The Destruction of Free Trade in North America:

Distinguishing Rhetoric from Actual Policy Under NAFTA

by: Ross Phar

The United States is traditionally well known for its steadfast belief in the free-market, capitalist economy.  Most Americans are well aware of the benefits to be had under such a system, as, indeed, the American capitalist system has proven to be the most prosperous in the world – until recently that is.  As the great financial crisis of the early 21st century barrels onward, mainstream pundits have called into question the actual merits of the free market system .  As is typical with modern mainstream journalism, such reports are profoundly misleading.  Contrary to popular belief, the current economic landscape is hardly one of free market capitalism and free trade.  In fact, the reality of the situation has been “spun” so dramatically that the public is led to believe that certain agreements, bills, and treaties accomplish precisely the opposite of their truly intended purpose.  One glaring example of this purposeful distortion is the grossly misnamed “North American Free Trade Agreement,” between the U.S., Canada, and Mexico.

Hailed as “NAFTA,” for short; the agreement first came to fruition during the first term of the Clinton administration.  The treaty passed the House by a narrow margin of 234-200, and the Senate by a larger margin of 61-38.  The agreement hit Bill Clinton’s desk in December 1993, was signed into law, and came into effect on New Years Day, 1994.  The enactment was similarly rigid in both Mexico and Canada, the latter nation passing the bill after much delay with just the slightest of margins.  The agreement would foster a supposed “free-trade zone” encompassing all territories governed by the three agreeing nations .  For NAFTA supporters, this meant the removal and/or drastic reduction of tariffs on imports and exports between the three participating countries – a principle that appears, at least on the surface, to be strictly in step with the traditional concept of free trade amongst nations.  Nevertheless, it was also included in the agreement that a mutual commitment to the strengthening of environmental regulation, and the protection of basic “worker’s rights” be maintained amongst the participating states .

The statutes put forth in the agreement weren’t limited to these lofty ideas, however; at least not for Mexico and America.  In Canada, one of the reasons the bill was finally passed through Parliament was Prime Minister Kim Campbell’s success at exempting the Canadians from the U.S.-proposed economic sanctioning power that would be placed into the hands of three unelected, regionally-based trade commissions, having the power to levy fines on North American businesses, search their premises, and sue in all North American courts to enforce the new labor and environmental regulations .  This allowed Canada, in effect, to maintain much of its sovereignty in the face of the emerging North American bureaucracy.

Prior to delving any further into the devious potential of this agreement, it is important that the concept of “free trade” be properly defined.  Simply put, free trade consists of “Trade between countries, free from governmental restrictions or duties” . Given that the agreement took over a decade of negotiations to form, and considering the multitude of new governmental bureaucracies, restrictions, and red tape it has created, it is hard to imagine that free trade could have possibly been its primary goal.  Through the creation of new regulations on private businesses, new preventative environmental policies, and the continued existence of high tariffs on imports and exports from nations outside the scope of the agreement, the resulting supranational bureaucracy that NAFTA imposes on North American economies runs contrary to its own stated goal.  If, as has been established, free trade consists of freedom from governmental restrictions, how can increased governmental restrictions possibly contribute to the creation of free trade?  It is evident that these points are entirely contradictory, and therefore cannot possibly be reconciled.

As far as lower tariffs are concerned, there is, of course, an enormous, multifaceted catch to the tariff policy implemented by NAFTA.  Firstly, while tariffs on imports and exports have been slightly reduced, they still remain in place on nearly all products.  In a truly free market, as is inherent in the definition of free trade, “duties” such as tariffs would not exist at all.  Secondly, in order to gain access to the lower tariff rates, a business owner must strictly adhere to a number of protectionist stipulations.  In the agreement’s own words, “in order for a product to be eligible for lower tariff rates when entering Mexico or Canada, the product must be produced in the United States, entirely of NAFTA component parts, or if foreign components are used, the foreign component must undergo sufficient processing in the United States to meet NAFTA requirements.”  Far from freeing business owners and individuals from government duties, NAFTA is clearly using tax incentives in order to subject North American business owners to strict, protectionist guidelines.  Such expanded restrictions and guidelines would not be necessary if free trade were actually permitted.  If the Clinton and Bush administrations were really after the achievement of free trade, a simple cutting of tariffs, reduction of quotas, and the abolishment of the International Trade Commission would accomplish this quite nicely . Instead, the three nations are left with a system that clearly violates their respective sovereignty, and actually decreases business owners’ ability to trade freely across borders.

A fairly recent example of the consequences of this system can be found in the case of S.D. Myers, Inc. (“SDMI”) v. Government of Canada. The suit was brought by the U.S.-based SDMI, against the Government and People of Canada, for their ban on the export of environmentally hazardous PCB wastes into the United States.  The case was tried by the multinational NAFTA Arbitration Tribunal, which decided in favor of S.D. Myers, and thus ordered the Government of Canada to pay the company $6.5 million plus interest as compensation for their lost profits since the PCB ban took effect in 1995 .  The Tribunal found that Canada was acting too much in their own national interest by effectuating this ban, which would have maintained profits for Canadian waste management companies .  It is important to note that the millions of dollars paid to this U.S.-based corporation is paid at the expense of Canadian taxpayers – for the “crime” of passing a beneficial restriction through their legislature.

The SDMI case and others like it, disprove entirely the notion that NAFTA somehow fosters free trade.  In fact, the very existence of NAFTA Tribunals and Commissions with the power to levy penalties on a nation’s citizenry, for simply passing lawful legislation through their Parliament, not only destroys the freedom of trade, but the freedom of sovereignty and self-governance as well. Evidence of sovereignty violation can also be found in the wording of the agreement itself; for example, Article 1114 of NAFTA prevents any country from “lowering any environmental standard.”  Essentially, this means that the super-sovereign NAFTA Commission can force the U.S. to abide by any environmental rules and restrictions imposed by Canada and Mexico, who often pass excessive, economically detrimental regulation in this regard.

While on the subject of national sovereignty, it is clear that national governments are almost always overridden by multilateral trade agreements such as NAFTA.  For an older, more expanded, yet strikingly similar example, take the European Economic Community (EEC), which began as a trade agreement.  This “Common Market” agreement was originally established with the supposed intent of promoting free trade.  Sound familiar? What eventually happened, of course, is history: the EEC eventually created its own Parliament, its own court system, its own constitution, its own central bank (the European Central Bank), and its own universal, centrally regulated currency (the Euro) .  The institutions that formed out of the EEC would eventually come to be known as the European Union, which is currently on the track to establishing itself as a world superpower, working its way towards this goal by fighting for access to its own multinational police and military forces .  Straying wildly from the original intention of “establishing free trade,” proponents of the EEC, as well as those of NAFTA, overtly contradict themselves by using these treaties not in a manner that expands the free marketplace, but rather expands the size, scope, federalization, and centralization of government power.

Can we expect something similar to the European Union occurring in North America?  Certainly, many modern internationalists aspire to do just that.  A common sentiment amongst the proponents of a “North American Union” is that “economic integration tends to lead to an increasingly unified legal regime,” and that it is the inevitable fate of NAFTA to be transformed into a supranational state governing the entirety of North America .  This would include, of course, the implementation of a Euro-style, universal currency, known as the Amero  . If the proponents of such a system get their way, as it appears they will under a strongly internationalist Obama administration , what remains of the truly free market of North America will likely become subject to NAFTA’s increasingly strict regulations, and the erosion of U.S., Mexican, and Canadian sovereignty will undoubtedly persevere.

Works Cited

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Courchene, Thomas J., and Richard G. Harris. “Canada should pursue North American currency union, economists say.” C.D. Howe Institute June 22 (1999): 1-32.

Louka, Elli. International Environmental Law: Fairness, Effectiveness, and World Order. New York: Cambridge University Press, 2006.

Marshall, Will. “Obama Needs a Strong Foreign Policy.” Wall Street Journal, November 7, 2008, Opinion.

North American Free Trade Agreement, Dec. 17, 1992, reprinted in 32 ILM 289 (1993).

“North American Free Trade Agreement (NAFTA); .” USDA Foreign Agricultural Service (FAS) – Homepage. (accessed November 7, 2008).

“North American Free Trade Agreement: How U.S. Companies Can Benefit.” Export.Gov. (accessed November 7, 2008).

Pastor, Robert A.. Toward a North American Community: Lessons from the Old World for the New. Washingtion, D.C.: Peterson Institute, 2001.

Patterson, James T.. Restless Giant: The United States from Watergate to Bush vs. Gore (Oxford History of the United States). New York: Oxford University Press, USA, 2007.

Reichel, Philip L.. Comparative Criminal Justice Systems: A Topical Approach (5th Edition). Alexandria, VA: Prentice Hall, 2007.

Rockwell, Llewellyn H.. “Life After Nafta.” (accessed November 7, 2008).

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S. D. Myers, Inc., (“SDMI”) v. Government of Canada, Partial Award, Nov. 11, 2000 (NAFTA     Arbitration Case).

Westbrook, Jay Lawrence. “Legal Integration of NAFTA Through Supranational Adjudication.” Texas International Law Journal July (2008): 1-5.

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