Heeding the Times from Harry Antonides' Desk

NAFTA: A Conflict of Ideologies

June 1, 1993 -

The opposing arguments about the North American Free Trade Agreement (NAFTA—including Canada, the U.S., and Mexico, with a total population of 360 million) are mainly a rehash of the 1989 Free Trade Agreement (FTA) debates.

Proponents favour open borders as a means to enhance economic activity and general welfare. Protectionism is seen as a brake on economic development and an obstacle to the spread of prosperity. The General Agreement on Tariffs and Trade (GATT), established in 1948, has been instrumental in dismantling trade barriers, benefitting many countries. NAFTA is a regional free trade agreement that, in effect, is a speeded-up version of GATT.

Opponents of NAFTA believe that it is part of the corporate agenda and will do untold damage to workers and the economy. For example, Joy Langan, NDP Member of Parliament, believes that NAFTA will be a disaster for working Canadians. She writes:

It is more than a simple trade deal. It is part of the Tory corporate economic agenda—that began with the Canada-U.S. trade deal—and will result in Canadians forever being the "hewers of wood and drawers of water" in North America. The North American proposal guarantees the Americans a combination of Canadian raw resources and cheap Mexican labour. Canada-U.S. free trade has been disastrous for Canadian workers; NAFTA will be worse. (CLC Today, November/December 1992) 

A country in transition

So far, Canada-Mexico trade has been quite modest, to the tune of some $3.5 billion in two-way trade in 1992, as compared to U.S. $62 billion in U.S.-Mexico trade. But the potential for growth is very large if Mexico continues to move ahead with reforms designed to encourage large-scale economic development.

Mexican interest in NAFTA is directly related to its determined attempt to change from a closed, inward-looking set of policies to one that is liberal (in the sense of a free economy) and international-oriented. The Mexican demography provides an important incentive for this change in policy. Of its 85 million people, 40 per cent are below 15 years of age, almost double the American and Canadian percentage. The pressure to provide education and jobs for such large numbers is immense. But Mexican determination to change direction has to do with a complex of additional factors.

Until the early 1980s, the economic resources of Mexico were largely wasted and misappropriated through an entrenched system of corrupt party politics and nepotism. Tariff barriers were high, and all major sectors of the economy were state-owned. The massive oil revenues helped to keep this system in place, but with the decline of energy prices in the 1980s, inflation and the national debt rose to unsustainable levels. There was a tremendous outflow of capital to Switzerland and other safe havens.

In 1982, Carlos Salinas the Gortari became Secretary of Economic and Social Policy. A new crop of politicians, many of them educated outside the country, realized that Mexico was doomed to remain an impoverished and ill-governed nation unless it faced up to the demands of the modern world. These new leaders set in motion a set of far-reaching reforms with the intent to free the economy from state control and open the windows to the outside world. Large chunks of state-owned sectors were sold off; Mexico began to open its borders to outside investors, and became a signatory of GATT in 1986. Inflation was brought under control and the national debt was rescheduled. Salinas became President in 1988 and under his leadership a new kind of social contract between government, business, and labour (Pact For Stability and Economic Growth) was hammered out. The government has paid priority attention to the reform of education and, through its Capital Sohdarity program, has begun to provide such vital necessities as running water and electricity to millions of poor Mexicans.

To evaluate NAFTA, it is important to keep in mind the political, economic, and social reforms that are now underway in Mexico, although no one, certainly no outsider, can predict with certainty the outcome of this process. But increased interaction with other countries and economic development in Mexico can be a powerful stimulus to bring about much-needed reforms.

Free versus "managed" trade

The dispute about NAFTA in Canada is coloured by an ideological conflict between those who favour free trade as a means to the spreading of economic wealth versus those who call for "managed" trade. This has pitted business and the federal government against a vocal alliance of opposition parties, mainline trade unions, and social action groups (including some church spokespersons). Their opposition hinges on at least three main arguments:

  1. NAFTA is part of the corporate agenda in favour of the rich at the expense of Canadian workers and the poor, especially because it wiU undermine, if not destroy, the highly valued system of Canada's social safety net.
  2. Mexico's much lower wage levels are a threat to our competitiveness and win cause many jobs to be transferred from Canada to Mexico.
  3. Mexico is a corrupt and oppressive political regime characterized by the exploitation of workers, the pollution of the environment, and massive human rights violations, making it an unworthy trading partner. 

On the other hand, proponents of NAFTA counter with the following:

  1. NAFTA is a complex agreement in line with a worldwide trend toward open borders. It is intended to establish a fair system of rules, complete the dismantling of tariff and other trade barriers, and settle disputes among the three countries. The elimination of protectionist measures are beneficial to all parties, a position that is in keeping with the intent of the GATT. The proper function of the state is to facilitate free trade, but it must leave much of the day-to-day decisions in the economic sphere to others.
  2. Wage costs are not the only, nor even the most important component of production costs. Other factors include workers' skills (and reliability), the cost of financing, and the state of the legal, transportation, and communication infrastructures, all of which determine the level of productivity. In all these areas, Canada enjoys many advantages, and we should become adept at exploiting them.
  3. Mexico is in a crucial state of transition. And while no one can accurately predict where the current reforms will lead, one thing is certain, Mexican society will not remain static. Either it will stagnate and spiral down into more political and economic chaos, in which case it will not constitute any kind of competitive threat to Canada, or it will succeed in its efforts toward economic reforms, pohtical democracy, and social justice, thereby raising wages and living standards. The big question is, what policy on our part will help Mexico move towards a more desirable and just future. 

The real enemy

David Crane, economics columnist for The Toronto Star and a strong opponent of the 1989 FTA, has written more positively about NAFTA. In his March 20, 1993 column, he observed that punishing Mexican shortcomings will only serve to slow down the necessary modernization that Mexico sorely needs.

In approaching these issues, though, we have to recognize that people from other societies and traditions have just the same aspirations we do for a better life, and construct our trade and other agreements to help them make progress. We are not morally superior. Moreover, progress is much less likely if these countries are punished and denied the opportunity to raise then-standard of living because they don't immediately meet our standards. 

It is difficult for most of us to understand all the ramifications and pros and cons of NAFTA. But we do well to remember that the strongest opposition to NAFTA is inspired by the ideology of the interventionist state. Socialists are quite consistent in opposing NAFTA.

My own view is that NAFTA will be mutually beneficial, if we exploit its opportunities wisely. Protectionist pohcies are not in the true interest of nations, companies, and workers because they distort reality and foster a lack of competitiveness and productivity.

Since Canada relies heavily on trade, our jobs and prosperity depend on how well we respond to the opportunities provided by open borders. No doubt, there will be adjustments required in joining a large international trading arrangement such as NAFTA. In this area, the government has a legitimate role to play in assisting with (re)training and relocating displaced workers, rather than leaving them to fall back on the unemployment and welfare rolls.

No one can guarantee that NAFTA will be a success, but it challenges us to be imaginative and forward-looking. Our biggest threat is not free trade with Mexico or the United States but our own attitudes. For example, we still have not succeeded in dismantling a host of absurd and costly interprovincial trade barriers, and our labour relations are still marked by conflict and adver-sarialism. Eliminating these barriers and adopting a cooperative approach to the way we deal with each other, rather than nurturing our animosities, will go a long way in improving our ability to compete globally.

While the outcome of discussions in the U.S. Congress as well as the fall election in Canada are now casting a cloud of uncertainty over NAFTA's implementation, debates about trade policies and agreements are sure to continue to occupy a prominent and controversial place in Canadian politics. For one thing, Canada is heavily dependent on foreign markets. For another, our politics are increasingly fractious and driven by partisan conflicts. But the often vitriolic arguments surrounding NAFTA are not so much about the details of trade—although they are important in their own right—but more about our own sense of nationhood and our ability to live together in a civilized manner in a world where distances are shrinking and borders disappearing.

This article originally appeared in Comment magazine, a journal founded by Harry Antonides. Find all of Harry’s pieces, and thousands more, at http://www.cardus.ca/comment