EspañolEditor’s note: Adriana Peralta recently reported on the finalization of the bilateral trade agreement between Canada and Honduras. Victoria Henderson, managing director of the Institute for Social and Economic Analysis based in Kingston, Ontario, shared her insights, beyond what could fit in the news story.
Which nation do you think will benefit more from this agreement?
It’s very difficult to speak of which country will benefit more or less from a free-trade agreement (FTA). To the extent that barriers to trade are reduced and competition is increased, the outcome of any FTA is positive sum.
Having said that, there can be a tendency among FTA negotiators to ignore the pains of change. We need to recognize that FTAs can cause shifts in the employment landscape and this can make them a difficult sell in the political arena.
Post-NAFTA, Mexico’s automotive industry is doing exceedingly well, while the automotive sector in Canada (more specifically, Ontario) is in decline. On the surface, this sounds like a loss for Canada. But the subsidies and protections afforded to the auto sector prior to NAFTA masked a basic problem: our auto sector was uncompetitive.
Canadians in other sectors of the economy who were themselves having to compete in world markets were subsidizing the protection of the auto sector. FTAs can initiate a reshuffling to correct this problem.
Of course, we need to recognize that this can be difficult. Too much re-shuffling too quickly can be destabilizing. In the long run, however, the process of reshuffling is what allows us to work together to maximize our strengths.
Have the negotiations been in any sense tilted towards either of the nations?
FTA negotiators are seeking to get the best possible terms for their respective parties. That said, the big concern is to ensure that domestic industry heavyweights are prevented from using their political clout in a way that makes the FTA an extension of entrenched privilege.
Are the FTAs necessary or they are contrary to real free trade?
What is “real free trade”? If by that we mean the immediate removal of all regulations (and, therefore, the relinquishing of all state-mediated special interests), then “real free trade” is a chimera.
The objective must be to amplify the scope of private, voluntary contracts; to move decisions from the political arena to the market. In that sense, FTAs may be a productive first step.
But there are always caveats. Too much emphasis is placed on whether or not this or that country will sign an FTA. The real work is in trying to ensure that the parameters of the FTA support the objective, and this must be an ongoing process.
Two things are built into every FTA: the first is some degree of self-interest (this is true on the national level, but also in terms of industry lobbies); the second, is the potential for unintended consequences. Those who support free trade (that is, as close to “real free trade” as possible), must continually work against the entrenchment of special interests while recognizing that unintended consequences can, and do, occur and must be addressed in a principled way.