National Post: Adios NAFTA and Hola US-Canada Free Trade Agreement
The election of Donald Trump can be expected to improve Canada’s economic outlook and speed up the economic integration that has been underway for a generation between the two nations.
Hopefully, it will be “adios” to NAFTA as we know it, and “hola” to a reconstituted 1988 Free Trade Agreement (FTA) between Canada and the United States. That deal set a course that has resulted in unprecedented and beneficial integration between the two and a restructuring of their economies and investments.
I have argued for years that NAFTA was asymmetrical, given Mexico’s problems with corruption and drug trafficking.
Without the agreement, the United States and Canada might have virtually eliminated their border by graduating to a customs union. That is something both have been working toward — today, there’s an unprecedented amount of collaboration between law enforcement, customs, taxation and immigration systems.
Two pilot projects outline the course: Ships navigating between ports in both countries now have officials representing each nation on board who are in control in their distinct jurisdictions.
More significantly, the two have been working toward a “one port, two countries” strategy where cargo can land in either country and receive border clearance from the port of entry to any number of destinations in the two countries. Mexico is not part of these initiatives due to its domestic issues.
The goal is to eventually extend this philosophy to the movement of residents of either country — an expansion of the Nexus or Global Entry programs. This would create advantages and opportunities for both countries. Mexico was excluded from this process because of its corruption and dramatically lower wages that would have created even more undocumented workers.
In fact, Mexico’s insistence on equal treatment diverted attention away from the natural progression of the U.S.-Canada economic relationship. The U.S. pushed for Mexico’s inclusion in NAFTA in a bid to stabilize its economy and staunch the flow of illegal migrants and drugs into border states.
However, trade deals don’t fix social or political problems. Today, Mexico is slightly more prosperous but remains mired in corrupt institutions, its people held hostage by vicious drug cartels.
Despite these issues, the U.S. and Canada dramatically restructured their economies to take advantage of cheap labor in Mexico and three-way market access.
But this contributed to the creation of twin “rust belts” – in the regions surrounding the Great Lakes. In the U.S., an estimated five million manufacturing jobs disappeared since 2000 and an estimated 300,000 or more in Canada in a generation.
And while robots, increasing costs and right-to-work legislation in the U.S. South resulted in more job losses than trade with Mexico, or even China, Trump was able to appeal to displaced workers’ antipathy towards NAFTA and win the presidency.
Meanwhile, Canada and the United States have deepened their trade relationship. Today, these two are one another’s biggest customers, biggest export markets, biggest investors and biggest suppliers.
Half of all “exports” are really transfers between U.S. parents and their Canadian branch plants. Bilaterally, Canada and the U.S. have more of this “intra-firm transfers” than most: About 51.2 per cent of Canadian exports to the U.S. are in this category and 42 per cent of U.S. exports to Canada are.
By 2014, Canadians had $349 billion invested in the U.S. and the U.S. had $361 billion in Canada. More than three million Canadians live full or part time in the U.S. and more than one million Americans live and work in Canada.
Lastly, there’s all that energy interdependence that’s evolved. Both countries have enough oil and natural gas to eliminate dependency on the Middle East or on rogue regimes like Venezuela.
So Mr. Trump has tackled the Mexican problem and may end up reinventing his bilateral trade deal with them. So may Canada.
But I say “hola” to reviving the Free Trade Agreement and to a customs union. Bring it on.
First published Natuonal Post Dec. 2, 2016