Volume 38, Number 2: March/April 2004

NAFTA At Ten

Nothing to celebrate

It’s a good time to “do the sums” on NAFTA. But don’t stop for long. Despite clear victories in Cancun and Miami for popular movements and for Venezuela and Brazil and other countries with progressive leadership, the juggernaut extending corporate and United States interests, whether through bilateral, regional or global negotiations – or under the table with economic and political leverage – goes on apace. And, in Canada, corporate leadership, the “think-tanks” and lobbyists they employ, and the politicians who carry their freight have been pumping out speeches, papers and proposals for their “big idea”: ever deeper integration. As the CLC’s economist Andrew Jackson has noted, “the big idea is a bad idea.” But as our recent experience with a war of aggression has demonstrated, its being a bad idea doesn’t prevent it being implemented.

It is time to reflect on the “lessons of NAFTA”, but at the same time apply those lessons. In areas like investor “rights” and protection of corporate intellectual property, the corporate agenda is moving forward in every bilateral and regional negotiation. Those who want to construct a NAFTA-plus in the form of a hemispheric trade and investment agreement are pushing forward directly and along the side streets. It’s time to call a halt. The urgency of public debate in Canada – not least in the coming election – and of developing a strategy to re-assert democratic public sovereignty was hardly ever greater.

In evaluating our situation after fifteen years of “free trade” and ten of NAFTA, it is not necessarily easy to ascribe blame or benefit to this or that agreement. The agreements have surely had a significant effect, but so have policies that maintained a low-valued Canadian dollar for much of the period, tough monetary policy, dismantling investment regulation, enormous cuts in many governmental social expenditures and continuing trade disputes.

Doing The “Sums” on NAFTA

Advocates of NAFTA will quickly refer to the enormous growth in trade. Between 1985 and 2002 bilateral U.S.-Canada trade grew from U.S. $116 billion to $420 billion. Between 1989 and 2002 Canadian exports rose by 221 percent while imports went up by 162 percent. On the other hand, government studies credit NAFTA with only nine percent of the growth in Canadian exports and two percent of the growth in imports from the U.S.

Per capita growth during the period between 1989-2002 was 1.6 percent a year for Canadians. In the eight years before “free trade” it had averaged 1.9 per cent per year.

There were productivity gains in all three NAFTA countries. Between 1993 and June 2002 Canadian output per hour went up 14.52 per cent, compared with almost 52 per cent in the U.S. and 53 per cent in Mexico. Labour costs fell in all three countries. Productivity gains benefited the employers but were not passed on to workers. Canada’s productivity gap with the U.S. widened, meaning that the increase in the relative value of the Canadian dollar in recent months threatens what Canadian advantages remain.

Investment picked up in Canada under NAFTA, with CDN $102 billion in U.S. foreign direct investment (FDI) arriving between 1996 and 2002. However in the same period there were more than 10,000 takeovers of Canadian firms. Of all new FDI in the period 96.6 per cent was for takeovers, many of them financed through borrowing in Canada. There was a significant increase in Canadian investment in the United States, but with much less dramatic impact. As Mel Hurtig has pointed out there is not a single industry in the U.S. that is majority foreign-owned.

Job creation was one of the big promises of NAFTA’s advocates, but unemployment in Canada averaged 8.6 per cent between 1995 and 2001. During the first thirteen years of the FTA and NAFTA Canada created less than half as many full-time jobs as during the previous thirteen years. Numbers don’t tell the whole tale, as increased pressure on workers from the threat of transfer of production, actual transfers of jobs and government-encouraged “flexibilization” all press against negotiated gains for unions.

Meanwhile, while a cross-section of 39 corporate members of the Canadian Council of Chief Executives reduced their workforce by more than 100,000 jobs (14.5 percent), their revenues increased by $144 billion (105 percent). (Straight Talk, CCPA, Dec., 2003)

Proponents of the bilateral FTA and of NAFTA held out the vision of Elysian fields of exchange, free of unilateral U.S. trade action forever. The objective, however attractive, was an illusion. The U.S. Congress (and the administration) were never likely to give up their right to legislate and apply measures protective of U.S. interest when the political winds decree, whether it’s lumber, livestock, magazine or movies that are in question. But advocates of “deep integration” in Canada are at it again, promising the unpromisable and offering up various sectors of Canadian policy independence at the altar of illusion.

Opponents of NAFTA argued that it would continue the process of reshaping Canadian legislation and regulation resulting from the Canada-U.S. FTA. Human rights, the ability of governments to direct and condition investment and undertake regional or sectoral development strategies, the possibility of adopting resource policies different from those in the United States would all be ruled out or marginalized. Those who seek counters of NAFTA and WTO implementation in Canada’s other international obligations in human rights, labour protection or environmental treaties confront a government whose Privy Council directs civil servants to regulate in accordance with the investment and trade regimes and omits reference to all the other obligations.

Debate continues on whether such limitations originate in NAFTA or in self-limiting objectives on the part of politicians and parties. Nevertheless the result has been significant impact on democratic possibility, on policy space, options and alternatives. Further, as Stephen Clarkson’s comprehensive study Uncle Sam and Us documents, NAFTA and successive investment and trade agreements are, in fact, a new super-constitution with distorting and invasive effects on our own.

The Infamous Chapter 11

The “investor-state” provision of NAFTA’s Chapter 11 was innovative, allowing companies to bypass governments and court systems and sue for injury due to ‘indirect’ expropriation – harm to the present or expected interests – due to government regulation. As University of Victoria Law professor Chris Tollefson has pointed out, NAFTA vests “in essentially unaccountable tribunals the authority to constitute themselves as courts of appeal with powers to adjudicate key domestic legal issues.” In the recent suit of the Metalclad Corp against a Mexican municipality, “the Tribunal decided … that municipal governments have no right to insist that foreign investors address local environmental and public health concerns, even though this conclusion was strenuously disputed by the Mexican government.” (Choices, IRPP, March, 2003)

In Lessons from NAFTA, we map twenty-seven cases filed under Chapter 11. These touch on environmental, health, ethical and jurisdictional issues, gasoline additives and softwood lumber. One current case – initiated by United Parcel Service (UPS) against Canada Post – challenges both a public monopoly and Canadian competition policy in a sector of public services. The potential for a “chill” effect from Chapter 11 is already clear.

Canadian governments have to consider the possibility of suits by foreign corporations, when the consider legislative projects for reform – such as extension of public auto insurance in provinces with privately owned systems. William Greider, in the Nation magazine, quotes a Canadian official, “I’ve seen the letters from the New York and DC law firms coming up to the Canadian government on virtually every new environmental regulation and proposition for the last five years. They involved dry-cleaning chemicals, pharmaceuticals, pesticides, patent law. Virtually all of the new initiatives were targeted and most of them never saw the light of day.”

Stephen Clarkson makes clear the constitutional impact of Chapter 11 on Canada. The first major case, the notorious suit of the Ethyl Corporation over the banning – on the grounds that it was a neurotoxin – of the gasoline additive MMT, settled out of court by Canada with a USD $13 million payment and an apology, assaulted Canadian health and environmental governance. It revealed, Clarkson finds, “how Canadian environmental policy, once thought to be the purview of the sovereign legislature, has been taken hostage by continental governance. Under the superconstitutional aegis of Chapter 11, the issue is no longer the classic Canadian question of which government – federal or provincial – can initiate an environmental regulation. The issue now has become whether any government could initiate such legislation if it jeopardizes the interests of a foreign company.” The polluters, he notes, end up “being paid to keep on polluting.”

The objective of extending the privileges and protections of foreign investors continues high on the hit list of corporate executives. As is documented in Lessons from NAFTA, U.S. corporations have been trying for several years to get NAFTA-plus in terms of expanding the “definition of expropriation to cover any government action or regulation that might “diminish the value of investor’s assets.” Canada has pledged to oppose such a provision in the FTAA, but there is little evidence of building or joining a coalition of opposition that might have a chance of success.

Clarkson advocates challenging the constitutionality in Canada of the supra-constitutional rights granted foreign investors by Chapter 11. “The court,” he states, “could help remove a dagger stuck in the ribs of the Canadian state” by declaring investor-state incompatible with the Charter of Rights. Such a suit is in preparation. Meanwhile, those like the Canadian Union of Postal Workers, who are challenging specific investor-state interventions are a front line of defence.

A TRIPS-plus world

The Americas are world leaders in increasing protection for corporate ownership of intellectual property, patents and copyrights, seeds, songs and your very own genes. Any American who has boarded a bus for Winnipeg or Montreal to hoard prescription drugs should know what it’s all about.

Millions of HIV/AIDS sufferers world-wide who’ve had to wait years while negotiators, trade lawyers and corporate lobbyists found ever more artful ways of avoiding the right to health know it’s a life and death matter. The Supreme Court, having deflected attempts to patent life forms (the “Harvard Mouse), now confronts Monsanto’s squeeze on farmer Percy Schmeiser.

While the WTO hiccupped in Cancun and the FTAA negotiators quit early in Miami, the pressure to extend the comprehensive protection for Big Pharma continues not only in those forums but also in bilateral and regional negotiations. NAFTA (Chapter XVII) extended the range, depth and enforcement measures of the WTO’s agreement on Trade Related Intellectual Property (TRIPS) and the current Central American FTA (CAFTA) goes even further. The proposed FTAA (at least the draft that the public can access) includes more restrictive legal interpretations and huge new areas of corporate protection, David Vivas-Eugui, points out in a new Quaker-supported study of the issue.

These policies may be more difficult to negotiate directly with countries like Brazil in an FTAA, but small countries have little leverage, and thus the U.S. Trade Representative (USTR) can threaten or bribe acceptance and build pressure on others that might resist. The Dominican Republic, due to such pressures, had to sign on to the CAFTA, despite not having participated in the negotiations, to considerable injury of its national interest in such areas as public health.

And Canada? Our ability to sustain our pricing differential with the U.S. in pharma, our potential to use compulsory licensing of generics for domestic use or export, the chance of controlling the costs of drugs used by an aging population, the prospect of pharmacare are all threatened by these negotiations. Whose interests are Canadian negotiators taking behind those firmly closed negotiation room doors?

Noting that the pressure for ever increasing rights and protections for the big firms never ceases, Vivas-Eugui suggests that an increasing number of countries think it’s time for a moratorium on further negotiations.

Options

We are currently faced with the attempted juggernaut to a NAFTA-plus on a hemispheric basis in the proposed Free Trade Area of the Americas, for which negotiations continue as we write. The impact of a newly confident Brazil with allies in Caracas and Buenos Aires has slowed and shifted the pace and direction, with the U.S. attempting to divide and co-opt with bilateral agreements, and others arguing for NAFTA “lite” or some related concoction. These are matters too dynamic and complex to be examined in this short article. But the fight against the FTAA project has stimulated an alliance of labour and social groups that stretches from Patagonia to northern Canada. Allied in the Hemispheric Social Alliance, this collaboration seeks to challenge the negotiators when they meet and back home, analyzes and critiques proposals and seeks to publicize the “lessons” of NAFTA. It’s Canadian counterparts, Common Frontiers and the RQIC (Quebec network on continental integration) have been working since NAFTA’s conception to the same end.

Meanwhile, we are living with NAFTA, and with pressures to deepen or broaden it. We live with a regime that limits and deforms our constitution and with it our democratic options, without replacing them with accountable democratic institutions at a continental level. Continuation of the current regime cannot help but engender more and more distorted development. What options or alternatives do we have?

Continentally we need to push back – to offset the “trade/investment über alles” approach, with pressure for strong human rights, labour and environmental guarantees, and an alliance of social movements that will give them force. Domestically, we could consider CCPA Director Bruce Campbell’s “modest proposal” to reclaim Canadian sovereignty. In the long run, he suggests a democratized and renegotiated continental agreement might be conceivable, but not right now. The abrogation of NAFTA might not be economically as disruptive as one might think, but it would cause intense political ructions. Instead let’s evaluate the FTA and NAFTA, face on, and adopt a strategy of “small steps” that add up to a coherent vision of reclaimed democratic sovereignty.

Trade (and investment, we might add) are means, not ends. Survival in a competitive world requires public investment and reduced inequality. A constitutional challenge to the investor-state mechanism in Chapter 11 might be a good place to start. Campbell suggests: rebuilt environmental regulation, an anti-trust approach to cancerous corporate growth, active public management of the economy, maintaining policy tools for government procurement and restoring regulation of foreign investment, recuperating public health care and other services. These domestic measures should be combined with an approach to U.S. relations that asserts the priority of human rights and environmental guarantees over trade accords, and that develops sectoral agreements which take culture, health, agriculture, etc., out of the WTO and NAFTA.

Canadian pollsters have documented that the foundations of unique shared social values, in fact, have strengthened in the face of integrationist pressures from the imperial power and culture. Current Canadian excitement over initiatives like same-sex marriage or the decriminalization of certain popular pastimes coincide with international breakthroughs like the International Criminal Court, the Land-mines Treaty and the proposed new international agreements to protect cultural diversity and control tobacco. This sort of creativity might be wed with a pent-up capacity to experiment in developing a green economy with social and gender justice.

Rather than descending into pessimism and impotence or allowing ourselves to be “fooled” once again by the deep integrationists, we could, in line with Campbell’s approach, fight hard in politics, the culture and the streets, to implement in his words “a coherent vision of reclaiming national policy freedom and flexibility for the purpose of improving the social and economic well-being” of Canadians.

John W. Foster contributed to Lessons from NAFTA, and was a founding member of Common Frontiers. He is the author of NAFTA at Seven, NAFTA at Eight and NAFTA at Ten, all published in The USA and Canada (2002, 2003, 2004)by Europa Publishers, London and New York. John is Principal Researcher, Civil Society and Governance, at The North-South Institute, Ottawa.

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