The North American Free Trade Agreement sets forth a schedule for the gradual phasing out of tariffs and the elimination of barriers, with the main goal of expanding trade and investment among Canada, the United States and Mexico. NAFTA's adoption and eventual implementation on Jan. 1, 1994, came only after intense and bitter debate, inside this country's borders and beyond.
More than a dozen years later, NAFTA still serves as a rallying cry for organized labour, public advocacy groups and other opponents of the deal, who look at its legacy and pronounce it an unqualified failure. It's also a hot button issue in the U.S. election, with Democratic party hopefuls for the White House and Congress lining up to promise protection for a battered American economy and manufacturing jobs that might be lost to Mexico.
Supporters, of course, don't agree, even though some still see room for improvement. They see NAFTA as a net benefit for all three countries and a worthy blueprint for other attempts to further expand the free flow of goods, services and capital across borders.
One thing all sides do agree on is that multilateral trade and investment among the three countries has increased markedly under NAFTA. Canada is now Mexico's second-biggest export market, and Mexico is our fourth. Canadian exports to Mexico have quadrupled since 1993. Trilateral trade among the three countries more than doubled over 12 years to $772 billion US in 2005.
Cross-border investment has also soared. Canadian investment in Mexico, for instance, has surged to about $5 billion, 20 times what it was in 1990. Canadian investment in the U.S. more than tripled to $198 billion from 1990 to 2003. And U.S. investment in Canada soared 150 per cent to $215 billion.
But NAFTA, as all sides are quick to point out, has always been about much more than just a trade or investment scorecard. And it is here, especially on its record on jobs, that supporters and critics of the deal part company.
The Canadian government says the economy has grown by an average of 3.4 per cent annually and generated 2.5 million jobs since NAFTA came in. Three main business groups in Canada, the U.S. and Mexico jointly declared NAFTA an "extraordinary success for all three countries."
The Canadian Labour Congress doesn't share the enthusiasm. It estimates that total employment in manufacturing in Canada is below pre-NAFTA levels, while wages have stayed the same or declined. The Canadian Auto Workers union says more than 7,000 auto assembly jobs have shifted to Mexico from Canada. Many of those jobs have since shifted again, to China, where workers are paid even less.
A report from the Carnegie Endowment for International Peace said NAFTA failed to generate jobs in Mexico. Hundreds of thousands of subsistence farmers lost their livelihoods when they couldn't adjust to the rapid reductions in tariffs.
Even the World Bank, a major supporter of free trade and globalization, reports that a wide gap between rich and poor remains intact in Mexico. Poverty, it said, had not been significantly reduced in the country, even though NAFTA did speed up the transfer of U.S. technology to its southern neighbour. The treaty has also meant an increase in GDP for Mexico.
And then there's Chapter 11, a NAFTA provision that allows private companies to sue the federal governments of any of the three countries if a member country enacts laws that "expropriate" their profits.
Chapter 11 was included because of fears that Mexico would enact laws that would discriminate against foreign investors. It attracted little attention at the time. But in the 10 years since NAFTA was implemented, it has emerged as one of the most criticized aspects of the deal.
Activists say Chapter 11 can be used by big corporations to unravel a huge array of laws and regulations, jeopardizing a country's environmental protection, even its civil rights.
At least 42 cases have been filed since it came into effect. In one case, UPS challenged the government of Canada, alleging that Canada Post unfairly competes in the courier business by using its federal mail planes, vehicles and staff to compete against private couriers for express mail and package delivery. The NAFTA tribunal that heard the challenge dismissed the UPS claim.
The Council of Canadians says Chapter 11 is unconstitutional because it allows corporations to override the public laws of a country. The Chapter 11 process does not use the court system. Cases are dealt with in secrecy using independent arbitrators. More than half of the Chapter 11 complaints lodged so far have arisen because of environmental laws.
Environmental standards are also fuelling a debate among the Democratic party candidates in the 2008 U.S. presidential race. Both Hillary Clinton and Barack Obama have said they would pull the U.S. out of NAFTA if certain terms are not renegotiated. Chief among their concerns are labour standards and environmental practices, as well as pulling out of the controversial Chapter 11. Blue-collar workers in the U.S. have long been vocal about the effects NAFTA has had on sectors like manufacturing. Both Clinton and Obama know that blue-collar votes are essential if one or the other of them is to win the White House next November.
So where does NAFTA go from here? Officially, almost all trade in the NAFTA region now flows tariff-free. But several major areas have yet to be resolved, including trucking, immigration, the environment and agricultural tariffs.
Canada remains officially committed to eliminating borders as impediments to trade, investment and business development. Prime Minister Stephen Harper is a strong supporter of NAFTA, as is President Felipe Calderon of Mexico, a long-standing advocate of the deal. Outgoing U.S. President George W. Bush says he'll fight hard in his final months in power to keep NAFTA alive and relevant.
"There's nothing broken [with NAFTA] so why fix it?" said one of Bush's chief economic advisers just before the Three Amigos summit of the U.S. leader, Harper and Calderon in New Orleans on April 20 and 21.
But with Bush on his way out, and the U.S. economy weakening, NAFTA may be facing its toughest challenge yet. If the next American government is on the same side as the anti-globalization movement, it's hard to see the trade deal escaping unscathed, whatever the fine words of Bush, Harper and Calderon in New Orleans and beyond.
