Origins of the Free Trade Agreements

The Trudeau government is currently re-negotiating NAFTA with the governments of the USA and Mexico. The results we are told will be Win!  Win! Win!

How can Canada lose? The standard line from big business, the mass media and mainstream academics is that everyone benefits from free trade.  Consumers profit from lower prices for all goods and services. So while we wait to see how the proposed new NAFTA negotiations will go,  it might useful to remember the major political battle that transpired as the Canada-US Free Trade Agreement (CUSFTA) and NAFTA were created. Who pushed for these agreements? What was the opposition in all three countries?

The Push from the United States 

                                                                          

Free Trade Is For Capital Not Labour

At the beginning, a free trade agreement between the United States and Canada was proposed by Ronald Reagan in his 1980 Presidential campaign. In 1983 Paul Robinson, the U..S. ambassador to Canada, began talks with Sam Hughes, President of the Canadian Chamber of Commerce. The US insisted that the official request for negotiations had to come from Canada in order to try to contain nationalist political opposition.

The US administration had goals: the elimination of the Foreign Investment Review Agency,  the National Energy Program and the Canada-US Auto Pact.  They wanted the agreement to include services, agriculture and culture. All federal and provincial government subsidies should be eliminated and “national treatment” guaranteed for American investments. Municipal and provincial governments were not to give preference to local, Canadian companies. The big surprise was that the final draft of CUSFTA also included a continental energy agreement that gave US investors a preferred status and guaranteed access.

The US government initiative had strong support among the American corporate sector. In 1987 over 400 large corporations created the American Coalition for Trade Expansion with Canada. They spent heavily on advertisements and began a major lobbying campaign in Washington.

Canadian Business Support for the Agreement

In Canada the Chamber of Commerce led the campaign. They were joined by the powerful Business Council on National Issues, the Canadian Manufacturers Association, the Canadian Bankers Association, the Canadian Federation of Independent Business, and many other business organizations. They achieved support from the Royal Commission on the Economic Union and Development Prospects, headed by Donald Macdonald. After Brian Mulroney and the Conservatives were elected in 1984, the Canadian government pushed hard for a bilateral free trade agreement.

Strong Opposition in Canada                                                                               

 
There was strong opposition to the agreement in Canada. It was led by the Action Canada Network, anchored by the Canadian Labour Congress and the Quebec trade union federations. The coalition included teachers organizations, most farm organizations, the major women’s organizations, the Assembly of First Nations, the Canadian Environmental Network, and the Canadian Conference of the Arts. Public opinion polls revealed majority opposition to any agreement.

The Canadian business alliance played a key propaganda role in the federal election in the fall of 1988, known as the “free trade election” because of the strong opposition taken by John Turner, the leader of the Liberal Party. The New Democratic Party also opposed the agreement, but its leader, Ed Broadbent, played down the issue in his campaign.

The Conservatives won a majority of the seats in the House of Commons. But the Liberals and the NDP together took 56 percent of the popular vote. This explains why big business in Canada has been so committed to keeping the British first-past-the-post electoral system. Ronald Reagan declared CUSFTA “the new economic constitution for North America.”

Negotiating NAFTA                                                                                           

Historically, Mexican business organizations had not opposed the Keynsian “populist” agenda. They had clearly benefited from one policy in particular: when a foreign-owned corporation sought permission to build a plant in Mexico, they were required by law to find a Mexican partner and give them 51% of the voting stock. This had resulted in strong business organizations. As they said in Mexico, “300 businessmen run the country.”

This was quite a contrast to Canada which put up tariffs under the National Policy to try to force American corporations to manufacture in Canada. The result was the “miniature replica” problem: high foreign ownership, very inefficient Canadian branch plants, and a relatively weak capitalist class.

This changed in Mexico with a new political leadership that had largely been trained at elite American universities. They absorbed the neoliberal agenda advanced by Margaret Thatcher and Ronald Reagan: free trade, the free market, government deregulation, the privatization of profitable state-owned enterprises, including public utilities, and a broad attack on labour unions and the welfare state.

While the media emphasized the benefits to consumers of the removal of tariffs, in general they were already below the 10% level. Big business, sitting on excess capital, wanted the right to invest anywhere, sell their products and services anywhere, and repatriate their profits without government interference. Corporate taxes would be reduced and tax havens expanded.

The Alternative Agenda

When negotiations for NAFTA began, the Canadian and American anti-free trade coalitions were still in place. In Mexico, a similar coalition was formed, the Mexican Network on Free Trade (RMALC). Their goal, supported by their American and Canadian counterparts, was to raise Mexican wages and standards of work up to the highest levels in the northern states. This included human rights protections as found in the European Union, rules of the International Labour Organization on labour rights, and health and safety rules. The coalitions also argued that corporations should not be permitted to move to Mexico to avoid environmental regulations.
Of course, when the final draft of NAFTA was released none of these objectives were included. Corporations were moving to Mexico to maximized profits by specifically taking advantage of much lower wages, lower taxes and weaker regulations.

For many years public opinion polls in Mexico have shown majority opposition to NAFTA. Economic growth and job creation was much higher during the `populist” period, before the new shift to the politics of neoliberalism and structural adjustment.Today that opposition has been enhanced by the politics of Donald Trump. This is reflected in the rise of support for Manuel Lopez Obrador in recent public opinion polls. 

                                                             
John W. Warnock is retired from teaching political economy and sociology at the University of Regina. He is author of Free Trade and the New Right Agenda (1988) and The Other Mexico: The North American Alliance Completed (1995).               

How Did We Get Those Free Trade Agreements?

In 2016 “free trade” once again made the headlines. There was the Trans Pacific Partnership (TPP)  and  the Trans Atlantic Trade and Investment Partnership (TTIP).  In the United States, both Bernie Sanders and Donald Trump insisted that the North American Free Trade Agreement (NAFTA) had been good for Mexico but had greatly damaged the US manufacturing economy. Now President, Donald Trump is insisting that NAFTA has to be renegotiated.

The standard line from big business, the mass media and mainstream academics is that everyone benefits from free trade.  Consumers profit from lower prices for all goods and services. So Canadians are waiting to see how the proposed new NAFTA negotiations will go. It might useful to remember the major political battle that transpired as the Canada-US Free Trade Agreement (CUSFTA) and NAFTA were created.

The Push from the United States

At the beginning, a free trade agreement between the United States and Canada was proposed by Ronald Reagan in his 1980 Presidential campaign. In 1983 Paul Robinson, the U..S. ambassador to Canada, began talks with Sam Hughes, President of the Canadian Chamber of Commerce. The US insisted that the official request for negotiations had to come from Canada in order to try to contain nationalist political opposition.

The US administration had goals: the elimination of the Foreign Investment Review Agency,  the National Energy Program and the Canada-US Auto Pact.  They wanted the agreement to include services, agriculture and culture. All federal and provincial government subsidies should be eliminated and “national treatment” guaranteed for American investments. The big surprise was that the final draft of CUSFTA also included a continental energy agreement that gave US investors a preferred status and guaranteed access.

The US government initiative had strong support among the American corporate sector. In 1987 over 400 large corporations created the American Coalition for Trade Expansion with Canada. They spent heavily on advertisements and began a major lobbying campaign in Washington.

Canadian Business Support for the Agreement

In Canada the Chamber of Commerce led the campaign. They were joined by the powerful Business Council on National Issues, the Canadian Manufacturers Association, the Canadian Bankers Association, the Canadian Federation of Independent Business, and many other business organizations. They achieved support from the Royal Commission on the Economic Union and Development Prospects, headed by Donald Macdonald. After Brian Mulroney and the Conservatives were elected in 1984, the Canadian government pushed hard for a bilateral free trade agreement.

There was strong opposition to the agreement in Canada. It was led by the Action Canada Network, anchored by the Canadian Labour Congress and the Quebec trade union federations. The coalition included teachers organizations, most farm organizations, the major women’s organizations, the Assembly of First Nations, the Canadian Environmental Network, and the Canadian Conference of the Arts. Public opinion polls revealed strong majority opposition to any agreement.

The Canadian business alliance played a key propaganda role in the federal election in the fall of 1988, known as the “free trade election” because of the strong opposition taken by John Turner, the leader of the Liberal Party. The New Democratic Party also opposed the agreement, but its leader, Ed Broadbent, played down the issue in his campaign.

The Conservatives won a majority of the seats in the House of Commons, but the Liberals and the NDP together took 56 percent of the popular vote. This explains why big business in Canada is so committed to keeping the British first-past-the-post electoral system. Ronald Reagan declared CUSFTA “the new economic constitution for North America.”

Negotiating NAFTA

Historically, Mexican business organizations had not opposed the Keynsian “populist” agenda. They had clearly benefited from one policy in particular: when a foreign-owned corporation sought permission to build a plant in Mexico, they were required by law to find a Mexican partner and give them 51% of the voting stock. This had resulted in strong business organizations. As they said in Mexico, “300 businessmen run the country.”

This was quite a contrast to Canada which put up tariffs under the National Policy to try to force American corporations to manufacture in Canada. The result was the “miniature replica” problem: high foreign ownership, very inefficient Canadian branch plants, and a relatively weak capitalist class.

This changed in Mexico with a new political leadership that had largely been trained at elite American universities. They absorbed the neoliberal agenda advanced by Margaret Thatcher and Ronald Reagan: free trade, the free market, government deregulation, the privatization of profitable state-owned enterprises, including public utilities, and a broad attack on labour unions and the welfare state.

The media emphasized the benefits to consumers of the removal of tariffs. But tariffs in general were below the 10% level. Big business, with excess capital, wanted the right to invest anywhere, sell their products and services anywhere, and repatriate their profits without government interference. Corporate taxes would be reduced and tax havens expanded.

The Alternative Agenda  

Manuel Lopez Obrador at Mexico City Rally

The Canadian and American anti-free trade coalitions were still in place. In Mexico, a similar coalition was formed, the Mexican Network on Free Trade (RMALC). Their goal, supported by their American and Canadian counterparts, was to raise Mexican wages and standards of work up to the highest levels in the northern states. This included human rights protections as found in the European Union, rules of the International Labour Organization on labour rights, and health and safety rules. The coalitions also argued that corporations should not be permitted to move to Mexico to avoid environmental regulations.

Of course, when the final draft of NAFTA was released none of these objectives were included. Corporations were moving to Mexico to maximized profits by specifically taking advantage of much lower wages, lower taxes and weaker regulations.

For many years public opinion polls in Mexico have shown majority opposition to NAFTA. Economic growth and job creation was much higher during the `populist” period. That opposition has been enhanced by the politics of Donald Trump. This is reflected in the rise of support for Manuel Lopez Obrador in recent public opinion polls. .
                                                                
John W. Warnock is retired from teaching political economy and sociology at the University of Regina. He is author of Free Trade and the New Right Agenda (1988) and The Other Mexico: The North American Triangle Completed (1995).               

On Re-negotiating NAFTA

Most people who are following the Trump phenomenon know that big business is worried that the new Republican President will carry through on his pledges to pull the USA out of the various “free trade” agreements and put forth alternatives which will “bring the good jobs back to America.” The Globe and Mail reflects this concern through its editorials and its stable of men committed to the neoliberal program, enhanced in recent years by opinion pieces contributed by propagandists from the many right wing “Think Tanks” based at Canada’s universities.

A recent piece by Ian McGugan is typical. “...trade is a mutual exchange in which countries buy from one another and invest in one another...this back-and-forth usually works to both parties’ benefit because it allows each country to specialize in what it does most profitably.” Oh?

Who does the trading and why.

Historically, trade began as a democratic process in horticultural societies. People came together to exchange their surplus goods for goods that were in short supply. I was fortunate to observe one of these markets in rural Chiapas one day while travelling in Mexico. Once a week there was a community market where individuals (usually women) came, spread a blanket on the ground and laid out their agricultural products and crafts. They bargained with buyers on a price, usually based on labour time. The products had a use value for buyers.

I also saw this in a public market in San Cristobal which I visited with local friends. On several tables a woman from an indigenous community had stacked the clothes that she had created. The needlework was amazing. Her daughter, around 10 years old, was explaining how a price was set for the various items. It was based on the labour time needed by her mother to create the individual item. The labour theory of value.

The mercantile system.

This democratic trade was replaced in Europe during the feudal era by professional merchants who had a different value system: maximizing profit by buying cheap and selling dear. Slowly this form of trade came to challenge the feudal system.

Merchant trade was radically changed by the creation of the territorial states with absolute monarchs and a class system founded on a landed aristocracy. Trade was controlled by the ruling classes and state-created monopoly corporations like the Hudson Bay Company. State military power became an important factor in this new system of trade. Historians hold that the mercantile system lasted from around 1500 to 1750.

A key factor was the development of European imperialism and colonialism. “Trade” under this structure was more like military pillage. Slavery was introduced on a large scale. Europeans began moving to areas of the world where the indigenous peoples had been forcibly removed from their land and resources.

The new liberal political economy. 

A new class with wealth was developing under mercantilism, a capitalist class which demanded the end to the old order and the freedom to invest and trade anywhere in the world. John Locke is often cited as the founder of liberalism. But what he did was put together a unified political position based on demands by the new capitalist class.

Locke was primarily concerned with justifying the seizure of land and resources from indigenous communities. He supported slavery, was a partner in the New Royal African Company, which was engaged in the slave trade, and invested in sugar plantations in Barbados, which depended on slavery for productive labour.

The early liberals like Locke argued that the only reason for government to exist was to defend private property rights. Citizenship and any role in parliament should be limited to men who owned private productive property. 

When the new ruling class of capitalists took power, they fiercely supported colonialism and imperialism through the 19th century and the first half of the 20th century. Trade under such a system could not be anything but unequal.

The orthodox view of trade today continues to follow the model set forth by David Ricardo in his Principles of Political Economy (1817). Free trade benefits all. Every country has a relative comparative advantage. Great Britain should emphasize manufacturing. Portugal should give up on manufacturing and concentrate on making wine. How did that turn out? 

Karl Marx once asked: Cuba today is a sugar plantation. When did the Cubans decide that this was their international comparative advantage? In fact, the Cuban indigenous populations were all killed or fled to other areas around the Caribbean. They were replaced by Spanish immigrants and African slaves.

The real world of trade is quite different from that described in the current economics text books.  Governments establish policies to try to regulate trade. But it is the large corporations and the major financial interests who direct the policies and who do the trade in goods, services and control the capital flows. Different social and economic classes have different political views on trade and trade policy. This all became very evident in the debate surrounding the Canada-US Free Trade Agreement and the North American Free Trade Agreement.

John W. Warnock is retired from teaching political economy and sociology at the University of Regina. He is author of Free Trade and the New Right Agenda (1988) and The Other Mexico: The North American Triangle Completed (1995).

Leamington, Ontario: Growing Tomatoes in the Era of Free Trade

H. J. Heinz plant in Leamington

Southwestern Ontario is the historic home of Canadian tomato growers. The bulk of the crop goes to processing, and since 1909 the dominant corporation had been H. J. Heinz, a food giant based in Pittsburgh. But in 2013 the Heinz Corporation was bought by Warren Buffett’s Berkshire Hathaway (26%) and 3G Capital (51%), based in Brazil. It was soon announced that they were planning to close their plant in Leamington. The story has been a snapshot of what has happened to the manufacturing industry in Ontario following the free trade agreements with the United States.

The free trade economy
In 1988 Canadians were informed that their government, headed by Brian Mulroney, had been negotiating a free trade agreement with the U.S. government. The push for this had come from organizations representing big business and finance on both sides of the border. The Action Canada Network was formed, representing many democratic organizations who opposed the free trade agreement with the United States. Along with many Canadian political economists, they warned that given the reality of Canada’s branch-plant economy, any free trade agreement would likely lead to many plants closing and their operations moved back to the United States. But Canada’s political leadership pushed through the “New Economic Constitution of North America,” as U.S. President Ronald Reagan termed it.  Over the next 25 years Ontario communities saw factory after factory shut down. The food industry was not immune to this development.

The “free trade agenda” is part of the new political economy commonly known as neoliberalism, a return to the open free market system that existed before the Great Depression and the social democratic governments that dominated the political agenda for thirty years following World War II. The liberal package included the repeal of `populist`national policies which were aimed at promoting domestic manufacturing, the privatization of state owned enterprises, deregulation of the economy, reversing legislation which protected workers`rights and trade unions, cuts to social programs and the repeal of progressive tax systems designed to promote greater equality. 

The goal of the organizations representing the corporate sector was to increase their rate of profit. They wanted the right to produce anywhere in the world, sell their products anywhere, and not be subject to any government controls on the movement of their products or capital. In more recent years, with the world economy characterized by overproduction, excess capacity and limited profitable investment opportunities, the corporate sector has sought to open investment opportunities in all areas of the public sector, including health, education, social services, social housing and government services.

Free trade comes to Leamington

Tomato harvest near Leamington

  In 2013 the new owners of Heinz announced that they were going to shut down the plant in Leamington. 3G Capital had a reputation for taking over companies, laying off many workers, and putting top priority on raising the profit ratio. Warren Buffett, the other major partner in the new ownership, said that the Canadian plant was `not efficient`: it relied on fresh tomatoes grown in Canada, bypassing cheaper tomato paste that could be imported from producers in Mexico and elsewhere.

Was there an alternative? Sam Diab, the plant manager at the Leamington operation, found several investors in the Toronto area and put forth a plan to keep the plant open and operating.  Changes had to be made to continue production under the free trade model.

(1) There would be a major downsizing in the plant`s operation. The regular work force would be initially reduced from 740 to 250. The workers, primarily women, were represented by a trade union, United Food and Commercial Workers. Production workers who kept their jobs would see their hourly wages reduced from $25 to $16. The union accepted the changes as there was no alternative.

(2) The business in its new form survived because of a regulation under the Canadian Agricultural Products Act. This specified that tomato juice sold in Canada must be made from fresh tomatoes and not paste. Heinz had 50% of the Canadian tomato juice market and did not want to give this up. They negotiated a five year contract with the new owners, now known as Highbury Canco. Business interests complained that this type of “trade distorting regulation” was supposed to be eliminated under the terms of the existing free trade agreements. Such regulations will likely be eliminated if the Trans-Pacific Partnership (TPP) free trade agreement is ratified.

(3) The number of tomato growers has declined since the plant changed ownership. In 2013 Heinz had contracts with 119 tomato growers; that was down to only 10 in 2015. The tonnage of tomatoes grown in this area of Ontario declined from 555,092 in 2012 to 432,175 in 2015. There remain two other tomato and vegetable processor in the region, ConAgra Foods, a U.S. food giant  in Dresden, and Canadian-owned Sun-Brite Foods which is located near Leamington. Vegetables are also processed in Quebec by Bonduelle North America, a French corporation.

(4) Highbury Canco wants to expand the company`s production by introducing a new class of tomatoes, to be called “industrial paste.” They argue that this could add an additional 250,000 tons of tomatoes and 25 - 30 more growers. Farmers who lost their contracts have had to switch to corn-soybean production, with lower returns. Of course, tomatoes in this new fourth class would bring farmers less money, as the industrial paste would be sold bulk to other processors at a discount. Regular tomato paste in 2014 brought farmers $110 per ton. The company argues that the new class would bring farmers at least $95 per ton, the paste price in 2013.

(5) Standing in the way of total free trade in this case would be the Ontario marketing boards. The Ontario Farm Products Marketing Commission has not approved the introduction of a new fourth class of industrial paste tomatoes. Neither has the Ontario Processing Vegetable Growers. They do not have the economic power of the supply management marketing boards (like milk, poultry and eggs), but as marketing agents they do have considerable influence. They are there to provide some power for farmers when negotiating with agribusiness. Corporate interests, and their liberal academic supporters, expect that the Trans-Pacific Partnership agreement will eventually put an end to the influence of farmer-controlled marketing boards.

(6) In order to try to keep businesses in Canada, governments have increasingly offered them subsidies. Leamington granted Highbury Canco subsidized municipal water and re-assessed the value of the plant, cutting their property taxes in half. The city council abolished all development charges for building construction. The provincial government “invested” $2.5 million in Highbury Canco to help it expand production lines. Such practices have become a normal part of business under free trade. Most people are aware of the huge subsidies that are given to automobile corporations.

What is it like to work in a manufacturing corporation operating under the new free trade, free market regime? Of course workers were not happy when their wages were cut as at Leamington. But they lined up to work at the new plant as there were very limited alternatives.

We can get an idea by looking at the comments posted by workers at the Kraft Heinz plant, as reported at .www.glassdoor.ca. “Previous company was good to work for but not 3G.” “Deep cost cutting.” “New 3G culture . . . very focused on the bottom line.” “Was great place to work . . . until 3G/Heinz merger.” “Daily grind, week after week.” “Great people and horrible Senior Management.” “Go back to Brazil, please.”

Conclusion
The experience of the tomato industry in Southwest Ontario is a case study of manufacturing in Canada under the new free trade regime. As the democratic opposition warned, the free trade regime has resulted in a major loss of manufacturing plants and good jobs in Canada. It is widely expected that the new Trans-Pacific Partnership will only make matters worse.

There is also a new factor on the horizon: climate change. As weather systems become more unstable and destructive, a crisis is expected to develop in the production and distribution of food. There will be greater pressure on Canada to expand our own production of food, especially fruits and vegetables. It is likely that we will need to move to a production system similar to that used during World War II, with significant government intervention. This would be the opposite of the free trade model. A growing crisis will provoke a new political struggle.