NAFTA talks should stick to helping consumers and taxpayers, not pet clauses - Macleans.ca
 

NAFTA talks should stick to helping consumers and taxpayers, not pet clauses

Opinion: Free trade agreements like NAFTA have massively benefitted people. Here are three principles negotiators should keep in mind to ensure that continues.


 
MEXICO CITY, MEXICO - 2017/09/05: (L-R) Minister of Foreign Affairs of Canada Chrystia Freeland, Mexico's Secretary of Economy Ildefonso Guajardo Villarreal and United States Trade Representative Robert Lighthizer speaks during the press conference of NAFTA Negotiations. The NAFTA (North American Free Trade Agreement) is an agreement signed by the United States, Canada and Mexico, to create a trilateral trade bloc between those 3 countries in North America. (Photo by Carlos Tischler/SOPA Images/LightRocket via Getty Images)

Mexico City, Mexico: (L-R) Minister of Foreign Affairs of Canada Chrystia Freeland, Mexico’s Secretary of Economy Ildefonso Guajardo Villarreal and United States Trade Representative Robert Lighthizer speaks during the press conference of NAFTA Negotiations. (Photo by Carlos Tischler/SOPA Images/LightRocket via Getty Images)

With the U.S. under Donald Trump, a mostly positive trade agreement in effect since 1994 is about to undergo a re-think. The North American Free Trade Agreement (NAFTA), which followed up an earlier Free Trade Agreement between Canada and the United States, has mostly served Canada well. That’s because open trade and the growth of free enterprise around the world in general has lifted hundreds of millions out of poverty, and increased employment in North America specifically.

Which is to say, before Trump and Prime Minister Justin Trudeau set about to re-do an otherwise successful agreement, they and those acting on their behalf might well remember the point of free trade agreements. Otherwise, they risk cratering that which has benefitted entire populations, including their own.

Consider as a primer what freer trade accomplishes: In the post-war era, and especially with the collapse of the Soviet Union in December 1991—and with it the notion that governments could centrally direct an economy—a growing number of economies rejoined the normal human preference and practice of free enterprise.

READ: Patriotism is a disastrous way to make trade policy

Those nations reaffirmed what men and women have done since the first fisherman in ancient Mesopotamia sold his catch and later, with the proceeds, bought fruit from some Babylonian vendor: both the fisherman and the fruit-seller acted voluntarily in exchanging goods based on mutually agreed-upon prices.

That simple reaffirmation of human behaviour in ever-more countries in the post-war period led to a dramatic increase in wealth creation in real terms, and a significant reduction in the world’s poor. It includes east Asia in the 1970s (recall China’s late-70s market-friendly reforms under Deng Xiaoping), former Soviet central and eastern European countries in the 1990s, as well as other countries that for much of the 20th century were highly interventionist, such as India.

For example, those living in extreme poverty declined from 55 per cent of the world’s population to 24 per cent as of 2015. Meanwhile, those living in extreme poverty (defined as living on one dollar a day or less, adjusted for inflation) declined from 44 per cent of the world’s population in 1981 to less than 10 per cent by 2015.

The worldwide poverty decrease included dramatic reductions in India, Indonesia and East Asia. (The late British economist Angus Maddison credited open trade as one of three factors that mattered to income growth and poverty reduction, along with innovation and settlement of relatively sparse areas.)

For NAFTA countries, free trade has been beneficial, not harmful, as the increase in employment demonstrates: 40 million more people are at work now in Canada, Mexico and the United States as compared with 23 years ago at the start of NAFTA.

To be sure, not all of that North American increase is due to NAFTA. Before the three-country trade agreement came into effect in 1994, much of the trade between the three nations was already free. But what the original free trade agreement and NAFTA did was solidify a rules-based trading system, which is something that should continue. As such, here are three principles for the negotiators to take forward and for everyone to remember.

Principle one: NAFTA negotiators should give preference to taxpayers and consumers over producers.

An example: In trade agreements, governments usually agree not to prefer so-called domestic companies over foreign ones. Part of the reason is that in a world in which companies are widely owned by shareholders, including pension funds in multiple countries, it makes little sense to even conceive of companies as “domestic” or “foreign.”

Even where a workforce is mainly local, openness to competition is a major benefit for taxpayers and consumers. Without it, any preference for at-home companies in procurement leads to cartel-like higher pricing and lower quality goods and services. Instead, free trade prods local companies to up their competitive game.

READ: Trudeau’s banana republic approach to Bombardier and Boeing

Also, for smaller countries such as Canada, unimpeded access to larger markets—the United States, the European Union or Asian countries—allows Canadian-based firms to diversify their risk away from just the domestic Canadian market, which also shields their Canadian employees from such risk.

Principle two: Insertions of pet economic and social engineering clauses into free trade is anti-free trade.

Both the Trump and Trudeau governments have their pet hobbyhorses, and both are antithetical to actual free trade.

For Trump’s negotiators, it is attempts to demand “Buy American” exceptions. For the social engineers within the Trudeau government, its attempts to require so-called “pay equity” or gender equality issues—neither of which is about unequal pay for equal work, which has long been illegal in both countries. Instead it is about the more nebulous concept of equal pay for work of equal ‘value’, between ostensible mainly female jobs or mainly male jobs. Both sides’ demands would harm free trade, and with it the prosperity and poverty reduction which has thus far occurred.

Principle three: Avoid coddling affected industries beyond the very short term.

In the original Canada-U.S. Free Trade Agreement, domestic protectionism that had long made Canadian wine nothing more than expensive plonk was done away with. Beyond initial, temporary subsidies for Canadian wine producers to re-plant vines, allowed in the 1980s-era deal, the wine industry was on its own. It has since flourished precisely because governments stopped coddling it.

RELATED: Canada-Europe trade anxiety brings to mind wine, ’88 vintage

There is another sector today that ought to be negotiated out of protectionism in any new trade talks: the supply-managed dairy and poultry sectors. Defenders of the current approach oppose opening up dairy and poultry farmers to competition.

That’s the wrong tack. They should instead think big: Press the Americans to end subsidies for their farmers and reach a deal beneficial to the taxpayers and consumers in both countries.

READ: It’s time for Conservatives to ditch dairy cow Marxism

The irony of protected sectors—wine in the 1980s or dairy and poultry now—is that such protection does nothing for the long-term efficiency of an industry. It is anti-free trade and, of course, unfriendly for consumers; it only preserves a cartel approach to a tiny market (Canada’s) instead of opening eyes to the potential of much bigger markets for goods and services outside Canada’s borders.

Free trade is fundamentally a force for good, from poverty reduction to better-priced and superior goods and services. That’s what negotiators, a president and a prime minister, as well as the public, should all remember and seek.

RELATED:

MORE ABOUT NAFTA:


 

NAFTA talks should stick to helping consumers and taxpayers, not pet clauses

  1. Trade is meant to bring in and ship out large quantities of goods without tariffs.

    Don’t make it into everything else.

  2. We decide how our economy works. There is no natural law driving the process. The purpose of any economy is to coordinate trade for the progress of civilization.

    The progress of civilization is measured by the health and well being of all the citizens. Quality of life.

    People need to have a future to act like they do. There is no excuse for underemployment. Our economy should be supported by regulations that ensure that everyone have a full time job paying a living wage.

    This isn’t being done because of the expected push back from the greedy elite who would be told to fund the progress from their unholy hoards..

    No politicians with spines. No news here folks.

    • Load of rubbish…..deluxe.

      That would give us a giant ant hill…..or a beehive.

      • A weak argument supported by stupidity, nothing, demonstrating an ugly opinion of humanity, insects.

        You’re true to form. If nothing else.

        • And you have no argument.

          • First you confirm the argument by disagreeing then you say there is no argument implying agreement.

            You are insane.

          • I wish just once that you would scrap fantasy, and talk reality.

            The economy is the backbone of any society,,,,because in the end it all comes down to food-on-the-table.

            We’ve developed several different kinds of economies…some work better than others….so far capitalism is the best.

            The economy has to be good for the society, not just individuals…..and capitalism gives incentive.

            The kind of societies you’re talking about would make us into bee hives or ant hills…..everybody the same

            We need equality of opportunity, yes…..but there is no such thing as equality of result.

          • Argument again. Are you sure this time?

            Capitalism is just one model for an economy.

            It is based on greed.

            Greed brings us poverty, excess, disposable commodities, recessions, depressions.

            We can develop a model with incentive without the negative effect from greed.

            Existing models aren’t the only options.

            If you think working to earn an honest living is bad, you’re either a bum or a member of the elite.

          • Focus dude……no fantasy, no attemmpted disctractions.

            Capitaism is not based on greed….that’s your inner socialist talking

            It’s based on incentive

            Do you care how much Bill Gates makes?

            If you’ve got a better idea, let’s hear it.

          • Capitalism is a system where market forces dictate prices to provide an equilibrium price between supply and demand. In a perfect world, market prices represent the most efficient allocation of resources possible, because people pay exactly what the product is worth, and as such resources are allocated efficiently between sellers and buyers.

            What we have today is closer to mercantilism with some free market elements – ie. many products cannot be adequately priced by the model above, (elasticity of demand) and prices are set by sellers in collusion – this would apply to most of the goods your buy – housing, banking, food, etc – on the margin you can substitute a cheaper good for slightly less price, but most cannot live without these goods and as such, the pricing model fails.

            This is why we need government regulations for things like banks, housing, food, etc … we rely on them to maintain some semblance of equilibrium in prices.

            In actual practice there are very, very few items where supply and demand actually set the market price in every day practice as “capitalism” is supposed to work, and significant evidence that long term mispricing in one good (ie housing) vs others leads to fundamental economic problems on both a macro and micro level.

  3. Canada has many, many protected industries that take advantage of our citizens, Dairy and Poultry sure, but what about banks, telecom and media, music, TV, internet, etc … Its sad how politicians and economists talk about free trade, but spend most of there time protecting the profits of protected companies …. wouldn’t some competition in these areas give us better prices? better service? better products?

  4. If protection of consumers is one of the objectives, then we certainly don’t want to open our markets to American dairy products any further ( product used in processed foods is already unlimimited). Unless it is organic, American milk is inferior to our own in many significant ways – the one that concerns me is that it includes BGH – bovine growth hormone which is administered to cows to increase yields – this means American milk is cheaper but the health implications of consuming hormones are serious for both the dairy cows enduring this and for human consumers, particularly those who are growing. Sorry, but this cheap milk is no bargain, and it is disingenuous to claim that it is in consumers’ interest to allow milk with added hormones into Canada.