The troubling truth about free trade

By Jim Stanford, Globe and Mail,  Monday, May. 21, 2012 2:00AM EDT
As soon as it won its coveted majority, the Harper government put the pedal to the metal on the trade front, with a stampede of new free- trade deals. The Department of Foreign Affairs and International Trade currently lists 18 different deals in play, ranging from puny (Panama and Jordan) to gargantuan (Europe, Japan and India). Anyone who stands in the way of this juggernaut clearly must oppose trade in general. At least that´s how the Conservatives portray the issue, attempting to brand its New Democratic opponents as economically illiterate dinosaurs.

There´s a big difference, however, between signing free-trade pacts and actually doing something about trade. Canada´s trade performance deteriorated badly over the past decade. The quantity of goods and services shipped abroad is seven percentage points lower than when the Harper government took office, lower even than back in 2000. And what we  do export increasingly consists of raw resources (especially oil). Our once-impressive trade surplus has melted into deficit. Despite accelerating petroleum sales, we´re running up international red ink at the rate of 3 per cent of GDP per year.

Free-trade deals already cover 70 per cent of Canada´s trade - yet
the more pacts we´ve inked, the worse our performance has become.
I´ve reviewed our five longest-standing trade pacts: with the United
States, Mexico, Israel, Chile and Costa Rica. Canada´s exports to them
grew more slowly than our exports to non-free-trade partners, while our
imports surged much faster than with the rest of the world. If the policy
goal (sensibly) is to boost exports and strengthen the trade balance, then
signing free-trade deals is exactly the wrong thing to do.

Indeed, it could be argued that it´s the current government, not free-
trade critics, that is "anti-trade." For example, the Department of
Foreign Affairs and International Trade employs hundreds of bureaucrats
who travel the world negotiating trade deals. But the department plans to
axe 53 commerce officers who actually work with Canadian businesses to
boost exports. Meanwhile, CBC reports that four Canadian consulates and
trade offices in the United States (by far our most important export
market) will be closed.

Ottawa trumpets its latest free-trade pact (with Honduras) as
evidence of a commitment to trade. Honduras is an impoverished quasi-
dictatorship where journalists are routinely assassinated. Canada sells
less than $50-million a year there (while importing four times as much).
We export more to the United States in 88 minutes than to Honduras in a
year - yet as we ink this blockbuster deal with Honduras, we close trade
offices in the United States. What´s the net impact on trade? Clearly
negative.

Ottawa´s endorsement of an overvalued currency (trading 25 per cent
above purchasing power parity) also hurts Canada´s exports, forcing
economic activity into lower-productivity non-tradable sectors of the
economy. Even the plan to ram through new bitumen pipelines, seemingly all
about exports, may undermine our overall trade performance. We won´t
refine the stuff here, and we won´t make the mining machinery here, so our
capacity to produce higher-end products (including for world markets) will
further diminish.

Ultimately, the proof is in the pudding. Total exports of goods and
services were equivalent to 31 per cent of Canada´s GDP last year -
down from 38 per cent when the Harper government was elected (and 46 per
cent in 2000). If the goal is truly boosting trade (as opposed to
enshrining business-friendly economic rules or propping up authoritarian
governments in Latin America), then this government is failing miserably.

Canada´s export failure cannot be blamed on foreign trade barriers.
Instead, we must look in the mirror - at the structural inadequacy of our
business sector. Canada has chronically failed to nurture and develop
domestically based globally active firms that produce innovative,
high-value products for world markets. Working to fix that problem
(through proactive technology, innovation and sector- development
strategies) would do more for our actual trade than all the free-trade
talks in the world. If you truly believe in trade, don´t be distracted by
the trade deals.

By Jim Stanford, economist with the Canadian Auto Workers union.

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