Critique of NAFTA

This is from the Star. This is just an excerpt showing some of the issues around NAFTA. Other important issues such as water and sharing resources are not mentioned.

It will be interesting to watch how a Clinton or Obama administration would try to reform the environmental and labour side accords. The side agreements represent the high-water mark of environmental and labour protection in a free-trade agreement. Both have proven largely ineffective.

They work on the principle of national treatment with each nation establishing its own level of environmental and labour protection. Both have a dispute settlement mechanism which is triggered by a "persistent pattern of failure" of a NAFTA party to enforce its laws. There have been no proceedings brought in 13 years with respect to the environmental dispute settlement mechanism, and the claims brought under the labour side accord by Mexican workers oppressed by a corrupt labour relations sector have shown that its dispute settlement mechanism is ineffective.

The softwood lumber dispute wound its way to a settlement in 2006 that resulted from the breakdown in the NAFTA dispute settlement mechanism. The U.S. refused to abide by a final determination by an extraordinary challenge committee that found that the American softwood lumber industry had not been injured by Canadian exports. According to NAFTA, this should have been the end of the dispute and roughly $5 billion in interim duties collected by the U.S. government should have been returned. Canada found itself having to turn to the U.S. courts to enforce the NAFTA determination, which confirms the mechanism failed. The most objectional aspect of the settlement, however, is the fact that Canada was forced to pay "damages" to the Coalition for Fair Lumber Imports of $500 million for distribution to its members.

International trade law is not a damages remedy, and this settlement undermines the NAFTA binational panel process.

Finally, there is a growing concern over foreign sovereign investment funds set up by foreign governments in Asia and the Middle East that are holding excessive amounts of American dollars. Great concern has been expressed in the West over the political motives of buying up "Western" companies and their competence to manage them. This challenges the concept that foreign investment is unambiguously good for an economy, which has been the guiding principle of trade liberalization since the 1980s.

This principle has guided the negotiation of more than 2,000 bilateral investment treaties offering protection to foreign investment largely in developing countries.



MARK TWAIN once said that "history doesn't repeat itself but it rhymes." The concerns expressed over these funds are reminiscent of Pierre Trudeau's Foreign Investment Review Act. FIRA was enacted in 1973 when foreign ownership was "a matter of national concern." Undertakings were required when takeovers occurred with respect to such things as maintaining employment levels, sourcing local products and services, and undertaking research and development spending in Canada. FIRA was eventually replaced by the Canada Investment Act, which embraced the principle of intrinsic benign nature of foreign investment.

It is ironic that after almost 25 years of trade liberalization and investment protection, the "Western" world has become concerned over investment from the developing world. If this concern is to be taken seriously, what is the principled difference between investment from sovereign investment funds and other forms of foreign investment?

Where does this leave us? Our major trading partner is threatening NAFTA and thickening the border, the NAFTA dispute settlement mechanism has been discredited and the guiding principle of foreign investment underlying NAFTA has been challenged. Notwithstanding all of this, nothing much is likely to change. It is unlikely that NAFTA will be renegotiated but the labour and environmental side accords may be strengthened. This is something that Canada should welcome. Effective labour and environmental agreements will provide an experiment as to how these issues may be dealt with in international trade agreements.



Chuck Gastle is a principal of Bennett Gastle P.C., a litigation and trade boutique, and an adjunct professor in international law at Osgoode Hall Law School.

Murdoch Martyn practises international trade litigation and holds his master's degree in international trade law.