Does WTO Centred Free Trade Policy Essentially Make National Industrial Policies Obsolete? Notes

North American Trade Organisation

• The increasing scale and rate of movements of finance, goods, services and people have placed increasing strains on North American policymakers to coordinate and make concessions in exchange for policy reform abroad.
• Like the WTO, NAFTA administers the implementation of a set of agreements in the goods sector, services and property rights but restricted to Canada, Mexico and the United States of America. Each of their motivations are different and all parties have had to make difficult decisions in order to make general agreements.
• Transformationalists such as Rosenau argue that the growth of ‘intermestic’ affairs define a ‘new frontier’, the expanding political, economic and social space in which the fate f societies and communities is decoded.
• Keohare considers sovereignty best understood ‘less as a territorially defined barrier than a bargaining resource for a politics characterized by complex transnational networks.”[1]
• “Contemporary regional trading arrangements have been developed to liberalise trade not build protectionist fortresses, recognising the potential benefits from freer trade but also the relative ease of reaching agreement at the regional, as opposed to the global level. While open regionalism does not appear to be leading to mercantilist trading blocs, for smaller and developing economies it is partly driven out of fear of being left out of preferential trading arrangements (Perroni, Whalley 1994). Paradoxically, negotiation of regional trade agreements is partly insurance against the possibility of regional trade blocs. The threat of regionalism has thus proved more potent than its reality”[2]

United States of America

• The rational for American policymakers for NAFTA was that as a result of its significant economy size (Mexico’s GDP was $250bn; Canada’s GDP was $569bn and the USA GDP was $6,952bn)[3] it was in a position to negotiate significant compromises out of Canadian and Mexican negotiators in order for the countries to access its market.
• The free market emphasis on both the WTO and NAFTA was seen to particularly benefit American businesses as the political, economic and businesses were culturally calibrated to take advantage of an increasingly competitive laissez-faire position. NAFTA helped to consolidate a strongly market orientated regime, weakening pre-existing national political instruments that had been developed to offset the negative aspects of markets without developing international instruments. In contrast to the EU, for instance, where a great deal of effort had been devoted to developing an institutional solution to exchange rate problems, such problems in North America are dealt with by individual government initiatives on an ad hoc basis, as was especially apparent in the Mexican pesos bailout.
• There was a need for expanding the opportunities and the scope of operation of the investors abroad. The relocation of American factories to Mexico’s free trade area was seen as a significant benefit to manufacturers as they were able to benefit from Mexico’s cheap labour pool and export to America and Canada without tariff. For American politicians this was seen as a method of reducing the flow to Mexican immigrants across the border, as the increased demand for labour in Mexico would reduce the incentive for Mexicans to cross the border.
• The widening of intellectually property rights gave “new technologies excessive profits as a result of the monopoly they are seen as interfering with the flow of knowledge to places where it is needed.”[4]
• This was to especially have an adverse effect on Canada, as its thriving generic drug industry had developed as a result compulsory licensing provisions. However, NAFTA overturned this policy, despite many Canadian’s objecting on social and economic grounds.
• These areas of dispute resolution for investment, intellectual property rights and financial service provision were the most developed in the agreement, creating an legal framework for legal resolution.
• Most other matters were, by contrast left to power politics, even compared to the mechanism in place at the WTO. Porter notes that the labour and environmental agreements are especially weak, despite reforms by Bill Clinton later. However, even he sees limits to citizens’ willingness to citizens to increase their exposure to international markets without new ways to safeguard themselves from negative effects.

Canada

• Before NAFTA Canada was unhappy with its dispute resolution procedures with American companies. Porter suggested that larger countries are able to use political power to disregard or interpret agreements as it pleases.
• For Canada and Mexico “it was important, if their increased access to the US market was to be meaningful that there be a way to address the long tradition of US firms using US anti dumping and countervailing duty measures to gain protection from foreign competition. The FTA had put in place a dispute resolution mechanism that, in its first five years, had led to two thirds of Canadian appeals of US decisions being successful, twice the success rate of appeals by other countries using the non-FTA procedures provided by the US.”[5]
• Canada was keen to gain access to US public sector contracts. Consequentially purchases above the threshold of $50,000 for federal government entities and purchases over $250,000 for federal government enterprises became open for competition. However, America was still able to retain small and minority business set asides.
• Despite opening up a large level of its influence over foreign companies Canada retained its FTA right to review major foreign takeovers above $250m and in the oil, gas and uranium sectors.

Mexico

• Hirst suggested that globalisation more often than not reflects a politically convenient rationale for implementing unpopular orthodox neoliberal economic strategies.
• At the start of the 1990s the Mexican government was faced with three choices, to remain closed, open unilaterally or develop a strategy of negotiated liberalisation. They chose negotiated liberalisation to increase domestic reform as a result of NAFTA agreements.
• However, Mexico was able to exert concessions that reflect its own priorities/ Its negotiators managed to maintain domestic ownership of the petroleum sector, in order to guarantee future energy independence.

These notes were made by Jonathan McHugh in February 2007

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[1] D Held; A McGrew et al Global Transformations

[2] D Held, A McGrew et al Global Transformations

[3] M Cameron; B Tomlin The Making of NAFTA: How The Deal Was Done

[4] Porter, T The North American Free Trade Area

[5] Porter, T The North American Free Trade Area