The Broadbent Blog


Towards a new Canadian trade strategy

Globalization in Question?

The future of the neo liberal global economic order is seemingly in play. Brexit, President Trump's “America First” threat to both the NAFTA and the World Trade Organization (WTO) and the growing strength of the anti European Union right pose a threat to business as usual. However, there is room for doubt over the staying power of right-wing populism, which owes more to racism than to economic nationalism per se.  And corporate interests are mobilizing to preserve the very real gains they secured for themselves under the the current global trade regime, including NAFTA.

Even the architects of free trade with the United States now concede that abrogation of NAFTA per se would not lead to economic disaster. In a post NAFTA world we could and would still likely trade with the United States under the rules of the WTO. The IMF estimates that the hit to the Canadian economy from moving to from NAFTA to WTO tariffs would be just 0.4% of GDP, with major impacts quite limited outside of auto and agriculture. NAFTA has provided only very limited protection against US protectionism. Asia beckons to corporate Canada as an opportunity to diversify trade through new deals such as the TPP.

To date, the left has largely failed to develop a coherent alternative to NAFTA and to neo liberal globalism and, here in Canada, has even lent some support to the tepid so-called “progressive trade agenda” of the Trudeau government. The space for discussion that has been opened by the apparent threat to NAFTA demands a more forceful intervention.

 

The Legacy of “Free Trade” and NAFTA

The big winners of neo liberal globalization have been the one percent around the world who have benefited from a global rise in corporate profits and top incomes. Trade and investment flows have been only one factor behind the shift of economic and political power from labour to capital, but the re-location of manufacturing to lower wage developing countries like Mexico and China has underpinned wage stagnation and growing inequality. The share of wages in national income has fallen in both developed and developing countries, making global growth highly dependent upon an unsustainable expansion of private debt.

Mainstream opinion holds that NAFTA has been a success for Canada, even though it has clearly failed in its original purpose to close the large innovation and productivity gap with the United States. Our economy has become even more tilted towards the export of raw resources, notably oil, and advanced manufacturing has declined precipitously over the past twenty-five years in terms of both production and jobs. Despite access to the US and world markets under the trade rules, the “new economy” of high tech, information technologies and advanced services remains notably weak, especially compared to the United States.

 

New Opportunities

NAFTA or not, there is no return to the pre FTA status quo in trade given three decades of economic restructuring. Our exports are heavily concentrated in a few industries while imports make up a huge share of domestic consumption of consumer products, business services and capital goods. Canadian capital rejects a nationalist economic project and has invested heavily overseas. Many aspects of the NAFTA have since been embodied in the rules of the WTO.

That said, the end of NAFTA would lighten some current constraints on a more activist national economic policy and would open up some space for a progressive agenda to restructure the economy. For example, we could impose greater processing requirements for resources prior to export, and significantly lower the threshold for regulatory review of foreign investments and take-overs.  Changes in trade policy should be part of an alternative economic agenda to restructure our economy so as to create better jobs and increase the bargaining power of labour.

Priority number one should be to expand public control of the private investment process to shape the development of new productive capacities, diversify our economy, and anchor mobile capital more firmly in Canada. Subsidies to new capital investments and to research and development through various strategic investment funds are a necessary part of expanding the “new economy” in sectors where we currently have limited, if any. capacity. But subsidies make little sense if new technologies and processes can be readily acquired by foreign investors as is the case under NAFTA rules. The dream of most Canadian tech start ups and venture capital funds is to scale up to the level needed to profitably sell out to dominant corporations or private equity funds usually located in the United States.

An alternative economic strategy would centre upon public investment funds with a mandate to build long-term Canadian capacities and to create new jobs. We might also use new crown corporations to develop new capacities. The space for creating such vehicles is currently constrained by the NAFTA rules on “expropriation.”

After NAFTA we would likely lose access to the United States public procurement market, but would be able to attach Buy Canadian requirements to major public investment projects and to ongoing government purchases of goods and services. Priorities should include developing much stronger Canadian clean tech and renewable energy capacity as an integral part of our climate change strategies, and levering health care system purchasing to build Canadian capacity in areas like medical equipment and bio technologies.

In the auto industry and other sectors in which the Canadian and United States economies are deeply integrated, we might be able to return to managed trade agreements that counter the ongoing shift of market share and jobs from both the United States and Canada to Mexico and to Asia.

Irrespective of the outcome of the current NAFTA talks, we should no longer have to fear foreign corporations suing Canadian governments for enacting public interest regulation in areas such as the environment, as they can now do under Chapter 11. The left and labour should push for the end of investor state dispute settlement in all trade and investment deals, and for clear rules to permit regulation in the public interest and on the basis of precautionary principles. There must also be clear recognition of the right to deliver public services through the public sector and to regulate cultural industries. These are all areas where the Liberal “progressive trade agenda” falls well short, as shown by the CETA agreement with the European Union which generally mirrors the NAFTA rules.

While WTO rules are somewhat less constraining than those of NAFTA, the left, both globally and nationally, should be pushing for fundamental reforms to the global trade and investment regime, as well as to the global financial architecture which works against balanced trade and underpins national policies of competitive austerity to gain global market share.

In principle, pressure on wages and living standards in the advanced industrial countries should be offset by rising wages and growing markets in developing countries. This is true to a point, but wages have risen much less rapidly than productivity and profits in major exporters to Canada such as China and Mexico.

While developing countries should not be forced to raise wages, they should be obliged to respect basic labour rights such as the freedom of workers to form unions and to bargain collectively as set  out in international human rights conventions. Trade sanctions should be applied to countries which fail to comply with the rules, as determined by the International Labour Organization (ILO).

The end of NAFTA would not be a disaster. And would open up a space for alternative economic policies. Development of a new trade agenda should certainly be on the agenda of labour and the left.

 

Andrew Jackson is the former Chief Economist of the Canadian Labour Congress, and is currently Senior Policy Adviser to the Broadbent Institute. This article was published in the Spring, 2018 issue of Canadian Dimension magazine.