Monday, November 06, 2006

Some Evaluations on NAFTA and Free Trade

For all those nay-sayers about NAFTA and free trade, here you go!!

Posted AT 2:00 AM EST ON 06/11/06
Free trade a boon to Canada, study concludes

From Monday's Globe and Mail

Canada's economy has flourished under the North American free-trade agreement, and with the right policy moves, could repeat that experience as it deals with the trade shock from Asia, a new study suggests.

In a paper to be released this week, Royal Bank of Canada examines a wide range of data showing Canada's economic performance before and after free trade with the rest of North America.

"Canadians have prospered," conclude economists Craig Wright and Derek Holt.

"Few countries have provided as shining an example of how to adapt and prosper in a post-freer trade world than Canada."

Before Canada signed on to the Canada-U.S. free-trade agreement in 1988 and the North American free-trade agreement in 1993, critics charged that Canadian production would move south, exports would evaporate, jobs would dry up, foreign investment in Canada would deteriorate, the tax base would shrink, and the restructuring would force the country into a painful and long-term funk.

The adjustment was not without pain, but the end result, after 18 years of free trade, has made the criticisms look frivolous, the paper argues. The paper, provided to The Globe and Mail, is to be presented at the Canadian American Business Council's annual forum on competitiveness this week.

Exports have soared and foreign direct investment in Canada has risen substantially. Government coffers are full to overflowing, and Canada's fiscal situation is the envy of many a rich country. And while many of Canada's top companies have been bought by foreigners, often American, Canadian companies have been just as busy buying up U.S. firms, the study says.

Still, public opinion is not completely onside, and many trade experts and politicians alike have raised questions about the value of NAFTA in light of Canada's failure to prevail over the United States in the costly softwood lumber dispute.

As well, wage growth has been disappointing, and Canada's record on productivity has been lacklustre since the agreements came into effect. But those problems predate North American free trade, and were well entrenched in Canada in the 1980s, Mr. Holt argues.

Over all, the initial adjustment to the FTA and NAFTA was painful at first, but successful after a few years of restructuring, he says. And Canada can hope for a repeat of that experience as it deals with intense trade competition from China and India, as long as it takes some key steps to ensure a strong footing.

With adjustment to NAFTA under Canada's belt, the economy is in the midst of yet another major transition, this time dealing with the rise of Asia — now a major source of goods and services of every kind.

The resulting global restructuring has taken a steep toll in Canada. As of June, 2006, Canada's exports of goods and services compared with a year earlier had grown by only 2.4 per cent — well below the industrialized countries' average of 9.6 per cent, and paling in comparison with its NAFTA trading partners. Mexico's exports of goods and services grew by 13.2 per cent over the year, and U.S. exports jumped 8.2 per cent.

Canada's manufacturing sector, which makes up about 17 per cent of the country's economy, has taken a beating in the last two years. Global competition, high energy prices and the rising Canadian dollar have worked together to force a major restructuring in the sector. Growth is anemic, and tens of thousands of factory workers have lost their jobs.

"Notwithstanding the accomplishments of the Canadian economy, policy makers cannot afford to be complacent in feeling that they have handed businesses all they need in order to drive a freer-trade prosperity agenda," the bank economists say.

They suggest:

--Reducing taxes on businesses and capital so that they don't act as a disincentive to investment.

--Improving government-to-government programs to make cross-border trade more efficient.

--Upgrading infrastructure so the flow of goods and services is not hampered.

--Becoming more active in furthering trade liberalization, both internally and globally through the World Trade Organization.

--Better integration of immigrants to alleviate skilled labour shortages.

--Working toward a common understanding on protection of intellectual property rights, both with the United States and globally.

© Copyright 2006 Bell Globemedia Publishing Inc. All Rights Reserved.


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