Free Trade
Alex McPhail
"conservatives" and "liberals" about the promises/perils of free
trade. I say "with amusement" because I have heard it all before.
Free trade is not new to the United States of America.
Two years ago, the USA agreed to engage in free trade with
its single largest trading partner. While this agreement defines
specific commodity and service exemptions from free trade, it does
generally offer unrestricted trade across the American-Canadian
border. The American public took very little interest in the
free trade negotiations, but the Free Trade Act (FTA) has indeed
left its mark in both USA and Canada already.
The free trade negotiations now under consideration proposes a
tri-lateral trading block that would out-populate the EEC (but not
out-muscle it economically). Both Canada and the USA consider this
an extension of the existing bi-lateral agreement, with opportunities
to remedy shortcomings of the existing FTA in the upcoming
negotiations. Both Canadian and American interest groups cried
foul in specific areas of the FTA; suggesting that their respective
countries had given away the store (usually a good indication of an
equitable deal!). In addition, Canada demanded the FTA exempt
specific commodities and services from free trade to preserve the
Canadian heritage and culture (Canada will have difficulty maintaining
this advantage in the face of another trading partner).
The tri-lateral trade negotiations should prove challenging, if
nothing else. Mexico has a vast source of cheap labor, but Mexico's
social programs pale in comparison to the USA's (just as America
has significantly cheaper labor than Canada, while Canada enjoys
unparalled social programs). Mexico boasts the strongest and most
protective environmental laws of all three countries, but it
desperately lacks the means to monitor industrial pollution, let alone
the ability to enforce these laws.
Political stability could play a role in the negotiations, as well.
Although the USA is returning to the more mundane chores of fiscal
policy, domestic affairs, and foreign relations, America still rings
of the Hero of the Gulf. The USA is politically strong and focussed.
Mexico has experienced a serious rise in organized crime over the
past decade, to a point where some crime rings literally outgun the
local law enforcement agencies. Meanwhile Canada faces uncertainty
with Quebec pondering the virtues of separation.
The three nations do share common elements. All three have huge
national debts (and in Canada, provincial debts compound the national
debt). All three are facing a declining economy, an aging
population, and a growing shortage of skilled and professional labor.
If you can use the events in the past two years in Canada to predict
a possible outcome of a tri-lateral free trade agreement, both the
USA and Canada will experience economic pressures to reduce their
manufacturing costs to remain competitive with the cheaper Mexican
labor market. The Canadian manufactures that have survived free
trade, and now reap the benefits from it, are those companies that
were already in a position to aggressively modernize their
production facilities. This modernization yielded equal or higher
production capacity at reduced operating costs through reduced labor
demands.
Examples of these modernization efforts include the Western Canadian
lumber industry. Those mills which either did not modernize or
did not modernize enough have closed permanently; while a handful
of cash rich mills were able to modernize quickly and absorb the
production capacity of the closed plants. In contrast, the
Norther American mills, which were generally behind the Canadian
mills in modernization efforts, and had traditionally enjoyed trade
barriers which artificially inflated domestic pulp and paper prices,
were virtually wiped out by the aggresive Canadian automated lumber
mills.
Free trade has also influenced collective labor agreements in
Canada. Even if Canadian labor costs were the same as their
American counterparts, Canadian companies still found themselves
at a disadvantage due to higher corporate taxes in Canada than in
the USA (after all, someone has to pay for the superior Canadian social
programs). But the labor costs are not equal; Canadian labor costs
are higher than American labor costs, and so Canadian businesses found
themselves further disadvantaged compared to the competitive American
businesses.
Canadian collective labor agreements have reduced sharply since free
trade (I do not have the figures handy, but I will try to find them).
Businesses offered unions the choice of taking reduced wage increases,
or even cutbacks, or face losing their jobs entirely. Some of those
companies that did close relocated the the USA (mostly New York State
and Florida) to set up the same manufacturing process there.
But the picture is not all bad. In fact, thousands of new Canadian
jobs have emerged directly due to free trade. These jobs have
predominantly developed in a few major service sectors: engineering
(including software engineering), accounting, a host of technical
trades such as computer operators, service and repair, etc., and point
of sale service retail, as well as various service jobs like
janitorial, security, and related occupations.
The real trauma arises as some skilled trades are virtually wiped out
while others are growing exponentially. There is indeed a shortage
of skilled labor in Canada while thousands upon thousands of
trades workers can not find jobs. Retraining workers whose skills
are no longer needed into more marketable skills has started, but
it is still just a hodge-podge effort without focus or direction.
Corporations and unemployed workers are looking to the governments
for retraining funding and programs; while the governments are
emphasising that business ultimately must bear the cost of
retraining. Neither the governments nor very many businesses have
dared to establish any goals, mandates, or objectives for workplace
retraining programs. Caught in the middle are the skilled workers who
can not find a job, and know no other trade.
There are the low level service jobs available that anyone can do,
such as janitorial and security occupations, but the bulk of these offer
minimum wage, no security, and no benefits. Furthermore, and increasing
number of these are part time jobs as businesses continue to search for
ways of reducing operating costs, and hire part time employees to perform
services formerly provided by full time employees. These have been
dubbed "McJobs" in Canada.
The United States of America shares many common relationships with Mexico
as Canada does with the USA. Americans enjoy better social programs
and higher labor wages than Mexicans do. One major difference is
the American population and its economy, which dwarfs Mexico's
population and particularly its economy. USA enjoys a per capita income
of about $15,000, while Mexico struggles with $2,000 per person
(Canada is about $16,000). USA's population rests about 250,000,000,
while Mexico is at 91,000,000 (Canada about 28,000,000). So
while the same influences which shaped Canada will have a similar
impact on the American economy, it will be moderated by the different
economies of scale.
Finally, it is too soon to declare free trade a success or failure.
The USA and Canada especially are still adjusting to the changes
that free trade have precipitated. While a great number of Canadians
have lost their jobs due directly to free trade, another group
of Canadians have enjoyed the riches of the FTA. And those Canadian
businesses that have survived the transition now enjoy access to
markets 10 times the size of their domestic Canadian markets.
In Canada, Free Trade is a story of winners and losers. Those people
who were fortunate enough to have jobs in high demand fields are much
better off than before; while those unfortunate workers who watched their
life-long trade skills turn into yesterday's news face a bleak
future. Those companies who were in a position to modernize, diverisfy,
and re-organize were the corporate winners; while the less fortunate
or less inclined businesses lost out.
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* DISCLAIMER: *
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* The opinions expressed are solely of the author and do not *
* necessarily reflect the opinions of Canadian Marconi Company. *
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