Canadians should expect to hear a lot about free trade in the coming weeks and months leading up to the October 19 election. Canada may be on the cusp of signing onto one of the largest free trade agreements in history, the Trans-Pacific Partnership, which encompasses approximately 40% of global GDP. An expansive free trade agreement with India is also not far away. Throughout these debates, Canadians would do well to remember that free trade agreements create both winners and losers. Importantly, it is an exclusive club of the politically and economically powerful who write the provisions that will determine which party falls into what camp.
The arguments we are hearing in favour of free trade are the same that dominated the North American Free Trade Agreement (NAFTA) negotiations of the early 1990s. By removing prohibitive import tariffs on goods traded between Mexico, Canada and the United States, we were told, the economies on the continent could exploit the benefits of “comparative advantage”. That is, when countries specialize in the commodities they are comparatively more efficient at producing, it is argued, consumers pay less for finished goods, firms gain access to larger markets, and general economic growth results.
After the signing of NAFTA, for example, Canadian textile wares, which could be produced for less than their American counterparts, could be shipped into the United States without the imposition of an import fee. As a result, Americans paid less for Canadian textiles, and Canadian textile firms profited. American textile firms, of course, lost out on this deal, as their “less-efficient” industries failed to compete with the newly-introduced, lower price alternatives. Yet North Americans were told that after an adjustment period the economy would even out accordingly, and economic benefits would inevitably follow.
This evening out never happened, and many of the promises made to garner support for NAFTA— job creation, wage increases, economic growth— never materialized. Without import tariffs, US firms were free to outsource production to Mexico, where they capitalized on cheap labour and shipped the products back to the US for little to no charge. As a result, hundreds of thousands of manufacturing and low-skill jobs flowed out of the United States and headed south. These displaced American workers flooded the remaining low-skill services jobs, depressing wages and contributing to falling incomes among the lower and working class as a whole. Higher skilled (and typically higher paid) industries like the technological sector, however, were not opened up to foreign competition to the same extent, and generally benefitted from receiving greater market access.
Paradoxically, despite inheriting hundreds of thousands of manufacturing jobs from the US, low-income Mexicans suffered the most from NAFTA. Without import tariffs, government subsidized US corn could be shipped into Mexico and sold at competitive prices. The result was that imported American corn became less expensive than Mexican corn, benefitting American agri-business and dampening smaller-scale Mexican farmers. Some two million Mexican farmers were forced to leave their farms in the years following NAFTA. Many of them fled to the newly created maquiladora manufacturing workshops where US firms had exported their production, pushing down the already low wages for those jobs. Yet some Mexican industries, such as the telecommunications and television sectors, were excluded from the provisions of NAFTA, meaning once again that the higher-skilled workers and corporate classes were insulated from its effects.
There is, indeed, a trend here. In both cases, NAFTA’s net effect was to benefit the wealthy, disenfranchise the poor, and contribute to an increase in overall economic inequality. NAFTA proponents maintain that these deleterious effects were ultimately worth it in the interest of long run “macro” economic goals. Yet Mexico’s GDP growth per capita rate has averaged 1.2% since 1994, among the lowest of all Latin American countries, and its poverty rate has not decreased since 1994.
To understand these trends, it is worth focusing on the notoriously secretive and exclusive drafting process of the agreement, in which corporate actors exerted considerable influence over the proceedings. It is noteworthy that the finished agreement included provisions for the creation of “investor-state dispute settlement” (ISDS) tribunals in which corporations could directly sue governments if they felt that certain labour or environmental regulations impinged on their ability to do business, effectively nullifying any regulatory or reformative clauses included in the agreement. As of today, an estimated 365 million dollars has been paid out to corporations, with another 12.4 billion pending in such claims. Other actors, including non-governmental representatives, labour unions, environmental agencies, were absent from the proceedings.
This privileging of corporate interests is representative of the general power dynamic that has defined the era of global neoliberalism. In the World Trade Organization’s Doha Development Round of 2001, for example, representatives of Western corporations tried to impose harsh tariff-reduction terms on the countries of the global south, while largely refusing to adopt similar measures themselves. Ironically, it is the economic history of the United States that most clearly illustrates how protecting infant industries from foreign competition until they are internationally competitive can be a viable development strategy. However, the US used its international economic clout to deny this development path to the Global South, and force countries to accept an egregiously hypocritical agreement.
A similar dynamic exists among the various Structural Adjustment Programs imposed in Latin America and Africa in the 1980s and 1990s. These programs, which involved slashing public expenditure and social spending in order to ‘open up’ and liberalize markets, left scores of economic catastrophes in their wake. They too were negotiated primarily between top state actors and the Western corporate interests that make up the World Bank, IMF, and other international financial institutions.
Perhaps the issue worth focusing on, then, is not the specific economic impacts of freer global trade, but the international political and economic power structures that distribute these impacts in ways the exacerbate national and global inequality. Those who dismiss opponents of free trade agreements as fundamentally anti-trade, anti-commerce, or anti-globalization are therefore missing the point. Trade is a tool: a good as much as an evil, a boon as much as a bane, and the extent to which it is one or the other depends on who has the power to determine how it plays out. As has been shown, there is a remarkable pattern in who has wielded this power historically and, as a result, the world has witnessed 30 years of rising global economic inequality, both within states and among them, by even the most generous estimates.
This is not to say that free trade should be completely abandoned as an economic objective. Instead, it means that all those implicated in globalization deserve a voice in how it plays out. They do not deserve to be browbeaten and excluded because they are told that the issues are “too complicated to understand”, or because the global economy allegedly operates on a “no pain, no gain” logic.
It is telling that a prominent Zapatista leader, when asked about the reasons behind the 1994 anti-NAFTA uprising in Chiapas, remarked that it was above all so that “we would not die forgotten, so that people would hear our demands and not forget that in this corner of Mexico lived many indigenous people who have been abandoned for years.” There is good reason to fear that the negotiations surrounding the Trans-Pacific Partnership, the Canada-India Comprehensive Economic Partnership Agreement, and other free-trade negotiations currently on the table, will maintain this exclusive pattern. Those few people seated comfortably at the conference table will drastically alter the global economy with the stroke of a pen, taking solace in the fact that they are largely insulated from its effects, whereas the farmers, manufacturers, and low-income workers who could lose their entire livelihoods will be thousands of miles away.
Mark Weisbrot, “NAFTA: 20 years of regret for Mexico,” The Guardian, January 4, 2015.
Laura Carlsen, “Under NAFTA, Mexico Suffered, and the United States Felt Its Pain,” The New York Times, November 24, 2013. http://www.nytimes.com/roomfordebate/2013/11/24/what-weve-learned-from-nafta/under-nafta-mexico-suffered-and-the-united-states-felt-its-pain
“NAFTA’s 20 Year Legacy and the Fate of the Trans-Pacific Partnership,” Public Citizen , February 2014.
Robert Hunter Wade. "Is globalization reducing poverty and inequality?." World Development 32, no. 4 (2004): 567-589.