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Simple Question: Has NAFTA Really Been Good for Canada? Has it been everything that we had hoped for in a free trade agreement? Or has it discouraged our once vehement attitudes towards open markets and laissez-faire economics?

I’ll present my view on this first, then feel free to tell me what you think:

Firstly and most importantly, NAFTA has provided direct economic benefits to the Canadian economy. This is evident through the analysis of statistics dating back to the inception of NAFTA and up to our present-day economic situation.

Upon coming into effect, Canadian exports to the United States rose from $112 billion to $151 billion, an increase of 18% between the years 1993 and 1994 alone. Canadian exports to Mexico rose from $656 to $825 million, an increase of 24% over the same period. In 1999, Canada’s trade accounted for $484 billion of the $752 billion trade surplus between itself, Mexico and the United States; Canada’s share of exports to the U.S. increased from 80.8% to 84.3 % between the years 1993 – 1999. These figures demonstrate that Canadian goods are in high demand in both the U.S. and Mexico, thus it is rational for Canada to continue to utilize their position of leverage in the agreement. In the past fiscal year, Canada’s total trade with NAFTA partners totaled $570.8 billion. This number would be higher if the economic recession that continues to place a stranglehold on the United States economy had not materialized.

For Canadian public policy, NAFTA represented an affirmation of the FTA already in place between itself and the United States that went into effect on January 1, 1989. NAFTA has been good for Canada based on the agreement’s successful extension of “the principles and mechanisms” of the 1988 FTA. The fact that the FTA framework was granting both Canada and the U.S. considerable economic boons served to justify the incorporation of Mexico into the agreement in 1993. The new agreement did not extensively revise any of the provisions that the Canadian and American governments had previously agreed upon. However, NAFTA continues to ensure our strong ties with the regional hegemon. NAFTA was passed to put pressure on our economy, to increase our productivity, and to establish a dispute settlement mechanism that would not leave us open to bullying from U.S. trade remedies.

Through the successful implementation of NAFTA, Canada has been asserted as a global front-runner in the realm of economic integration and trade liberalization. As such, NAFTA has been good for Canada in its ability to perpetuate a powerful image of the nation. The framework of NAFTA has the potential to be transferred and reiterated to serve as a wider free-trade association in regions around the world. For Canada, the agreement is a powerful tool in dealing with the rest of the world; those countries unwilling to move towards liberalization risk being left behind in the “wake of dynamic regionalism.” NAFTA has kept Canadians ahead of the curve in terms of socio-economic development and has sufficiently liberalized our foreign economic policy. The opportunities for similar liberalization in other regions of the world will materialize if agreements similar to NAFTA are reached. If this does not occur, then many countries face the reality of being shutout from the global trade market.

Skeptics of this claim may argue that Canada’s role in NAFTA is grossly subordinate to that of the United States’. The explanation is that since the United States has a more powerful position, both globally and regionally, than Canada, it is difficult to imagine how Canada is a frontrunner at all under NAFTA. If the country with the largest economy in the world and the greatest ability to influence the foreign affairs of all other countries is the key driver behind NAFTA, where does that leave Canada? A suitable reply to this counterargument is to consider the fact that the United States’ current economic recession would be far deeper if it were not for Canada’s pledge under NAFTA to remove tariffs on all goods originating in Canada.

Petroleum products serve as an example. Where does the United States get the majority of its petroleum products? It is in fact from Canada. The United States imported roughly 2.25 million barrels of crude oil and petro products from Canada per day in the year 2008. This is significant given the incalculable amount of tax that could have been placed on each barrel crossing the border. Without this oil however, the U.S. industrial sector would not be able to function at full capacity, the agricultural sector would become less productive, and manufacturing and retail industries would find it both difficult and expensive to transport goods from locations around the country. Canada has provided the U.S. with a leveraged position with regard to its oil exports. This in turn asserts Canada as a significant economic force powerful within the framework of NAFTA.

NAFTA has been a positive arrangement for Canada. The benefits resulting from NAFTA have been substantial in contributing to Canada’s economic well-being. The winners in this regard are businesses that have increased their untaxed exports to Mexico and the U.S., but also consumers due to greater choice over goods in North American markets. Since NAFTA was a re-affirmation of the established FTA between Canada and the U.S. with the addition of including Mexico, its use until this day solidifies the excellent Canada-U.S. relationship, without making Canada susceptible to “bullying” under the regulatory framework of the agreement. Finally, the participation and significance of keeping Canada in the agreement portrays it to other nations as regionally powerful, economically advanced, and a model of successful global trade liberalization.

Thoughts?

- Christopher Yeretsian