A BLUEPRINT FOR FREER MARKETS

JULIE CAZZIN August 24 1992

A BLUEPRINT FOR FREER MARKETS

JULIE CAZZIN August 24 1992

A BLUEPRINT FOR FREER MARKETS

Last week, free trade talks between Canada, the United States and Mexico culminated with the signing of the North American Free Trade Agreement (NAFTA). The 52-page preliminary summary of the mammoth pact calls for immediate tariff reductions in some goods and for a phased-out reduction over five or 10 years for others. Highlights:

AUTOMOBILES AND PARTS

Canadian employment: 131,000 Value of shipments: $40.7 billion Exports: $35 billion

Proportion shipped to the United States: 97.5 per cent To Mexico: 0.2 per cent

Executives in Canada’s domestic automotive sector expressed approval of NAFTA. Two key issues were the transfer of Canadian production to lower-cost plants in Mexico and increased vehicle-content requirements, NAFTA preserves the Canada-U.S. Auto Pact, which covers most duty-free activity, and raises the North American parts content of cars and light trucks to 62.5 per cent from 50 per cent. Domestic automakers say that they are confident that the pact will lead to increased trade with Mexico and, ultimately, more Canadian jobs. However, non-North American-based manufacturers say that the accord will restrict further investment in Canada.

BANKING AND FINANCE

Canadian employment: 180,000 Total bank assets: $612 billion Big Six bank assets: $554 billion Percentage of Big Six bank assets linked to the United States: 13.6 per cent To Mexico: 0.5 per cent

Canadian negotiators entered the talks with the hope of gaining better access to the still heavily restricted U.S. brokerage and banking sectors. They did not. Instead, Canadian institutions gained full access, over time, to Mexico’s formerly state-controlled financial services sector, NAFTA permits Canadian and U.S. financial companies to establish operations in Mexico, subject to certain marketshare limits.

DISPUTE RESOLUTION

No. of cases referred to binational disputeresolution panels under the FTA: 30 No. decided in favor of Canada: two No. decided in favor of United States: four No. of compromise rulings or settlements: 14 No. of disputes outstanding: 10

The dispute-settlement mechanism, which Canada fought to include in the FTA, remains intact in NAFTA. The dispute resolution system of the trilateral agreement ensures that Canada remains an equal partner in overseeing the rules of trade in North America. It was to Canada’s advantage that the disputesettlement mechanism remained free from protectionist forces in the United States.

OIL AND GAS

Canadian employment: 70,000 Value of shipments: $18.6 billion Exports: $10.7 billion

Proportion shipped to the United States: 95 per cent Mexico: none

Even after intense pressure from the United States for last-minute concessions, Mexico refused to open its largely state-owned oil industry to foreign investment. However, the accord stipulates that restrictions on energy trade among the three countries be limited to specific circumstances, NAFTA also assures Canadian natural gas companies that their U.S. customers will have to maintain their long-term contractual obligations.

LABOR

Average hourly wage in manufacturing Canada: $18.90 United States: $17.42 Mexico: $2.12

NAFTA does not resolve the contentious debate over what effect the trade pact will have on Canadian jobs. Labor leaders say that Mexico’s low wages, lax labor laws protecting workers and few environmental controls will encourage Canadian firms to relocate there, resulting in massive job losses at home. Government spokesmen and some economists say that Canada’s advantages, including advanced technology, access to capital and a relatively skilled workforce, will offset the wage differential.

TEXTILES AND APPAREL

Canadian employment: 149,000 Value of shipments: $12.6 billion Exports: $1.4 billion

Proportion shipped to the United States:

per cent To Mexico: negligible

There were clear winners and losers in Canada’s garment-making sector, NAFTA’S tough new rules of origin allow only clothing made from North American-made fabric and yarn to qualify for duty-free status. This angered Canadian apparel company officials, whose products are made predominantly from yarns and fabrics from Europe and Asia. Increased U.S. quotas for goods not normally covered at preferential duty rates will not offset the effect of the new rules of origin. On the other hand, the Canadian textile industry dramatically improved its access to the U.S. market by more than doubling its special-exemption quota.

ENVIRONMENT

Average annual per-capita greenhouse gas emissions in Canada: 18.8 tons Average in the United States: 21 tons Average in Mexico: 5.9 tons

The apparently unanimous opinion among environmentalists is that NAFTA does little to prevent or clean up pollution in Mexico. The agreement provides only that no NAFTA country should lower its health, safety or environmental standards to create so-called pollution havens to attract investment.

JULIE CAZZIN