Free Trade: Debunking the Myths
NAFTA and the FTA have raised Canada's overall standard of living, study shows
Release Date: 4 May 1998
VANCOUVER, BC>>> The evidence is in: both the North American Free Trade Agreement (NAFTA) and the Canada-United States Free Trade Agreement (FTA) have raised the overall standard of living for Canadians, according to a study released today by the Fraser Institute.
Economic nationalists insist that the Canadian economy and national sovereignty have been permanently damaged as a result of the FTA and the NAFTA. This view is challenged in Debunking the Myths: A Review of the FTA and the NAFTA, which confronts the myths about free trade with facts proving the protectionists wrong.
According to co-authors and Fraser Institute policy analysts Marc Law and Fazil Mihlar, "The empirical facts simply do not support the protectionist case. The protectionist rhetoric about the impacts of free trade on the Canadian economy is simply mythology unsupported by fact."
Some of the myths found to be without empirical support include:
Myth # 1: Significant job losses have resulted from the FTA and the NAFTA
Total employment has been rising in Canada over the past several years, not falling. Total non-agricultural employment has risen from 12.4 million jobs in 1988 to 13.22 million in 1996. In 1997, the Canadian economy created an additional 324,000 full-time jobs.
Myth # 2: Low wages in Mexico will reduce investment and wages in Canada
Because Canadian workers are considerably more productive than Mexican workers, neither jobs nor investment will be lost to Mexico on account of the NAFTA. Statistics from the Organization for Economic Cooperation and Development (OECD) show that Canada's unit labour costs are lower than Mexico's. Furthermore, Statistics Canada data show that average weekly earnings and average hourly wages have been rising, not falling, in Canada in recent years.
Myth # 3: Canada's manufacturing base will be decimated as a result of the FTA and the NAFTA
Manufacturing as a share of total output has remained fairly constant over the past several years. The share of Canada's gross domestic product (GDP) due to manufacturing was 19.2 percent in 1988 and declined only marginally to 17.3 percent in 1996. Canadian merchandise exporters have thrived, with exports to the U.S. increasing from $81.9 billion in 1988 to $164.7 billion in 1996. This hardly constitutes a "decimation" of the Canadian manufacturing base.
Myth #4: Foreign competition will hurt Canada's agricultural sector
Canada's agricultural sector will become more, not less, competitive as a result of free trade. Furthermore, losses to producers will be outweighed by gains to consumers in lower prices and increased product variety.
Myth #5: Food safety and health standards will be undermined by the NAFTA
If anything, the NAFTA has encouraged upward harmonization of such standards across the three countries.
Myth #6: FTA/NAFTA will make Canada vulnerable to Washington politicians and lobbyists
The effect of NAFTA and the FTA has been to increase the security of Canadian access to the United States market.
Myth #7: The NAFTA will undermine environmental standards
Both economic theory and the empirical evidence suggest that this claim is patently false. In Canada and the United States, environmental quality, as measured by a number of indices, has improved over the past 20 years. International trade fosters faster economic growth which in turn raises environmental standards. As Mexican incomes rise, environmental quality will likely improve there as well.
Myth #8: National sovereignty is lost as a result of the NAFTA and the FTA
Free trade and globalization do not spell the end of the nation state. Government's share of GDP in Canada has increased from 13.3 percent in 1920 to 44.7 percent in 1996, in spite of increased international trade and investment over the same period. This pattern is mirrored in nearly every OECD country.
Overall, the evidence sharply contradicts the alarmist claims of protectionists and economic nationalists. There is no evidence to suggest that either the NAFTA or the FTA have caused the economic destruction of Canada. According to Mr. Mihlar, "The gloomy predictions made by protectionist doomsayers like Maude Barlow, Mel Hurtig, and the Council of Canadians about the impacts of free trade on the Canadian economy have not materialized. The practical case for pursuing a policy of free international trade remains as strong as ever."
To order a copy of Debunking the Myths: A Review of the FTA and the NAFTA, please call 1-800-665-3558 or visit our web site at www.fraserinstitute.ca.
Established in 1974, The Fraser Institute is an independent public policy organization based in Vancouver.
For further information:
Suzanne Walters, Director of Communications,
The Fraser Institute, (604) 714-4582,
Email suzannew@fraserinstitute.ca
info@fraserinstitute.ca
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