Last Updated: March 6, 2009
The North American Free Trade Agreement (NAFTA) is an international treaty agreement signed by Canada, the United States and Mexico governing trade relations. The agreement is aimed at moving consumers from these countries into an open market by removing most tariffs or duty charges, quotas and taxes between the countries. Free trade agreements should provide for increased, faster business dealings between countries. Without such an agreement, countries typically pay a tariff when they trade with each other. Tariffs are designed to ensure that imported goods are more expensive than goods produced locally, thereby protecting local markets.
Since the agreement came into effect in 1993, it has continued to be the topic of heated debate, especially in the context of oil and gas and water. Most recently, during the 2008 American presidential campaign, calls were made to renegotiate the agreement to address some controversial elements. In particular, there are two clauses in NAFTA that have sparked considerable debate.
First, the “proportionality clause” states that Canada is obligated to make a certain proportion of the total supply of certain goods, for example oil and gas, available for sale to the United States. The proportionality clause means that under NAFTA, Canada would have to provide oil and gas to the United States even if Canada is unable to meet its own energy requirements. Between 2005 and 2007, Canada exported 64.9% of oil and 62.5% of gas production to the United States. Canada agreed to the proportionality clause to ensure that there would be a constant market for our oil and gas. The agreement was signed at a time when there was no real perceived threat to the limited availability of such resources.
This provision dictates that Canada cannot institute policies that would encourage conservation of petroleum supplies for future generation of Canadians. It also affects the ability of Canada to reduce greenhouse gas emissions because a certain level of production must be maintained to meet our needs and the proportion that must be made available to the United States. Furthermore, the ability to divert oil products to the eastern provinces from the western oil patch is affected. At present, the eastern provinces rely on oil imported largely from OPEC companies.
Freshwater resources are also at risk under the proportionality clause of NAFTA. Water shortages are becoming more common in larger U.S. cities. If Canada exports water to the U.S. to help alleviate these shortages, the proportionality clause will be triggered and Canada will be obligated to continue to supply water regardless of our needs.
Second, the “investment chapter” provides corporations with a mechanism to sue governments in all three countries for alleged violations of NAFTA. The actions are heard by unelected trade tribunals, which give corporations the opportunity to use their power to dispose of unwanted policies and regulations adopted by legislature. This provision has been used to challenge federal bans on toxic gasoline additives and the export of hazardous wastes.
Unlike Canada, Mexico negotiated important exemptions under the NAFTA treaty, in particular in the energy and investment rules as somewhat of a side-deal. Several commentators have noted that ratification of those energy and investment rules may pose problems for Canadians in the near future. With a new American president now in place, the renegotiation of NAFTA is once again on the table. And with any such renegotiation, Canada may have an opportunity to address these controversial issues.
At its core, NAFTA is an agreement about international trade. Critics of the agreement say that business activities of large corporations take priority over other considerations including jobs, worker exploitation, toxic dumping and other environmental effects. Supporters argue that the agreement promotes trade in Canada, a primarily export-based economy. While trade relations between Canada, the U.S. and Mexico have undoubtedly grown under NAFTA, its impact on regional labour and the environment continue to be the topic of much debate. While at this time the U.S. appears to be mainly concerned about negotiating additional labour and environmental standards, Canada can use the process to impose harsher conditions on energy exports. As there is a lot riding for all countries involved, we can expect to see NAFTA in the news for the foreseeable future.ISBN/ISSN number: 1918-1728