A renegotiated NAFTA that satisfies Trump would benefit the U.S. But only its abrogation would benefit most Canadians

If U.S. President Donald Trump doesn’t get a renegotiated NAFTA that makes it an even more “America First” trade deal, he threatens to scrap it.

It’s apparently a threat that deeply troubles Chrystia Freeland and her Canadian negotiating team, as well as most business leaders, politicians, and media pundits. They portray the dismantlement of NAFTA as an unmitigated disaster, and most Canadians, badly misinformed as they are on trade matters, seem to feel the same way.

But many astute Canadian analysts, researchers, and commentators would be delighted if Trump pulled the plug on NAFTA. They consider it the worst trade treaty Canada has ever signed, and have long called for its abrogation.

They point out that, under the multilateral General Agreement on Tariffs and Trade (GATT) that preceded NAFTA, trade between Canada and the United States was carried out for nearly 40 years, mainly to Canada’s benefit and with hardly any serious problems. Because nearly 100 other countries were involved in this coalition, the U.S. on its own had no significant trading power over Canada. Cross-border disputes did arise occasionally, of course, but all but a few were settled to Canada’s satisfaction through the GATT, which in 1995 was subsumed under the World Trade Organization (WTO).

Only after the Brian Mulroney government foolishly decided to switch from the GATT to a bilateral trading pact with a much larger and more powerful country in 1988 – the Canada-U.S. Free Trade Agreement (FTA) — did troubling and recurring trade disputes erupt. When an even more detrimwntal deal – the North American Free Trade Agreement (NAFTA) — was signed to include Mexico in 1995, the U.S. was free to bully both of its much smaller trading “partners.” The economic and social ill-effects on both Canada and Mexico have worsened ever since.

NAFTA has been described by some analysts as not so much a trade agreement as “a bill of rights for transnational corporations.” According to trade analysts Scott Sinclair and Stuart Trew, “Free trade agreements have little to do with trade. They are, more accurately, constitution-style documents that substantially weaken democratic institutions in the interests of freeing (from government intervention) the trade- and investment-related activities of multinational corporations.”

300,000 industrial jobs lost

One of these cartes blanche was the freedom that FTA/NAFTA gave corporations to move their operations from Canada to exploit the lower wages, regulations, and environmental standards in Mexico and the southern United States. This exodus vastly boosted profits and executive pay while eliminating as many as 300,000 well-paid industrial jobs in Canada. Most of people who formerly held these secure middle-class jobs have since been forced to take precarious low-paying jobs. At last count, such temporary low-paid contract work comprised one in seven jobs in Canada.

We live in a country that now has one of the highest proportions of underpaid workers among the advanced industrial countries, as well as stagnant wages and soaring numbers of working poor.

The latest manifestation of corporate preponderance was the layoff of 400 workers at General Motors’ plant in Ingersoll, Ontario, when production of its GMC Terrain vehicle was moved to Mexico. The auto workers’ union, UNIFOR, went on strike against GM because of its refusal to guarantee that production of the company’s Chevrolet Equinox would not also be moved from Canada to Mexico. This was almost inevitable, however, given that non-unionized auto workers in Mexico are paid a meager $3 an hour compared to the average $20 an hour paid their counterparts in Canada.

FTA/NAFTA’s worst impacts

Following are brief accounts of the most deleterious FTA/NAFTA impacts:

  • NAFTA’s Chapter 11 gives companies the right to sue Canada directly for laws or policies that allegedly threaten corporate profits, even when such government measures are taken in the public interest. These lawsuits are ruled upon by a panel of NAFTA adjudicators, completely bypassing Canada’s justice system. So far, seven of these suits have resulted in either rulings against Canada or costly pre-ruling settlements by Canada.
  • The first such suit was by the U.S. Ethyl corporation, which objected to a federal ban on the import of a gasoline additive (MMT) that had been found toxic in the U.S., where several states had already banned it. Ottawa, however, decided to settle with Ethyl instead of going to arbitration, then paid the company $19,500,000 in “damages” and apologized for the attempted import ban. Gas in Canada remained MMT-contaminated for many more years.
  • Other corporate suits that resulted in either Canada being forced to reimburse corporations or settle with them included a claim by S.D. Meyers Inc. The company challenged a federal ban on the export of toxic PCB wastes – a ban that had been imposed to protect Canada’s fresh water resources. A NAFTA tribunal upheld this claim and awarded the company $7,400,000 in damages.
  • Another suit by the paper company Abiti-Bowater against the Newfoundland government’s reclamation of forested land that the company had abandoned when it closed its mill in Grand Falls was settled “out of court” by the Harper government. It gave the company a whopping $130,000,000.
  • Such federal payments to corporate claimants so far under Chapter 11 amount to $221,983,000. The consequent “chilling” effect of discouraging the feds from enacting similar public-interest laws can only be conjectured.  
  • The FTA’s Article 605A compels Canada to export two-thirds of its oil and 60% of its natural gas production to the United States in perpetuity (or until NAFTA is scrapped). This infamous “proportionality” clause is ironclad. Even if shortages or emergencies were to arise, we would still have to keep sending more of a dwindling supply of oil and gas to the U.S. than we could keep for domestic use. And we’re not permitted by NAFTA to charge the Americans any more for oil or gas than Canadians have to pay. This “America-first” energy policy prevails even though Canada has to import nearly half the oil it needs from OPEC countries to supply consumers in the Maritimes, Quebec, and Ontario. Why such a disastrous deal? Undoubtedly because the big oil and gas companies can reap larger profits from selling to Americans than to Canadians. (Significantly, Mexico refused to sign NAFTA unless the proportionality clause was deleted from its copy of the agreement.)
  • The FTA and NAFTA had a devastating impact on Canada’s social programs, mainly because the United States demanded conformity and Canadian politicians were eager to comply. Both governments wanted to achieve a level “playing field,” and they chose to do that by lowering Canada’s superior social programs to the inferior American level rather than raising American rates to Canada’s higher level. Deep cuts were promptly made by the Liberal government of Jean Chrétien in our welfare and unemployment insurance programs. The proportion of the unemployed who qualified for UI coverage was slashed from 75% in 1989 to just 38% by 2002 – about the same level as prevailed in the U.S. — mainly by reducing eligibility criteria and the amount and duration of benefits.
  • The Liberals also cut welfare transfers to the provinces, breaking their 50-50 cost-sharing commitment under the Canada Assistance Program and pushing most provinces to drop thousands of people from their welfare rolls. Hardest hit were the most vulnerable part-time, casual and seasonal workers, most of them women. Significantly, the overall proportion of federal spending on social programs was slashed from 20% of GDP before the FTA was signed to just 13.6% today.

Perilous race to the bottom

This race-to-the-bottom conformity is accelerated when by far the largest and most powerful of the tripartite trading partners sets the economic and social parameters. Look at some of the American social and economic statistics. The U.S. ranks 37th in the world in overall personal health, and 42nd in life expectancy. Its infant mortality rate is 6.8 deaths for every 1,000 live births, higher than in 40 other countries. The New York Times says that the lack of health insurance in the U.S. causes 18,000 avoidable American deaths every year – 50 deaths every day.

The U.S. also ranks 49th among 156 nations in literacy, and its functional illiteracy rate is five times higher than Cuba’s (which at least partially explains the result of last year’s U.S. federal election). Comparable Canadian stats are much better, but our ongoing participation in NAFTA increases pressure to pull back to the inferior American social standards.

Our public health care system has also come under attack by U.S. medical and pharmaceutical companies, which have launched three health-related FTA/NAFTA claims against Canada since 1996. Although they weren’t upheld, Scott Sinclair says they may well have had a deterrent effect on public policy. And the longer NAFTA exists, the more likely future such suits will be successful.

Medicare in Canada has already been partially privatized by the proliferation of private clinics, and NAFTA provides the potential means for bolstering privatization, much to the delight of Canada’s business élite. As health economist Robert Evans sardonically remarked, “The one per cent never did like medicare.”

Our water resources, too, are being targeted for access by the U.S., whose aquifers are being drained faster than they can be replenished. At present, the U.S. can’t count on Canada’s water to avert a disastrous shortage, but a loophole in NAFTA could provide such an opportunity. As Murray Dobbin points out, “NAFTA defines water as a ‘good,’ meaning that, as soon as any province decides to export bulk water to the U.S., nothing could stop further such exports.” Many Canadians believe that Canada is amply supplied with water, but aquatic scientist John Sprague has calculated that “Canada in fact has only 6.5% of the world’s renewable water.”

Critics of NAFTA

Many other knowledgeable Canadians also take a dim view of NAFTA.

Bruce Campbell: “The cumulative effects of NAFTA on the well-being of most Canadians has been negative. Inequality has been widened, income growth stifled, unions undermined, social programs eroded. At its core, NAFTA is about shifting all the power in the economy from governments and workers to corporations.”

Thomas Walkom: “As exemplified by the ongoing softwood lumber saga, the United States adheres to trade deals only when it chooses to do so.”

Jim Stanford: “The promise of access to American markets wasn’t worth the paper it was printed on.”

Linda McQuaig: “The utter failure of NAFTA to grant Canadian goods access to American markets, as promised, has long been clear and is now undeniable.

Murray Dobbin: “When the history of NAFTA is written, it will  rightly be described as the worst agreement ever signed by a Canadian government.”

Frances Russell: “Whenever the Americans want to close their doors to our products – from lumber to hogs to beef to strawberries – they just close them, and there’s nothing we can do to stop them. Any Canadian who becomes aware of the many pernicious effects of the FTA and NAFTA will have no doubt about their destructive effects on Canadian resources, security, sovereignty, and overall health and welfare.”

Gordon Laxer and John Dillon: “It still hasn’t dawned on most Canadians that, in agreeing to NAFTA’s proportional oil and gas clause, their government signed away their right to have first access to their own energy supplies.”

Skeptics may object that none of the Canadian critics of NAFTA quoted here are professional trade negotiators. Let me then cite comments on FTA/NAFTA by two such negotiators:

Clayton Yeutter, chief U.S. trade representative: “The Canadians don’t understand what they’ve signed. In 20 years, they’ll be sucked into the U.S. economy.”

Mel Clark, pre-NAFTA senior Canadian trade negotiator: “Maintained much longer, NAFTA – with the help of our political, business and media proponents of ‘deeper integration’ with the U.S. – will eventually transform Canada into a de facto American vassal-state. There is, of course, a clear alternative, and that is abrogation. Why maintain a trade deal that is so detrimental to Canadian interests and independence? Canada has much to win and nothing to lose by withdrawing from this terribly one-sided trade agreement.”

Time for abrogation

The opportunity for Canada to take Mel Clark’s advice is imminent. The current effort to renegotiate NAFTA so as to make it a truly advantageous deal for this country is clearly foredoomed. NAFTA has been an “America first” deal from the start, and Trump is determined to make it a “Canada last” agreement or he’ll dump it.

It’s inconceivable that Chrystia Freeland and her negotiating team would agree to Trump’s demands to convert NAFTA into an even more harmful one-sided deal for Canada than it already is. But that is the stark choice facing them. Either they cave in and abandon their attempt to improve and update NAFTA so that it truly benefits Canada, or they decide to walk out of these futile talks. This would be the appropriate time to give the required six months’ notice that Canada intends to withdraw from NAFTA.

 Such a momentous split with the U.S. would no doubt be furiously protested by the big business executives and investors who gain financially from NAFTA. But, for the vast majority of Canadians, a reversion to trading with the U.S. and other countries through the GATT/WTO will greatly enhance their economic, social, sovereign, political and environmental prospects for the future.