In modernizing NAFTA, let’s ensure trade remains fluid

Opinion letter by Yves-Thomas Dorval, President & CEO, Quebec Employers Council.

Montreal Gazette, p. A8 – 24 août 2017

The renegotiation of the North American Free Trade Agreement (NAFTA), whose first round of talks recently ended, is a historic opportunity for Canada and Quebec to strengthen the economic partnership and integration among the three member countries — Canada, the United States and Mexico — to the benefit of their workers and businesses.

The agreement, which has been synonymous with the North American economies since 1994, has been the cornerstone of our economic growth and security, making the continent our largest free-trade area. The renegotiation of the agreement is an opportunity that needs to be seized because it will allow us to take into consideration the structural changes in the economy that have occurred over the last two decades, while protecting the aspects that have been advantageous for the member countries.

There are many issues up for discussion and that could be subject to modernization, including the harmonization of working conditions and environmental standards, the regulation of e-commerce, customs procedures, not to mention the supply management system and the exemptions for culture, which Canada must ensure remain protected.

That said, in order not to hamper the competitiveness of the three countries’ exports, and ultimately, to avoid price hikes or any reduction in the supply of products available to consumers, it is of utmost importance to companies that the fluidity of trade be preserved.

In fact, over the course of time, NAFTA has allowed the creation of some complex cross-border (supply) value chains in many sectors, which has resulted in billions of dollars of added value in each of the three economies. Be it in the agriculture, food-processing, aeronautics, automobile, aluminium or transportation sector, there is a major flow of intermediate goods circulating between the countries. These can cross the border many times before the assembly and sale of the finished product.

The aluminium industry provides a good illustration of this broader trend. Canada is the leading primary aluminium supplier to the United States, while it is also the primary destination for American processed aluminium. These commercial trades reflect the competitive advantages of the two countries in different areas of the aluminium sector. Produced by some 10,000 Canadian workers, primary Canadian aluminum is largely exported to the United States, where approximately 160,000 American workers process it to meet their needs in the transportation, construction and packaging industries. These same goods are either consumed locally or are exported. In this way, Canada generates $7 billion a year in income through exporting its aluminum to the United States.

A high level of integration is a key factor in a country’s prosperity. And the reason is simple: trading intermediate goods internationally improves the quality of the products and reduces production costs, which makes companies more competitive in foreign markets and, consequently, supports jobs and wages domestically. This is why we say we’re all interdependent in this type of common market, and the trade relationship can be a win-win-win situation.

In fact, since exporting requires a high degree of competiveness, this creates the need to turn to foreign suppliers to reduce production costs as much as possible. Thus, any protectionist measure could greatly hinder the most dynamic businesses and their supply chains; ultimately, it is the economies that are at stake.

While some aspects of NAFTA could be improved or modernized, and some will be the focus of tough negotiations, the fact remains the renegotiation of the agreement presents an outstanding opportunity to consolidate the gains that have historically been beneficial to the three countries and to strengthen the worldwide competitiveness of their respective industries.

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