NAFTA 10 years later
By Gérard Bérubé
 This year marks the 10th anniversary of the North American free trade agreement, which took effect on January 1, 1994. A decade later, any direct economic effects — normally measured in terms of exports — are difficult to quantify, and the relevance of such broad agreements is even harder to prove. At most we could focus on the positive spin-offs for Canada, but without being able to distinguish those from the spin-offs of the 1989 Canada-US free trade agreement or the goods and services tax.
Nonetheless, this anniversary is an opportunity to examine the relevance and scope of trade agreements that go beyond bilateral frameworks.
As NAFTA has become so much a part of our habits and customs, economists no longer can pinpoint the agreement's benefits. Although the tripartite agreement is actually two bilateral agreements (Canada-US and US-Mexico, as Canada-Mexico trade has developed little since then), it exemplifies a groundswell poised to be unleashed. Just look at the wind of globalization that has been sweeping through world trade for almost 25 years and the birth of the World Trade Organization (although the WTO is still thwarted by major issues that confine discussions to bilateral agreements between countries that are already partners).
After 25 years of globalization, the divergence in North-South interests is so great and protectionist forces among the biggest players so persistent that it is still presumptuous to believe that blissful harmony can reign within a 146- member WTO. As proof, 10 years later we are still wondering whether Canada has fared any better than it would have under the Canada-US free trade agreement alone.
Of course, a few years after NAFTA was signed, Canada-US trade leapt by 37%. But with the free trade agreement, Canada had already experienced a spectacular turnaround in the balance of trade for liberalized products, which by the time NAFTA was introduced had shot up to a $15-billion surplus from a $9-billion deficit. Even then, before the initial agreement was extended to Mexico, the growth rate of duty-free exports had doubled (in comparison to non-liberalized products).
So more than NAFTA it was the free trade agreement, combined with the abolition of most customs duties in January 1998, that helped cement our long-standing relationship with the US and ease the rules between us.
These two factors also had a strong impact on exports, although that impact was affected in early 1990 by the introduction of the goods and services tax, which erased the effect of export taxes. All these influences had a hand in the fact that the volume of external trade represented 43.1% of Canada's gross domestic product in 2001 versus 25.6% in 1989. That's quite a bit above the G7 average of 15%.
In fact, after all these years of Canada-US trade, it is clear that too often the point of concluding broad agreements is to implement a dispute-settlement mechanism. The effectiveness of such mechanisms is inextricably linked to the usefulness of the agreements, especially if the economic weight of one of the partners is disproportionate to the others. In this regard too, it is difficult to draw conclusions after 10 years of NAFTA. Take the long and arduous softwood lumber dispute: despite a series of victories before the NAFTA court, which has unfailingly ordered the US government to reconsider its position, nothing has been settled. Think of the many conflicts that have cropped up here and there — the sniping over Western wheat, the salmon-fishing issues, steel duties, advertising in US magazines sold in Canada, and Canadian companies' access to the US military industry. Tensions continue to mount between the two trade partners and, as they start to take on the look of retaliation, diminish the role of the dispute-settlement mechanisms.
And what about the Free Trade Zone of the Americas, a proposal so dear to the previous US administration? Conceivably, it will be sacrificed under this presidency as it is even more sensitive to protectionist forces. It may never come into existence, but would this be a heavy loss for Canada, causing a major shortfall for our economy? Part of the answer can be found in the experience of the free trade agreement extended to NAFTA. The loss might not be as heavy as expected, because NAFTA has taught us that a broad alliance merely ends up increasing Canada's economic dependence on the US — for better or for worse.
Gérard Bérubé is editor of the Économie et finance section of Le Devoir in Montreal | 
