North American Free Trade Agreement
The North American Free Trade Agreement (NAFTA) trade deal between Canada, the United States and Mexico came into effect in 1994. Unions warned that the deal would hurt working people in all three countries, and in the decades since have been proven right.
US President Donald Trump has said he wants to renegotiate NAFTA, saying it has been unfair for American workers, particularly in manufacturing.
Unifor will be taking an active role as the three countries move to renegotiate the terms of NAFTA, to ensure a fair deal for all workers. A Fair Trade Future begins with putting the needs of workers and their communities first, not large corporations. In 1994, NAFTA got this backwards. We can't make that mistake again.
To better understand the impact of NAFTA on the Canadian economy, Unifor has examined several sectors:
- Auto investment has poured into Mexico largely in search of low wages and minimal regulation. In the last five years, nine of the 11 new auto factories announced in North America went to Mexico.
- Mexican autoworkers can’t afford the cars they build, with assembly workers only paid about $6 per hour and parts workers earning half that.
- Several vehicles once built in Canada are now made in Mexico, with plans to move the GMC Terrain from Ingersoll, and the Toyota Corolla from Cambridge.
- Just 1.6 million vehicles were sold in Mexico in 2016, but 3.6 million built. Mexico represents just 8 per cent of the North American market in terms of sales, but 20 per cent of final assembly.
- Mexico now has nearly 900,000 auto manufacturing jobs, fully 45 per cent of the North American total. Canada has just 125,000 jobs, or 6 per cent.
- Canadian employment at the Detroit Three automakers has been cut by more than half since NAFTA, from 52,000 in 1993 to just 23,000 last year.
- Canada’s automotive trade deficit with Mexico has tripled since 2008 to reach $12 billion. For every $1 of auto imports from Mexico, Canada sends only 14¢ the other way. The deficit with Mexico is now more than double the deficit with Japan.
- In 1999 Canada was the world’s fourth-largest auto producer with an overall auto trade surplus of $14 billion. Canada is now 10th, with a deficit of $18 billion.
- For a more detailed look at NAFTA and the auto industry, click here.
Energy & Mining
- The energy and mining sectors experienced significant, and sustained, trade growth at the turn of the 21st century.
- Canada’s two-way trade between the US and Mexico grew from $18 billion in 1993 to nearly $82 billion in 2016.
- Canada currently enjoys a sizeable $55 billion trade surplus in energy and minerals with the US, despite a modest $300 million trade deficit with Mexico.
- The lion’s share of Canada’s energy and mineral trade is with the US – which accounts of 99.8 per cent of our North American exports. In fact, our energy and mineral exports to the US account for 14 per cent of Canada’s total global exports.
- NAFTA’s implementation in 1994 coincided with a series of federal government-sponsored tax incentives to boost oil sands production in the form of tax write-offs for capital investment, as well as royalty incentives instituted by the Klein government in Alberta.
- In Chapter 6 of the NAFTA, Canada agreed to a “proportionality clause” (Article 6.05) that restricts our ability to reduce energy shipments to the US. This undermines our sovereign ability to manage energy production levels (to achieve carbon emission targets, for instance).
Agriculture and Food Manufacturing
- The food manufacturing and processing sector is a massive and highly active trading sector in the North American economy. The value of Canada’s two-way trade in agri-food with Mexico and the US tops $42 billion per year, and growing rapidly.
- Despite rapid growth of Mexican food imports (growing at a pace of about 13 per cent per year) Canada still maintains a healthy trade balance with both Mexico and the US – a total of more than $6 billion in 2016.
- Canada’s $6 billion trade surplus in agri-food in driven largely by exports of live animals and animal products (nearing $10 billion last year).
- Other agri-food trade categories have not fared so well. In fact, the trade surplus in agri-food masks a decline in trade performance in processed food, like beverages, cereals, milk and bread.
- Since 2008, Canada has recorded consecutive years of trade deficit in processed foods across the NAFTA region. This follows consistent trade surpluses in this sector from 1995-2007.
- These deficits are a result of the rising U.S. food imports to Canada, as well as an overall decline in the value of Canadian food exports to Mexico and growing Mexican imports. NAFTA helped facilitate these shifting trade flows.
- A leaked memo produced by US trade officials flagged Canada’s supply management system for dairy products as a “trade concern”, fueling greater speculation that this will be a key target for Trump in an eventual NAFTA renegotiation.
- Canada already has a fairly significant trade imbalance for dairy products (e.g. cheese, milk, buttermilk, eggs, etc..), totaling $400 million per year – half of which is derived from the United States.
- The issue is rooted in America’s distaste of Canada’s supply management system – our system of managing the supply of milk, eggs and poultry, controlling imports and allowing farmers to negotiate the price of these products.
- US suppliers are upset that the recently updated milk pricing policy undercuts the export of ultra-filtered milk to Canada. US industry lobbyists are aggressively pursuing this issue with the president’s office.
- Canada proposed significant changes to its dairy import quotas under the proposed EU and TPP trade accords, prompting the government to offer up a 15-year, $4.3-billion compensation package to dairy farmers to offset the damage.
- It’s unclear what sort of damage would be wrought if supply management was further undermined in a revamped NAFTA, but the impact could be even more significant.
- Canada’s two-way trade in the aerospace sector accounts for nearly $18 billion. Nearly all of our exports are destined for the US market (98 per cent) and Canada has maintained a fairly consistent trade surplus in North American (in 2016 it topped $500 million).
- However, Canada’s trade deficit in aerospace goods with Mexico has been rising steadily since 2008. It currently sits at just above $200 million.
- According to a briefing note prepared by the US International Trade Commission, Mexico’s base of aerospace suppliers has been expanding rapidly, with the number of firms more than doubling between 2006 and 2011
- Recent estimates peg the number of aerospace firms operating in Mexico at nearly 300, growing from about 100 in 2006. Mexican employment in the sector is growing in lock-step.
- Many reports suggest the growth in Mexico’s aerospace sector is correlated to the government's aggressive pursuit of free trade deals, along with lax business, labour and tax regulations.
- Employment in Canada’s aerospace sector has remained relatively stable since 2011, however there are experiences of component part work (including at Bombardier) being awarded to Mexico-based suppliers and shipped into Canada, tariff-free, as part of final assembly.
- As the Mexican aerospace industry continues to expand, there will no doubt be new competitive pressures put on Canadian workers as the threat of jobs moving south becomes a starker reality.
Media & Culture
- NAFTA contains a general exemption for Canada’s cultural industry, which enables us to continue supporting domestic cultural policies. The exemption is not unconditional, and has been the subject of past criticism.
- Ultimately, despite NAFTA, the U.S. can’t trigger a trade challenge to stop Canada from imposing Canadian Content regulations in media. Nor can Mexico take steps to challenge our public broadcasting systems. These are important carve-outs.
- The nature of these cultural exemptions in trade deals has been eroding. There was significant concern surrounding the cultural exemption language proposed in the TPP, for instance, as being needlessly weaker than in other accords.
- Most concerning, perhaps, is that Canadian TPP negotiators fully conceded to a US demand that prevented online broadcasters (such as Netflix) from ever being subject to Canadian content regulations. A similar demand could be brought forward in a NAFTA renegotiation. Such a move would be disastrous for Canadian culture over the long term, as broadcast television continues to migrate to online platforms.
- Trade in primary metal manufacturing (e.g. iron and steel mills) generates more than $35 billion in cross border trade from Canada to both the US and Mexico. Like most manufacturing industries, the lion’s share of Canada’s exports (96 per cent) flow into the US market. Canada’s trade surplus in this industry is sizable, at about $13 billion.
- Despite relatively high volumes of trade in steel, iron and other non-ferrous materials, trade between the U.S. and Canada has grown only modestly since the signing of NAFTA (about 4 per cent per year). Trade between Canada and Mexico has grown about three-times faster per year, although total two-way trade tops out at just $1 billion.
- Much like the North American auto sector, one of the biggest troubles facing the steel industry has to do with the penetration of offshore imports into North America, that is eroding overall market share.
- A 2016 OECD Steel Committee study on the North American steel industry provides data on the eroding North American market share (imports comprise more than 20 per cent of N.A. steel volume), and points to the resulting employment losses (14,500 U.S. job losses), as well as idled factories and corporate bankruptcies (US Steel, Essar Steel Algoma).
- Primary culprits include global overcapacity along with subsidized steel imports (dumping) from China and elsewhere.