Nafta Case
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1994 was a year that forever changed the relationship between the three countries that make up North America – Canada, Mexico, and the United States. It was in that year that the North American Free Trade Agreement (NAFTA) was signed. This agreement was a trade bloc connecting the governments of all three nations, that was developed with a focus on trade, industry, and environment and subsequently has impacted many facets of the Canadian labour force. This agreement founded in the political ideologies of the three nations (most would argue unevenly), has increased trade volumes between the three countries, but has also been the source of many criticisms, pertaining to its impact on labour relations. For that reason, this essay will analyze the impact of NAFTA on the productivity and composition of the Canadian labour force, and the notion of national sovereignty.
In order to assess the impact of NAFTA, an introduction to the key objectives and political ideologies behind it is critical. NAFTA has neoliberal undertones in its design and projected goals, and so market efficiency is the emphasis (Otero, 2011). With this philosophy there is the rejection of government intervention in the economy through the provision of barriers such as tariffs and export/import quotas. The measure of success is evidenced by increases in gross domestic product and so in 1994 when this treaty was signed, there was an assumed result including the increased exportation of goods and services, increased foreign investment, and the expansion of the labour force which would mutually contribute to the strength of the labour market. Even if this is the result, a deeper analysis is required, looking at the impacts as successes and consequences with a non-partisan approach to assessing who reaps the benefits. This is mentioned for the paper will be looking at the labour force, which is different than the notion of economic growth where quality is not measured in a simple unit, whereas the economy works within the confines of dollars and cents. Also, the complex nature of the interactions that go on between the nations makes it hard for one to conclude direct causation.
The overall purpose of the trade agreement was the reduction and eventual elimination of trade barriers. The intention was that the removal of these barriers allowed for easier investment with the protection of rights and the environment, both physical and within the workplace. According to NAFTA, “by establishing a strong and reliable framework for investment, NAFTA has also helped create the environment of confidence and stability required for long-term investment” (NAFTA, 2012). However, even with such good intentions, there are some consequences that have been observed in the 18 years since its signing.
For instance, the decline in the Canadian economy, an increase in unemployment, and the deterioration in the morale of the workforce due to the removal of social programs that act as an incentive to work productively.
NAFTA helped to encouraged a change in the number and composition of the labour market. The impact on the labour force is evident for the flows of people and services is impacted through many mechanisms such as the liberalization of trade (Jackson and Robinson, 2000). This allows larger companies such as multinational corporations to take advantage of cheaper resources such as labour. This process, termed outsourcing, changes the composition of the labour market greatly, providing more jobs for those that live elsewhere, creating a loss of jobs where domestic products are bought and sold (CCPA, 2003). The temporary presence of Canadians working in other NAFTA countries has an impact as well for the flows of Canadian direct investment abroad has increased. This is the result of globalization which has been accelerated through technological advancements. Companies that take advantage of this are transnational corporations that can take advantage of workers for lower wage in international production networks (Crow and Albo, 2005).
The rationale behind the shift towards more service-based industries, is the result of interaction with other nations where foreign goods can be attained at a lower price. When domestic manufacturing suffers losses as a result of cheap foreign goods, domestic production is directly harmed resulting in fewer goods produced domestically, then grows a dependence on importing other countries exports, and a trade deficit threatens economic security.
With the agreement, came the expansion of trade, increasing both sales and the demand for resources, therefore meaning more jobs needed to be created to employ the people. However, it also allowed for the establishment of manufacturing facilities anywhere in North America without any penalties, resulting in taking advantage of cheaper labour in Mexico to make products and then sell these back at the same price, increasing profits. Now, workers are coping with international division of labour which requires specialization, evidenced by the gradual adoption of vertical integration in more cross-border industries (Schwanen, 2003) . Vertical integration is where certain counties specialize in various stages of production, which reduces the potential for countries to specialize in a variety of industries (Harrigan, 2003). Therefore from a Canadian perspective, NAFTA reduced the number of jobs available within the country but also changed the proportions of the type of labour. With manufacturing being accessed in cheaper areas, there was a shift to more service-based industries. It is this capital mobility that places employers with the opportunity to threaten to move labour to where it is economically sound to do so (OLeary et al, 2012).
The agreement also imposed the minimization or elimination of tariffs. For many products, increased cross-border trade replaces locally made products and the labour force has to shift. This would change the number of labourers, increase the numbers within the service industries as supposed to goods production. This change can be seen over time for in 1989, 33% of Canadian foreign direct investment in American services, and the number has doubled ever since (Schwanen,