Sworn into office less than two weeks ago, President Trump has quickly disrupted the status quo. On January 23rd, for instance, he signed a Presidential Memorandum to withdraw the U.S. from the Trans-Pacific Partnership (TPP), a move that has received broad union support.
Trump now plans to renegotiate NAFTA to get a “much better deal for workers”. The White House states that it will withdraw from NAFTA if its partners (i.e. Canada and Mexico) do not renegotiate to the new president’s liking, saying:
If our partners refuse a renegotiation that gives American workers a fair deal, then the president will give notice of the United States' intent to withdraw from NAFTA.
The Experience of Canada-US Free Trade
Since 1988, under the CUFTA and later NAFTA, Canadians have seen a reduction in their standards of living and an assault on workers’ rights. When the Mulroney government signed the CUFTA, Canadians were promised the deal would increase jobs, improve economic growth, and generate better wages. The reality has fallen short of these promises. NAFTA ushered in a host of problems for Canadians, including: lost full-time jobs and a rise in precarious work; a reduction in real wages; and net (dis)investment in Canada.
In the free trade era of NAFTA, downward harmonization ruled the day, with business elites arguing that if Canada wants to be competitive, it had to make its social protections more in line with the general inferior levels in the U.S.
This led to a period of cuts to social protections under both the Conservative and Liberal governments. Such cuts targeted unemployment Insurance, Old Age Security, and federal transfers to the provinces for health and education. While the government was cutting this swath through social protections, real wages declined and corporate profits rose. The result was a growing problem with income and wealth inequality.
Now that Trump plans to renegotiate NAFTA, we may be looking at a back to the future scenario that could take us further down the path of downward harmonization. Interim Conservative leader, Rona Ambrose, has stated that Canada’s problem is the country “uncompetitive”. Ambrose blames Canadian non-competitiveness, in part on labour costs, saying: “If our taxes are higher, our labour costs are higher, our energy costs are higher... then there is no level playing field anymore and we'll lose.” These are chilling words that tacitly call for the downward harmonization that wrought the problems with NAFTA in the first place.
But the Liberals don’t have to accept Ambrose’s regressive vision of the renegotiations. There are two broad paths when renegotiating NAFTA. One path would be to accelerate the already failed strategy of downward harmonization. A second path, however, would be to renegotiate terms that protect workers, and bolsters the middle class.
Such renegotiation must focus on NAFTA’s Chapter 11. Chapter 11 promotes offshoring by giving special protections to firms that offshore, and is a wellspring for much of the damage that’s been done to the middle class.
The Investor-State Dispute Settlement (ISDS) provisions in Chapter 11 allow corporations to sue a government if it makes decisions or policies that harm the corporation’s profits, or expected profits. These provisions encourage companies to offshore by shifting any corporate risk in relocating to a low-wage country and putting the risk back on host countries to underwrite corporate losses. For more on why ISDS is bad for Canada, see our previous post here.
could be good for Canada
Renegotiation does not have to be a zero-sum game, where any better deal for US workers will mean a worse deal for Canadian or Mexican workers. Terms could be negotiated to insist Mexico improve its wage levels, and meet health and safety standards comparable to those of Canada and the US. This would both prevent a race to the bottom and protect Canadian workers from competing with the lower wages of their Mexican counterparts. Not only would it benefit Canadian and American workers, it would also help workers in Mexico improve their wages.
A further term requiring all three signatory countries to enact and abide by core standards and Conventions of the International Labour Organization, could also help to avoid a race to the bottom by preventing corporations from demanding that governments refrain from policy-making in the interests of workers. It would remove the incentive for Canada to become more “competitive” by weakening its own workers’ rights.
If the Liberals cannot renegotiate benefits for Canadian workers, well, then maybe it’s time to take a page from Trump’s book and walk away ourselves.