From deep integration to reclaiming sovereignty

Managing Canada-U.S. economic relations under NAFTA
June 9, 2003

For some months now, business leaders and other free trade proponents have been beating the drums for another big leap of faith into a new comprehensive "trade" arrangement with the United States. Once again they are warning that the status quo is not acceptable, that the costs of not taking this leap could be catastrophic for Canada's economy. This discussion is playing out in a climate where not being in lockstep with the American hyperpower raises the spectre of retaliation.

Free trade advocates propose a range of deep integration tracks. Some advocate big measures such as a customs union, common trade policy, common energy policy, a common security perimeter, or all of the above. Others favour a below-the-radar approach to integration--harmonization of tax, competition, resource policies, etc.

But further integration at the policy or regulatory level is neither necessary nor desirable. It should be avoided or reshaped where possible, and reversed where feasible. Where it takes place, it should only do so under well-defined conditions.

The impact of nearly 10 years of NAFTA (and 15 years of the bilateral FTA) has been negative overall when measured against the only standard that counts ultimately, when evaluating public policy: has it bettered the lives of those affected by it? Not only has NAFTA exacerbated social and economic problems, but it has also failed to deliver the goods it promised to the Canadian people, and in the process has significantly eroded Canada's sovereignty. NAFTA shifted the balance between the market and government, between investor rights and citizen rights. Worse, it froze this imbalance in an external constitutional arrangement that makes the neocon experiments of recent decades difficult or impossible to reverse.

So how can the current course be altered? What should a progressive Canadian government do to improve the economic and social well-being of its people and manage its economic relationship with the United States so as to slow down, reshape, or reverse the integration process? I suggest a strategy that could be characterized as the deliberate pursuit of small steps to reclaim national policy freedom. The culmination of this strategy would be a government that had gained the confidence to challenge NAFTA in key areas of national interest--a government also prepared to take the consequences of its actions.

I do not suggest reclaiming sovereignty for its own sake, but rather to enable us to flourish as a democratic society on the North American continent with a unique social contract and cultural identity, one that values good government, respect for international law and a balance between individual and community.

It cannot be emphasized too much that trade is a means, not an end. Trade is a tool, and equitable, sustainable development is the goal. Free traders confuse the two. They automatically assume that international trade and investment are unconditionally good, and that more is automatically better. This is not so. Trade may bring benefits, but it may also do great harm. It depends on the nature of the products, on the terms and conditions of their production and exchange. A progressive government must always keep this distinction in mind as it considers policies to enhance the well-being of its citizens.

Here are a few examples of what a progressive government could do:

  • Reassert and rebuild the capacity of government as an active manager of the economy, rather than as a bystander to the excesses and failures of the market. Focus on strengthening the national economy and national demand through a variety of macroeconomic, labour market, and industrial policy tools. Though constrained, there is still substantial national policy space remaining under NAFTA. It should identify and maximize that space, and test the limits of that space where appropriate.
  • Deal with Canada-U.S. issues and irritants on a case-by-case basis. Remember, U.S. harassment of key exports are, like Canadian winters, a fact of life. The emphasis should be on cooperation to solve problems without compromising policy flexibility
  • Seek ways to prune back the most egregious aspects of NAFTA. Work with NAFTA partners to strengthen social services and cultural exemptions, and eliminate the investor-state dispute mechanism.
  • Favour multilateral forums, where powerful counterweights to American domination can be created.
  • Work in multilateral forums to forge agreements in the area of human rights, environment, health, culture, and taxation that are enforceable and supersede the rules in trade agreements like the WTO and NAFTA. Examples of treaties that attempt to reach these goals include the Framework on Tobacco Control, and the Cultural Diversity Instrument initiative where the Canadian government is taking the lead.
  • Work in the FTAA negotiations with other progressive governments to roll back the worst NAFTA-based proposals. Use the negotiations to broaden relations with the other countries of the hemisphere. Resist U.S. efforts to forge hub-and-spoke relationships through, for example, bilateral deals, and work with them to challenge America's imperial excesses.
  • Revisit the "third option" to diversify trade, economic and cultural relationships with other nations--India, Japan, Korea, Europe, Brazil, etc. Try harder to make it work this time. Diversification can be pursued without more "free trade" agreements.

Those who brought us NAFTA dismiss its negative effects and deny its failed promises as they push ahead with their deep integration agenda. They claim that we can go down this road without compromising our sovereignty, but warn of the dire consequences of being offside with U.S. policy. This path promises ever deeper integration (read: assimilation), but its advocates are not up front about what kind of Canada would exist at the end of it all.

Canada should conduct its economic relations with the United States in a spirit of cooperation and mutual respect, as befits friendly sovereign neighbours with many interlocking interests. The key word is cooperation, not capitulation. We should not allow ourselves to be duped once again by the voices of the influential minority that wants to take another "leap of faith" that would lock Canada ever more tightly into the American orbit. The record of the last 15 years should be reason enough for us not to continue down this path.

Bruce Campbell is Executive Director of the Canadian Centre for Policy Alternatives.