NAFTA II
Expanding the North American Free Trade Agreement to make it more Fair.


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Since January 1st 2004 Canada, Mexico and the United States have become more economically intertwined with the implementation of NAFTA (the North American Free Trade Agreement/Area). Problems however have since arisen that the governments keep encountering and perhaps it is time to eithe revise the old agreement, or create a new additional one that will solve the problems.

Here's a list of some of the problems:

  • Maquiladora factories using forced labour and/or sweatshop labour. Sometimes women labourers "go missing" and their bodies are later found.

  • There is concern in Canada over the provision that if something is sold even once as a commodity, the government cannot stop its sale in the future. This applies to the water from Canada's lakes and rivers, fueling fears over the possible destruction of Canadian ecosystems and water supply.

  • The United States and Canada had been arguing for years over the United States' decision to impose a 27% duty on Canadian softwood lumber imports, a violation of the NAFTA agreement. Canada has filed numerous motions to have the duty eliminated and the collected duties returned to Canada.

  • Chapter 11 of NAFTA allows corporations or individuals to sue Mexico, Canada, or the U.S. for compensation when actions taken by those governments (or by those for whom they are responsible at international law, such as provincial, state, or municipal governments) have adversely affected their investments.

  • In 2000, Mexican President Vicente Fox advocated the idea of free flow of people across the U.S.-Mexico border as a second phase of NAFTA, which would be completed in ten years. On September 5th and 6th, Fox and Bush met as newly elected presidents and agreed to work "matching willing workers with willing employers" and "ensuring migration takes place through safe and legal channels". However, negotiations ceased after the September 11, 2001 attacks, when debate in the United States shifted towards a migration policy where security was the main goal.

    Other issues that need to be discussed in NAFTA II:

    New rules regarding minimum wages to keep the states and provinces on equal playing ground. Some areas of North America have minimum wages that are too low and are wreaking havoc on their local economies and causing factories to use "sweatshop tactics".

    New border trade policies and fixing trade surpluses. Possibly even regulating how much non-American trade is allowed in (ie. Preventing surplus trade from China).

    Solving America's illegal immigration problems by boosting the Mexican economy.

    Discuss the possibility of pegging the US/Canadian currencies together. It would still be different currencies, but they would have the same value.

    Possibly expanding NAFTA to include parts of Central America and/or Brazil. Possibly even the creation of a South and North American Free Trade Agreement (SANAFTA).


    Fortress North America is an illusion
    David Crane - January 22nd 2007.

    You don't hear much from them these days (thank goodness). But it wasn't long ago when we were being bombarded with almost hysterical calls from our leading business groups and their think tanks for a Canada-U.S. customs union, harmonized policies with the U.S. and even adoption of the U.S. dollar.

    Our future, groups like the Canadian Council of Chief Executives, the Canadian Chamber of Commerce, the C.D. Howe Institute and others said, lay in much deeper integration with the United States.

    And that was when close to 85 per cent of our exports were already going south. It was the Fortress North America view of the world.

    Now the eyes of the world are on China, India and Brazil, on global supply chains and on global integration. By putting all their bets on the United States, our business groups and think tanks ignored the dramatic changes taking place in the world. Now we are in danger today of being marginalized.

    The good news is that we are beginning to see a shift in sentiment, which is expressed, for example, in a new Conference Board of Canada report, "Mission Possible." It talks of the limitations of the North American Free Trade Agreement and the need for a more global view.

    One reason, perhaps, is disillusionment with NAFTA, which was supposed to curb the massive power of the United States in economic disputes with a new system based on rule of law. But the softwood lumber settlement imposed by the U.S. on Canada demonstrated just how much of an illusion that was.

    There is another factor as well, one that is brought out in the Conference Board report, namely that we have made ourselves extraordinarily vulnerable if the U.S. faces a dollar crisis because of its huge and growing foreign and budget debts and its massive trade deficit. The United States is being kept afloat by the willingness of Asian and Middle East central banks to keep on lending money to the U.S.

    "Should foreign investors in Asia and among the oil-exporting countries get spooked by some unforeseen event (which is bound to happen sometime), Canada would be on the front line of U.S. and global adjustment. Our deep integration with the U.S. already exposes us more heavily to a U.S. slowdown and to U.S. dollar depreciation than our competition," the Conference Board warns.

    The lack of attention by business and government, as well as much of the academic and think tank community in Canada, to the huge changes taking place in the rest of the world is perhaps explained by a simplistic belief we could simply hunker down in North America.

    "In part," the Conference Board says, "Canada has been sheltered from global realities by its economic integration with the United States. But any notion that we can shield ourselves by hunkering down inside Fortress North America is an illusion."

    Moreover, even Canada's exports to the U.S. will increasingly be threatened by competition from China, India, Brazil, Mexico and other emerging market economies.

    As they develop more sophisticated industries, they will compete with Canada. Chinese automobiles will hurt the U.S. economy and auto parts already do. Brazilian aircraft are competing with Canadian aircraft, and India, which currently competes in services, will have to become an important manufacturing nation if it is to achieve major economic advances.

    China, in fact, is poised to displace Canada as the number one trading partner of the U.S.

    These are not arguments to ignore the United States. But the message is that we have to think of ourselves as a global nation, not simply a North American nation.

    Our politicians can help by opening doors, as former Prime Minister Jean Chretien used to do with his Team Canada missions. Likewise government officials can provide support and information and export credits.

    But the real test is in our business community. Some business leaders have had a global outlook, in companies like Manulife Financial, CAE, Nortel, Magna International, Alcan, Bank of Montreal and Power Corp.

    However, too many in our business community have been lazy and short-sighted concentrating on the U.S. market because it was relatively easy and lacking the entrepreneurial zeal to pursue the big new opportunities (for evidence, see story below).

    This is our biggest challenge. We have to change this mindset, which means we probably need to bring in a fresh generation of business leaders who can look beyond North America to the rest of the world.


    Ottawa to U.S.: Go easy on border
    Canadian Press - January 22nd 2007.

    Rash implementation of American passport requirements and other rules that hamper cross-border travel and trade could undermine the very fabric of Canada-U.S. relations, Ottawa's envoy to Washington warned today.

    In a speech to the Empire Club, Michael Wilson urged the U.S. to proceed slowly in putting in place measures that make its northern border a more formidable barrier.

    "Canada has seen a gradual thickening of the border over the past four years initiatives that jeopardize our long-standing commercial and people-to-people connections," Wilson said.

    "If not implemented carefully, (the measures) will undermine the foundation of NAFTA the backbone of our economic integration as well as our 140 years of shared friendship and family connections."

    As part of its war against terrorism, Washington is bringing in its Western Travel Initiative.

    Starting Tuesday, all air travellers to the United States need a passport to enter the country.

    The requirement will be extended to those arriving at land border crossings as early as a year from now.

    "We are still encouraging the U.S. to take all of the necessary time required to get this right," Wilson said.

    "We cannot rush into this and have a cold-turkey implementation without appropriate flexibility and phasing in."

    Wilson did say he sensed more willingness in the U.S. to address Canadian concerns that stricter border-crossing rules will hamper commerce and damage tourism.

    He also said he expects the American passport requirement for those arriving by air to "go smoothly" when it kicks in Tuesday.

    About 95 per cent of air travellers between the two countries already use passports, the ambassador noted.

    The Americans "also intend to demonstrate flexibility" in implementing the new measure, Wilson said, but he did not elaborate.

    John Nay, the U.S. consulate general in Toronto, said the passport requirement will enhance security, but also speed up border crossings for those carrying appropriate documents.

    "It's the new reality," Nay said. "But it isn't necessarily a negative one."

    Nay said he understands concerns that the new rules could lead to debilitating delays at the border and dissuade tourism.

    However, he said, Washington will review how the air rule is working and make necessary changes to minimize problems before final implementation of the land-travel requirements.

    During his speech, Wilson praised the extensive social, economic and military ties between Canada and United States.

    Because the relationship is generally so warm and close, the few minor disputes that do occur garner a lot of attention, he said.

    Still, he cited some other sticking points.

    Apart from the new passport rules, he noted that Washington has also adopted stringent inspection procedures for food imports aimed at preventing bio-terrorism.

    Those kinds of measures have the potential to create a rift if thoughtlessly implemented, Wilson said.

  • Is a $10 minimum wage really bad for business?
    Rita Daly - January 23rd 2007.

    As owner of a hardware store in the Parkdale-High Park neighbourhood, Len McAuley believes it's his moral duty to pay his full-time staff a decent wage.

    But he'll be honest, saying his decision to pay a starting wage of $10 an hour $2 more than Ontario's minimum wage come Feb. 1 is also economically motivated in the cutthroat business of building supplies.

    "My employees need more than $8 an hour to live," says McAuley, owner of Pollock's Home Hardware on Roncesvalles Ave. "But the other thing is, if you pay them well and train them properly they're more likely to stay. Hopefully that means I'll make more money and that's a bonus."

    Doing what's best for workers doesn't always coincide with what's best for business. But that's the crux of the debate over Ontario's minimum wage among business and labour leaders, economists, anti-poverty activists and politicians.

    Proponents say raising the minimum wage to $10 overnight will automatically lift many workers and their families out of poverty and narrow the gap between rich and poor.

    Opponents, including Ontario Finance Minister Greg Sorbara, say it will lead to layoffs or reduced hours for the lowest-paid workers and could force businesses to close.

    According to government figures, an estimated 200,000 workers earn minimum wage in Ontario, 4.3 per cent of the workforce. Two-thirds of them are women and many are immigrants and single parents. More than half are students. A total of 1.2 million workers in Ontario are paid less than $10 an hour.

    "From the point of view of curbing poverty, minimum wage is an exceedingly blunt instrument," said University of Toronto professor Morley Gunderson, an expert in labour economics. "A lot of people affected by minimum wage are in school or in families that don't necessarily have low income."

    Over the years, American and Canadian studies have found teens are the ones most likely to suffer the consequences of a higher minimum wage. Some found a one- to three-per-cent reduction in youth employment, others higher. Businesses don't want to pay teens the higher rate or they cut back on temporary staff.

    But a number of more recent studies by American states and cities have concluded the positive effects for workers and greater consumer spending have more than offset any adverse employment effects. Other studies have found no job losses, including in San Francisco where the minimum wage rose by almost $2 overnight in 2003, and in Washington where small businesses are thriving despite a minimum wage nearly $3 higher than the national rate.

    Evidence in Britain so far is that annual minimum wage hikes since 1999 have not cost jobs, although rates there are lower for youth.

    Despite his concern about the impact on youth, Gunderson acknowledges minimum wage hikes tend to reduce wage inequality and do benefit low-income families.

    McAuley, 48, has come up with his own affordable business strategy: He pays his 10 full-time adult staff a starting rate of $10, with increases tied to an annual review. University students get a starting wage of $9 an hour, while he pays high-school kids the minimum wage. A father of four, two in university, he says he supports the proposal for a $10 minimum wage, but couldn't afford it for all students.

    Under current Ontario legislation, students under 18 are can be paid 50 cents less than the minimum wage.

    Hugh Mackenzie, an economist and research associate with the Ottawa-based Canadian Centre for Policy Alternatives, said he believes it would be unfair if a $10 minimum wage didn't include students.

    "How do we justify asking students and their parents to pay more and more for their post-secondary education and undervalue their work?" he asked.

    Tanya, a second-year university student attending York on a loan, said she worked full-time through the nights in a muffin factory while going to high school to help her parents pay the $1,200-a-month rent. She still works part-time to help with the rent.

    Other high school students of immigrant parents do the same thing, and some who have finished school remain trapped in those factory jobs, she said.

    "People mostly come here to do something to change their lives," said Tanya, 25, who didn't want her name published. "But their families can't even pay the rent, so the students' lives are not going to change, either."

    Business lobbyists argue the vast majority of companies already pay workers more than the minimum wage, evidence that employers give more generously if the market can bear it. But even large corporations don't pay anywhere near $10. Workers interviewed at retail and food services giants such as Zellers, Wal-Mart, McDonald's, Second Cup, Starbucks and Loblaws said they earn from $7.82 to $8.50 an hour.

    "These are pretty powerful people," NDP MPP Cheri DiNovo said of corporations lobbying against her private member's bill for a $10 hourly wage. The bill has received second reading at Queen's Park and was referred to committee for further debate.

    "But there's a lot of popular support for this increase. It's ethically and morally the right thing to do."

    Laurell Ritchie, national representative of the Canadian Auto Workers' union, says its incumbent on government to see that employers are not competing to offer extremely low wages. The labour market has always managed to adjust to minimum wage increases, she said. "It may mean we have to pay a little bit more for a hamburger or restaurant service. But it's been said by many, we enjoy very cheap access to fast foods in North America and it's at a terrible price for a lot of individuals and families."

    The North American Free Trade Area is the trade bloc created by North American Free Trade Agreement (NAFTA) and its two supplements, the North American Agreement on Environmental Cooperation (NAAEC) and the North American Agreement on Labor Cooperation (NAALC) whose members are Canada, Mexico and the United States. It came into effect on 1 January 1994.

    Trade components

    NAFTA called for immediately eliminating duties on half of all U.S. goods shipped to Mexico and gradually phasing out other tariffs over a period of about 14 years. Restrictions were to be removed from many categories, including motor vehicles and automotive parts, computers, textiles, and agriculture. The treaty also protected intellectual property rights (patents, copyrights, and trademarks) and outlined the removal of restrictions on investment among the three countries. Provisions regarding worker and environmental protection were added later as a result of supplemental agreements signed in 1993.

    This agreement was an expansion of the earlier Canada-U.S. Free Trade Agreement of 1988. Unlike the European Union, NAFTA does not create a set of supranational governmental bodies, nor does it create a body of law which is superior to national law. NAFTA is a treaty under international law. (Under United States law it is classed as a congressional-executive agreement rather than a treaty, reflecting a peculiar sense of the term "treaty" in United States constitutional law that is not followed by international law or the laws of other states.)

    Supplements

    Unlike other Free Trade Agreements in the world, NAFTA is more comprehensive in its scope and was complemented by the North American Agreement for Environmental Cooperation (NAAEC) and the North American Agreement on Labor Cooperation (NAALC).

    The NAAEC agreement was a response to environmentalists' concerns that companies would relocate to Mexico or the United States would lower its standards if the three countries did not achieve a unanimous regulation on the environment. The NAAEC, in an aim to be more than a set of environmental regulations, established the North American Commission for Environmental Cooperation (NACEC), a mechanism for addressing trade and environmental issues, the North American Development Bank (NADBank) for assisting and financing investments in pollution reduction and the Border Environmental Cooperation Commission (BECC). The NADBank and the BECC have provided economic benefits to Mexico by financing 36 projects, mostly in the water sector. By complementing NAFTA with the NAAEC, it has been labeled the "greenest" trade agreement; though being a pioneer in this area, it was not hard for the agreement to be labeled "green".

    The NAALC supplement to NAFTA aimed to create a foundation for cooperation among the three members for the resolution of labor problems, as well as to promote greater cooperation among trade unions and social organizations in order to fight for the improvement of labor conditions. Though most economists agree that it is difficult to assess the direct impact of the NAALC, it is agreed that there has been a convergence of labor standards in North America. Given its limitations, however, NAALC has not produced (and in fact was not intended to achieve) convergence in employment, productivity and salary trend in North America.

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