NAFTA Turns 20, Still Controversial

Questions remain about Canada's most significant trade deal
January 8, 2014 Updated: January 8, 2014

OTTAWA—This year Canada marks 20 years in the North American Free Trade Agreement, a deal that spurred huge changes in the economy and bound the nation’s businesses more tightly with those in the U.S. and Mexico.

Initial opposition to the deal was strong in certain corners, and many say the success it has had in boosting Canada’s trade with its partners is proof critics were wrong. 

But while supporters of NAFTA tout a $1.2 trillion rise in GDP, critics say large corporations are the primary beneficiaries and average Canadians have seen little gain. 

The government says the 1994 agreement created the largest free trade region in the world and suggests it is largely responsible for the doubling of the North American economy. 

It also suggests NAFTA can be credited with a 14 percent increase in Canadian productivity, though some groups, including the Conference Board of Canada, lament Canadian productivity has still lagged far behind figures in the U.S.

Building on NAFTA, the Conservatives have made free trade a cornerstone of their economic policy, pursuing trade deals with as many countries as possible, including a massive deal with the European Union that is now in its final stages. 

International Trade Minister Ed Fast calls the government’s efforts to boost trade “the most ambitious trade expansion plan in Canadian history.”

As for the Canada-EU deal, Fast says it “is even broader in scope and more ambitious than NAFTA and will generate benefits in key economic sectors covering every region of Canada.”

In a December interview with Global TV reporter Jacques Bourbeau, Prime Minister Stephen Harper said the more deals Canada has, the easier it is to walk away from unwanted trade deals. 

“It makes it easier to say ‘no’ if something really isn’t in your interest or you can take a tougher position because you know you have other fallback options in the trade community,” Harper said.

Although critics of NAFTA had suggested the deal would devastate Canadian environmental protections and medicare, that didn’t turn out to be the case. 

In fact, in December NAFTA’s environmental side-body, the Commission for Environmental Cooperation, gave the government 60 days to respond to allegations that it is failing to enforce the anti-pollution provisions of the federal Fisheries Act by allowing oil sands tailings ponds to leak contaminated materials into in the Athabasca watershed. 

After the government’s response, the CEC will decide whether to launch a full review.

Favouring Corporations?

But other concerns about the agreement seem to warrant consideration. The Canadian Centre for Policy Alternatives notes that NAFTA and its predecessor the Canada-US Free Trade Agreement have largely favoured the bigger corporations.

With many studies noting a widening wealth gap, a stagnant middle class, and skyrocketing executive compensation, questions remain as to how much NAFTA has helped Canadians.

The CCPA alleges NAFTA has made it easier for corporations to move wherever regulations, taxes, and subsidies offered the greatest returns on investment, limiting the powers and regulations of governments. 

The group also alleges the deal and its predecessor, the Canada-U.S. Free Trade Agreement (FTA), have had limited effects.

“Exports to the U.S. as a share of GDP, boosted by a low Canadian dollar and a robust American economy, rose from 15 percent in 1990 to 34 percent by 2000. But then exports shrunk back to 18 percent of GDP, almost where they were when the FTA was implemented. Services exports followed a similar trajectory,” reads an analysis by CCPA executive director Bruce Campbell.

The CCPA says businesses have migrated away from Canada as the dollar rose due to the effects of Canada’s resource boom.

The group also suggests NAFTA is to blame for the decline of Canada’s value added manufacturing, but does not account for the impact of imports from China and other low-wage countries.

And while productivity has improved, the CCPA says the productivity gap with the U.S. has stagnated since the deals were signed and began to widen afterwards. 

“By 2011 business productivity had fallen back to 70 percent of U.S. levels,” says the analysis. Canada’s productivity hadn’t been that low compared to the U.S. since 1950. 

Of particular concern in recent years has been the widening wealth gap in Canada and the U.S., a situation that prompted the Occupy protests in major cities throughout 2011 and into 2012. 

The CCPA says NAFTA led to a rise in mergers and acquisitions that saw companies grow in scale, alongside profits and paycheques for CEOs. 

“At its most extreme, the compensation of the 100 most highly paid CEOs has risen from 105 times that of the average worker in 1998 (when records first became public) to 177 times in 2012,” writes Campbell.

Critics also worry that NAFTA’s Chapter 11 provisions, which let corporations challenge governments in arbitration tribunals, have set a dangerous precedent that undermines national sovereignty. 

Good for the Economy

But despite whatever connections NAFTA may have to executive compensation or national sovereignty, supporters of the deal say it has helped Canada’s economy. 

Though manufacturing jobs have withered due to the rise of Asia, “Canada’s manufacturing employment has outperformed most G8 countries since the FTA came into effect,” writes Daniel Schwanen, assistant vice-president, research, at the C.D. Howe Institute in an op-ed to mark the anniversary.

Also noteworthy is the fact Canada now sells more high-value-added commercial services to the U.S. than it purchases—a reversal from historical norms. 

Productivity is still an issue, write Schwanen, but it has little to do with FTA/NAFTA and more to do with protected business activities that are not compelled to innovate.

As for how well businesses have fared under the deals, that has more to do with how companies have made use of them and whether they have tried to access markets opened up by the agreements, he writes.

That last point will likely stand out further as the number of countries Canada has agreements with rises. 

Debate over free trade agreements has heated up alongside the government’s efforts to secure more deals that reach deeper into Canada’s economy by including procurement and trade in services. 

While some groups, like the Conference Board of Canada, welcome those developments, others worry corporations gain further leverage over national governments without passing on benefits to average citizens.