The Truth About Canada (30 page)

While it’s true that many Canadian are much better off today than in 1989, it’s also true, as we’ve seen earlier in this book, that many in the middle and lower income brackets lost ground. Let’s see how personal income in Canada fared during the first 17 years of free trade and compare the average annual percentage change with the 17 years before the FTA.

In the 17 years before free trade, the average annual increase in personal income was 11.7 percent. During the first 17 years of free trade, the
annual average plummeted to 4.16 percent, once again a huge difference. In 1988, the year before the FTA came into effect, personal income in Canada was just over 87 percent of the U.S. per-capita rate. By 2006, it was down to only 80.4 percent of the U.S. rate.

A similarly dramatic impact relating to personal income can be seen by measuring the personal savings rate. In the 17 years before free trade, it averaged 14.4 percent. During the first 17 years of free trade, it dropped to an average of 7.28 percent. For the 10 years from 1996 to 2005, it was 4.1 percent. By 2006, it was all the way down to 1.6 percent. Even with an increased population, the total of all personal savings in Canada in 2005 was only 15 percent of what it was in the early 1990s.

In 1988, the year before the FTA came into effect, the household savings rate in Canada was 12.3 percent of disposable household income. In the 17 years since 1988, the average annual savings rate fell all the way down to 7.1 percent; by 2004, it was 1.4 percent; and by 2005 it was in a negative position of—0.2 percent. The savings rate has been above 5 percent only once during the past nine years, and the OECD has predicted a savings rate in Canada of only I percent in 2007, far below the rates for countries such as Austria, France, Germany, Italy, the Netherlands, Norway, Sweden, Switzerland, Belgium, Portugal, Spain, and the United Kingdom.

Then there are those who have pointed to our high non-farm capacity utilization rate of 86.1 percent in 2005 as proof that the free-trade agreements have been a big success. But in 1988, the year before the FTA kicked in, the capacity utilization rate in Canada was 86.6 percent.

And the income of Canadian families? Since the FTA came into effect, the average annual market income of the lowest 20 percent of Canadian families dropped by almost $400; the next 20 percent lost an annual average of $2,900; the next 20 percent lost $300; while the second highest 20 percent of families had an increase of $300 a year, and the top 20 percent had annual average increases of $19,000.

Put another way, Statistics Canada reports that since the start of the FTA, “Average family market income among the 10 percent of families
with the highest incomes rose by 22 percent from 1989 to 2004. Meanwhile, among the 10 percent of families with the lowest incomes, it fell by 11 percent.”
⁸

Another study, this one for the province of Ontario, showed that since 1989, 90 percent of Ontario’s families with children under the age of 18 saw a drop in their real incomes, ranging between $5,000 a year in constant dollars to $9,000, depending on the income level.
⁹
Try that again. Since 1989, 90 percent of Ontario families with children have lost ground!

Another useful way to gauge the impact of free trade on our economy is by measuring the average annual increase in millions of dollars in building permits. In the 17 years before the FTA, these annual increases averaged some 12.2 percent. In the first 17 years of free trade, they averaged only 3.87 percent, once again a big drop.

Since the FTA came into effect, everyone who promoted the agreement has trumpeted its success by pointing to the large increase in exports, mostly to the United States (78.9 percent of our total exports in 2006). Fair enough. The same people, however, never mention the very large increased foreign content of these exports, nor the fact that much of the increase in exports has come from the export of our rapidly depleting reserves of natural gas and conventional oil. Nor do they ever mention the Industry Canada study showing that well over 90 percent of our export increases were the result of energy exports, plus the value of the Canadian dollar, which had been so low for so many years.

Beyond that, it’s worth looking at the actual annual percentage increases of exports, comparing them with the pre-free-trade years. In the first 17 years of free trade, Canada’s merchandise exports increased by an annual average of 7.2 percent. However — surprise, surprise — in the 17 years before the FTA, merchandise exports had increased by an annual average of 13.4 percent.

Of course, we are constantly told about the large increase in exports since the FTA. But, again, what about imports? In 1988, imports of goods and services were $159.1-billion. By 2006, they had increased to $487.7-billion. Well, surely, with our huge increases in exports to the United States under free trade our share of the U.S. market must have increased.

Not so, it declined. In 1988, the year before the FTA came into effect, Canada’s share of total U.S. imports was at 14.88 percent. By 2006, it was down to 12.6 percent.
¹⁰
Once again, exactly the reverse of what we were promised.

It’s not only a large percentage of Canadians who now doubt the benefits of free trade. In December 2005, a survey commissioned by the transatlantic German Marshall Fund of the United States found that the majority of those surveyed in the larger European countries and in the United States as well felt that free trade reduced local employment and benefited mostly big multinational corporations. In late December 2007, the CCPA released a study showing that since the FTA was signed, a sample of CCCE companies cut their workforce by just under 20 percent (over 118,000) while their revenues grew by 127 percent.

As I and many others have pointed out, Brian Mulroney won a majority government in the 1988 “free trade election” even though a majority of Canadians voted for parties opposed to the agreement, and the Conservatives won a majority of the seats in only two provinces, Quebec and Alberta, “the two provinces least favourable to the Canadian state,” in the words of economist Erin M.K. Weir.

Weir repeats a number of points some of the rest of us have made:

• we gave away the farm at a time when American tariffs only amounted to less than 1 percent of the total value of Canadian exports to the United States;

• we completely failed to gain our major objective of exemption from U.S. trade-remedy laws;

• the U.S. implementation legislation actually made it easier for U.S. companies to initiate countervail against Canadian products than against other foreign products;

• Canada did so poorly because it surrendered its bargaining chips before negotiations began;

• by any measure, Canada was out-negotiated, and extracted almost no meaningful concession from the United States through free trade.

If any of you want to send Brian Mulroney, Thomas d’Aquino, Stanley Hartt, Pat Carney, Derek Burney, Michael Wilson, Simon Reisman, Allan Gotlieb, Wendy Dobson, the Canadian Chamber of Commerce, the Conference Board of Canada, the C.D. Howe Institute, or any other FTA promoter a calculator for Christmas, please let me know and I will be happy to send you their addresses.

28

NAFTA

“Free trade is much less than it seems; the NAFTA emperor has no clothes.”

“The American refusal to comply (with the softwood lumber decision) tears the heart out of NAFTA.”

L
et’s start off with another
Globe and Mail
editorial, this one from 2006: “The benefits of the Canada-Mexico-U.S. deal have been huge.… NAFTA is responsible for much of Canada’s prosperity.”
¹
Later in the year, another
Globe
editorial told readers that “after all, the North American free trade agreement has brought prosperity to all three partners, including the U.S.”
²

In the previous chapter, we saw the “huge” supposed benefits of free trade for Canada as a result of the FTA. If anything, the results of the North American free-trade agreement (NAFTA) are worse and, because of Chapters 6 and 11 in the agreement, are certain to be even more harmful in the future.

About the same time as the second
Globe
editorial appeared, a major new public opinion poll in the United States confirmed that most Americans now opposed free trade. In Mexico, every year, there has been growing disenchantment and growing resentment. In Canada, poll after poll has shown that Canadians believe Canada has been the loser in NAFTA and the United States the big winner.

Despite this, Thomas d’Aquino of the Canadian Council of Chief Executives, appearing before a Canadian Senate committee, said, “The level of support for NAFTA is highest here among the three countries.”
³
Not one of the senators was informed enough to respond, “But that’s not saying very much, is it?”

Today in Mexico, some three-quarters of the population live in poverty. Between the time NAFTA came into effect, on January 1, 1994, and 10 years later, real wages for Mexican workers fell by over 14 percent. NAFTA increased employment in the very low-wage
maquiladora
regions, while the important agricultural sector saw a steady loss of employment. Overall productivity growth has been virtually non-existent, and labour productivity is only about one-third of the OECD average.

For Canada, it’s true that Canadian exports to Mexico have increased, but our imports from Mexico increased much more. Whereas our trade deficit with Mexico was about $3-billion before NAFTA, it’s now headed for $12-billion. The previous chapter contained a devastating analysis of the impact of the very poorly negotiated FTA. Shortly, we’ll hear some remarkable mea culpa comments from mostly the very same people who were involved in doing an even poorer job regarding NAFTA.

It’s difficult to understand how supposedly intelligent people concerned with the future welfare of their country could ever have signed on to such truly awful agreements as the FTA and NAFTA. The sight of them doing their embarrassing explanations on the front page of the
Globe and Mail
in the summer of 2005, after the softwood lumber surrender, would have been amusing if the whole fiasco had not been so tragic and so dangerously precedent-setting.

The NAFTA agreement contained provisions that no other developed country would have accepted. Chapter 6 is incredible. Somehow our negotiators agreed to a host of ridiculous binding provisions that are completely incomprehensible for anyone concerned with Canada’s future. Here, I’ll touch on only two of the most egregious.

Even if, in our large, cold, northern country, we Canadians begin to run short of oil and natural gas, under NAFTA we must continue to supply the United States with a guaranteed pro-rata share of our production. If we want to cut back our exports to the United States, we must cut back our own consumption in an equivalent manner. And — equally incredible, to the point of being totally absurd — we cannot charge the Americans a penny more for our oil and gas than the price Canadians pay. At this writing, Petro-Canada is running short of Canadian natural
gas and is trying to secure a steady supply from Russia. It truly boggles the mind.

Then there’s the by-now-notorious Chapter 11, whereby U.S. firms or individuals are allowed to sue Canadian governments for legislation which the Americans believe may decrease their profits. So, if in Canada the federal or a provincial government takes action to protect the environment, or broaden medicare, or bring in public auto insurance, or enact any number of other measures, the government may be successfully sued by U.S. corporations. In September 2007, Exxon Mobil and Murphy Oil served notice that they plan to use NAFTA to sue Canada because Newfoundland and Labrador is forcing them to spend more energy research dollars in the province, and an American couple have announced plans to sue because of the Harper government’s actions regarding energy trusts.

Talk about abandoning sovereignty! Talk about voluntarily opting for a colonial status.

In the investment chapter in this book I touched upon another serious negative that NAFTA brought us. This is what
The Economist
had to say about the agreement: “The default option for multinationals (including Canadian-controlled multinationals) chasing the mighty American market is to invest in it directly. Indeed, NAFTA has strengthened this preference. American firms that used to open plants in Canada to sell into its protected market no longer need to.”
⁴
(Reader, if you don’t mind, please read that quote again, to make sure it sinks in.)

Moreover, because of NAFTA, many of the normal nation-building tools that could and should be used to develop our country, tools insisted upon by many other countries, are no longer available to us. To take just one example, one out of dozens: Obliging foreign corporations to do some of their purchasing locally is no longer possible.

The respected former Ottawa trade negotiator Mel Clark has pointed out that for 40 years, under General Agreement on Tariffs and Trade/ World Trade Organization rules, the United States could not attack Canadian lumber exports the way they have under the FTA and NAFTA. During those years, Canada won most trade disputes with the United
States. But now, it is essentially American law that applies to all our exports to the United States. And as we have learned, the dispute settlement panels we reluctantly agreed to when the United States refused to abandon its countervailing and anti-dumping penalties have proved to be worthless when the United States refuses to obey their rulings.

Moreover, under the terms of the two poorly negotiated agreements, the United States can change and toughen its trade laws in relation to Canada however and whenever it wishes to do so. And as we have seen, they can continue to ignore unanimous NAFTA rulings whenever they wish. There’s not much doubt about the bottom line regarding the U.S. attitude towards trade law. The United States believes in free trade, as long as the benefits accrue to Americans.