Thanks to some opportunistic electioneering in Ohio by the two Democratic hopefuls, Hillary Clinton and Barack Obama, Canadian interests – specifically, the North American free-trade agreement (NAFTA) – briefly became an item in the U.S. presidential campaign. While the campaign has moved on, the Canadian chattering classes remain fixated on the apparent threat to NAFTA, with many voices urging the government not to let the Americans bully us into reopening the agreement. As former officials involved in the negotiation first of the Canada-U.S. free-trade Agreement (FTA) and then of NAFTA, we are gratified to see such solicitude for these two treaties. On closer examination, however, there is both more and less to this story.
First the “less.” No, the Clinton-Obama political pandering poses no serious threat to NAFTA. Ohio is a vote-rich and union-rich state, two facts of life that make it almost axiomatic that Democratic politicians would rattle some sabres on trade. Ohio is also part of the U.S. rust belt that is undergoing some serious adjustments to changing economic conditions. Highly paid, unionized manufacturing jobs in that region have been declining since the 1970s. International trade contributes to this trend, though it has also fuelled the growth of high technology, financial services and other sectors in the U.S. Other factors, notably technological change, are more important causes of the rapid economic adjustments. Trade, however, is the politically easiest target. In the case of Ohio, it is not trade inside NAFTA, but trade with China and other low-cost suppliers that is burrowing into its manufacturing base. If anything, NAFTA has helped prolong auto-industry and other manufacturing jobs, by providing a more integrated North American trade and investment environment.
The evolution of the Ohio economy – and that of Michigan, Indiana, Illinois and other parts of the rust belt – is too complicated a story to be captured in the images and slogans that make up a political campaign. Politics is about simplifying complex problems and phenomena, and offering attractively packaged solutions. Claims that NAFTA is part of the problem and that it can be renegotiated to create a better balance fall easily from the mouths of candidates fighting for every delegate they can get.
But that prospect is not real, as Austan Goolsbee, Senator Obama's economic adviser, admitted in an unguarded moment to Canada's consul-general in Chicago. It is unreal for any number of reasons. First of all, the FTA/NAFTA regime is now approaching its third decade. Negotiations began in 1986, to respond to problems that had been recognized in the early 1980s. The FTA came into force in 1989, NAFTA in 1994. Both have now been fully implemented; all transitional arrangements have been exhausted. Opening up NAFTA would consequently be tantamount to going back to the 1980s. Too much adjustment and investment have taken place since then, in reliance on the agreement's rules. By targeting NAFTA, the two Democratic candidates are promising a better yesterday.
Senators Clinton and Obama insist their real concern has to do with the labour and environmental side agreements. Sen. Clinton seems to have conveniently forgotten that it was her husband and a Democratic Congress who insisted on these side agreements. They are integral parts of NAFTA and form part of the U.S. legislation that has implemented it. The environment pact has worked well, providing a spotlight on potential problems in the enforcement of domestic environmental laws. The labour pact has been less active, not because of its terms, but due to a lack of credible complaints. If the U.S. has serious proposals for updating these agreements, Canada should be prepared to look at them with an open mind.
So much for the less, what about the more? Is there anything Canadians should be worried about? Yes, there is.
IF THINGS GET UGLY
