Nations Learn From Canada's Free Trade Mistakes

Nations Learn From Canada's Free Trade Mistakes
Paul Weinberg - IPS - 11/5/03

TORONTO, Nov 4 (IPS) - The cautious approach of Brazil and other Latin American governments towards expanded free trade in the Americas results in part from the political and economic price that Canada paid for greater trade access to the gigantic U.S. market, says an expert here.

The failure of Canadian negotiators to win an exemption from U.S. trade law for this country's manufactured goods and commodities in two trade deals continues to haunt leaders in Latin America, says Ken Traynor, a spokesperson for Common Frontiers, part of an alliance of unions and citizens' coalitions opposed to the Free Trade Area of the Americas (FTAA).

''The Brazilians sit there and they know that history as well. They read all of the same books; they have watched it happen, and they say, 'we are trying not to make the mistakes that were made in the past','' says Traynor.

Central and South Americans, he adds, understand that notwithstanding existing free trade agreements, their home-grown and developed products cannot compete fairly with equivalent U.S. products in the lucrative U.S. market because of protectionist measures adopted by the Congress and President George W. Bush.

Latin Americans know "just how anti-dumping and countervailing duties have cost them billions of dollars worth of exports to the United States, and they have a message from the Bush administration that (it is) willing to subsidise agricultural exports like crazy," adds Traynor in an interview.

Trade ministers from the 34 nations of the Americas (minus Cuba) are scheduled to meet in Miami later this month for further talks on the FTAA, an accord that will produce a free trade zone of 800 million people whose countries produce one dozen trillion dollars in goods and services.

The agreement, which is supposed to be finished by 2005, expands on the existing North American Free Trade Agreement (NAFTA) signed by Canada, Mexico and the United States in 1992.

The success of U.S. trade law at keeping Canadian products like softwood lumber out of the U.S. market under NAFTA has caused major Canadian business groups, like the Canadian Council of Chief Executives, to call for more Canada-U.S. economic integration.

But Lawrence Herman, a Toronto-based international trade lawyer and supporter of the current free trade regime, says no political will exists in either Ottawa or Washington for such a re-negotiated deal. If it did, Canada, as the smaller partner in both population and economy, would lose the ability to establish its own trade policy.

''There are economic advantages to being part of the United States. But it is not going to happen,'' said Herman in an interview.

At a conference here last month, 'Canada, Free Trade and Deep Integration in North America', union-based economists provided plenty of statistics to demonstrate the impact of free trade.

The largely foreign-based auto manufacturers, for instance, have been shifting their investment and production from Canada to the southern United States and Mexico, where unions are weaker or non-existent and labour costs are lower.

''In 1999, we provided 16 per cent of all vehicles sold in North America; now we are down to 13 per cent and that will fall further,'' said Jim Stanford, an economist with the Canadian Auto Workers.

Canada has already lost three of a dozen auto industry plants and more closures could be on the list next year, adds Stanford.

Centred in the southern Ontario industrial heartland, the Canadian auto sector employs thousands of people both in manufacturing vehicles and making and supplying auto parts and steel.

Interventionist measures that allowed previous Canadian governments to stimulate and encourage domestic companies or branch plants of foreign-based firms to expand their job-producing operations here have largely been dismantled because they contravene international trade rules.

Supporters of free trade in the late 1980s, like then Prime Minister Brian Mulroney who negotiated NAFTA, argued that reducing tariff and other barriers to trade and investment and a single North American market would encourage Canadian manufacturers to be more ''productive and efficient".

Initially, exports of Canadian products to the United States rose from 25.7 per cent of nominal gross domestic product (GDP) in 1989 to 45.5 percent of GDP in 2000, says Andrew Jackson, senior economist with the Canadian Labour Congress.

But the government's own analysis shows that 90 per cent of the strong export growth after NAFTA and the first U.S.-Canada free trade deal stemmed from factors outside of those agreements.

These include, says Jackson, the strong growth of the U.S. domestic market, a rising U.S. trade deficit with the rest of the world and a significant drop in the value of the Canadian dollar that made the country's products competitive.

Canada's important resources and auto sectors were already becoming more export-oriented before the first trade deal was signed in 1988, adds Jackson.

What has changed since then is the tendency of larger Canadian goods producers to become more North American oriented, rather than concentrating on the smaller domestic market.

''Deeper integration of the manufacturing sector in the North American economy has done little to decisively shift the structure of (Canada's) industrial economy away from natural resources and relatively unsophisticated manufacturing towards the more dynamic and faster growing 'knowledge based' industries," adds Jackson.

By aligning itself with Washington as a free trade advocate at the upcoming talks in Miami, Canada will be out of step, as nations like Brazil take tougher stands in areas neglected in Canada's FTA and NAFTA negotiations, says Traynor.

''The dominant political view (in Ottawa) is how we engage and relate to both U.S. economic and political power,'' he adds.