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Obama should negotiate a “New NAFTA” says Council on Hemispheric Affairs

The ‘renegotiate NAFTA’ debate is (not surprisingly, considering the economic recession) still strong(ish) in the United States. Democrats and Republicans alike are asking for change. In a way Obama is already remaking trade by bending or breaking existing NAFTA and WTO rules to bring manufacturing jobs back to the rustbelt. We know them as “Buy American” and now “Make it in America” rules that have Canadian politicians, ambassadors and business lobbies pulling out their hair. They want to try to salvage the existing North American trade relationship when what Canada, Mexico and the U.S. clearly need, according to the Council on Hemispheric Affairs, is a “New NAFTA”.

The COHA article by Preston Whitt points out the problems with NAFTA for all three countries but we’ll just mention the Canadian case here, which is based on research by Bruce Campbell of the Canadian Centre for Policy Alternatives.

Foreign direct investment into Canada went up after NAFTA but Canada’s total share of FDI in North America has fallen. An industrial strategy of “production-shared” manufacturing with the U.S. and Mexico (building things together) designed to lower consumer prices has also weakened any benefits from higher exports. COHA quotes Campbell: “the import content of Canadian exports increased to the point where, by 1997, more jobs were being destroyed by imports than created by exports.”

Also in Canada since NAFTA, productivity dropped, income inequality rose for the first time since the 1920s, large manufacturing has been replaced by smaller firms, and white collar jobs have been lost to blue-collar employment. In the U.S., a trade deficit with Canada and Mexico persists while jobs lost to Mexico or overseas have not been replaced.

Whitt concludes in his article that “a free trade agreement between Mexico, Canada, and the United States has the potential to benefit the citizens of the three countries” but overall, “NAFTA’s impact on them over the past two decades has been essentially a failure.” He suggests a new agreement contain the following:

– The deal should allow governments to be more like China. “Beijing has been able to maintain its ability to formulate policies that direct FDI into domestic industrial growth,” writes Whitt. “Their recent economic hyper-success should prove that such an ability obviously merits inclusion in NNAFTA (New NAFTA).” Efforts to channel investment in Ontario to green manufacturing are being challenged at the WTO by Japan and probably soon the European Union.

– Labour and environmental standards should be harmonized. “The creation of common minimum wage, safety, and welfare/benefits criteria would help prevent the destructively chaotic industrial redistribution that has caused [a] hemispheric ‘race to the bottom’.” NAFTA has generally led to “a weakening of the commitment to environmental protection,” according to Kevin Gallagher, a prominent US NAFTA critic quoted in the article.

“As the U.S. economy continues to shed jobs and stutter in its recovery,” concludes Whitt , “successfully organizing a NNAFTA (New NAFTA) could significantly help both the economy and Obama’s political prospects in upcoming elections… It is to be hoped that revising NAFTA will soon make its way back into the political arena of discussion and debate.”