[This article was written in January 1993, before NAFTA was passed on the Canadian Parliament. - Ian]
Bananas should be grown where it is hot, computers and cameras made where workers are skilled, wheat grown where there's good soil, and economics should be learned everywhere! As we move closer to a North American Free Trade Agreement (NAFTA) between Canada, Mexico, and the United States, it becomes increasingly important for us to understand how free trade will affect us, and to address the prevalent concerns.
When many Canadians look at NAFTA (in particular, free trade with Mexico), they see declining wages, less jobs, and a worsening economy. However, this perception may be very different from the economic reality. If present economic trends are any indication, free trade will increase Canada's exports to Mexico and the US., create more jobs, and stimulate foreign investment in Canada.
The popular argument against Canadian participation in NAFTA is based on a few misconceptions, and is ironic in its lack of recognition of certain economic realities. Ultimate among these ironies is that Mexico is already enjoying one-way free trade with Canada. Because of Mexico's status as a developing nation, almost 80% of its exports to Canada have entered without any restriction, while Canadian exports have had a difficult time entering Mexico. NAFTA will remove this imbalance and open the way for further Canadian exports to Mexico.
Still, recent polls have indicated that 64 percent of Canadians oppose NAFTA, and the 2.3 million members of the Canadian Labour Congress are against any free trade with Mexico or the United States, citing that lower wage rates in both countries will destroy jobs in Canada. However, wages alone do not determine competitiveness. They are only one, sometimes relatively small, factor in the cost of production and the decision of where to locate a business. If low wages were the only factor in the production equation, then comparatively high wage countries such as Japan, Germany, and Canada would not rank among the world's top nations.
Trading with developing nations does not mean that Canada will, in the end, lose sales or jobs, or that it will be forced to adapt their lower standards. As Canada has increased its trade with countries in Latin America and Asia, Canadian working conditions have not worsened; instead, better safety and environmental standards have continued to be implemented. Certainly, some Canadian companies have moved their operations to Mexico. This will happen regardless of Canada's participation in NAFTA. However, Canadian exports to Mexico have almost have almost doubled in the last year and export activity continues to grow.
Few would have imagined that Mexico, which was long considered just another Latin American economic burden, would emerge into a powerful consuming nation. Growing per capita income, an increasing demand for imported consumer goods, and a need for services, capital and technology have stimulated a steady growth in demand. In the past four years, Mexican trade with the US. has tripled to over $60 billion (US.). With Canada's involvement in NAFTA, its proximity to Mexico, and its excellent relations with Mexico, it stands poised to benefit significantly. By the end of 1992, Canada will already have exported approximately $850 million in goods to Mexico, up from $543 million in 1991.
Since the main purpose of NAFTA negotiations was to incorporate Mexico into a free trade environment, it is Mexico that will have to make the most significant concessions and the most extensive changes in its laws and practices. The agreement, which is slated to take effect on January 1, 1994, will set the timetable for increased US. and Canadian access to Mexican markets. Tariff reductions will either be immediate (in the case of many of Canada's key export interests, including fish items, some grains, telecommunications equipment, medical equipment, and agricultural machinery), or phased out in equal annual cuts over five or ten years. Canadian tariffs on key import-sensitive sectors, such as apparel, footwear, toys, and other miscellaneous articles, will be phased out over ten years.
The debate in Canada over NAFTA was almost academic. By the time Canada decided to participate in the negotiations, both Mexico and the United States were well into their negotiations and were hesitant to further complicate these difficult negotiations with another participant. Only with Canada's insistence, citing its desire to protect its own free trade agreement with the US. and to increase access to growing Mexican markets, was it included in these negotiations.
The acceptance of NAFTA is by no means an absolute certainty, still requiring the ratification of US. Congress, Canadian Parliament, and the Mexican Senate. But the fact that this process has taken place, signals that Mexico has evolved into a powerful trading partner, with whom Canada can enjoy mutual trade benefits.
