U.S.-CANADA FREE TRADE Latin America is Next

September 25, 2007

The Free Trade Agreement (FTA) signed in January by Canada and the United States has profound implications for the entire hemisphere. Due to be implemented January 1, 1989, it goes beyond mandating free trade in goods. The FTA establishes liberal codes on "trade in services" and corporate investment, as well as greater protection for patents, referred to as "intellectual property rights." U.S. efforts to introduce such codes into the General Agreement on Tariffs and Trade [GATT] have long been resisted by a coalition of Third World countries that John Dillon is coordinator of GATT- Fly, a project of Canadian churches mandated to assist popular groups and progressive church organizations work- ing for economic justice . JULY/AUGUST 1988 includes Brazil, Argentina, India, Nicaragua, Nigeria and Peru. Harry L. Freeman, executive vice president of American Express, de- scribed the U.S.-Canada talks last year as "a path-breaking exercise" capable of setting "precedents in both tradi- tional and non-traditional areas--prece- dents that can serve as examples of what we want to achieve in the GATT." The ability to export more prod- ucts to Canada is of incidental benefit to U.S. interests, as most U.S. indus- trial exports already enter the country duty-free. With a population of only 25.5 million, one-fifth of whom live in poverty, Canada's domestic mar- ket is actually smaller than Brazil's. With a population of 135 million, Brazil has a larger proportion of people living in poverty (74%), yet its do- mestic consumer market is still greater. Under the Reagan Administration, business and its Washington allies have waged an aggressive campaign aimed at weakening restrictions on foreign capital throughout Latin America and Canada. They have sought to accord transnational corporations the same legal rights given to domestic indus- tries, and to challenge social legisla- tion favorable to workers. Brazil, Mexico and Canada have been espe- cially targeted, as they are the hemi- sphere's three largest economies after the U.S., with the strongest controls on foreign capital, save Cuba. Reaganizing Canada Canada's Prime Minister Brian Mulroney has been an ideal partner in this strategy, willing to voluntarily surrender extensive areas of national sovereignty despite having been elected on a platform that rejected free trade. Mulroney's reversal was due to pres- sure from Canada's most powerful corporate lobby, the Business Coun- cil on National Issues (BCNI), com- posed of the chief executive officers of the 150 largest corporations oper- ating in Canada. Many of the BCNI's members run subsidiaries of U.S.- owned transnationals, such as DuPont, Exxon, IBM and ITT. Also in the club are the chiefs of Canada's pow- erful chartered banks and Canadian transnationals such as Inco, Stelco and Seagrams. When BCNI members look south they like what they see. They envy the business climate in the United States where only 17% of the workforce is unionized as compared to 39% in Canada. They reason that competi- tion from the "right-to-work" states of the U.S. sunbelt would be more effective in weakening Canadian la- bor laws than their own lobbying ef- forts. The BCNI has regularly cam- paigned for cutbacks on social spend- ing by Canadian governments and argued for lower corporate taxes like those delivered by the Reaganite sup- ply-siders. What opponents regard as the costs of free trade, big business sees as benefits; a way of forcing the govern- ment to imitate U.S. practices of de- regulation, privatization and a reduced role for the state in the economy. iLaurent Thibault, currently president of the Canadian Manufacturers Asso- ciation, told the Canadian Senate: "It is simply a fact that, as we ask our industries to compete toe to toe with American industry...we in Can- ada are obviously forced to create the same conditions in Canada that exist in the U.S., whether it is the unem- ployment insurance scheme, Work- mens' (sic) Compensation, the cost of government, the level of taxation, or whatever." Consequently the Canada-U.S. accord is more than a trade agree- ment. It constitutes a continental charter of rights for private business, which President Reagan called a "new eco- nomic constitution for North Amer- ica." In a revealing comment that he later tried to deny, U.S. Trade Am- bassador Clayton Yeutter observed: "The Canadians don't understand what they signed. In 20 years, they will be sucked into the U.S. economy." Precedents Of major interest to Latin Amer- ica are two significant precedents: the incorporation of guarantees of "na- tional treatment" and "right of es- tablishment" into codes on investment and trade in services. National treat- ment means that any U.S. corporation investing in Canada must be treated exactly the same as a Canadian-owned enterprise. Canadian corporations would also be entitled to national treat- ment in the U.S. Right of establishment allows U.S. firms operating in any of 296 service industries covered by the agreement to sell their services in Canada even if they do not locate an office in Canada or hire Canadian labor. These rules are particularly significant in such fields as data processing or insurance where telecommunications would permit the relocation of many jobs, particularly for women, to low wage areas in south- ern United States. According to the "monopolies clause," any expansion of Canada's system of crown (state-owned) cor- porations would be considered tanta- mount to an expropriation. The United States would have to be notified and "prompt, adequate and effective com- pensation" provided. Thus if a Cana- dian province wanted to establish a system of public auto insurance, it might first have to compensate U.S. insurance companies handsomely for their lost market share. Only in the area of "intellectual property rights" did U.S. negotiators win less than they bargained for. Because of strong resistance by the opposition Liberal party to granting transnational pharmaceutical giants greater patent rights, Prime Minister Mulroney only committed Canada to work with the United States within the GATT to improve protection for patent rights. Canada's drug law, which allows domestic companies to produce generic medicines, saves Ca- nadians about $250 million a year. Sanctions on Brazil Claiming that "the United States cannot tolerate the piracy of its intel- lectual property," in July of this year the Reagan Administration imposed trade sanctions on Brazil for refusing to rescind its code that classifies phar- maceutical products and processes as "nonpatentable inventions." The U.S. Pharmaceutical Manufacturers Asso- ciation claims that the Brazilian laws cost them $100 to $150 million a year. Brazil has been targeted because it is leading the movement against U.S. efforts to impose a strict intellectual property code on all 96 GATT mem- Prime Minister Brian Mulronev REPORT ON THE AM S bers. In November 1987, a coalition of U.S. computer firms successfully persuaded the Reagan Administration to order trade sanctions on the grounds that the Brazilian computer industry had violated their intellectual prop- erty rights. "Market-reservation policies...have no place among the civilized countries of the world," declared the head of the U.S. Soft- ware Publishers Association. After the U.S. threatened to place penalty duties on a range of Brazilian exports, including commercial aircraft, machine tools and footware, Brazil- ian business leaders pressed the Sar- ney government to give in. Mexico Strategy In the case of Mexico the United States is pursuing a strategy of break- ing down its traditional nationalist economic policies piece by piece. First Mexico was persuaded to join the GATT as one of the conditions for rescheduling its foreign debt. Then in November 1987 the United States and Mexico signed a limited "framework agreement" establishing a consulta- tive mechanism for settling trade dis- putes and promising to pursue liber- alization in the areas of textiles, steel, agriculture, investment, technology transfer, electronic products, services and intellectual property rights. On December 31 another agree- ment was signed increasing U.S. quo- tas for textiles and steel imports from Mexico and opening up the Mexican market to products from the maquila- doras, the in-bond assembly plants established by transnationals south of the U.S. border. Heberto Castillo, leader of the Mexican Socialist Party, addressing a 1987 conference on free trade held in Canada, recounted how U.S. corpora- tions had already pressured the Mexi- can Congress to amend its patent laws. Castillo observed that "Although [codes governing intellectual property] apply equally to all nations, one can argue that equal treatment among unequals is profoundly inequitable." Wary of stirring up nationalism during a presidential election campaign in that country, U.S. trade officials did not include petroleum in negotia- tions with Mexico. A confidential 0 E a C) U U S oi 5 P DWL~nD1\n XJ UC A MERICArr cappraisal of the U.S.-Canada trade deal prepared for former Treasury Secre- tary James Baker and obtained by Inside U.S. Trade explains that "The politi- cal climate in Mexico is not ready for a market-based energy trade arrange- ment at this time: The degree of gov- ernment involvement in Mexico's energy sector is very large and is con- sidered essential by many elements within Mexico." Loss of Sovereignty What Mexicans jealously guard, the Mulroney government voluntarily surrendered. If the Reagan-Mulroney pact is ratified, Canada will no longer be able to give its own citizens first call on energy produced within its borders. The accord stipulates that even in periods of energy shortages corporations must be allowed to ex- port the same proportion of Canada's energy supply to the U.S. as was ex- ported over a recent three-year pe- riod. Export quotas, export taxes and the right to set domestic prices inde- pendent of world markets are all ruled out. Control over energy is effec- tively surrendered to transnational corporations. Furthermore, article 2011 of the agreement gives the United States the right to appeal any measure passed by any level of Canada's government that appears to nullify any direct or indirect benefit expected through the FTA. Even more alarming, this sweep- ing loss of sovereignty may be ren- dered permanent. Legislation now before the Canadian Parliament de- clares that the terms of the agreement take precedence over all other federal laws. In contrast, the legislation in- troduced into the U.S. Congress would make the accord subordinate to other U.S. laws. This would mean that the U.S., but not Canada, could change the terms of the agreement in the fu- ture by passing overriding legislation. The next round of negotiations will seek to establish rules for the use of government subsidies. Canada enters these talks from a very weak bargain- ing position, having conceded so much already. If no accord is reached, Can- ada's only choice would be to termi- nate the entire agreement at some point during the five to seven years that the UJ LY/AUGUST 19 8 negotiations are expected to last. But once corporations have made invest- ment decisions based on the FTA it would be more costly for the smaller Canadian economy to abrogate the pact. On the table are a host of social programs, assistance for farmers and regional development programs that U.S. industries have objected to in the past. Many U.S. corporations view Canada's publicly financed health care and pension programs as unfair subsi- dies because they lower the costs of the total wage and benefit package paid by employers in Canada. Cana- dians fear that their pattern of govern- ment assistance to less developed re- gions will be undermined by this proc- ess. For example, a U.S. countervail- ing duty case involving Atlantic ground fish identified over 50 Canadian and provincial programs-ranging from extended unemployment insurance benefits received by Canadian fisher- men during the off-season to grants for the construction of wharfs-as un- fairly subsidizing Canadian fisheries. The U.S. practice of promoting re- gional development through the allo- cation of defense contracts, however, is exempt under the FTA's "national security" clause. Movement Against Free Trade The Free Trade Agreement has not yet become law. In Congress, the House approved it without debate in August, and the Senate followed suit in September. But Canadian lawmak- ers remain sharply divided along party lines. Because Mulroney's Progres- sive Conservative Party controls the Canadian House, he was able to in- voke closure in that body, closing off the period of debate to the end of August and thereby ensuring its pas- sage. However, opposition Liberals hold sway in the Senate and are com- mitted to defeating the accord. Under these circumstances, Canadian law compelled Mulroney to call an elec- tion before September 1989. Accord- ingly, his government recently an- nounced that elections will be held on November 21. They will undoubt- edly become a referendum on the FTA. Mulroney is counting on the free trade issue to win another term. Pub- lic opinion polls show Canadians to AGRPDI CANADA WI ZeRN THk NOrTH AERICAN MARlCTON WAND-!CAA* HAIM AZHF-19 ?I rS AND 4tPtRDX WHILE 7H6 U.SI ONTIOLS OiL... be about evenly divided on the FTA, although more voters favor free trade than favor Mulroney's scandal-ridden government. Millions of dollars are being poured into a public relations campaign to sell free trade as a boon to consumers. Yet polls also show that the more Canadians learn about the agreement, the more likely they are to oppose it. Ironically, the free trade debate has placed before the Canadian people questions about their national devel- opment rarely aired in mainstream politics. The Pro-Canada Network--a broad coalition that includes trade unions, farmers, women's groups, native peoples, certain business sec- tors and intellectuals--has put forth a vision of their nation's future that re- jects the ideology of international com- petitiveness. These groups propose a more self-reliant Canada where inter- national trade would be an extension of production for the domestic market rather than the central motor of the economy. Canadian nationalists argue that only by becoming less dependent on the United States can Canada stand with the peoples of Latin America and the Caribbean who seek the same goals. If Canada approves the FTA, not only will Latin America's ability to con- trol transnational corporations be fur- ther weakened; Canada's scope for an independent foreign policy in the hemi- sphere will be seriously limited.

Tags: Canada, free trade, GATT, monopolies, lobbying

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