

following the model of the European Union, would greatly increase trade within North America

and benefit all three countries. Although Canada and Mexico were not close trading partners, it

was argued that Canada could lose out if the United States signed a bilateral trade agreement

with Mexico (Chapman, 1993). If Canada was excluded from such an agreement, then the US

would be the only country with preferential agreements with the other countries on the continent

(Chapman, 1993). This would mean that US firms could utilize cheaper Mexican inputs while

Canadian firms would not have preferential access (Chapman, 1993). As a result, proponents of

NAFTA argued that this would create a disadvantage for Canadian firms competing with

American firms. In addition, proponents of NAFTA were arguing that trade between Canada and


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Mexico would greatly increase and that trade with the US would continue its FTA trends. Thus,

as mentioned above, they believed that exports would increase greatly to Mexico and the US as a

result of lower tariffs and preferential access, and that these exports would benefit Canadian

companies and workers.

Now that the agreement is in effect, proponents all argue that it has been a phenomenal success

for Canada and the rest of the continent. Proponents like the Canadian Council of Chief

Executives argue that NAFTA has helped improve Canadas competitiveness with the other

trading nations. The former head of the organization, Thomas DAquino, argued that By

reducing barriers to trade, spurring investment, accelerating cross-border business cooperation

and efficiencies and advancing innovation and better-paying jobs, the NAFTA has delivered

concrete results (Canadian Council of Chief Executives, 2008). The CCCE argues that trade

between the three countries has tripled, reaching 1 trillion dollars annually and that this was done

through promoting competition in domestic markets and opening countries up to foreign direct

investment (Canadian Council of Chief Executives, 2008). The former chief of the CCCE also

argued that as emerging economies are gaining market share and becoming more

competitiveness, it is imperative for Canada, the US and Mexico to cooperate and coordinate in

order to compete (Canadian Council of Chief Executives, 2008). DAquino stated Today, North

America faces a competitive challenge that is huge and without precedent. Emerging economies,

some of them budding superpowers, are rapidly moving to the global front lines in trade,

investment, technology, innovation and education. This requires a new level of policy

cooperation and coordination among governments, businesses, workforces, and educational


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institutions throughout Canada, the United States and Mexico (Canadian Council of Chief

Executives, 2008).

Other organizations have also been celebrating the successes of NAFTA. According to the

Macdonald-Laurier Institute for Public Policy, the NAFTA agreement created the worlds largest

trading community and has been used as a prototype for other continental agreements across the

globe (Macdonald-Laurier Institute for Public Policy, 2012). In addition, they believe NAFTA

has given continental investors the assurance that their efforts to develop a continent wide

production and distribution chain will not be impeded by national governments (Macdonald-

Laurier Institute for Public Policy, 2012). The Institute also argues that although there has been

much criticism of the agreement, most experts believe that the impacts have been mostly positive

for Canada. One indicator for this is the level of foreign direct investment which has increased

exponentially since the NAFTA agreement and the aforementioned increases in exports and trade

with the US and Mexico (Macdonald-Laurier Institute for Public Policy, 2012). They also point

the remarkable expansion of trade in parts and components; a sign that the continents production

chains are integrating (Macdonald-Laurier Institute for Public Policy, 2012). The Institute also

points to the rise in integrated energy markets, roads and highways, airline systems and even

professional practices. Thus, they argue that NAFTA has lead to positive continental integration

which will only get deeper and lead to the development of a regional identity with more regional

coordination (Macdonald-Laurier Institute for Public Policy, 2012).

As we can see, the NAFTA agreement is highly regarded within the business community,

especially with big businesses (represented by the CCCE), and has been praised by policy


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institutes like Macdonald-Laurier, the Institute for Public Policy Research and the C.D. Howe

Institute. The main arguments provided are that NAFTA has greatly increased trade within the

continent and because Canada relies on exports for its economic growth, this can only be good.

They also point to the successful easing of capital flows between borders and the removal of

many government barriers. But they also argue that NAFTA is part of a bigger strategy of

developing a continent wide economy and even developing a regional political identity. The next

section will examine the arguments of those who opposed NAFTA then and continue to oppose

it today.

Critics of NAFTA

A wide variety of activists, advocacy groups, economists and academics have been opposed to

NAFTA before the agreement was signed and till this day. When the Canada-US Free Trade

agreement was signed, NAFTAs predecessor, some of the most vocal critics were actually

within the Liberal Party. Former Liberal party leader John Turner famously said in reference to

free trade with the US Well, it's more than a trade agreement, it's the Sale of Canada Act.

(Hurtig, 2009). Turner goes favor in arguing that NAFTA has weakened Canadian sovereignty,

stating But we conceded our energy, and have become part of a continental energy reservoir

with the United States. We have conceded our ability to control investment in Canadian business.

We have conceded control over our capital markets. We have weakened our ability to market in

an orderly fashion our agriculture. (Hurtig, 2009) The core arguments provided in opposition to

NAFTA are that the agreement only benefits corporations and the wealthy, limits the ability of

citizens to legislate market forces and is part of a larger, more secretive, plan to further integrate

Canada, the US and Mexico to create a continental union.


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Not all economists are convinced of the virtues of NAFTA. Jim Stanford, economist with the

Canadian Auto Workers Union, argues that the economic benefits of NAFTA have only been

bad for most Canadians (Stanford, 2012). Stanford argues that Canadas exports in real terms are

actually smaller today than they were in 2000. Before NAFTA, Canadas exports to the US

represented 19% of Canadas GDP, today they still account for 19% (Stanford, 2012). Stanford

believes that the promised gains in increased exports were only temporary and have been

completely reversed in recent times. Productivity in Canada was forecasted to increase relative to

the US rate as a result of NAFTA, but Stanford argues that productivity has actually gone down;

from 80% of US levels in the mid 80s to 72% today (Stanford, 2012). The composition of

exports to the US has also changed dramatically according to Stanford. Whereas in the mid 80s

exports to the US consisted mainly of manufactured goods, today most exports to the US consist

of unprocessed raw materials. Stanford also argues that most Canadians have not gained much in

income as a result of free trade with the US and Mexico. Median family income in 2011,

adjusted for inflation, was exactly the same as it was in 1980, according to Stanford. As a result,

Stanford concludes that there is a little hard economic evidence that NAFTA and the FTA

actually helped Canada.

Others have also had strong criticisms of NAFTA; according to a report by Robert Scott, Carlos

Salas and Bruce Campbell (2006), it is clear that workers share of the gains from productivity

and incomes has declined while the share of those at the top of the economic pyramid has grown

considerably. They argue that not only has the share of national wealth for workers declined, but

government transfers through social programs have also dramatically declined after NAFTA was


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signed (Scott et al., 2006). Transfers fell from an already low 11.5% of GDP in 1994 to 7.% in

2006 (Scott et al., 2006). As a result, not only is the average worker not better off economically,

but workers also have less benefits than they use to before NAFTA. Proponents argue that these

changes have nothing to do with free trade and everything to do with domestic policy choices,

but critics counter argue that NAFTA was designed with the intent of weakening the bargaining

leverage of organized labor; through free trade, firms can more easily shift production in and out

of a country without penalty (Scott et al., 2006). Scott et. al (2006) also argue that because firms

have become transnational, they are better able to pressure governments to surrender to their

policy demands; mainly less corporate taxes, government regulations and less protections for

workers.

In addition to weakening the economic power of workers in North America, some critics of

NAFTA are also arguing that the agreement is part of a larger plan by some politicians and

business leaders to form a North American economic and political union similar to the European

Union. One of the strongest proponents of this theory is Mel Hurtig, author of The Canadian

Encyclopedia and Officer of the Order of Canada. Hurtig argues that for the last three decades, a

number of politicians, business leaders and academics have been meeting in secret to work out

plans to further integrate Canada with the US (Hurtig, 2009). He writes in The Truth about

Canada These meetings are designed to further integrate Canada into the United States and

have us adopt even more American standards, values, and policies. (Hurtig, 2009) According to

Hurtig, the same people and organizations behind the FTA and NAFTA are also behind this

continentalist scheme (Hurtig, 2009). Indeed, the establishment of a free trade zone in Europe

was also a precursor to the formation of the European Union. Hurtig argues that a de facto North


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American Union is already in effect, although secretly (Hurtig, 2009). Social, environmental,

security, labor and economic policies are gradually being harmonized. If national policies are

being decided behind closed doors it would undermine the ability of the Canadian people,

through their legislatures, to exercise their political sovereignty.

In defending his theory, Hurtig provides evidence of a top secret meeting that took place in

September 2006, between top level American, Canadian and Mexican officials which included

pro-FTA and NAFTA advocates Peter Lougheed, former US Secretary of State George Shultz,

and former Mexican Secretary of the Treasury Pedro Aspe (Hurtig, 2009). Other attendees

included Stockwell Day, Gordon O'Connor, Anne McLellan, former General Rick Hillier,

Thomas D'Aquino and a number of top corporate heads, lawyers, petroleum producers and

defense officials. The agenda for the series of meetings, which were leaked to Mel Hurtig and

then forwarded to Canada's major newspapers, included plans for in-depth discussions on further

economic, energy, security, military and social integration (Hurtig, 2009). Hurtig describes how

these accusations, although never denied, were ignored by major newspapers and that a friend of

his, celebrated journalist Peter C. Newman, wrote to him saying I tried phoning people I trusted

and I thought trusted me, and no one would tell me anything. If it isn't a conspiracy, they're doing

their best to make it appear like one (Hurtig, 2009) The reason why this alleged continentalist

scheme is important to understand and investigate in relation to NAFTA is because, as

mentioned above, some of the same people advocating for NAFTA are also involved in these

meetings, people like Thomas DAquino and other business heads (Hurtig, 2009). It makes sense

for big business to want to form a North American union; sectors in the Canadian economy are

already heavily owned and controlled by American firms, a North American union would mean


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less regulatory hurdle, more harmonization of standards and the power to challenge national

policies in court.

There are two chapters in particular in NAFTA that many critics argue threaten Canadian

sovereignty; chapters 6 and 11. Chapter 6 states that Canada must give American firms national

treatment and cannot stop supplying these firms resources like oil and water unless the country

proportionally reduces its own consumption of these resources (Hurtig, 2009). Chapter 11 is also

controversial because it gives American and Mexican firms the power to sue Canadian

governments over legislation which could potentially decrease their profits (Hurtig,

2009).Together, many argue that these two chapters alone harm the interest of Canadians

because they undermine their ability to exercise sovereignty and regulate corporations. Finally,

critics argue that although foreign direct investment to Canada has increased, much of this has

been used to takeover Canadian firms like the Hudsons Bay Company, Inco, Alcan, Stelco,

Sleeman Breweries and many others (Hurtig, 2009).. The result is that American companies no

longer need to open up plants in Canada because the market is no longer protected, they can

produce elsewhere and then sell their products in Canada (Hurtig, 2009).. This may partially

explain the sharp decline in manufacturing jobs in recent decades.

Conclusion

The goal of this paper was to present the various arguments put forward in support and in

opposition to NAFTA. Proponents have argued that the agreement has greatly expanded

Canadas trading opportunities and that Canadian workers have benefited as a result. Critics

argue on the other hand that Canadian exports have not increased dramatically as promised and


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that Canadian workers have in fact lost ground due to NAFTA shifting economic and political

power away from workers to transnational corporations. Although, some of the facts surrounding

the consequences of NAFTA are themselves disputed, there is no denying that corporations have

gained tremendously from the agreements; record profits, lower corporate taxes, less regulation,

more freedom. There is no question however that the average worker has lost ground; Canadian

salaries have been stagnating, unemployment and underemployment is high, social spending is

down and collective bargaining is weak. There is also general agreement that the gap between

the rich and the poor dramatically increased during the last three decades. Canadians are

increasingly concerned about inequality, democracy, the environment and the harmful effects of

corporate greed. It is my view that we need to continue to critically examine NAFTA and see

how we can make trade in North America fairer and more geared towards meeting the needs of

all North Americans. Also, Canadians should be made fully aware of any plans among

politicians and business leaders to form a North American union. These are political decisions

that need to be made in the public light, through the democratic process to ensure that it serves

the common good and not the self-interests of some.

References

Canadian Council of Chief Executives (2008). Thomas dAquino Defends The NAFTA And

Calls For Stepped-up Efforts To Enhance North American Competitiveness. Retrieved

December 6th, from the Canadian Council of Chief Executives Web site:

http://www.ceocouncil.ca/news-item/thomas-daquino-defends-the-nafta-and-calls-for-stepped-

up-efforts-to-enhance-north-american-competitiveness-272


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Chapman, A. (1993). North American Free Trade Agreement:Rationale and Issues. Retrieved

December 2nd, from Government of Canada publications Web site:

http://publications.gc.ca/Collection-R/LoPBdP/BP/bp327-e.htm

Hurtig, M. (2009). The Truth About Canada. Toronto: McClelland & Stewart.

NAFTA Secretariat (2010). Frequently Asked Questions. Retrieved December 2nd, from

NAFTA Secretariat Web site: http://www.nafta-sec-alena.org/en/view.aspx?x=283#When

Macdonald-Laurier Institute for Public Policy (2012). The NAFTA Region: Work in Progress.

Retrieved December 5th, from Macdonald-Laurier Institute for Public Policy Web site:

http://www.macdonaldlaurier.ca/files/pdf/MLIInsidePolicy/TheNAFTARegion

Scott, R., Salas, C., Campbell, B. (2006). Revisiting NAFTA: Still not working

for North Americas workers. Retrieved December 6th, from Canadian Center for Policy

Alternatives Web site:

http://www.policyalternatives.ca/sites/default/files/uploads/publications/National_Office_Pubs/2

006/Revisiting_NAFTA.pdf

Stanford, J. (2012). Economic effects of trade deal with U.S. have all been bad. CCPA Monitor,

19 (No.6), p. 15.


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