Twenty five years ago, the leaders of the biggest economies in North America – Canada, the USA, and Mexico – signed a historic trade agreement called the “North American Free Trade Agreement” or NAFTA.
Under its provisions, barriers to trade and investment between the three countries were eliminated, tariffs on products flowing between them were reduced or also eliminated, and other measures were also taken – needless to say, NAFTA was beneficial for all parties. As time passed, though, things have changed – but not the agreement.
Taking a look at how NAFTA affects Canada’s economy today, it seems that the provisions of the agreement can now hurt the country’s energy reserves. A report published last year by the Council of Canadians has shown that, under the provisions of NAFTA, the US has “virtually unlimited first access to most of Canada’s oil and natural gas” and the country can’t reduce its exports of these resources (74% its oil and 52% its natural gas leaves the country to the US) even if it is experiencing shortages, forcing the local energy producers to turn to highly polluting technologies such as exploiting tar sands and fracking.
And this goes against Canada’s actions to mitigate pollution in conformity with the country’s Paris Agreement commitments (that the US has backed out of).
Trade agreements are great. They open up new markets in front of producers and service providers from a certain country or territory, the encourage the flow of money and intellectual property between countries and continents, it helps businesses grow beyond their local market and go global – and it today’s increasingly connected and globalized world, this is one of the most important things a business can do.
Besides, trade agreements often become frameworks for rules in global trade, preventing dumping, and making it easier to settle disputes. Trade agreements, in turn, should not last forever – they should be adapted to the new realities of the market and renegotiated as often as needed – as the example of Canada’s energy exports to the US show.
But trade agreements are not as great as they seem. Of course, they have their benefits – the increase in turnover between countries, the increase in jobs in certain areas, the reduced need for government subsidies and the increasing flow of direct foreign investment – but they often come with downsides, too, like an increase in outsourcing of manufacturing jobs, for example, and often the degradation of natural resources, like in the case of NAFTA and Canada.
Some argue that trade agreements add little to no value to the trade between developed countries, their effects being symbolic at best. While their role in conflict resolution is undisputed, they can truly hurt manufacturing jobs by opening up the market in front of imports.