Why the rush to ink more deals?
Globe and Mail, Toronto
Why the rush to ink more deals?
Where free trade is concerned, Canada is getting worse with practice
By Jim Stanford
25 September 2006
When asked why he would risk his life to climb Mount Everest, the British mountaineer George Mallory gave the classic reply: "Because it is there."
When asked why they’re so anxious to sign new free-trade agreements, Canada’s trade bureaucrats have a similarly existential response: "Because we haven’t done one in a while."
They worry that Canada has bagged no such agreements since Costa Rica (in 2001) — the only major trading power not to ink a deal in that time. (Albania, meanwhile, has bagged eight free-trade agreements since 2001, no doubt ushering in a new era of imminent riches.) One imagines an army of frustrated trade negotiators hanging around, twiddling their thumbs like so many Maytag repairmen.
Extreme sports is one thing; economic policy is another. Typically you want a better reason than "it’s been a while," or "everyone else is doing it," before undertaking important and potentially damaging economic changes. And before we get too worried about being wallflowers at the free-trade dance, we should review the actual experience of the five agreements we have already signed.
Our first free-trade agreement (with the United States in 1989) has been studied to death. But the next four deals — with Mexico, Israel, Chile, and Costa Rica — have hardly been studied at all. They should be, because they indicate that, where free trade is concerned, Canada is getting worse with practice.
These agreements spur dramatic increases in trade volumes — on average by 200 per cent across the five deals, over their first 10 years. But in each of the later four deals, Canada’s imports grew far faster than our exports: by 275 per cent after 10 years, versus 86 per cent for our exports. Collectively, our deficit with those four countries worsened by $9-billion under free trade. Only with the U.S. did exports grow as fast as imports.
Even more incredible, under each deal (including the U.S. one), Canada’s market share in the imports of our trading partner actually declined. A free-trade agreement is supposed to provide preferential market access. Yet every time we’ve signed one, our market share has shrunk. Indeed, with the U.S. and Chile, that loss of import market share was worse than with many countries (like Korea) with whom we don’t have an agreement. If we want to expand our share of foreign imports, this is not the way to do it.
Our experience with Chile was the most bizarre. Canadian exports to Chile are lower, in dollars, than before our 1997 agreement. Meanwhile, Canada’s imports from Chile are up almost 400 per cent. A small trade surplus has been transformed into a billion-dollar deficit. What did Canada "win" from that deal, anyway? Powerful new investor rights in Chile, enjoyed by Canadian multinationals like Barrick Gold. Forgive me for not popping the champagne.
Now Ottawa is racing to seal a deal with South Korea. If trade with Korea then follows the same pattern as under our first five free-trade agreements, our imports will grow by 250 per cent in 10 years, our exports by 100 per cent, and our deficit with Korea will widen from $3-billion to $13-billion. That will destroy more than 33,000 jobs across a swath of Canadian industries — including 4,000 in the auto industry.
This is eerily reminiscent of our actual free-trade experience with Mexico. Our exports are up, but our imports are up much more. Our deficit with Mexico ballooned from $3-billion to $11-billion. In fact, we’d be lucky to do that well with Korea. Unlike Korea, at least with Mexico we have (weak) supply-chain links that benefit from Mexican growth. And Korea’s sophisticated technology and continuing interventionist policies will make it much harder to crack its markets. The trade officials have one thing right: We are badly missing out on Asia’s economic miracle, and must do something dramatic to offset existing trade imbalances. But the historical evidence is overwhelming that free-trade agreements make matters worse, not better. We need a much more complex, sophisticated, and far-reaching industrial strategy to address Asia’s competitive challenge — applying some of the same policy tools the Asians themselves have so successfully used.
As for Canada’s trade negotiators, they should just quit before they do any more damage. Then they all could go out and do something useful — like climbing mountains.
Jim Stanford, an economist with the Canadian Auto Workers union, is the author, with Daniel Poon, of Employment Implications of Trade Liberalization with East Asia, available at http://www.caw.ca.
