NAFTA: A Proven Model for Fostering Prosperity Through Trade Liberalization

Originally Published in the Fall 2017  WIIT Communique.

By Carrie Goodge O’Brien, Counsellor (Trade Policy), Embassy of Canada, Washington, D.C.

Consider, for a moment, a free trade zone that is the world’s biggest economic powerhouse.

Under the auspices of the North American Free Trade Agreement (NAFTA), Canada, the United States and Mexico together encompass a vast economic zone that has under seven percent of the world’s population, but generates over one-quarter of world Gross Domestic Product (GDP).

Since NAFTA came into effect in 1994, eliminating over time most tariffs on trade between the three countries, merchandise trade between them has tripled to some US$1 trillion a year.

Over these past 23 years, the NAFTA partners have created a deeply integrated regional market boasting a collective GDP of US$21.1 trillion and counting 480 million consumers. In 2016, the NAFTA partners accounted for a staggering 16 percent of global merchandise trade.

Canadian economists see the expansion of North American continental trade and investment as an engine of economic growth that has raised living standards for Canadians, Americans and Mexicans alike.

In fact, NAFTA underpins a trilateral trade relationship that is a model of trade liberalization for the world. It supports growth, innovation and well-paying jobs in all three countries. It has strengthened the rules and procedures governing trade and investment.

NAFTA has a proven track record of middle-class job creation. This virtuous circle between free trade and economic growth is a vital one for Canada because we have always been and will always be a trading nation.

Exports of goods and services currently account for about 31 percent of our GDP. Imports are vital inputs for our businesses. They fuel our national production, and provide our consumers with access to an array of products and services at competitive prices.

This trading tradition is no more evident than in the longstanding relationship between Canada and the United States across our 5,525 miles of shared border. Nearly US$2 billion worth of goods and services and some 400,000 people cross the Canada-U.S. border every day.

Canadians and Americans cross that border to do business, travel, and see family and friends as part of a unique relationship forged between the two countries by their shared geography and deep, enduring economic and personal connections.

In 2016, Canada and the United States traded US$634.8 billion in goods and services in an exchange that was almost perfectly reciprocal. Almost 9 million U.S. jobs depend on trade and investment with Canada.

The United States sells more goods to Canada than it does to China, Japan, and the UK combined.

As impressive as the numbers seem, NAFTA is about more than the ramp-up in cross-border trade figures.

As Canadian Foreign Affairs Minister Chyristia Freeland said in mid-August just before the start of negotiations between Canada, the United States and Mexico on the modernization of NAFTA: “Trade is about people. It’s about creating the best possible conditions for growth, for jobs, for prosperity for individuals and working families.”

Millions of people in Canada, the United States and Mexico earn a living as a direct result of NAFTA. People are putting food on their table; parents are putting their kids through school, in large part because of a job that would conceivably not even exist were it not for trade and investment links that have strengthened under the agreement.

For Canada, NAFTA’s provisions empower our small and medium-sized businesses to seek and find success in new export opportunities outside the country. NAFTA also helps attract foreign investment to Canada. Sustained investment flows from the U.S. into Canada over the past two decades support that point.

In fact, one of NAFTA’s greatest strengths is that it frees up the three partners to make things together, reinforcing the global competitiveness and job-producing capacity of a highly integrated continental economy. Our manufacturers are stronger because of the efficiency of North American regional supply chains that have become vital to their way of doing business.

Pick a North American industrial sector that has an international market presence and you will see NAFTA at work. Vehicle components can cross the Canada-U.S.-Mexico borders several times before leaving the final vehicle assembly plant. The same applies to the materials and components that go into the aircraft we make together. The Canadian and U.S. steel industries are deeply integrated, with significant cross-border operations that make them more productive, efficient and competitive.

As important as NAFTA has been for Canada’s economy and the prosperity of our citizens, the agreement can be improved, including adapting to the profound technological change that is transforming the way we all live and work. From the rapid growth of Internet-based communications, digitization and automation, to the impending emergence of Artificial Intelligence, trade agreements can be updated to incorporate provisions that best allow us to take advantage of these remarkable innovations.

That is why it is essential that Canada is actively engaged with U.S. and Mexican friends to find ways to make this valuable trade agreement even better.

“Canada’s goal is and will remain to modernize NAFTA in a way that upholds Canadians’ interests and values and benefits the middle class and those working hard to join it in all three of our countries,” Minister Freeland said recently in Mexico.

For Canada, this is a practical aspiration based on more than two decades of experience under NAFTA, which has proven that trade liberalization can be a path to prosperity if it’s done right. Over time, Canadians have become supportive of NAFTA and are watching attentively as we take careful steps to improve it.

In August, Minister Freeland announced the formation of an advisory council made up of stakeholders from Indigenous peoples community, labor, business, cultural industries, the agricultural sector, and public life to provide input on the issues.

NAFTA is a complex agreement, and modernizing it will be a challenge. It is one Canada and Canadians are willing and able to take on.

About the Author: Carrie Goodge O’Brien is the Counsellor (Trade Policy) at the Embassy of Canada in Washington D.C. In this capacity, Ms. Goodge O’Brien leads the Government of Canada’s engagement with U.S. interlocutors on a broad range of goods market access issues, including trade agreements, government procurement, and trade remedies.

Prior to joining the Embassy, Ms. Goodge O’Brien served as the Senior Counsellor to the Executive Director for Canada on the Board of the Inter-American Development Bank (IDB) and was formerly a government procurement and goods trade negotiator for the Government of Canada. Since joining Global Affairs Canada in 2002, Ms. Goodge O’Brien has also served as a spokesperson and Trade Commissioner for arts and cultural industries.

Ms. Goodge O’Brien holds has a Bachelor of Arts in Economics and International Trade from the University of Waterloo, and a Masters of Arts in Globalization and International Development from the University of Ottawa.

 

The views expressed by the author(s) of article(s) published in this newsletter are their personal views and should not be interpreted as the views of The Association of Women in International Trade (WIIT) or its individual members. See full disclaimer here.