PRB 98-9E

TABLE OF CONTENTS

PREFACE - NAFTA AND THE EUROPEAN UNION

SUMMARY HIGHLIGHTS OF THE CANADA-COUNCIL OF EUROPE
PARLIAMENTARY SEMINAR, OCTOBER 1998

INTRODUCTION

October 19

CANADA’S NAFTA EXPERIENCE (DAY 1)

Panel 1 – "Trade Issues and the Dispute Resolution Mechanisms"
Panel 2 – "Labour and Environmental Aspects of NAFTA"
Panel 3 – "Social and Cultural Aspects of NAFTA"

October 20

CANADA AND THE EU: TOWARDS A TRANSATLANTIC
MARKETPLACE (DAY 2)

Session 1 – "Highlights of Canada-Europe Trade and Economic Relations"
Session 2 – "Sectoral Issues and Areas for Future Bilateral Agreement"
Closing Session – "Beyond NAFTA to a Canada-Europe Transatlantic Marketplace"

APPENDIX – CANADA-COUNCIL OF EUROPE PARLIAMENTARY SEMINAR: PROGRAMME

BRIEFING NOTES FOR CANADA-COUNCIL OF EUROPE
PARLIAMENTARY SEMINAR – OCTOBER 1998

INTRODUCTION

DAY ONE: CANADA'S NAFTA EXPERIENCE
(Briefing Notes #1 - #7 by Gerald Schmitz)

PANEL 1: NAFTA TRADE ISSUES AND THE DISPUTE RESOLUTION MECHANISMS

NOTE #1: THE NAFTA: ORIGINS, KEY ELEMENTS AND EVOLUTION

Origins
Key Elements
Evolution

APPENDIX 1: THE MAIN ELEMENTS OF THE NAFTA
APPENDIX 2: NAFTA'S INTERGOVERNMENTAL BODIES

NOTE #2: THE NAFTA DISPUTE SETTLEMENT PROVISIONS:
STRUCTURES AND PERFORMANCE

How the Dispute Resolution Institutions Work
The Dispute Settlement Record from Canada's Perspective

APPENDIX: CHAPTER 19 CASES BETWEEN CANADIAN AND U.S. PARTIES

PANEL 2: LABOUR AND ENVIRONMENTAL ASPECTS OF NAFTA

NOTE #3: MANDATE AND DEVELOPMENT OF NAFTA'S
SPECIALIZED COMMISSIONS

The NAAEC and the Commission for Environmental Cooperation
The NAALC and the Commission for Labour Cooperation
Assessments of the Side Agreements and Implementing Commissions

NOTE #4: THE NAFTA AND ENVIRONMENTAL ISSUES

NAFTA As a "Green" Agreement?
The Environmental Record of NAFTA Institutions
The Controversy over NAFTA's Investment Provisions

NOTE #5: NAFTA AND LABOUR ISSUES

The Record of NAFTA Institutions
NAFTA's Impact on Labour

APPENDIX: NAALC'S LABOR PRINCIPLES

PANEL 3: SOCIAL AND CULTURAL ASPECTS OF NAFTA

NOTE #6: NAFTA AND SOCIAL ISSUES

From "Social Dumping" to a "Social Charter"?
NAFTA Impacts on Social Policies and Programs

NOTE #7: NAFTA AND CULTURAL ISSUES

The "Cultural Exemption" within the FTA/NAFTA
Protecting and Projecting Culture beyond NAFTA

DAY TWO: CANADA AND THE EUROPEAN UNION: TOWARDS
A TRANSATLANTIC MARKETPLACE
(Briefing Notes #8 and #9 by Peter Berg)

SESSION 1: HIGHLIGHTS OF CANADA-EUROPE TRADE
AND ECONOMIC RELATIONS

Documentation

Department of Foreign Affairs - Fact Sheet and Overview of Canada-
European Union and Economic Relations 1976 - 1997
(also accessible at http:www.dfait-maeci.gc.ca)

Joint Political Declaration on Canada- EU Relations (December 1996)
and Prime Minister's Press Release on May 1998 Summit

Chapter by David Long, "Canada-EU Relations in the 1990s" in
Canada Among the Nations 1998

SESSION 2: SECTORAL ISSUES AND AREAS FOR FUTURE
BILATERAL AGREEMENT

NOTE #8: AN OVERVIEW OF CANADA'S CURRENT TRADE IRRITANTS
WITH THE EUROPEAN UNION

Introduction
Agriculture
Fish
Mining
Forest Products

SESSION 3: BEYOND NAFTA TO A CANADA-EUROPE TRANSATLANTIC
MARKETPLACE

NOTE # 9: STRENGTHENING THE TRANSATLANTIC
TRADE RELATIONSHIP

Introduction
Forging Bilateral Links
Transatlantic Free Trade: A Realistic Option?

APPENDIX 1: EXTRACTS FROM THE 1997 EUROPEAN PARLIAMENT RESOLUTION ON EUROPEAN UNION RELATIONS WITH CANADA
APPENDIX 2: MEMBERSHIPS IN MAJOR EUROPEAN AND TRANSATLANTIC ORGANIZATIONS

CANADA-COUNCIL OF EUROPE
PARLIAMENTARY SEMINAR, OCTOBER 1998

BEYOND NAFTA TO A CANADA-EUROPE TRANSATLANTIC
MARKETPLACE: ISSUES AND PROSPECTS

PREFACE: NAFTA AND THE EUROPEAN UNION

In a world of increasingly internationalized economic activity, accompanied by a proliferation of regional trade agreements, the two economic integration blocs that stand out in terms of size and importance are the European economic community and the North American free-trade area. The European Union’s 15 member countries, with a combined population of over 370 million people and GDP approaching US$9 trillion, already constitute an enormous internal market, and one that will grow substantially with the EU’s expected enlargement to over 20 countries. The EU is also the world’s largest exporter of goods and services, and the second largest market for imports. The three countries that are party to the North American Free Trade Agreement (NAFTA) – Canada, the United States, and Mexico – do not constitute a single market and disavow any political integration intentions. Still, the NAFTA area is increasingly integrated in terms of business activity, with corresponding impacts on domestic policy spheres including sensitive matters of environmental, social and cultural regulation. The NAFTA entity is also a potent force internationally, given its market size: almost 400 million people, GDP over US$11 trillion, and internal trade flows of US$500 billion. NAFTA may also expand to include more countries.

EU and NAFTA policies have a very large influence on the direction of the global trade and investment regime, which is why it is so important that they be compatible with multilateral principles and the rules of the World Trade Organization (WTO). Systems of regional protectionism would lead to damaging competition. The relationship between the two blocs is therefore also extremely important. As yet, however, from the North American side the economic relationship with Europe has proceeded along primarily bilateral tracks. Both Canada and the U.S. have extensive and recently updated framework agreements with the EU; Mexico is in the process of negotiating its own bilateral trade accord with it. Some concern has been expressed in Canada that the bilateral path risks becoming too much dominated by EU-U.S. priorities, thereby sidelining Canadian interests and values. It has been suggested that a broader transatlantic vision in needed from both the North American and European sides.

Whatever the merits of that argument, it seems clear that, just as Canadians can benefit from understanding the implications of economic developments in Europe, Europeans can gain by understanding where Canada is coming from – both in terms of developments within North America and in terms of pursuing transatlantic objectives. In this context a Canada-Council of Europe Parliamentary Seminar was held in Ottawa in October 1998 on the theme "Beyond NAFTA to a Canada-Europe Transatlantic Market Place." The following section gives the summary highlights of that seminar.

SUMMARY HIGHLIGHTS OF THE CANADA-COUNCIL OF EUROPE
PARLIAMENTARY SEMINAR, OCTOBER 1998

INTRODUCTION

On 19-20 October 1998, the Canadian Parliament hosted a seminar on the theme "Beyond NAFTA to a Canada-Europe Transatlantic Marketplace," jointly sponsored by the Canada-Europe Parliamentary Association and the Sub-Committee on International Economic Relations of the Council of Europe Parliamentary Assembly’s Committee on Economic Affairs and Development. The Council, based in Strasbourg, France, is Europe’s oldest body dedicated to the goals of democratic and social solidarity; 1999 marks the 50^th anniversary of its founding. Within the Assembly, national parliamentarians from 40 member countries – including all 15 European Union (EU) states and most central and eastern European nations, including Russia – participate in its quarterly sessions, extensive committee work, and associated political-group activities. Canadian parliamentarians have had observer status in the Assembly since May 1997, and have used this to broaden the scope of their involvement in addition to intensifying a longstanding relationship with its economic affairs committee.

The idea for the Ottawa seminar was first discussed with the new chair of this committee, Mrs. Helle Degn, during the January 1998 Assembly session. Responding to the initiative from their European counterparts to learn more about the North American free-trade area from a Canadian perspective, Canadian parliamentarians expressed a reciprocal interest that proposed also going beyond the NAFTA to explore further prospects and policy options – in particular, the potential for a broader transatlantic economic arrangement that could connect the increasingly integrated North American and European regional blocs to their mutual benefit. The issues raised by the seminar – notably its concluding session, which considered the possibilities of linking Canadian and European approaches in the context of complex, evolving continental, inter-regional and global trade agendas – have become even more pertinent in the light of the agreement between the United States and the EU reached in November 1998 on a "Transatlantic Economic Partnership" Action Plan. The EU-Canada Summit of 17 December 1998 launched a new "EU-Canada Trade Initiative" but offered few details. In these circumstances, how best can Canada improve its situation alongside its NAFTA partners, while at the same time proceeding towards a closer relationship with European partners?

The fourteen panellists who addressed the seminar over its two days (see appendix 1 for the official programme) contributed in different ways to helping formulate an informed response to this question. But the debate also indicated that it will be no easy matter to ensure that Canadian interests are protected and promoted within regional integration and trade negotiation processes, given the other powerful dynamics propelling increased engagement between North America and Europe.

The seminar’s first day was devoted to assessments of Canada’s NAFTA experience; specifically, three panels focused on the issues of: trade performance and dispute resolution; environmental and labour mechanisms and impacts; and social and cultural dimensions. In each panel there were three opening presentations, followed by a lively question and discussion period. The Minister of Transport, the Hon. David Collenette, also addressed participants over lunch. The second day moved to consideration of Canada-Europe options for building the transatlantic marketplace. Two morning panels held at the Department of Foreign Affairs and International Trade examined the Canada-EU trade and economic relationship, including some sectoral issues and areas for future bilateral cooperation. As well, the Minister of Industry, the Hon. John Manley, delivered a luncheon address on that theme. The final session attempted to draw some overall conclusions as a basis for advancing the policy agenda in the direction of a broader and deeper Canadian-European trade partnership that will bolster the transatlantic bridge at a time of great international transition and uncertainty.

What follows are brief summary highlights from the six panel sessions over the two days of the seminar (the full proceedings will be available as an edited transcript). We have tried to focus on the ideas which are of most interest in terms of promoting a forward-looking Canadian agenda within NAFTA, and beyond that, towards a stronger transatlantic connection with Europe that is fully conscious of the heightened global concerns affecting countries in both regions.

October 19

CANADA’S NAFTA EXPERIENCE (DAY 1)

Panel 1 "Trade Issues and the Dispute Resolution Mechanisms"

Speakers:

Dr. Michael Hart
Senior Associate, Centre for Trade Policy and Law
Carleton University and University of Ottawa

Mrs. Sally Rutherford
Executive Director
Canadian Federation of Agriculture

Mr. Gordon Ritchie
Partner, Strategico Inc.
Former senior Canadian trade negotiator

Michael Hart, who like fellow panellist Gordon Ritchie was closely involved in the negotiation of the Canada-United States Free Trade Agreement (FTA) over a decade ago, began his presentation by underlining the importance of effective dispute resolution as a Canadian trade policy imperative, not only in the bilateral context but also multilaterally. Efforts have been ongoing to strengthen such rules-based mechanisms in order to deal with the challenges of "deeper integration." More is involved than just lowering trade barriers and facilitating cross-border commerce; governments also need better ways to manage relations among themselves and to conciliate varied business, consumer and societal interests.

While getting U.S. lawmakers to accept binding international procedures remains extremely difficult, Mr. Hart argued that much progress has been made under the FTA and the NAFTA through the innovative "chapter 19" system of binational panels -- created under FTA and carried over into NAFTA – to resolve anti-dumping (AD) and countervailing duty (CVD) cases between the [two] countries. Of the 35 cases litigated under the FTA, the only major exception to this positive track record has been the long-running softwood lumber dispute. As well, rather than talk of "winners" or "losers," Mr. Hart contended that dispute resolution working as it should, not only makes the system more honest, but "has the wonderful benefit of drawing governments back from policies that do not make much sense."

Under NAFTA, only 12 of 21 new chapter 19 cases have involved Canada, and there has been only one such case (dealing with supply management in agricultural products) under the chapter 20 general dispute-resolution procedure. The binational system may be tested more often if economic conditions deteriorate. At the same time, we are clearly benefiting from the stronger World Trade Organization (WTO) dispute-settlement regime in place since 1995 (148 consultations involving 112 cases, with 20 final panel decisions to date), which is on the whole "superior to what is in the NAFTA." According to Mr. Hart, the trade-disputes system is working, but also still evolving and open to improvements through future negotiations among member governments. As cases multiply and the issues become increasingly complex, much can also be learned from the European Union (EU) experience with a permanent court that is able to provide more stability and confidence than the ad hoc panels in NAFTA.

Sally Rutherford agreed with the assessment that on the whole FTA/NAFTA dispute-resolution mechanisms have served Canada well, for example in sectors like agriculture which have continued to be subject to cross-border harassment. Given that the panel system at least provides for a process that is more rational and less driven by political pressures, it has "significantly increased the confidence of the industry both in primary production and in the processing industry." The FTA was the key breakthrough in that regard; NAFTA added little to it.

Despite this advance, Ms. Rutherford described examples from the recent annals of Canada-US agricultural trade to illustrate how the political, and administrative trade-law systems on each side of the border sometimes clash. Such problems not only persist, but may increase as the inter-governmental regulatory environment becomes more complex and at more levels -- e.g., different rules governing sanitary or biotechnology issues in food products at the subnational (state/provincial), federal, and in the case of the EU, supranational levels. NAFTA has worked to minimize harassment, but when disputes "go beyond traditional or historical legal or commercial problems, we have yet to see where that fits in." A further difficulty for affected Canadian industries is the growing expenses, for which American lobbies can marshall more resources, which are now associated with litigating complicated cases.

The third panellist, Gordon Ritchie, cautioned that how Canada-U.S. dispute resolution has worked in practice reveals some "serious problems" with its functioning. While it would be unfair to judge the system on the basis of its failure to solve the contentious softwood lumber case, that case is significant as being the biggest, longest-running, and still dominant bilateral trade dispute. Unfortunately, the U.S. has steadfastly refused to dismantle its offensive trade-remedies system. Under FTA/NAFTA rules it is, however, at least obliged to apply its own law fairly. That is a significant improvement, but it should not be expected to do more than restrain considerations of national self-interest. Even with added WTO rules in place, U.S. domestic operating practice often belies that country’s international commitments. In the ongoing lumber dispute, Canada was simply lucky to win a crucial panel decision that split 3-2 on national lines, and subsequent protectionist truces can provide at best temporary relief. (For more details on this context see background Note #2 in the seminar documentation prepared by the Parliamentary Research Branch.)

A second key issue raised by Mr. Ritchie was NAFTA’s innovation with respect to investment-related disputes, specifically provisions which allow U.S. corporations – on their own, without requiring the sanction of the U.S, government -- to pursue arbitral procedures against Canadian government authorities alleging violations of their NAFTA rights. Ironically, this can give a foreign company operating in Canada a recourse which would not be available to a Canadian company. Several recent NAFTA investor-state cases brought against Canada have provoked controversy, especially given that similarly flawed provisions "have been bootlegged into proposals for so-called multilateral accords on investment." (Again, for additional details on this context and connection to the ill-fated MAI negotiations, see background Note # 4.)

In the discussion period, Mr. Terry Davis (United Kingdom) led off by inquiring about the state of public support for or opposition to North American free trade. Panel co-chair, Senator Sharon Carstairs, and other Canadian parliamentarians present from different parties explained that it had been a highly emotional political issue; indeed a dominant one during the 1988 election campaign when the government was re-elected; public opinion polls had revealed majority opposition to the original FTA though with important regional differences. Labour unions and also certain provinces have led opposition to the trade deals. (For a comprehensive history of this opposition see Jeffrey Ayres, Defying Conventional Wisdom: Political Movements and Popular Contention Against North American Free Trade, University of Toronto Press, Toronto, 1998.)

Over the course of this decade, public attitudes in Canada on free trade seem to have become more relaxed and generally supportive. However, Mr. Ritchie observed that, going beyond NAFTA, some very big issues, such as culture and trade, remain unresolved, notably between Canada and the United States. Anticipating the discussion in the afternoon panel, he argued that Canada must be very firm in defending its values as a nation in such areas. This cultural divide, and the need for Canadians to work with European colleagues to address it multilaterally, was strongly reinforced by panel co-chair M.P. Bill Graham (who chairs the House of Commons Standing Committee on Foreign Affairs and International Trade which in 1999 will be conducting a major study of prospective global trade negotiations).

Joining the discussion, Mr. Hart underlined the added dimensions being brought to bear by "the new political economy of international trade negotiations" in which there are more players than ever before. Not only governments and business interests are involved, but a widening spectrum of civil-society actors, thereby linking the evolving trade and investment agendas to environmental, social, human rights, and other normative objectives. The experience of the MAI illustrates that it is no longer possible to ignore these concerns. Reinforcing that point, Mrs. Durrieu (France) elaborated further on the reasons for France’s withdrawal from the MAI talks which had been scheduled to resume that very day in Paris.

Ms. Rutherford observed pointedly that we have entered a period of globalization in which major issues of sovereignty, governance, and coherence among proliferating international agreements remain outstanding, and with unforeseen consequences. Summing up their thoughts on developments beyond NAFTA, other panellists agreed that important policy challenges lie ahead. Mr. Ritchie raised the question of improving the distribution of benefits from trade liberalization, and also the prospect of adding a "North Atlantic configuration" to North American free trade.

Mr. Hart envisaged a continuation of disputes over bilateral issues such as lumber, but was optimistic about a progressive interaction of experimentation and consolidation through plural regional and multilateral negotiating arenas. However, he was sceptical about the potential for achieving substantive trade liberalization results in the separate contexts of the proposed "Free Trade Area of the Americas," APEC, or an emerging Transatlantic free-trade area (TAFTA). In his view, a process of multilateral consolidation (i.e., moving matters up to the WTO level) is more likely, driven by the very logic of the major issues now under consideration.

On the future of that multilateral trade agenda, Mr. Hart concluded:

Negotiators are used to negotiating tariffs, quotas, anti-dumping rules and so on. They are now being pressed to deal with equity distribution issues dealing with labour, human rights, and environment through the trade window. This is because that is the most advanced system of rules that is available globally where there is some prospect of enforcing the rules … [and] makes for a more complex negotiating scenario that requires some very thoughtful work on the part of academics and parliamentarians who are thinking through this new world of trade negotiations.

Panel 2 "Labour and Environmental Aspects of NAFTA"

Speakers:

Ms. Jeanine Ferretti
Interim Executive Director
Commission for Environmental Cooperation (CEC)

Mr. Peter Bakvis
Conféderation des syndicats nationaux (CSN)

Ms. Michelle Swenarchuk
Canadian Environmental Law Association (CELA)

Jeanine Ferretti began by explaining her agency’s origin, subsequent to the NAFTA agreement being reached, as being part of a further response by the three governments to concerns that NAFTA – even with the inclusion of some "green" provisions – could lead to a worsening of environmental conditions, weakening of environmental regulation, and erosion of public accountability. The environmental "side accord" which created the CEC affirmed three principal objectives: avoidance of trade and environment disputes; effective enforcement of environmental laws; addressing environmental issues of common concern. The CEC itself has a tripartite structure which includes a unique public advisory committee. While acknowledging that the CEC gets mixed reviews from the environmental community, Ms. Ferretti outlined an activist trilateral work program in key areas such as transboundary pollution, trade-environment linkages, and environmental law enforcement.

An ongoing weakness of the NAFTA institutions, as a recent performance review concluded, is that "thus far the trade agenda is operating on a very separate course of interests and business from the agenda of the environmental commission." However, the CEC does possess innovative mechanisms which allow citizen complaints to be brought forward for a factual determination. According to Ms. Ferretti, the three governments recognize that more has been accomplished in terms of environmental cooperation than in dealing with the complex and contested terrain of trade-environment issues. She indicated that the most interesting challenge to the CEC may be the most recent allegation, brought by a coalition of Canadian environmental and labour groups, that NAFTA’s chapter 11 investor-state arbitration process is jeopardizing its environmental objectives. This has triggered an internal examination between the CEC and NAFTA structures that will be a very important test case to watch.

Turning to NAFTA’s labour side agreement, Mr. Peter Bakvis outlined a number of concerns expressed by the labour movement during the NAFTA negotiations: potential job and wage losses, weakening of labour laws, and erosion of social protection measures. The NAFTA agreement was strongly criticized for lacking any concrete reference to worker rights or social standards. Unlike the situation in Europe, NAFTA proposed integration with a developing country in which average salaries were barely 10% of Canadian levels. Matters had improved with the election of the Clinton administration, resulting in a complementary labour cooperation "side accord." The U.S. had also introduced an adjustment assistance program, though none was forthcoming in Canada.

The North American labour commission which was set up is similar to its environmental counterpart in affirming some laudable principles. However, it lacks a public advisory component and suffers in comparison to European structures for defending economic and social rights. No common norms are established, and enforcement of existing national laws remains especially problematic in Mexico (where the purchasing power of the minimum wage has dropped 30% since 1994). Mr. Bakvis argued that the complaints procedures are also narrow and weak, with violations of certain key rights – i.e., freedom of association, collective bargaining -- being subject only to consultations among NAFTA governments. Accordingly he recommended strengthening these structures by: incorporating obligations to adhere to core international labour rights (specifically seven fundamental conventions of the International Labour Organization); making non-compliance subject to sanctions; and establishing regular consultative mechanisms with NGO, labour and business representatives.

Michelle Swenarchuk returned the focus to the environmental and health effects of a decade of FTA/NAFTA experience. Her prognosis was not optimistic, given her account of how successive trade treaties, notwithstanding considerable public opposition, have in fact circumscribed the grounds for public-interest protection. She cited several disputed cases (including a successful Canadian challenge of EU standards banning hormone residues in beef, and the U.S.-based Ethyl Corp.’s successful suit against Canada under the NAFTA investment chapter) to illustrate how in her view trade-biased interests have been allowed to prevail over other public-policy values in legislation – "We have seen this ever-enlarging number of areas of legitimate public policy where the deregulation of trade and the agreements are having the effect of blocking governments from taking legitimate action."

Referring to French Prime Minister Jospin’s announcement of France’s withdrawal from the MAI negotiations, Ms. Swenarchuk observed the important difference between an inter-governmental delegation of sovereignty, as in the controlled framework of the EU, and the ceding of sovereignty to private international corporate interests. As for the structures of the international trade and trade-disputes system, she argued for much greater "transparency," including public rights of access, and also for effective parliamentary oversight and accountability. She was encouraged by the opportunities for Canadian-European alliances which could be developed to advance such a timely political and democratic reconsideration of the future direction of the trade regime.

In the discussion period, responses to pointed questions from Mr. Davis confirmed the limited and uneven record of NAFTA institutions from a labour and environmental perspective, even if establishing cooperative mechanisms for both has been a step forward. Ms. Swenarchuk also observed in regard to the Ethyl case cited earlier that, regardless of the merits of the government’s strategy in defending itself against the lawsuit, the expansion of the concept of "expropriation" as defined in the NAFTA and proposed for the MAI exposes governments to growing private challenges to public-interest regulation as well as demands for compensation that exceed what would be acceptable under pre-existing domestic and international obligations dealing with commercial arbitration. Mrs. Durrieux, elaborating on French opposition to the MAI, concurred that such investor-state provisions have become imbalanced in favour of private versus public interests.

Following up a question from Mr. Daniel Turp M.P. about the evolution of a "North American Community," referred to in recent speeches by Canadian foreign minister Lloyd Axworthy but as yet little debated publicly, there was a brief discussion of scenarios leading from NAFTA towards greater hemispheric integration along with negotiations [note: currently being chaired by Canada] on a proposed Free Trade Area of the Americas (FTAA). Mr. Bakvis observed that MERCOSUR, led by Brazil, envisages a process that is closer to the European integration model in its attention to the social dimension. Mr. Behrendt (Germany) wondered about the extent of NGO networking across borders in paying attention to environmental issues among others. And Mr. Gusenbauer (Austria) asked what should be the fate of the MAI. Ms. Swenarchuk indicated that strong links and social alliances, aided by the Internet, are developing among international NGOs. On the subject of free trade in the Americas, she argued that "the FTAA process will be used to implement the WTO agreements across the hemisphere and speed their implementation." On post-MAI options, she concluded that: "If it dies at the OECD, it will resurface at the WTO"; however, she agreed with many others who "always have been opposed to the WTO encroaching further into national sovereignty by negotiating an investment regime."

Panel 3 "Social and Cultural Aspects of NAFTA"

Speakers:

Dr. Brooke Jeffrey
Concordia University

Mr. Keith Kelly
Former Executive Director
Canadian Conference of the Arts

Mr. David Crane
Journalist, The Toronto Star

Professor Brooke Jeffrey began by observing some fundamental differences between the chosen paths of NAFTA and EU integration. In the case of the former, there had never been any intention of combining political and social with economic integration. She said Canadians especially are concerned with preserving national identity, and referred to the current government’s defence of measures to protect Canadian magazine publishers in the face of American challenges, raised by panel co-chair Senator Lorna Milne in her opening remarks. Within Canada, where provinces have important jurisdiction in social matters, there had been a vigorous debate over the effects of free trade, globalization, fiscal cutbacks, and other factors on social cohesion. But, unlike Europe, there was no framework at the NAFTA level for social policy considerations, much less any social agenda based on common values and goals.

There is a NAFTA clause which allows each country the right to adopt any measures with respect to social services established for a public purpose. However, this reservation is of arguable force and has yet to be clearly tested in a dispute-resolution case. Indeed it is difficult to measure social effects, for good or ill, as being directly attributable to NAFTA. Taking a broader outlook, Ms. Jeffrey suggested that positive civil-society coalitions are nonetheless beginning to emerge among the three countries. Moreover, there appears to be a convergence among the value-sets of the region’s citizens (with Canadians putting the highest value on "tolerance," Americans, on "independence," and Mexicans, on "responsibility"), although such harmonization also seems due mainly to global influences not NAFTA. If citizens as well as elected officials are able to interact and participate more in a NAFTA context, perhaps we will see a growing basis and opportunity for advancing social-charter type concerns in years to come.

Keith Kelly observed a similar difficulty with trying to measure NAFTA’s impact on Canadian culture. He also suggested that the ongoing focus on Canada’s "cultural exemption" obtained in the FTA/NAFTA may be somewhat misplaced, since a decade of experience has revealed plainly that such provisions offer scant protection – "the cultural exemption only works if the Americans decide to respect it." In fact, they have shown no sign of letting up on their right to retaliate against what they consider to be discriminatory Canadian cultural measures, and recently (as in the magazines case) they have been able to appeal to the WTO, in which "there are no cultural filters for the dispute settlement mechanism to use to treat a cultural dispute any differently than it would a dispute in traditional trading commodities."

On a positive note, Mr. Kelly referred to international networking taking place, notably with European counterparts, to develop alternative formulations (such as the concept of a "charter of global parallel rights" in the area of culture) which can lead to durable solutions that preserve autonomous cultural expression within a beneficial global trade and investment environment. As he concluded: "We certainly hope that the international consensus on culture will develop to the point where we might be successful during the [WTO] millennium round at finding a solution to the issue of how we protect those values that are most important to us as nations."

David Crane saw the impact of the FTA/NAFTA on socio-cultural trends as being linked to developments in the Canadian economy being driven by the dynamic evolution of international business activities and emerging communications technologies. He pointed to the actual or prospective entry of U.S. private service-providers in a number of areas – e.g., health, education, corrections -- which have traditionally been the preserve of the public sector. The larger context of globalization also in his view constrains governments’ ability to raise taxes to finance social objectives. In Canada’s case, cultural objectives will also be at stake in forthcoming WTO negotiations, notably in the services area, and probably getting underway in the year 2000 following the ministerial summit which the U.S. is hosting in late 1999.

Reinforcing comments by Mr. Kelly, Mr. Crane observed that Canada must be creative as well as vigilant in developing realistic options with like-minded countries, since the U.S. has signalled its contrary determination to make cultural industries further subject to general trade rules, and not to grant culture any special status. Mr. Crane suggested that both Canadian and Europeans could do a better job of building alliances in the face of such American challenges. What Canada is seeking is not to restrict the cross-border flow of cultural products (indeed much of the Canadian consumer market is dominated by foreign culture), but to maintain "viable space for Canadian cultural industries to profitably serve the Canadian public" across the full range of media. In Mr. Crane’s view, the commercial aspect of this is critical to the survival of Canadian media, which do not enjoy the huge domestic market and economies of scale of their American competitors.

Unfortunately, he contended, the FTA/NAFTA provisions have done nothing to shield Canadian culture from U.S. challenges and threats of retaliation. So if NAFTA evolves further in the direction of deeper integration, there is cause for worry. And, as fast-developing modes of electronic commerce and the Internet create new implications for culture and trade, Canadians and Europeans need to find ways of working together on what promises to be one of the most critical issues of the next WTO round.

Leading off the discussion period, Mr. Caccia asked how it has come to pass that commercial and trade-driven considerations seem to dominate so much of international relations and diplomacy, to the detriment of social values. Can this powerful trend be constrained? In response, panellists referred to the profound effects of both a technological revolution and an ideological revolution in favor of de-regulation and privatization. Mr. Crane argued that, while it is not realistic to return to some traditional protectionist past, there are elements of a "counter-revolution" in the making. Governments are not powerless by any means, and there is increased attention to addressing "democratic deficits" at a number of levels. In the wake of the Asian financial crisis, even institutions like the IMF are recognizing that "global financial deregulation may have gone too far." The dilemmas of globalization and "global governance" are now a major topic of discussion in international fora.

On culture and free trade, Mr. Davis said he understood Canadian worries about the overwhelming influence of American television and film, but queried whether Canadian defences of the domestic magazine industry were not simply subsidizing publishers’ profits, some of dubious merit. Mr. Kelly and Mr. Crane elaborated on reasons why so-called "split-run" editions of U.S. magazines threaten the viability of smaller Canadian publishers.

Mr. Jan Figel (Slovakia, Chair of the Subcommittee on International Economic Relations), contrasted the NAFTA drive for competitiveness with the principle of solidarity which has guided the construction of a multinational European community in the post-war, and now post-Cold War, period. He asked: "Is there any institutionalized vision for solidarity in North American relations and NAFTA in particular?" Mr. Crane replied that there was none. The Clinton administration did create a North American Development Bank to get NAFTA passed through Congress, but as it dealt only with U.S.-Mexico border projects, Canada declined to participate. Lately, Foreign Affairs Minister Axworthy has been promoting the concept of a North American Community (see an earlier reference in Panel 2 and also background Note # 7), which appears to be primarily focused on education. However, Mr. Crane was doubtful about this initiative, especially given the Canada-U.S. philosophical differences over social and cultural policy. [*Note: in a recent essay comparing North American and European patterns of "continental" integration, Canadian international relations scholar Stephen Clarkson offers an insightful perspective on the transatlantic possibilities arising out of an emerging "NAFTA-EU axis."(1)]

Other interventions pursued the issue of the design of evolving trade arrangements, and how the rights of governments would be affected; for example, Clifford Lincoln M.P. cited the undue power of big U.S.-based corporations as manifested in the Ethyl case and in the cultural field. Mr. Crane returned the onus to the governments which, after all, negotiate and agree to these trade deals -- "governments have more power than they like to think they have." Continuing on the subject of social and cultural consequences, Mr. Gusenbauer questioned the merits of a transatlantic marketplace "more or less functioning on the basis of NAFTA terms. (… ) If NAFTA terms do not offer better social and environmental possibilities, why start to negotiate at all? If it is not better than the WTO, what is the comparative advantage?"

In struggling with this question, panellists agreed that international negotiations around such issues will be extremely difficult. On the cultural issue, which is also a major problem for Europe, making any progress will depend on changing the attitude of the United States. In emphasizing this point, Mrs. Francine Lalonde M.P. followed up an earlier query about the future of cultural "exemptions," and described this as a challenge which Canada shares with all European countries, not just those in the EU. Mr. Kelly was not optimistic about change in the U.S. bargaining position, but nevertheless strongly urged that Canada work closely with like-minded countries through the WTO process to achieve practical proposals for safeguarding cultural objectives.

In bringing the discussion to a close, Mr. Caccia wondered about the efficacy of adding new social or cultural clauses into trade agreements in light of the unimpressive record of the NAFTA labour and environmental commissions to date. Mr. Gusenbauer also questioned the "soft language" that tends to get used in dealing with such problems of the trading system: "When it concerns profits, there is strong weaponry, but when it concerns fundamental human and social rights, we talk in terms that are very cloudy." Mr. Davis pointed out that the European Union does at least have a more enforceable supranational framework through the European Convention of Human Rights.

In a final comment, Dr. Jeffrey observed the difficulty of getting the U.S. to accept such multilateral jurisdiction, and more generally, of negotiating social issues among such disparate partners. NAFTA remains a very limited instrument in this regard, and the EU will likely also be challenged by similar problems in its negotiations with Mexico and other Latin American partners. At the same time, both Mr. Kelly and Mr. Crane held out hope for carrying forward forms of intergovernmental cooperation – specifically, Canadians and Europeans working together on some of these issues -- that can make a real difference in how this new era of global commerce and enormous technological change is managed in ways that promote rather than undermine important societal and cultural values.

Looking beyond NAFTA, this aim now has to be regarded as a crucial part of the transatlantic and the global challenge facing Canada and Europe into the new millennium.

October 20

CANADA AND THE EU: TOWARDS A TRANSATLANTIC
MARKETPLACE (DAY 2)

The second day of the seminar turned the focus from the NAFTA experience to a discussion of current and future Canada-EU relations in view of the need for a strengthened transatlantic commercial relationship. Improving existing bilateral ties in specific areas is a key consideration, as was brought forward by parliamentarians who spoke both in the morning sessions held at the Department of Foreign Affairs and International Trade and the closing session on Parliament Hill. Beyond this is the question of how to build more effective bridges between North America and Europe, -- and perhaps to go as far as the construction of a Transatlantic Free Trade Agreement (TAFTA).

Session 1 "Highlights of Canada-Europe Trade and Economic Relations"

Speakers:

His Excellency Jean-Pierre Juneau
Canadian Ambassador to the European Commission of the European Union

Mr. Alfred Gusenbauer (Austria)
Member of the Subcommittee on International Economic Relations and
former Chair of the Social, Health and Family Affairs Committee of
the Council of Europe Parliamentary Assembly

After introductions by co-chairs Mrs. Francine Lalonde M.P. (Vice-President, Canada-Europe Parliamentary Association) and Mr. Jan Figel (Slovakia, Chair of the Subcommittee on International Economic Relations), Ambassador Juneau led off with an upbeat portrait of the current state of Canada-EU relations. Among the optimistic characteristics of the relationship which he presented were the following:

• First, Canada’s exports to the EU registered an impressive 32.4% increase in the first seven months of 1998.

• Second, the composition of trade has improved in that greater emphasis is now placed on finished products. These now comprise 42% of Canadian exports versus only 12% in 1978.

• Third, improvements in trade facilitation (e.g., greater harmonization of product standards) have been made that will simplify transatlantic business.

• Fourth, the stock of EU direct foreign investment in Canada, comprising fully 65% of non-U.S. direct investment in Canada, grew to $37 billion mark in 1997.

Maintaining this positive perspective, Ambassador Juneau pointed to even more prosperous transatlantic links in the future, including services trade. Science and technology is another strongly performing area. In his view as well, the introduction of the Euro would enhance Canadian trade through a reduction in exchange-rate risk as well as indirectly through the beneficial impacts of European economic and monetary reforms. Moreover, as the EU will enlarge over the long-term, so too will Canada-EU economic relations, aided by longstanding Canadian trade ties with some of the candidate countries.

Mr. Juneau expressed confidence that Canada can look forward to a strong economic partnership with an EU market that is already the world’s largest. At the same time, Canada has to continue to work hard to achieve improved access to the EU market through mutual recognition agreements and other means. Canada-EU economic links will grow even stronger as the barriers to trade are removed.

From the European side, Mr. Alfred Gusenbauer argued that the future of Canada-EU relations depends largely on global market conditions. There was certainly a need for regional relationships within this global setting; to that end, the transatlantic marketplace could play a key role, but would have to be considered carefully on its merits. The issue of how to combine multiplying regional trade pacts with an overall multilateral approach came up at several points during the day’s discussions. In addition to the various trade talks between the European Union, NAFTA countries, and other Latin American countries, notably the MERCOSUR bloc, the co-chairs of this session, Jan Figel (Slovakia) and Mrs. Francine Lalonde M.P., also made reference to Canada’s launch of negotiations with the European Free Trade Association (EFTA) and the Central European Free Trade Area (CEFTA) initiative.

Such trade questions, Mr. Gusenbauer insisted, must be considered against the backdrop of some fundamental political and governance challenges confronting the global economic system. In order to deal with the current international financial instability, he called for changes to take place with respect to international institutions – in essence, a new Bretton Woods arrangement. In particular, he sought more coordinated global currency arrangements and was of the opinion that the move to a single, stable currency in Europe could help to ensure greater global stability. Mr. Gusenbauer went on to register his support for the WTO’s "Millennium Round," but noted that a truly comprehensive round of trade and investment talks would need to be launched.

Mr. Gusenbauer argued forcefully that "democracy is a main and essential prerequisite for the development of a market economy that takes into consideration wealth, growth and development." Accordingly, the trend towards greater globalization must also be accompanied by increased democratization. Too much decision-making power was being left in the hands of corporations or international organizations such as the International Monetary Fund (IMF) and World Bank; legislators needed therefore to make their voices more influential and to make their governments more accountable for the actions taken by these organizations. This view was shared by other seminar participants, particularly Mr. Povilas Gylys (Lithuania), Mr. Wolfgang Behrendt (Germany), and Mr. Benoit Sauvageau (M.P., Canada). Mrs. Helle Degn (Denmark), Chair of the Council of Europe Assembly’s Economic Affairs Committee again emphasized the point in her remarks at the conclusion of the morning’s second session.

The discussion period also raised a number of questions about the actual state of progress in developing Canada-Europe trade prospects. Senator Jerahmiel Grafstein noted that Canadian trade with continental Europe (in percentage terms) was on the decline, and that an acceleration of the Canada-EU Action Plan was being met by a lukewarm response in Brussels. Would not the creation of a transatlantic free-trade zone inject some dynamism into this situation and serve as well as a useful first step in the achievement of multilateral trade liberalization at the WTO? Responding to that observation, Mr. Gusenbauer queried whether such a "transatlantic marketplace" would necessarily be in Canada’s interest: "Have you analyzed the effects the transatlantic marketplace will have on Canada specifically?" He wondered whether in a new transatlantic arrangement EU companies would not be more inclined to deal with U.S. firms than with those of Canadian origin.

Prompted by a question from Mr. Terry Davis (United Kingdom) on the extent of progress achieved on the Canada-EU Action Plan, Ambassador Juneau pointed to a number of bilateral agreements already entered into (e.g., on standards, customs, science and technology). According to Mr. Juneau, it is possible that more progress has been made in Canada than in the U.S. on their respective Action Plans. However, given the U.S.-EU bilateral trade discussions [note: which subsequently resulted in a Transatlantic Economic Partnership Action Plan being adopted on November 9], he also acknowledged that:

Canada is not yet part of the transatlantic marketplace. First, the Americans do not want us to be part of it, and I think it is important to understand that. The Americans do not want to have us in the Transatlantic Business Dialogue either, and obviously the Europeans were quite happy not to have us as part of that process.

It also came out that there have been problems and delays in completing the Canada-EU Joint Trade Study envisaged in the 1996 Action Plan to identify trade barriers. Ambassador Juneau nevertheless maintained that Canadian policy is on course. In his view, in the absence of any framework that would allow a collective NAFTA-EU negotiation to go forward, the best approach is to carry on with existing bilateral efforts, at the same time looking out for where there might be possibilities for convergence or for a simultaneous trilateral negotiation with the Americans and the Mexicans.

[*Note: On 2 December 1998, in a comprehensive presentation of Canadian trade policy and objectives leading into prospective WTO negotiations, Canadian International Trade Minister Sergio Marchi reiterated his view before the House of Commons Standing Committee on Foreign Affairs and International Trade that the aim of a Canada-EU partnership should be that: "when Europe looks to North America it sees a NAFTA community not just three different neighbourhoods." Canada’s clear preference, he argued, is that "Europe should be seen to be negotiating with all three of us at the same time."]

Session 2 "Sectoral Issues and Areas for Future Bilateral Agreement"

Speakers:

Mr. Jason Myers
Senior Vice-President and Chief Economist, Alliance of Exporters and Manufacturers of Canada

Mr. John Colfer
President and Chief Executive Officer, CORANCO Corporation

Co-chairs, Ms. Aileen Carroll M.P. and Mr. Roy Cullen M.P., introduced the session by highlighting some of the challenges and opportunities for Canada in progressing beyond historic trading patterns towards more diversified and dynamically expanding market relations with European partners. As Ms. Carroll asserted: "The principal growth industries are financial services, knowledge-based industries and environmental technology. Trade irritants involve primarily transactions in primary products. Consequently, it behooves us to focus on bilateral trade initiatives in those growth sectors which are not encumbered by unresolved trade irritants." Mr. Cullen noted the reservations expressed in the previous day’s panels about whether NAFTA, given some of its inherent problems, "really was the template for transatlantic trade." As well, he urged giving attention to issues of anti-corruption and economic crime which are crucial to improving business prospects in central and eastern Europe.

Jason Myers focused his remarks on the structural changes that have taken place across Canadian industry since the advent of freer North American trade and which include a move to greater product specialization, corporate integration, and improved cost efficiency. Increasingly, firms are assuming world product mandates, albeit still with a decidedly U.S. focus. According to Mr. Myers, what this means in practice is that the economic growth resulting from free trade in North America is driving Canadian companies to satisfy a sizeable portion of their skilled labour, technology and information requirements from other regions such as Europe. Canada is also attracting increasing amounts of investment from European sources. He therefore cautioned the audience about adopting a strictly bilateral approach to the trade liberalization and business opportunities that are available. Rather, businesses need to take advantage of the global marketplace and discussions surrounding transatlantic trade need to mirror those at the global level.

John Colfer’s presentation vigorously supported the successful conclusion of strengthened bilateral agreements between Canada and the EU to attain more compatible tariffs, to eliminate non-tariff barriers between the two entities, and to improve the transatlantic investment climate. He also pointed to the "information deficit" that small and medium enterprises (SME) faced regarding international business opportunities, but was optimistic that the federal government was starting to address the situation. Mr. Colfer also echoed the views of Canadian Trade Minister Marchi in expressing his belief that "community-to-community negotiations for fairer, more balanced bilateral agreements are fundamental to long-term benefits for Canada and the EU. Such agreements would allay fears of protectionism which come about as a result of separate negotiations between the EU and the U.S. and the E.U. and Mexico and could serve to stabilize world trade."

In response to a comment by Mr. Caccia on the merits of entering into a TAFTA-type arrangement, Mr. Davis described how little enthusiasm there was in Europe for the idea. Later, in the afternoon session, he elaborated by saying that in the European mind, "transatlantic marketplace" refers to an EU-U.S. axis; in other words, one dominated by Brussels and Washington, and not including Ottawa. On the other hand, Mr. Davis was quite interested in the status of the Canada-EU Joint Trade Study now in progress. Ambassador Juneau revealed that the release of the document was being delayed by an inability to arrive at common conclusions regarding the most appropriate approach to trade liberalization. Owing to this impasse, the Ambassador foresaw the eventual publication of a separate Canadian, as opposed to a joint, document.

A concluding comment from Mrs. Degn revealed some of the challenges which need to be overcome if the current trade discussions are to move to a higher level:

We need an institutional framework, and that is what you are missing in your regional NAFTA framework. In response to Mr. Caccia, I say: It is difficult for Europeans to engage in a regional cooperation when you are proclaiming that you need to institutionalize the mechanisms. It is difficult for us, but it is not unreachable. You have to work on your regional agreements; we have to work on ours. And we have to link them in some way at some time. (…) Who does profit from these agreements? …We have to think in longer political terms to gain results that will make our voters the winners.

Closing Session "Beyond NAFTA to a Canada-Europe Transatlantic Marketplace"

Speakers:

Hon. Allan J. MacEachen
Senator (retired),
Former Deputy Prime Minister,
Minister of Finance and of Foreign Affairs

Mr. Terry Davis
Member of the House of Commons, United Kingdom
Former Chair of the Economic Affairs and Development Committee of the
Council of Europe Parliamentary Assembly

Senator Allan MacEachen launched the final session of the seminar by putting Minister Marchi’s recent comments about the construction of a more inclusive transatlantic relationship within the context of a useful historical perspective on Canada’s economic relations with Europe. He noted that the 1976 Framework Agreement on Commercial and Economic Co-operation between Canada and the EU was a product of the economic nationalism in vogue in Canada at the time. The attempted diversification of Canadian economic activities away from the U.S. (towards Europe and elsewhere) became known as the "Third Option"; the first two being the status quo, and increased integration with the U.S. But, even though "the prime minister made a huge investment in the European opening…. Nothing much happened in terms of revolution, at least in our commercial policy, for a long time." Mr. MacEachen went on to observe that the forces driving closer Canadian economic integration in North America certainly distracted Canada from Europe throughout much of the 1980s. The Canada-U.S. Free Trade Agreement (FTA) which ushered in an historic policy shift was then furthered consolidated by the NAFTA.

Nonetheless, attempts have been made during the current decade to bolster what some saw to be a flagging Canada-Europe relationship. These have had difficult moments; notably the "chilling effect" of the fisheries dispute between Canada and Spain. Canada has had to learn that "faced directly with the economic power of the European Union, we were not in an advantageous bargaining position." Mr. MacEachen suggested that, whereas in 1976 Canada was seeking European support to attenuate U.S. economic dominance, now the converse might be coming true. Although the political climate at present is not propitious for Prime Minister Chrétien’s proposed TAFTA, its time may yet come (as far back as the 1950s Lester Pearson put forward the idea of a North Atlantic trade agreement); "patience is required." In the meantime, important benefits can still be seized by Canada through both the bilateral efforts already described – which should include both old and new friends within the European family of nations -- and the new multilateral round of trade talks.

Mr. MacEachen closed by remarking that in a period of high turbulence, such as we are experiencing in the wake of the Asian crisis, problems must be addressed both by getting "the domestic fundamentals correct" and "by a profound debate about the operation of the international financial system and the implications of enthusiastic applications of globalization."

Mr. Terry Davis (former Chair of the Council of Europe Parliamentary Committee on Economic Affairs and Development) was blunt in throwing cold water on the current prospects of a TAFTA. In his view, the construction of only one bridge across the Atlantic (TAFTA versus three separate bilateral processes), although preferable, is very doubtful in reality because "I do not think that the United States government is going to accept it." He observed that: "When politicians in Europe talk about transatlantic, they really mean United States of America. That is an extremely important point that Canadians and Mexican need to appreciate." Ambassador Juneau had appreciated that in his morning presentation. The fact is that the central negotiating path will be directly between the U.S. and the EU towards a new bilateral relationship between the two economic superpowers. This strengthened relationship would then set the stage for a common approach to the 1999 multilateral discussions at the WTO.

In fact, Mr. Davis’ prophecy has already come to pass. As the introduction to these summary highlights has already pointed out, a new "Transatlantic Economic Partnership" (TEP) Action Plan between the two economic giants was agreed to in November 1998. Mr. Davis ventured that it might be more useful for Canada to work closely with Mexico, rather than to seek to engage the U.S., in "trilateralizing" a relationship with the EU: "If I were a Canadian Member of Parliament, I would be pressing for trilateral discussions, given that America will not allow it to be quadrilateral, but the third party would be Mexico rather than the United States." He also offered an incisive comment on the TEP proposal (since adopted):

Having gone through the draft in detail, it looks to me as if the transatlantic economic partnership draft action plan is really about the European Union and the United States of America coming together to adopt a joint approach in the discussions in the WTO in the next year, culminating in the ministerial conference in December 1999. It is about how they can come to a common position that would be imposed not only on Canada but also on the rest of the world. If some people think that this is rather similar to the discussions we have had about MAI, they would be absolutely right, except that it is not OECD, a handful of countries; it is one economic bloc, the European Union and the United States of America.

At the same time, Mr. Davis argued forcefully that Canada is not without options of its own. He advised Canada to use its bilingualism to advantage in Brussels and to "try to cultivate some new friends and look to the future rather than to the current situation… not just to Germany (the example of bilateral ties cited by Mr. MacEachen) but also to the Czech Republic, Poland, Hungary, and some of the others who will be in the European Union but in the meantime share the same feelings that you have about being left out of the discussions." Mr. Davis regretted the delay in putting out the planned Canada-EU Joint Trade Study since, as he put it: "If your friends at the Council of Europe want to defend your interests inside the European Union and in the rest of Europe, then your friends need to know the facts."

In the wrap-up, there was further emphasis on forging alliances that cross the Atlantic, not only to promote trade and wealth creation, but in socially-conscious ways that, in Mr. Figel’s words, help "to build a real community of values." Mr. Gusenbauer observed that the "realpolitik" of U.S. dominance ought not to diminish the successes of Canadian diplomacy. Mr. MacEachen mentioned his first hand experience that, when dealing with its superpower neighbour, Canada has sometimes been freer than its European counterparts.

From the European side, Mr. Gonzalez-Laxe (Subcommittee rapporteur for the seminar) expressed satisfaction with the rich record of the two days of discussions; in particular the thought-provoking questions raised about NAFTA’s future evolution, the need to develop institutional and parliamentary frameworks for managing common transatlantic economic interests, and the choices facing Canada in navigating between the economic superpowers of the EU and the U.S. From the Canadian side, Mr. Caccia was grateful for the contributions of all participants and, noting in particular the frank interventions by Terry Davis, reaffirmed a Canadian dedication to some day turning the "elusive policy goal" of a transatlantic "third option" into a reality.

APPENDIX

PROGRAMME

CANADA-COUNCIL OF EUROPE PARLIAMENTARY SEMINAR

"Beyond NAFTA to a Canada-Europe Transatlantic Marketplace"

OTTAWA, 19-20 OCTOBER 1998

Monday October 19, 1998 - Day 1

"CANADA’S NAFTA EXPERIENCE"

8:00 – 8:30 Registration
Room 160-S, Centre Block

8:00 – 8:20 Formal Convocation COE Economic Affairs Subcommittee
(Private to Subcommittee members)

8:20 – 8:45 Opening Statements

8:45 - 10:30 Panel 1 "Trade Issues and the Dispute Resolution Mechanisms"
Room 160-S

Chairperson(s):

Hon. Sharon Carstairs
The Senate of Canada

Dr. Bill Graham, M.P., Toronto Centre-Rosedale
Chair, House of Commons Standing Committee on Foreign Affairs and International Trade

Panellists:

Dr. Michael Hart
Senior Associate, Centre for Trade Policy and Law
University of Ottawa and Carleton University

Ms. Sally Rutherford
Executive Director, Canadian Federation of Agriculture

Mr. Gordon Ritchie
Partner, Strategico Inc.

10:30 – 10:45 Break

10:45 - 12:30 Panel 2 "Labour and Environmental Aspects of NAFTA"
Room 160-S

Chairperson(s):

Hon. Charles Caccia M.P., Davenport
President, Canada-Europe Parliamentary Association and
Chair, House of Commons Standing Committee on Environment and Sustainable Development

Panellists:

Ms. Jeanine Ferretti
Interim Executive Director, Commission for Environmental Cooperation

Mr. Peter Bakvis
Conféderation des syndicats nationaux

Ms. Michelle Swenarchuk
Canadian Environmental Law Association

12:30 - 14:00 The Hon. David Michael Collenette
Minister of Transport
Room 253-D

14:00 - 15:15 Question Period in House of Commons

15:30 - 17:30 Panel 3 "Social and Cultural Aspects of NAFTA"
Room 160-S

Chairperson(s):

Hon. Lorna Milne
Senate of Canada

Hon. Lucie Pépin
Senate of Canada

Panellists:

Dr. Brooke Jeffrey
Concordia University

Mr. Keith Kelly
Former Executive Director, Canadian Conference of the Arts

Mr. David Crane
Economics reporter, The Toronto Star

18:00 Reception for participants Room 256-S

Tuesday October 20, 1998 - Day 2

"CANADA AND THE E.U: TOWARDS A TRANSATLANTIC MARKET PLACE"

9:00 - 10:30 Session 1 Highlights of Canada-Europe Trade and Economic Relations
Robertson Room (Department of Foreign Affairs and International Trade)
125 Sussex Drive

Chairperson(s):

Mrs. Francine Lalonde, M.P., Mercier
Vice-President, Canada-Europe Parliamentary Association

Mr. Ján Figel (Slovakia)
Chairman of the Sub-Committee on International Economic Relations
Council of Europe Parliamentary Assembly

Panellists:

Ambassador Jean-Pierre Juneau
Canadian Ambassador to the European Commission of the European Union

Mr. Alfred Gusenbauer (Austria)
Member of the Sub-Committee on International Economic Relations

10:30 – 10:45 Break

10:45 – 12:15 Session 2 Sectoral Issues and Areas for Future Bilateral Agreement
Robertson Room (Department of Foreign Affairs and International Trade)
125 Sussex Drive

Chairperson(s):

Ms. Aileen Carroll, M.P., Barrie-Simcoe-Bradford

Roy Cullen, M.P., Etobicoke North

Panellists:

Dr. Jayson Myers
Senior Vice-President and Chief Economist
Alliance of Exporters and Manufacturers of Canada

Mr. John Colfer
President, CORANCO Corp.

12:15 – 12:30 Mrs. Helle Degn (Denmark)
Chair, Committee on Economic Affairs and Development
Council of Europe Parliamentary Assembly

12:30 – 13:45 Working Lunch with Keynote Address by Honourable John Manley Minister of Industry

Lester B. Pearson Hospitality Centre (Department of Foreign Affairs)
125 Sussex Drive 9^th floor

13:45 – 14:00 Shuttle Back to Parliament Hill

14:00 - 14:30 Question Period in the Senate

15:00 – 17:00 Concluding Session: "Beyond NAFTA to a Canada-Europe Transatlantic Marketplace"
Room 160-S

Chairperson(s):

Hon. Jerahmiel Grafstein
Senate of Canada

Speakers:

Hon. Allan J. MacEachen
Senator (retired)
Former Minister of Finance and Deputy Prime Minister

Mr. Terry Davis (United Kingdom)
Leader of the U.K. Delegation to the Council of Europe Assembly and
Former Chair, Committee on Economic Affairs and Development

17:00 Closing Remarks

Hon. Charles Caccia, M.P.
President, Canada-Europe Parliamentary Association

Mr. Fernando Gonzalez-Laxe (Spain)
Rapporteur of the Sub-Committee on International Economic Relations

18:00 Reception sponsored by the Canada-Europe Parliamentary Association and the National Capital Commission
National Capital Information Centre (opposite Parliament Hill)

BRIEFING NOTES FOR CANADA-COUNCIL OF EUROPE
PARLIAMENTARY SEMINAR – OCTOBER 1998

INTRODUCTION

On 19-20 October 1998 a Canadian parliamentary seminar was held on the theme "Beyond NAFTA to a Canada-Europe Transatlantic Marketplace," jointly sponsored by the Canada-Europe Parliamentary Association and the Sub-Committee on International Economic Relations of the Council of Europe Parliamentary Assembly’s Committee on Economic Affairs and Development. Forty countries now belong to the Strasbourg-based Assembly, Europe’s oldest body dedicated to the aims of democratic and social solidarity, which marks its 50^th anniversary in 1999. National parliamentarians from all 15 member states of the European Union and from most central and eastern European nations, including Russia, participate in its quarterly sessions and committee activities. Canadian parliamentarians have had observer status in the Assembly since May 1997.

The idea for this seminar developed out of European counterparts’ desire to learn more about the North American free-trade area from a Canadian perspective, and a reciprocal Canadian interest in exploring, in addition to the existing NAFTA, further options that could lead towards a broader transatlantic economic arrangement of mutual benefit to the increasingly-integrated North American and European regional blocs. Accordingly, the Canada-Council of Europe Parliamentary Seminar focused on these aims, with a view to stimulating a dialogue between Canadian and European counterparts that could point to common interests and options for advancing transatlantic economic relations. The first day’s panels addressed key dimensions of Canada’s evolving NAFTA experience. The second day was devoted to Canada’s commercial relations with Europe and prospects for developing closer transatlantic partnerships.

Below is a slightly revised version of a series of briefing notes prepared by the Parliamentary Research Branch for seminar participants. The notes by Gerald Schmitz introduce the theme and cover many aspects of Canada’s evolving NAFTA experience, including the record of dispute resolution institutions, associated environmental and labour cooperation bodies, and the relationship to social and cultural policy issues. The notes by Peter Berg concentrate on Canada-European Union trade issues, both bilaterally and looking towards the prospects for a transatlantic free-trade area that would advance Canadian interests and be compatible with shared North American and European objectives at the global level. Included as well are selected references to other documentation sources and some related electronic links.

DAY ONE: CANADA’S NAFTA EXPERIENCE
(Briefing Notes # 1 - # 7 by Gerald Schmitz)

The following three sets of briefing notes for Day One of the Canada-Council of Europe Seminar, October 1998, review some of the most important aspects of Canada’s participation in NAFTA. The notes for Panel 1 explain the genesis of the agreement, its principal elements, and trends since its entry into force nearly five years ago on 1 January 1994. These notes also look at NAFTA’s dispute resolution mechanisms and the patterns of trade disputes involving Canada under the NAFTA regime. Going back to the early 1980s, a primary rationale for Canada’s pursuit of continental free-trade rules was to obtain security of access to U.S. markets. Although cross-border trade volumes have greatly increased, that objective has been at best only partially achieved. While promoting trade and investment flows is NAFTA’s chief purpose, the agreement also broke new ground through the attachment of two "side agreements" on environmental and on labour cooperation. The notes for Panel 2 outline the work of the commissions set up to implement these agreements and comment on the debate over the record of the NAFTA with respect to environmental issues and labour standards. NAFTA has also proved controversial in terms of perceived or potential impacts which could put at risk Canada’s system of social protections (e.g., public health care) and policies to safeguard culture. The notes for Panel 3 look at the NAFTA debate as it affects these areas of government intervention and democratic choice.

PANEL 1

TRADE ISSUES AND THE DISPUTE RESOLUTION MECHANISMS

NOTE #1: THE NAFTA: ORIGINS, KEY ELEMENTS AND EVOLUTION (2)

Origins

Canada took the crucial first step towards NAFTA when the Conservative government of Brian Mulroney decided to pursue bilateral free-trade negotiations with the United States in the mid-1980s. Although the talks nearly failed and the 1988 Free Trade Agreement (FTA) was extremely controversial, it provided the template for the subsequent development of continental free-trade arrangements. The FTA with the U.S.’s northern neighbour also spurred its southern neighbour, Mexico, to request its own free-trade negotiations in 1990. Three-quarters of Canadian exports were to U.S. markets but Mexico was nearly as dependent, with two-thirds of its exports destined for those markets. Strong geopolitical interests were also at stake. As those bilateral talks proceeded, Canada became concerned that FTA gains not be eroded, and that an outcome be avoided in which a U.S. "hub" would enjoy more advantages than the separate "spokes" of either free-trade partner. In early 1991 the negotiations were trilateralized at Canada’s request.

Canada subsequently moved from a mostly defensive posture to a proactive stance open to the inclusion of new issues and a broader regional trade liberalization agenda. The trilateral process also meant that Mexico, despite its very different level of development and political system, had to accept reciprocal obligations comparable to those of the Canada-U.S. FTA if it wanted to be treated as an equal partner. Mexican President Salinas was committed to a market-driven economic development model which accepted the increasing internationalization of trade and investment flows and responded to the competitive pressures arising from transnational business strategies. Indeed, the NAFTA as a whole, which received its strongest support from business groups in the three countries, should be seen as part of a more general trend towards expanded market liberalization regionally and globally, with rules disciplining the behaviour of governments accordingly.

By the end of 1992, the three governments had successfully concluded negotiations and signed a NAFTA agreement. However, by this time there was a new Democratic administration in the United States. The negotiation of additional parallel accords during 1993 – on environmental cooperation, signed in August and on labour cooperation, signed in September – was mainly motivated by President Clinton’s attempt to assuage American concerns over Mexican environmental and labour conditions. But, although Congress then narrowly ratified the NAFTA, a majority of Democrats still voted against it. By the end of 1993 Canada also had a new Liberal government with concerns about NAFTA, notably in regard to the continued application of U.S. trade-remedy laws (i.e., antidumping and countervailing duties on Canadian exports). A joint political statement agreed to establishing working groups on these irritants prior to the Canadian Parliament’s approval of NAFTA legislation. The treaty itself came into effect as scheduled on 1 January 1994.

Key Elements

The NAFTA establishes a free-trade area among the three countries, not a customs union or common market, much less an economic union. This means that the parties to the agreement remain free to pursue distinctive trade policies towards non-member states; complex "rules of origin" determine which goods and services are sufficiently North American to qualify for preferential NAFTA market terms. There is little in the way of formal requirements to harmonize other economic policies, or adjustment mechanisms to deal with economic dislocations. Nor is labour mobility addressed, apart from some provisions to facilitate the temporary entry of business and professional persons in liberalized sectors. However, NAFTA is a very comprehensive and far-reaching treaty, extending the principle of "national treatment" – which obliges governments not to discriminate between domestic and foreign producers – further into areas of services trade, government procurement, and investment. NAFTA is designed to promote the freer regional movement of goods, services, and capital, and therefore accelerates competitive conditions in the three countries, except where it is explicitly stated that NAFTA rules do not apply.

Among noteworthy features of the NAFTA are the following:(3)

• Phased elimination of tariffs on trade in goods: for Canada’s trade with the U.S. this was completed on 1 January 1998 according to the previous FTA schedule; for trade with Mexico it should be virtually complete by 2003. There have been several agreements to accelerate tariff reductions; the latest in April 1998. However, rules of origin establishing North American content were made stricter than the FTA for textiles, apparel, and automotive products.(4)

• Substantial liberalization of trade in services and opening up of government procurement contracts, including those for services and construction. Compared to the FTA, all services are included unless explicitly excluded. Several annexes set out existing or future measures at the federal, state or provincial levels that each country has chosen to "reserve" (i.e., exempt) from NAFTA provisions.

• Increased protection for investors as well as for intellectual property rights. U.S. and Mexican investors are subject to a preferential review threshold under Canada’s foreign investment screening regulations (currently only direct acquisitions above about $170 million). In addition, the NAFTA establishes a controversial investor-to-state arbitration procedure which allows private-sector firms to sue governments for alleged breaches of NAFTA rights. It has been invoked several times against Canada (see briefing Note #4 on NAFTA and the environment). NAFTA’s investment code has also been held up as a prototype for the Multilateral Agreement on Investment (MAI) being negotiated at the OECD.

• On energy, Mexico was able to retain its constitutional provisions on exclusive public ownership, and is also not subject to the carried over Canada-U.S. FTA provision whereby each party must make available a proportion of the restricted energy supply in the event of energy shortages. However, Canada issued a unilateral declaration in December 1993 that "interprets the NAFTA as not requiring any Canadian to export a given level or proportion of any energy resource to another NAFTA country."

• On agriculture, U.S.-Mexico and Canada-Mexico trade was substantially liberalized. Canada retained its quota-based system for supply-managed commodities (dairy and poultry products); however, Canada subsequently accepted "tariffication" and liberalization of this sector as a result of the 1994 Uruguay Round GATT agreements. Canadian agricultural exports and import policies have continued to be subject to U.S. challenges. (In September 1998, Canada requested consultations under both NAFTA and the WTO over border actions by U.S. states to block Canadian trucks carrying cattle, swine and grain. Agricultural and rural impacts have also been controversial in Mexico, and were cited as a factor in the 1994 uprising in the state of Chiapas.)

• Each country’s right to set health, safety, environmental and other standards as it deems necessary is recognized, and there is language to the effect that standards should not be lowered. However, the force of these protections is debatable. The side agreements on environment and labour establish additional procedures to strengthen enforcement of national standards but Canada’s coverage by these agreements is subject to substantial provincial consent. (See briefing notes for Panel 2.)

• Canada keeps the exemption for cultural industries (publishing, films, etc.) it negotiated in the FTA. However, this still allows for commercial retaliation, and in light of continued U.S. challenges it is arguable how much protection it affords. (See briefing note for Panel 3.)

• Establishment of an ongoing set of institutions for settling trade and investment disputes, replacing and elaborating on the FTA’s temporary provisions. Although Canada secured agreement to continue working towards a more satisfactory set of common rules that could prevent many disputes, NAFTA’s complex system of arbitral panels is based on each country’s fully retaining its trade-remedy laws. U.S. challenges to certain Canadian exports (notably lumber, steel, pork, wheat, sugar, and other commodities) have remained costly and persistent. (See Note #2 on trade disputes.)

The NAFTA is considerably more institutionalized than was the Canada-U.S. FTA. It is overseen by a Free Trade Commission composed of cabinet-level representatives, and there are also ministerial-level commissions governing implementation of the environmental and labour accords. Under the main Commission, there is a secretariat composed of national sections. A trilateral "coordinating secretariat" to assist the Commission’s work was established in Mexico City in late 1997. Below that, some 30 intergovernmental committees, working groups and other subgroups are active in following up various aspects of NAFTA provisions (see appendix 2 for a complete listing).

The sufficiency of NAFTA institutions is debatable. According to Stephen Randall: "The failure under NAFTA to establish an umbrella organization which might take decisions buffered somewhat from the vagaries of domestic politics in any of the countries reflects the very traditional nature of the NAFTA agreement and the mutual jealousy of national sovereignty that exists among its members."(5) However, a recent report done for NAFTA’s Montreal-based Commission for Environmental Cooperation suggests that an extensive intergovernmental "NAFTA regime" is developing which "has shown clear signs of significantly altering the breadth, depth and path of cooperation among the three countries."(6) Some NAFTA critics have compared it unfavourably to European economic community institutions in its failure to adequately address social dimensions (see Note #6). However, adding social provisions to NAFTA would likely require additional transfers of sovereignty to the trilateral level, and would come up against complaints, which will sound familiar to European ears, that NAFTA rules are already too intrusive into areas of national jurisdiction and that NAFTA intergovernmental bodies are too technocratic and removed from democratic control.

Evolution

It seems clear that the NAFTA has boosted trade and investment flows within the North American region, and that there is Canadian reliance on those flows. Over 82% of Canada’s 1997 merchandise exports and over 70% of imports were with NAFTA partners; almost all of this accounted for by the $1.4 billion in daily cross-border commerce with the United States. By comparison, Canadian figures for trade with the EU are only 5% of exports and 10% of imports. Services trade with the U.S. is also over $50 billion annually. Trade with Mexico has increased 80% since 1993, but still accounts for less than .5% of Canadian exports, though imports from Mexico have grown to 2.5%. Investment flows among NAFTA partners have increased substantially to over $200 billion. Again, although Canadian investments in Mexico have multiplied, for Canada investment is primarily U.S.-oriented. U.S. investments account for about two-thirds of the total stock of foreign direct investment (FDI) into Canada.

Government and business studies claim that NAFTA’s first years have been associated with positive job creation overall. However, labour organizations and other critics contend that the unemployed have not been helped and that thousands of good manufacturing jobs have migrated southward as a result of low-wage competition and corporate restructuring within an integrated North American market. Independent analysts have tended to discount claims of either large gains or large losses from the operation of the trade agreements.(7) Furthermore, notwithstanding increasing transnational economic integration, national borders still matter a lot in determining trade flows.(8) And, given the persistence of interprovincial barriers in the Canadian case, there is still work to do to liberalize internal trade flows.

The ongoing political debate over NAFTA’s evolution and impacts is less on whether these are wealth-enhancing in the aggregate than on whether benefits and costs have been fairly shared, and whether the constraints put on government action are compatible with democratically determined values such as environmental protection and social health. For Canada, being able to preserve a distinctive cultural identity is also fundamental. Although NAFTA is open to accession by other countries, and Canada has favoured this for countries like Chile, there are strong domestic misgivings in each country about further free-trade expansion linked to social, environmental and other public-interest concerns. U.S. initiative has been hampered by the inability to renew congressional "fast-track" negotiating authority since 1994.

Compared to the highly institutionalized trajectory of European integration, the NAFTA remains a very limited instrument for addressing such issues. Yet as integration processes become broader and deeper, the complications of the growing civil-society and values-based dimensions of emerging trade and investment regimes are becoming apparent – for example, in the current public debate over the MAI, and as Canada assumes the early chairmanship of hemispheric negotiations towards an eventual Free Trade Area of the Americas (FTAA). In recent months, moreover, Canadian Foreign Affairs Minister Lloyd Axworthy has been promoting the concept of "building a North American Community" in response to evolving regional economic integration and global agendas (see also Note # 7).(9)

With respect to future relations between the North American and European economic blocs, obviously there are still many differences between the two, and the NAFTA countries continue to pursue separate bilateral processes in their relations with the EU. Canada is also looking to negotiate a bilateral agreement with the European Free Trade Association (EFTA) countries.(10) However the dynamics of regional integration may yet produce more expansive opportunities for convergence. Several decades ago some had hoped that a different NAFTA – a North Atlantic Free Trade Area – might emerge. While that option never materialized, and while recent ideas proposing a TAFTA (Transatlantic Free Trade Area) face many hurdles, few would contest the desirability of deepening the transatlantic economic connection. The question is: how to do this, given current NAFTA and EU realities?(11)

Canada is also on record as favouring a movement towards a "community-to-community" transatlantic economic arrangement that would be good for each bloc as well as consistent with momentum for global trade liberalization (see Note #9).(12) Even if present circumstances are not propitious to such a concept, it merits serious consideration. As a Canadian ambassador with experience on both sides of the Atlantic recently observed:

The North American marketplace is working for Canada. But Canada’s opportunities and engagements are also global, and a rational case can be made that they still begin in Europe…. In fact, strengthening connections between Europe and North America may be emerging as tomorrow’s story, not yesterday’s.(13)

APPENDIX 1

THE MAIN ELEMENTS OF THE NAFTA

   A. Tariffs

• Most tariffs on Canada-Mexico trade will be eliminated by the end of a ten-year phase-in period starting on 1 January 1994. Mexico will phase-out its tariffs on corn and dried lentils over a 15-year period. The tariff phase-out on Canada-U.S. trade continues according to the FTA's 10-year schedule.

   B. Rules of Origin

• To qualify for preferential tariff treatment, goods must be wholly made in North America or, if incorporating imported inputs, have undergone sufficient transformation to qualify under a specific tariff classification. Some items, such as automotive goods, textiles and electronic goods must meet special North American content rules.

   C. Investment

• The NAFTA employs the principles of national treatment and most-favoured nation treatment to investments by other-party investors.

• Investment Canada review thresholds for investments by NAFTA investors are the same as under the FTA.

• A separate settlement procedure is added for investment disputes.

   D. Services

• The principles of national treatment and most-favoured nation treatment are applied to cross-border trade in services.

• Specifically excluded from the services chapter are social services provided by governments, basic telecommunications, most maritime and air services.

Source: Anthony Chapman, North-American Free Trade Agreement: Rationale and Issues, Background Paper 327E, Parliamentary Research Branch, Ottawa, January 1993.

   E. Financial Services

• The principles of national treatment, most-favoured nation treatment, transparency and right of establishment, are established for trade in financial services.

• Sale of financial services across borders is permitted.

• Canadian foreign ownership restrictions on federally regulated financial institutions are removed from Mexican investors.

• Canadian and U.S. financial institutions will be permitted to establish in Mexico subject to market share restrictions until the year 2000.

   F. Government Procurement

• Procurements by specified government departments and agencies of goods and services over US$50,000, and construction services over US$6.5 million, are opened up to competition from other NAFTA countries.

• The respective review thresholds for purchases by government-owned enterprises are US$250,000 for goods and services and US$8 million for construction services.

• For procurements covered by the FTA, the dollar thresholds will continue to apply.

   G. Land Transportation

• The NAFTA provides for the phase-out of barriers to the provision of land transportation services between the NAFTA countries. This includes: bus and trucking services and port services. Rail services remain open to competition.

   H. Telecommunications

• The NAFTA removes barriers to access for enhanced telecommunications services (but not basic services) by applying the principles of transparency and non-discrimination.

• The NAFTA limits the types of standards-related measures that can be imposed on the attachment of telecommunications equipment to public networks.

   I. Agriculture

• Quotas essential to the maintenance of Canada's supply management system for dairy, poultry and eggs are retained.

• Import licences in sectors of Canada-Mexico trade will be replaced with tariffs or tariff-rate quotas.

• Canadian import restrictions covering wheat, barley, beef and veal, and margarine will be removed immediately.

   J. Review of Antidumping and Countervailing Duty Matters

• The NAFTA retains the FTA's dispute settlement provisions in antidumping and countervailing duty matters involving binding decisions by panels.

• A special committee may be established upon request to determine whether a country's law has interfered with the panel's decision-making.

K. Institutional Arrangement and Dispute Settlement Procedures

• The Trade Commission, the NAFTA's central institution comprising international trade ministers from each country, is to meet annually.

• A Secretariat will be established to serve the Commission as well as other subsidiary bodies and dispute settlement panels.

• Disputes regarding the interpretation or application of the Agreement go first to consultation, then to the Trade Commission, then to a dispute settlement panel.

   L. Automotive Trade

• Canada and Mexico will eliminate mutual tariffs: on automobiles by 50% immediately and the remainder over 10 years; on light trucks by 50% immediately and the remainder over five years; on other vehicles over ten years.

• Passenger automobiles, light trucks and engines and transmissions for these vehicles must eventually meet a 62.5% North American content level based on the net cost formula; other vehicles must meet a 60% content level.

   M. Textiles and Apparel

• Most textile or apparel products must be made from yarn that is North American-made; Cotton and man-made fibre yarns must be made from fibres that are made in North America.

• Under tariff-rate quotas (TRQs), yarns, fabric and apparel that do not meet the rules of origin can still qualify for preferential tariff treatment up to specified import levels.

   N. Energy and Basic Petrochemicals

• The FTA's proportional sharing requirement is retained on Canada-U.S. trade but this provision does not apply to trade with Mexico.

• Mexico opens non-basic petrochemicals and electricity-generating facilities to private investment; investment in Mexico's other energy and basic petrochemicals industries remains reserved to the state.

   O. Other Measures

• Disciplines are imposed on the development, adoption and enforcement of sanitary and phytosanitary measures.

• Disciplines are set out on the use of technical standards.

• Rules and procedures are established for taking "safeguard" actions to provide temporary relief to domestic industries adversely affected by import surges.

• Disciplines are established on anticompetitive government and private sector business practices.

• The NAFTA requires each country to protect intellectual property rights.

• Provision is made for temporary entry of business persons.

• As established by the FTA, Canadian cultural industries remain exempt but the U.S. also retains the right to take measures of equivalent commercial effect.

• Other countries or groups of countries may be admitted into the Agreement if the NAFTA countries agree.

• Any country may withdraw from the Agreement on six-months' notice.

Source: Anthony Chapman, North-American Free Trade Agreement: Rationale and Issues, Background Paper 327E, Parliamentary Research Branch, Ottawa, January 1993.

APPENDIX 2

NAFTA’S INTERGOVERNMENTAL BODIES

FREE TRADE COMMISSION (FTC)

NAFTA Coordinating Secretariat

FTC Secretariat

Committee on Trade in Goods

Working Group on Rules of Origin

• Customs Subgroup

Committee on Trade in Worn Clothing

Committee on Agricultural Trade

• Working Group on Agricultural Grading and Marketing Standards

• Working Group on Agricultural Subsidies

• Advisory Committee on Private Agricultural Disputes

• Working Group on Tariff Rate Quota Administration

Committee on Sanitary and Phytosanitary Standards

Technical Working Group on Pesticides

Trilateral/Bilateral Working Groups adopted from Canada-US FTA

• Meat, Poultry and Egg Inspection Working Group

• Plant Health, Seeds and Fertilizers Working Group

• Animal Health Working Group

• Dairy, Fruit and Vegetable Inspection

• Veterinary Drugs and Feeds

• Food, Beverage, Colour Additives and Unavoidable Contaminants

• Packaging and Labelling Working Group

• Fish and Fisheries Products Inspection

Committee on Standards-Related Measures

Land Transportation Subcommittee

• LTSS I Driver and Vehicle Safety Compliance

• LTSS II Vehicle Weight and Dimension

• LTSS III Road Signs

• LTSS IV Rail Operations

• LTSS V Committee on Transportation of Dangerous Goods

• Telecommunications Standards Subcommittee

• Automotive Standards Council

• Textile/Apparel Labelling Subcommittee

Working Group on Government Procurement

Committee on Small Business

Financial Services

Working Group on Trade and Competition Policy

Working Group on Temporary Entry

Advisory Committee on Private Commercial Disputes

Working Group on Emergency Action

Working Group on Subsidies and Countervailing Duties

Working Group on Dumping and Antidumping Duties

Working Group on Investment and Services

COMMISSION FOR ENVIRONMENTAL COOPERATION (CEC)

CEC Council

CEC Secretariat

Joint Public Advisory Committee (JPAC)

National Advisory Committees

COMMISSION FOR LABOR COOPERATION (CLC)

CLC Council

CLC Secretariat

National Administrative Offices (NAOs)

National Advisory Committees

REVIEW PROCESSES

Long-term review process – Automotive

Long-term review process – GATT/WTO

NAFTA-INSPIRED INSTITUTIONS

Energy Efficiency Labelling Group

Health Group

Transportation Consultative Group

Border Environment Cooperation Commission

North American Development Bank

Source: NAFTA’s Institutions: The Environmental Potential and Performance of the NAFTA Free Trade Commission and Related Bodies, Commission for Environmental Cooperation, Montreal, 1997, Appendix A, p. 67-69.

NOTE #2 THE NAFTA DISPUTE SETTLEMENT PROVISIONS:
STRUCTURES AND PERFORMANCE

How The Dispute Resolution Institutions Work

NAFTA builds on and goes beyond the innovative mechanisms that were established as a crucial part of the Canada-U.S. FTA. A chief motivation for Canada in seeking bilateral free trade had been to achieve some relief from rising U.S. protectionist measures, mainly its trade-remedy laws which authorized the use of anti-dumping (AD) or countervailing duties (CVD) to retaliate against imports from Canada alleged by American competitors to be unfairly priced or subsidized. The Canadian goal was, and still is, to replace these controversial and costly remedies with a set of agreed North American rules. The U.S. has always been very reluctant to make concessions in this area. As Gilbert Gagné notes: "In view of divergences between Canadian and American authorities, what was agreed was an ‘interim’ mechanism, consisting mainly of binational panels to review AD and CVD decisions as to whether national trade remedy laws have been correctly applied. These provisions were meant to be temporary in the FTA, awaiting a common regime covering dumping and subsidies."(14) The FTA provided for a five to seven-year period to negotiate such a regime. Given U.S. resistance to backing away from its national laws, it is quite possible that had NAFTA not come along, the FTA’s provisional system of binational review would not have survived beyond this period.

NAFTA, however, permanently establishes the recourse to binational panels in its Chapter 19, among a number of institutional procedures for settling disputes involving any of the three parties.(15) There are also general provisions for dispute resolution set out in Chapter 20 of the agreement. If differences arise over inconsistencies with NAFTA obligations that cannot be resolved through consultations in the trilateral Free Trade Commission, NAFTA authorizes the establishment of five-member arbitral panels, drawn from a roster of up to 30 accredited individuals maintained by the Commission for this purpose and appointed by consensus for renewable three-year terms. Some additional dispute settlement provisions are contained in other NAFTA chapters, including the important investor-state arbitration procedure for investment matters (Chapter 11),(16) and modifications to the general procedures for financial services issues (Chapter 14). The environmental and labour commissions also have their own disputes procedures which will be dealt with in the notes for Workshop II. The rest of this note will concentrate on the main area of commercial disputes involving Canada in the decade since the FTA came into force: namely, the AD and CVD cases mentioned above which are covered by complex provisions set out in the FTA/NAFTA’s Chapter 19.

Under this system each country retains its own national trade-remedy laws, although there is an obligation not to amend them in ways which would be inconsistent with the GATT/WTO or the spirit of the NAFTA. That itself could be subject to a dispute resolution proceeding, though there have been no cases to date. The core element of Chapter 19 is that final AD and CVD determinations made by national trade tribunals are subject to review by binational panels rather than domestic judicial review. For this purpose, the FTA had provided that a roster of 50 individuals with international trade law expertise be established – 25 named by Canada and 25 by the U.S.; in practice the U.S. expanded its roster to 50 in view of the difficulty of choosing candidates without conflicts of interest. Candidates are supposed to be independent of government affiliation or instruction. Panels are composed of five members – two appointed by each party in consultation with the other; the fifth by consensus but, failing that, by agreement among the four appointees or, failing that, by lot from the overall roster. The NAFTA version of Chapter 19 expands the roster to at least 75 names and invokes a similar selection procedure but with several significant differences. If the two parties involved in a dispute cannot agree on a fifth panel member, then a country chosen by lot selects that member from the roster; thus, it could arise that Mexico would choose the fifth panellist in a case involving a Canada-U.S. dispute. The NAFTA roster should include judges or former judges to the greatest extent possible, a concession to the U.S. side which hoped this might have a restraining effect on review decisions.

The NAFTA procedures are more firmly entrenched and could be seen as technically more stringent than those of the FTA. Yet it is very important to note that NAFTA panels, like those of the FTA, are only empowered to determine whether the importing country’s trade law has been correctly applied in the case in question. Review is limited to "the administrative record and the standard of review of the party whose remedy order is in question. Hence, panels do not retry a case nor can they substitute their judgement for that of state authorities. U.S. FTA implementing legislation makes clear that panel decisions do not set binding precedents, i.e., they do not create law."(17) An official request for a NAFTA panel must be made within 30 days of a final AD or CVD determination having been made by the relevant agency (e.g., the U.S. Department of Commerce or International Trade Commission in cases brought against Canadian imports). The panel’s final decision must then be delivered within 315 days of the request date, and that decision is normally binding on the parties, with retaliation authorized proportionate to the case if there is a failure to comply. However, there are exceptional circumstances in which a panel decision can be challenged: if it is alleged that a panel decision and the integrity of the review process has been significantly affected by a finding that a panel member has been guilty of gross misconduct or serious conflict of interest, or that a panel has breached fundamental rules of procedure or exceeded its authority. In such cases NAFTA provides for the setting up of an "extraordinary challenge committee" (ECC), composed of three judges,(18) which then has 90 days within which to render its verdict to uphold, remand, or nullify the panel’s decision.

The Dispute Settlement Record from Canada’s Perspective

As mentioned earlier, the NAFTA does not provide for the replacement of trade-remedy laws by a substitute system of common North American rules. There is only the declaration, agreed to in late 1993 at Canada’s insistence, that working groups attempt to come up with trilateral codes on dumping and subsidies issues by the end of 1995. Efforts to do this appear to have borne little fruit, however.(19) If anything, the atmosphere within the U.S. Congress is that the U.S. has already given away too much in terms of its ability to deploy its trade arsenal against alleged "unfair" practices by even its closest trading partners. There is a perception that Canada, as a smaller party, has been favoured by a binational review process which accords Canada equal rights and is intended to be impartial, insulated from the political pressures that may bear on domestic agencies administering trade law. At the same time, the prevailing U.S. trade culture still aims to limit as much as possible international review of its trade actions, whereas Canada has consistently promoted stronger international rules.

It is true that Canada has had considerable success in winning cases through the Chapter 19 panels. Reviewing the cumulative record of over 35 final panel rulings from 1989 through 1997, Homer Moyer, a prominent U.S. trade lawyer who has represented Canadian interests in Washington, found a "success rate" of nearly 60% for Canada overall, as well as a slowdown in the rate of new cases being initiated since 1994 (see Appendix 1).(20) While the results were about even for antidumping cases, Canada has won a clear majority of cases involving imposition of countervailing duties or where determinations of "injury" to U.S. producers were involved. Panels have found the most fault with U.S. agency decisions in CVD cases alleging improper Canadian subsidies. For the most part, panel decisions have not split along national lines and have, according to Moyer, introduced constructive standards of legal review and produced high quality rulings, even if this is reluctantly recognized by U.S. trade officials and politicians. Canada has also come out ahead so far in the three instances where the U.S. has invoked the extraordinary challenge procedure to attack panel rulings favouring Canada. Two of those decisions were unanimous.

Unfortunately, the third case involved the notoriously long-running and heavily politicized dispute over Canadian softwood lumber exports, which had been a major issue in dispute going back to the original bilateral FTA negotiations and is the largest single trade-remedy case ever litigated in the U.S. Since that time, Canada has won no fewer than five consecutive FTA/NAFTA panel rulings in the repeated cases initiated by American producers on the lumber issue. And that result has been upheld on appeal to an ECC; however, it was a 2-1 split decision in which the sole U.S. judge registered a strong dissent, thereby lending ammunition to U.S. critics of the panel system. Other legal challenges brought by U.S. lumber interests and other industry lobbies and alleging that NAFTA’s binational review violates the U.S. Constitution, have not been successful either. That led by the American Coalition for Competitive Trade was dismissed in November 1997, although a new and broader anti-NAFTA constitutional suit was filed in a U.S. federal court in July 1998 by the Made in the USA Foundation and the United Steelworkers of America. So far the fallout from these attacks seems to have been contained. Of serious concern from a Canadian outlook, however, is that the campaign of harassment against not only key Canadian export commodity sectors but the principle of binational review itself, carries on notwithstanding these favourable rulings. Indeed, as in the case of softwood lumber, the result has been for Canada finally to agree to negotiate bilateral deals outside the NAFTA rules, thereby in effect restraining exports in return for temporary relief from new U.S. trade actions.

Another look at the dispute settlement record reveals a more general pattern in which the FTA/NAFTA mechanisms have failed to meet expectations that they would effectively deter U.S. trade-remedy cases used to harass Canadian exports. Surveying the 19 binational panel rulings involving U.S. AD and CVD determinations in the 1989-93 period,(21) Gagné acknowledges there have been some benefits. In certain cases, notably with respect to Canadian pork exports, these rulings have forced cancellation or reimbursement of U.S. duties; however, in other areas the impact has been slight and duties have remained in place.(22) More importantly, in the NAFTA period he sees the disputes mechanism as having been undermined by the following serious underlying and interrelated problems from a Canadian perspective:

• The panel’s limited scope for legal review does not create precedents and therefore U.S. authorities can ignore previous panel rulings when similar cases are repeatedly brought forward by persistent U.S. domestic trade lobbies (as most notoriously in regard to Canadian softwood lumber exports).

• The panel process is supposed to lead to prompt binding decisions. But some vexed cases (as above) have suffered from drawn out and costly delays, and successive remands to U.S. agencies that have resisted complying with the panel findings. Hence disputes drag on and losses mount, even after panels have found in Canada’s favour.

• The pressures from continued U.S. trade harassment notwithstanding Canadian panel "wins" may prompt Canadian authorities to enter into ad hoc political compromises to resolve disputes (just what NAFTA was supposed to avoid; again lumber is the prime example, but the U.S. has also demanded restraints on Canadian wheat exports).

• Canada has not used NAFTA provisions to challenge U.S. FTA/NAFTA and GATT/WTO implementing legislation which has included unilateral U.S. positions and interpretations intended to bolster the application of its trade remedies, which can still be fully used against Canadian exports. Moreover, the Canadian government is under pressure from some affected industry sectors (notably steel) to ratchet up Canada’s own trade remedies in response; in effect, punitive tit-for-tat that could lead to still more litigation on both sides rather than convergence around common understandings of the rules.

• The mandate of the working group on trade remedies ended in 1995 without "even a timid suggestion to eventually replace trade remedies" (which had originally been a Canadian condition for concluding an FTA with the U.S.).

• The panels have proved to be at best a very partial answer to U.S. protectionism since "for many U.S. interests, the dispute mechanism is but one stage of a much larger effort by which they hope to obtain government intervention to assist them in the marketplace by securing relief from import competition."

Gagné’s summary assessment is that: "Although more than 80 cases have come before binational dispute panels, most involved limited issues with circumscribed economic and political scope. If these have tended to be resolved successfully following panel review, highly politicized cases involving large trade volumes have highlighted the limitations of the binational mechanism."(23) Canadian government assessments of the performance of NAFTA’s dispute mechanisms are more upbeat, often claiming that some 95% of the huge crossborder trade flow is problem-free.(24) Nevertheless, there is an acknowledgement that Canadian goals of secure market access for our exports have yet to be met. As a recent publication put it: "Despite the clear success of Chapter Nineteen under the FTA and the NAFTA, Canada continues to believe that the application of trade remedies has no place in a free-trade area. Accordingly, Canada will continue to pursue the significant reform, if not elimination, of trade remedies within North America."(25)

Canadian trade-law experts accept that any strengthening of NAFTA rules will be much weaker than the centralized regime achieved by Europe’s common market. Nonetheless, many believe that the North American institutional framework for resolving trade issues must be more firmly grounded. Lawrence Herman argues in regard to the NAFTA panels that "some form of permanency would help to ensure consistency in jurisprudence and, at the same time, create at least one central body with an ongoing, vested interest in the NAFTA system at large, as opposed to national secretariats each with a particular point of view and ad hoc panels whose members meet, decide, and then disappear back into their respective callings, never to meet again."(26) William Graham, a former professor of international trade law who chairs Canada’s House of Commons Foreign Affairs and Trade Committee which has conducted hearings into the operation of trade disputes mechanisms, agrees that there should be a permanent NAFTA court.(27) However, during recent meetings in the U.S. capital, the committee was cautioned by Jeffrey Schott, of the Institute for International Economics, that any reopening of NAFTA provisions would be a dangerous move in the current U.S. political circumstances.

Given that Canada can do little in the short run to rectify the serious weaknesses in the NAFTA mechanisms, Robert Howse argues in a new study that Canada would be better off taking more complex cases to the WTO panels system which has been much enhanced over what existed in the GATT. Howse also favours Canada’s continued pursuit of an improved NAFTA process, including the idea of a permanent tribunal, but he believes that the WTO now offers an effective and available alternative for addressing some matters (e.g., softwood lumber) which have eluded satisfactory resolution through NAFTA.(28)

A further and more sweeping consideration might be the lack of democratic public process associated with the cases brought before dispute resolution mechanisms, in which business "special interests" have tended to play a dominant role behind the scenes. As Henry Jacek points out: "the public interest has little to do with the dispute resolution mechanism. Consumer, labour and environmental aspects of disputes are ignored. Although ostensibly the disagreements are between national states, often governments are merely surrogates or agents of organized business interests."(29) Moreover, competing industry lobbies generate much of the information used in arguing cases, review proceedings tend to be specialized and secretive affairs, and "there are no clear common trading rules especially when it comes to government subsidies and corporate differential pricing policies."(30) In these circumstances, determining the rights and wrongs of "fair trade" may still in practice come down to who has the power to prevail in long costly legal battles, rather than to what is the best outcome in terms of societal welfare.

In short, while the NAFTA dispute settlement provisions have been of considerable value to Canadian exporters, they offer no guarantees of market access; nor were they designed to deal with larger public interest issues arising from the political and social dimensions of an increasingly integrated North American economic space.

APPENDIX

Chapter 19:  of the Canada-U.S. Free Trade Agreement and NAFTA            Miller and Chevalier, Chartered
providing for binational dispute settlement of Antidumping (AD)                                  March 31, 1998
and Countervailing Duty (CVD) Cases

ECCs:  Extraordinary Challenge Committee Procedures

PANEL 2

THE NAFTA COMMISSIONS:
LABOUR AND ENVIRONMENTAL ASPECTS OF NAFTA

NOTE #3 MANDATE AND DEVELOPMENT OF NAFTA’S SPECIALIZED COMMISSIONS

As stated in Note #1, and listed in its Appendix 2, the NAFTA establishes a number of trilateral implementing institutions, subsidiary bodies and working groups. The most important of these are the Free Trade Commission, which meets at least annually at the ministerial level, and its supporting secretariats. The mandates and functions of these structures are as provided for in the main text of the NAFTA as finalized and published in December 1992. This text does not establish any specific structures for environmental and labour standards. U.S. President Clinton was, however, committed to fulfilling his 1992 election promise to negotiate further parallel or side accords on the environment and on labour prior to Congressional ratification of the treaty, an initiative supported by Canada. As a result, a North American Agreement on Environmental Cooperation (NAAEC) was signed in August 1993, and a North American Agreement on Labour Cooperation (NAALC) was signed in September 1993. These NAFTA "side deals" entered into force (with some important exceptions in the Canadian case, as will be explained below) along with the main treaty on 1 January 1994. To implement these agreements, two additional ministerial-level commissions were created – the Commission for Environmental Cooperation (CEC) which was located in Montreal, and the Commission for Labour Cooperation (CLC) which was located in Dallas.

The NAAEC and the Commission for Environmental Cooperation (31)

While the NAFTA environmental accord does not establish common environmental standards for NAFTA countries to meet, it does contain strong imperative language regarding the obligation of the NAFTA partners to enforce high standards of their own and to cooperate on achieving environmental goals. Each Party "shall ensure that its laws and regulations provide for high levels of environmental protection and shall strive to continue to improve those laws and regulations." A number of instruments and procedural measures are indicated to that end, such as: education and further research, appropriate assessment and enforcement techniques, and legal investigatory rights and powers. The main trilateral institution established under the NAAEC is the Commission for Environmental Cooperation (CEC) comprising a governing Council, a supporting Secretariat, and a Joint Public Advisory Committee (JPAC). As well, in 1995 the CEC created the North American Fund for Environmental Cooperation (NAFEC) as a source of funding for community-based environmental protection projects in the three countries.

The Council is a high-level body made up of Cabinet members or their designees which meets at least annually to consider and make recommendations to the NAFTA governments on all environment-related policy matters covered by the NAFTA agreements. The Montreal-based Secretariat performs a variety of functions. It prepares an annual report to the Council and periodic assessments of the state of the environment in each country. It may conduct reports on other requested matters if at least two countries agree. The Secretariat is responsible for carrying out the CEC’s cooperative work program. Initial areas focused on establishing limits for specific air and marine pollutants, conducting environmental assessments of projects with transboundary implications, and developing reciprocal court access for damage or injury resulting from transboundary pollution. More recent areas have included action plans for regional management of hazardous chemicals and projects on climate change. The Secretariat may also consider non-governmental (NGO) submissions alleging that a Party is "failing to effectively enforce its environmental law." This triggers a time-limited process whereby the Party in question must respond and a two-thirds vote of the Council can authorize a "factual record" to be produced and made public. Finally, the 15-member JPAC consists of five citizens from each country and provides input to the CEC on program and budget matters. A country may also set up its own national public advisory committee and may empower this to choose its representatives on the JPAC.

The NAAEC contains dispute resolution procedures for cases where a country is accused by its NAFTA partners of a "persistent failure" to enforce its environmental laws in a sector affected by NAFTA trade. If an initial consultation period and special meeting of the Council fails to make progress, a two-thirds vote can authorize setting up a five-member arbitral panel (chosen from among a roster of 45, 15 from each country; similar to the selection process for panels under the general agreement). Countries have a chance to respond to the initial findings of the panel before its final report, with recommendations for remedial action if any, is delivered to the Council and made public. If remedies are indicated, but no satisfactory action plan can be agreed to by the parties, the panel may be reconvened to do the job. The panel may also levy a "monetary enforcement assessment" (essentially a fine payable to the Council) not to exceed US$20 million in NAFTA’s first year or, in subsequent years, 0.007% of the value of combined regional trade. If there is still non-compliance, trade sanctions may be applied equivalent to the amount of the fine. However, Canada was able to exempt itself from this last provision, which accordingly applies only to the U.S. and Mexico. Instead, if Canada were to fail to pay a fine imposed by a panel, the CEC could go to the Canadian courts to obtain a legal enforcement order.

There is another very important sense in which the NAAEC allows for a "special regime" for Canada, given its constitutional division of powers over environmental matters.(32) In areas of clear federal government jurisdiction there is no problem but in areas involving provincial jurisdiction Canadian provinces must first agree to be bound by the agreement in order for its provisions to affect them. Moreover, the federal government cannot bring forward environmental cases to NAFTA bodies on issues that lie within provincial jurisdiction unless provinces accounting for at least 55% of Canadian GDP have so agreed and at least 55% of production in the affected sector or industry takes place in provinces bound by the NAAEC. Similarly, the U.S. and Mexico cannot bring environmental cases against Canadian provinces that fall below those 55% thresholds. In 1994 Canada’s federal and provincial governments negotiated an "Intergovernmental Agreement" setting out joint terms for compliance with the NAAEC. However, it was not until 1996 that Alberta became the first province to sign that agreement, followed by Quebec and Manitoba. Canada’s largest province, Ontario, accounting for over 40% of GDP and almost half of NAFTA trade, remains outside the environmental accord. Hence its coverage is as yet only partially realized with regard to Canada.

The NAALC and the Commission for Labour Cooperation

The NAFTA labour side accord, which is similar to the environmental accord, does not establish common North America labour standards, but does contain imperative language obliging the parties to respect workers’ rights and to provide for effective enforcement of "high labour standards" through their own laws in a number of ways. Unlike the environmental accord, however, the labour accord has no obligation to consider non-governmental requests to investigate alleged violations of labour laws. The NAALC states as its objectives improving working conditions and living standards in each country and promoting "to the maximum extent possible" a set of eleven labour principles. Among the most important of these are: freedom of association; the right to organize and to bargain collectively; the right to strike; prohibition of forced and child labour; equal pay for men and women; occupational health and safety and compensation for injuries and illnesses.

The main implementing NAALC institutions are the Commission for Labour Cooperation (CLC) comprising a high-level intergovernmental Council to consider major policy matters and a supporting secretariat to perform administrative functions and carry out an agreed work program. However, the CLC is a somewhat weaker body than the CEC. There is no requirement for an annual report to the Council from its secretariat, although it "shall periodically prepare background reports setting out publicly available information supplied by each Party." So far, studies have been released on North American labour markets, labour law in the area of industrial relations, and the effects of sudden plant closures. The Dallas-based secretariat’s staff is limited to 15 persons, however, and there is no Joint Public Advisory Committee. There are only National Administrative Offices (NAOs) located within the responsible federal government agencies in the three NAFTA countries. In Canada, this agency is the Ministry of Labour within the Department of Human Resources Development. In addition, countries are free to set up their own national advisory bodies.

Procedures for resolving any differences on labour issues among the parties also diverge from those in the environmental accord. For certain matters, in addition to consultations via the NAOs and the CLC Council, the labour accord provides for the intervention of three-member Evaluation Committees of Experts (ECEs), whose chair is to be drawn from a roster developed in consultation with the International Labour Organization (ILO), with other members drawn from a roster developed by the parties. ECE findings are subject to comment from the parties before final reports are submitted to the Council and published within specified time frames. However, only ECE reports pertaining to three areas – child labour, occupational health and safety, and minimum-wage technical standards – can give rise to further dispute settlement actions on the grounds of a "persistent pattern of failure" to enforce laws in these areas. If consultations fail within the Council on such a matter that is trade-related and "covered by mutually recognized labour laws," the Council may proceed to an arbitral panel, following procedures that mirror those of the NAAEC in regard to panel selection, reporting deadlines, levying of fines and ultimate resort to trade sanctions for non-compliance.

Again, too, Canada has received special exemptions. Canada is not subject to sanctions but agrees to make final panel rulings enforceable by a Canadian court. And in any case of a general nature involving Canada, at least 35% of the affected workers must be in provinces that have agreed to be bound by the NAALC. This provincial threshold rises to 55% for cases involving a specific sector. As in the case of the NAAEC, only three provinces –Quebec, Alberta and Manitoba, accounting for some 40% of the Canadian labour force – have so far signed on to the Canadian Intergovernmental Agreement governing provincial participation.

Assessments of the Side Agreements and Implementing Commissions

Since 1994, NAFTA’s environmental and labour structures have received very mixed reviews from both advocates and opponents of free-trade. They did break new ground and help to legitimize environmental and labour-standards considerations as part of trade and investment negotiations. Moreover, their reciprocal application to Mexico was an important test, given that country’s large and problematic disparities with its North American partners. At the same time, business-oriented groups have tended either deliberately to downplay these accords or to see them as unwarranted detractions from an economic liberalization agenda.(33) Indeed, some regard them as a dangerous precedent. Environmental and labour groups can be equally dismissive of the value of the accords, but for the opposite reasons --that they are too weak and conform too much to paramount free-trade obligations. One of the main criticisms has been that the NAFTA bodies cannot really do anything about the adequacy (or rather inadequacy) of environmental and workers’ rights protection in the three countries, and have quite limited means to bring about improved enforcement of existing laws.

The NAFTA commissions remain, after all, creatures of their governments. So, as Watson observed early on: "It is easy to be cynical about the side agreements. Much discretion is left to the three parties …[which] may be tempted to scratch one another’s backs more often than not."(34) However, it is also possible that this flexibility, rather than rigid adherence to some minimum common standards, could be used positively by the NAFTA governments. American law professor Jack Garvey argued that the side agreements "specifically affirm the right of each party to adopt higher standards than international levels. (…) Indeed, the mandate is to assure the highest level of protection under each party’s law. (…) Until international standards can be negotiated, the side agreements are the best mechanism for assuring that quality-of-life values are brought into consideration alongside trade values."(35) Given the stronger provisions in the environmental accord, some analysts saw its institutions as having the best chance to play an activist role in this regard.

Before turning to a more specific examination of NAFTA’s environmental and labour record, it should also be added that the commissions are works in progress. A provision of both the NAAEC and the NAALC is that there be an intergovernmental review of their operation and effectiveness four years after their entry into force. On the environmental side, the CEC’s governing Council appointed an Independent Review Committee (IRC) in November 1997 to conduct this assessment; its report was released following its submission to the Council which last met in Mexico in June 1998. The report makes some ambitious observations and recommendations (26 in all). To quote from its executive summary:

The IRC believes it is important to see the NAAEC as a complete agreement in its own right, and not just a "side agreement" to a trade deal. In the Committee’s view, the NAAEC is a critically important element to achieve the goal of sustainable development in North America. Moreover, the NAAEC is not just a trade and environment agreement in the legal sense. Rather, the mandate of the CEC, as the Committee understands it, is more broadly defined as the protection and enhancement of the environment in North America in the context of changing economic patterns, including the relevant trade and environment issues. The long term value of the CEC will be measured by its fulfillment of this mandate.(36)

The four-year review process on the labour side concluded in October 1998. Following guidelines adopted by the CLC Council meeting held in Washington in September 1997, that process provided for comments from advisory bodies as well as written public comments (which had to be received by the end of 1997), and for an "independent Advisory Report to the Council" prepared by a three-person Review Committee composed of non-governmental labour experts chosen from each country’s national advisory committee or alternates. That report was then to be made public as part of the Council’s final report on the review of the NAALC.(37) Meeting for the second time in Canada on 8 October 1998, the Ministerial Council released a series of conclusions suggesting modest improvements responding to the results of the review, while acknowledging lacunae and lack of consensus in some areas. A second comprehensive review is to be conducted in the year 2002.(38)

NOTE #4 THE NAFTA AND ENVIRONMENTAL ISSUES

NAFTA As a "Green" Agreement? (39)

The final NAFTA text they signed in December 1992 was hailed by the three governments as going further than any previous free-trade agreement in incorporating environmental provisions into its rules. Indeed the Canadian government’s October 1992 official environmental review of the draft agreement reached in August of that year exclaimed that: "The NAFTA establishes a new benchmark for environmentally sensitive international trade and economic relations." The main agreement and its preamble do contain a number of articles that appear to be environmentally friendly:

• commitments to promote sustainable development and strengthen enforcement of environmental protection measures

• commitments not to lower standards, to maintain high standards, and permission to raise them above international norms

• certain international environmental agreements (e.g., on ozone, endangered species, hazardous wastes) take precedence over NAFTA rules, subject to a requirement to minimize any inconsistency

• NAFTA disputes processes that involve environmental measures can call upon scientific, including environmental, experts; and the burden of proof is on the complaining party(40)

Many environmental groups were less than impressed, however, with the agreement and the official reviews, doubting that the pro-environment commitments would be binding, and suspecting that the overriding requirements for laws and regulations to be the least trade-restrictive would trump environmental protection provisions. The debate brought forward some of the main environmental arguments against trade liberalization: "(1) trade promotes environmentally unsound growth, (2) trade disciplines are a threat to domestic environmental measures, (3) liberalized trade and investment are vehicles for downward harmonization, (4) trade laws are obstacles to domestic trade measures aimed at promoting the protection of the global environment, and (5) the lack of openness and transparency with trade rules and institutions is a critical problem."(41) Serious concerns about environmental conditions in Mexico, particularly in the border "maquiladora" export-processing zones, and poor enforcement prospects in that country, added fuel to the debate.(42)

It is clear that the NAFTA is a trade agreement with some environmental provisions of arguable force and effect, and that those provisions "give precedence over confrontation and punitive methods to procedures for information, disclosure, discussion of joint problems, and cooperative programs." Optimistic assessments have suggested that such an approach could increase the influence of the environmental organizations and develop transnational ties based on agreement that "the price of the partners’ products traded in each other’s markets should absorb the cost of protecting the environment."(43) Despite continued business resistance to that concept, there are elements in NAFTA that support an upward harmonization of environmental standards and can also therefore benefit newer enterprises geared to taking advantage of that trend.(44) In Canada, for example, the federal government developed an environmental industry strategy in the wake of NAFTA which has been strongly supported by members of the Canadian Environmental Industries Association, although there are now concerns that this program may no longer be funded.(45)

With regard to NAFTA’s follow-on environmental side accord, the NAAEC, the picture is also probably neither as green nor as depressingly grey as has been claimed on opposing sides. Clearly there are weaknesses and gaps. Much of the NAAEC consists of non-binding political commitments, and there is no way to guarantee its effectiveness. The agreement’s definition of environmental law does not cover the important area of management or exploitation of natural resources, much of which falls under provincial jurisdiction in Canada, where matters are further complicated since the situation in regard to the constitutional foundations of environmental law is unsatisfactory even as compared to Mexico.(46) Moreover, in the Canadian case, NAAEC is still binding on only three of the ten provinces. Certain environmental groups, notably the Canadian Environmental Law Association, which were instrumental in the opposition of Ontario, Canada’s largest province, to the original deals, have continued to judge their subsequent environmental worth harshly.(47) At the same time, the NAAEC has been defended as representing "a very significant advance, given that the parallel accord is the first of its kind," while its drafters have been praised for having " a good understanding of environmental issues and environmental management."(48)

Overall, Johnson and Beaulieu offer a nuanced provisional verdict that points the way to more positive uses of NAFTA’s potential in future –

The environmental content of NAFTA and the accompanying NAAEC is a complex and difficult issue where many questions remain unresolved. (…) One thing is certain. The environmental effects of trade-related growth, particularly in the border area, have proved a lightning rod for NGO criticism; had it not been for NAFTA it is doubtful that environmental issues would have received the attention they have. Indeed, if NAFTA had been defeated and not ratified, it seems clear that a rare, if not unique opportunity for moving environmental cooperation forward would have been lost. (…)

… the five year history of NAFTA has changed the face of the debate, probably for good. Most mainstream NGOs have a better sense of the imperative for trade and growth. Numerous proponents of free trade accept the fact that the social dimension of trade liberalization must be properly addressed, inside or alongside trade agreements, to produce significant, sustainable economic and social progress. In that respect, we seem to be moving away from the zero-sum game debates of recent years between environmentalists and trade specialists.(49)

The Environmental Record of NAFTA Institutions

The most comprehensive assessment of the environmental performance of the NAFTA regime is an independent study initiated by the Commission for Environmental Cooperation as part of its NAFTA Effects Project and released in November 1997. Surveying all aspects of the NAFTA structures from the Free Trade Commission on down, it found a very mixed record and some crucial deficiencies. The good news was that: "at a minimum virtually all of NAFTA’s economic institutions with environmental responsibilities or relevance have begun to act on their mandates. … The proliferation of post-NAFTA institutions both within and beyond the Free Trade Commission framework, suggests that a dynamic process of expanding trilateralization is underway – and is likely to include an ever-greater range of functional fields and environmental issues."(50) But practical accomplishments seemed few.(51) While looking for the positive, the study also highlighted disappointing results –

Some of the NAFTA committees have attained concrete achievements that may have far-reaching effects. In some important areas, however, progress has been slower for several reasons, including institutional rivalries or claims from particular societal interests. In a few areas, such as automotive emissions standards, clear environmental responsibilities appear not to have been met as NAFTA’s drafters might have envisaged. For some bodies, the direct environmental relevance of the work has not been recognized. Moreover, in no cases have NAFTA’s economic bodies acted on the permissive environmental mandates assigned to them by NAFTA, and in some areas their mandatory environmental responsibilities, from a political and legal standpoint, remain unfulfilled.(52)

The consultants’ study was especially disturbed by a continuing "unhealthy separation of trade and environment concerns," manifested most strikingly in "the absence of a regular dialogue between the Free Trade Commission and the Commission for Environmental Cooperation, despite the fact that cabinet-level representatives in both bodies have recognized the value of such a dialogue." It is hardly surprising, then, that this report concluded that "much remains to be done to ensure that NAFTA’s institutions fulfill the trade agreement’s seminal commitment to "promote sustainable development" and meet its economic objectives "in a manner consistent with environmental protection and conservation."(53)

The CEC itself also has some large question marks hanging over it. The Commission made headlines with its first annual Taking Stock report released in July 1997, which criticized major Canadian firms and ranked Ontario as the third-worst pollution jurisdiction in North America. However, the Commission to that point had dealt with only a small number of cases under its non-governmental complaints procedure, including three from Canadians, none of which had been successful. For example, a complaint launched by the Alberta environmental group Friends of the Oldman River was rejected by the CEC in April 1997. As of September 1998, of 18 citizen submissions filed with the Commission since 1994 under the NAAEC Article 14 process, 10 are currently pending: four involving Canada; five involving Mexico, and one, the United States. The CEC Council has issued only one "factual record" determination so far.

In early 1998, as a result of controversy surrounding another environmental case against Canada, which led to the dismissal of the senior U.S. official, the Commission was rocked by the abrupt firing of its first executive director, Mexican Victor Lichtinger, who ironically had been reappointed to a three-year term just a few months earlier. Some drew the conclusion that his aggressive style had become too embarrassing to governments. As well, the methodology and content of the CEC’s second Taking Stock report released in October 1998 has been dogged by criticism from Canadian government sources.(54) Nonetheless, the CEC’s ministerial Council meeting in Mexico in June 1998 appeared to reaffirm confidence in its mandate, while reportedly clipping the secretariat’s wings as well as capping its annual budget at US$ 9 million.(55) As mentioned in Note #3, the June 1998 report of the Independent Review Committee on the NAAEC had recommended an ambitious strengthening of the CEC’s role. In short, there are strong conflicting pressures in play.

The Controversy over NAFTA’s Investment Provisions

If the environmental commission’s reputation hangs in the balance, an even more potentially damaging controversy over NAFTA’s environmental reputation has surfaced as a result of several lawsuits against the Canadian government by U.S. corporations utilizing the investor-state arbitration procedures under NAFTA’s Chapter 11. This sets down rules whereby private firms can sue governments directly for alleged breaches of their NAFTA obligations, and has been held out as a prototype for investor protection under the proposed Multilateral Agreement on Investment (MAI). In particular, the case involving Ethyl Corp., the sole producer of a manganese-based gasoline additive ("MMT"), has grabbed attention. Given concerns about health risks and other adverse effects of MMT, – it is not used in Europe and remains banned in parts of the U.S. – a Canadian ban on the importation and interprovincial trade of MMT took effect in 1997.

Lacking conclusive scientific evidence against MMT, and perhaps mindful of the legal battles over its use plaguing the U.S. Environmental Protection Agency, Canada acted under its trade rather than environmental law authority, in turn provoking both a domestic and a NAFTA challenge. Several provinces challenged the interprovincial trade ban under a 1994 Agreement on Internal Trade. An arbitral panel ruled in their favour in June 1998. More worrisome in this context was that U.S.-based Ethyl Corp. had initiated a NAFTA Chapter 11 case against Canada, suing for US$250 million in damages. According to Gordon Ritchie, a prominent Canadian trade consultant who was a principal negotiator of the Canada-U.S. FTA: "If this claim were to stand, it would impose a major constraint on the sovereignty of a country in pursuing environmental and other regulations."(56) An important difference between the FTA and NAFTA is that under the former only governments could authorize such arbitration panels.

As the controversy heated up in the wake of the loss on the interprovincial ban, the Canadian government suddenly announced a settlement with Ethyl in late July, in effect conceding the case. The U.S. company agreed to drop its action in return for Canada’s agreement to repeal its cross-border ban, to pay Ethyl US$13 million in damages, and to admit there is not yet scientific proof of harmful effects from MMT.(57) That decision has not only been widely condemned on environmental and health grounds, but has also raised renewed fears that NAFTA’s investment dispute provisions may be dangerously flawed in several ways. First, in the words of a leading trade law expert, they put governments "at peril if they adopt measures having the ‘effect’ of expropriating foreign-owned assets, directly or indirectly." Second, NAFTA "allows these disputes to be dealt with entirely behind closed doors, merely if one of the parties requests it. This is what happened in the MMT case….at the end of the day, public confidence in the system can only be safely assured through full disclosure and accessibility."(58)

The controversy widened further in August 1998 when it was revealed that a second U.S. company had served notice in July of its intent to use the same NAFTA process to claim compensation for a 1995 Canadian ban on exports of toxic PCBs to the U.S. Trade and environment lawyer Howard Mann, a principal drafter of the June 1998 independent review committee report on the NAAEC, has warned that we could be "seeing the tip of the iceberg."(59) These cases are heightening similar concerns which have been expressed about how MAI provisions might be used secretively by private interests to overturn government regulations designed to safeguard the public. In September 1998, a coalition of environmental, labour and social groups called upon the NAFTA Commission for Environmental Cooperation to examine the issue of the potential risks posed to the environment by cases under NAFTA’s investor-state rules.(60)

NOTE #5 NAFTA AND LABOUR ISSUES

The NAFTA text itself is virtually silent on labour issues except for unenforceable commitments in the preamble to "improve working conditions and living standards" and to "protect, enhance and enforce basic workers’ rights." While supporters of trade liberalization have contended that the economic activity it is intended to stimulate should also raise incomes overall, labour critics have argued that the deregulated competitive forces unleashed by market liberalization act to undermine the bargaining power of workers and may cause significant wage and/or job losses in sectors whose competitive position declines as a result of free trade. The NAFTA was even more controversial than the Canada-U.S. FTA in this regard, due to the inclusion of Mexico, a still-developing country with much lower wage rates, weakly enforced work standards, and few independent unions within an authoritarian governance system. New fears were raised that Canadian and U.S. workers would lose out if firms relocated production to Mexico to take advantage of such conditions. Because the social costs of such trade-related moves are not accounted for in consumer prices (which may fall because of cheaper labour), this phenomenon has been referred to as a form of "social dumping" and likened to the problem of not accounting for environmental costs in economic transactions. In the context of the NAFTA debate, labour groups argued that the trading environment among the three countries would not be fair unless strong labour standards could be enforced in each, and unless provision was made for adjustment assistance to workers in sectors that might be injured by changing competitive positions.(61) Some went beyond that to propose that a European-style "social charter" be incorporated into any NAFTA arrangement.(62) This idea is explored further in Note #6 for Workshop III on NAFTA’s social and cultural dimensions.

The Record of NAFTA Institutions

The 1993 side accord which established the North American Commission for Labour Cooperation is certainly much less than what labour groups had pushed for. As one study describes it, the NAALC is "essentially a non-invasive way of promoting worker rights … at the same time, both ‘broad’ and relatively ‘weak’."(63)  As stated in Note #4, the agreement promotes observance of eleven labour principles, which is a more extensive list than the half-dozen "core" labour standards identified by the ILO and the OECD, and already incorporated, albeit unilaterally, into some U.S. trade laws. The problem is not with the principles, but rather the lack of enforceability. Of the eleven, three key rights – to freely associate and organize, bargain collectively, and strike – are subject to only the weakest procedures under the NAALC.

Moreover, in only three areas of standards can successful complaints lead to an imposition of sanctions or fines in the case of Canada. (See Appendix for the categories of NAFTA labour principles grouped according to the limited extent of their enforceability under the side agreement.)

The majority of the 17 submissions filed with the NAALC Commission as of October 1998 have alleged Mexico’s failure to enforce its laws concerning the right of workers to organize their own unions. These are therefore subject only to consultative procedures among the three parties. In June 1998, one of these cases was brought for the first time by the Canadian government on behalf of a coalition of labour groups.(64) A second Canadian case, involving migrant workers, was initiated in October 1998. Most of the five submissions brought to date against the United States have also involved alleged violations of the right to organize. The results so far seem modest at best – "despite the fact that Mexico finally recognized an independent union as a bargaining entity in April of 1997, not a single Mexican worker fired for union activity has been rehired or compensated as a direct result of a NAALC submission. Indirectly, however, publicity surrounding some of the NAALC cases prompted reinstatement of several workers."(65) There are also claims that Mexico now spends considerably more to enforce labour laws and that its occupational health and safety record is improving.

One of the sharpest critical assessments has been made by a former U.S. government official who was assistant to the U.S. chief negotiator for the NAALC. Stephen Herzenberg observes that the side deal has suffered from being the product of a flawed compromise:

NAFTA’s neoliberal champions viewed the negotiation of NAALC as an irritant, a source of delay, and, like virtually all labor market regulation from their perspective, bad policy. Most trade unions and other NAFTA skeptics still see the NAALC as a political fig leaf for a trade agreement too flawed and reflective of corporate priorities to be worth swallowing at any price. International and human rights groups are the organizations most actively using NAALC instruments. While their efforts have been invaluable, their moral advocacy for rights and standards does not fundamentally challenge the economic case for deregulation.(66)

Herzenberg adds that, while NAFTA’s economic policies may be benefiting business, from the labour perspective in Canada and the U.S. they have been a failure because working people and the unemployed are perceived to have lost ground gained. Reflecting that much of Canadian labour law falls under provincial jurisdiction, there is also the Canadian exception to the NAALC which puts threshold requirements for provincial coverage. In effect, unless and until Ontario binds itself to the agreement, the provisions on disputes have only a limited application to Canada and to creative uses by Canadian labour advocates. Notwithstanding all of these weaknesses, Herzenberg believes that more could be done to turn the NAALC into a "tool for promoting the high road." More complaints could be brought forward on labour standards issues which are subject to expert evaluation procedures and arbitration panels. Trilateral cooperation could be increased and the Commission’s secretariat given more independent powers to investigate and make recommendations. As well: "Full Canadian incorporation into NAALC might accelerate the development of a tri-national critique of U.S. labor law analogous to that now developing in Mexico. It would build international pressure in favor of modernizing U.S. labor law to resurrect the right to organize and enable U.S. workers to share equitably in – and contribute more towards – prosperity."(67)

NAFTA’s Impact on Labour

Evaluating the impact of NAFTA on labour has proved to be far more difficult and politically controversial than simply claiming that job creation has resulted from the undeniably large increases in trade and investment flows among the three countries. Labour critics have discounted such claims and focused instead on the loss side of the ledger. On either side of the debate, it is questionable how much good or ill can be attributed to NAFTA, as distinct from the effects of ongoing technological change, global competitiveness pressures, corporate restructuring strategies, "downsizing," and all the other forces impinging on North American labour markets. Nonetheless, organized labour in the U.S. has attacked NAFTA as part of the campaign to deny the U.S. president "fast-track" negotiating authority to expand trade liberalization agreements. That authority has not been renewed by Congress since 1994.(68) Whatever the claims of governments and pro-NAFTA economists, the agreement is clearly not popular with many elements of the labour movement. In joining the latest U.S. constitutional challenge to NAFTA, United Steelworkers of America President George Becker declared bluntly that: "NAFTA has been an unmitigated disaster for working people in Canada and Mexico, as well as in the United States."(69)

At the same time, there has been growing labour interest in utilizing the mechanisms under the labour cooperation side accord, both to counteract business pressures on workers, and to advocate that this embryonic linkage of trade to labour standards be further developed, extended and strengthened.(70) As mentioned above, in Canada a first NAALC case was launched earlier this year. Canadian labour spokespersons have also used the Labour Cooperation Commission to outline their views forcefully in a tri-national context. The senior economist of the Canadian Labour Congress (CLC) summarized that body's position on NAFTA impacts in a submission to the Commission’s first annual North American seminar on incomes and productivity –

As documented in the recent CLC report on NAFTA (Social Dimensions of North American Economic Integration), the Canada-US Free Trade Agreement and NAFTA have increased the pressures of international competition on Canadian capital, and this has resulted in large job losses in the highly exposed and integrated manufacturing sector, and a significant restructuring of the operations which have remained. In the competitive struggle for survival and growth, capital has striven to raise productivity while minimizing wage costs. (…)

We used to live in a world in which we had high productivity growth which was shared by workers, primarily through wage bargaining in relatively discrete national contexts. Today we live in a world in which international competitiveness, high levels of unemployment and underemployment, and attacks on unions and labour standards have tipped the scales sharply in favour of capital. Balance needs to be restored, either through attenuation of the forces of international competitiveness, or through concerted international action to raise labour standards and the bargaining power of workers.(71)

It is probably fair to say that the jury is still out as to whether NAFTA’s modest labour provisions offer much hope in helping to achieve that objective.

APPENDIX

NAALC’S LABOR PRINCIPLES

From: Mary Jane Bolle, NAFTA Labor Side Agreement: Lessons for the Worker Rights and Fast-Track Debate, Congressional Research Service Report for Congress, Washington, October 1997, Figure 1, p. 4.

PANEL 3

SOCIAL AND CULTURAL ASPECTS OF NAFTA

NOTE #6 NAFTA AND SOCIAL ISSUES

The NAFTA text does not specifically address social policy considerations among the three countries. It does affirm political commitments not to lower environmental, labour, and health and safety standards, along with intentions to promote improvements in living standards; however, each country reserves the right to pursue its own policies with respect to health care, social services delivery, and so on. Apart from the largely non-binding environmental and labour cooperation side accords, there are no mechanisms within NAFTA for pursuing social policy objectives on a North American scale. Nonetheless, NAFTA’s impact on the social sector has proved to be controversial for several reasons – both that it goes too far in extending the reach of market forces, and not far enough in terms of encompassing social, including human rights, norms.(72)

It can be argued that NAFTA’s "neoliberal" approach to economic development ignores many problematic aspects of trade liberalization: widening gaps between rich and poor and between more and less skilled workers; social strains aggravated by pressures on governments to reduce social spending and regulation as part of free-market reforms that mostly benefit investors and the better off. In Mexico, the circumstances of socio-economic disparities and "structural adjustments" have been seen as particularly acute.(73)  This has led to calls to reform NAFTA; even to give it an explicit supranational social dimension. At the same time, it can also be argued that NAFTA’s market-oriented rules pose a risk to national and subnational social policy sectors that should stay protected and off limits to foreign commercial competition. As we will see, the adequacy of sovereign reservations in this area remains an important matter of debate in Canada.

More generally, the NAFTA can be seen as part of a trend towards what WTO president Renato Ruggiero has called "deep integration," which has been advancing most rapidly in some regional settings. Even at the global level, it is anticipated that "the future challenges for the trading system are primarily in the domain of domestic regulation rather than border measures."(74) This in turn raises complicated socio-political questions of governance and democracy. In an early Canadian critique of NAFTA, Ian Robinson argued that, by reducing public-sector powers and increasing those of corporate actors in an environment of intensified competition, NAFTA would be likely to worsen social trends and reduce the quality of democracy. Making comparisons with more socially conscious European processes of economic integration, Robinson proposed that North American trade policies be tied to efforts to ameliorate social conditions and strengthen democratic prospects, both regionally and ultimately globally.(75) While the NAFTA governments would contend that its critics’ fears have not been borne out, NAFTA has clearly raised attention to the social implications of the trade policy agenda.

From "Social Dumping" to a "Social Charter"?

The argument that NAFTA could exacerbate problems of "social dumping" is mainly predicated on sharply different conditions of production and employment in Canada and the U.S. as compared to Mexico. Social dumping occurs when exports benefit from unfair pricing advantages as a result of their production being located where standards and their enforcement are weakest; in effect, when trade exploits poor social conditions and externalizes those social costs.(76) A strong economic as well as social case can be made against such dumping. As noted trade economist Peter Morici explains:

Eliminating this practice would raise living standards by eliminating negative externalities, i.e., practices whose social costs are not reflected in the monetary costs borne by firms. Much like the elimination of tariffs and quotas, ending social dumping would encourage a more efficient allocation of resources and patterns of specialization among and within the three countries.(77)

Agreeing to correct social dumping implies that the trading partners have also agreed on some shared societal values – notably in regard to acceptable environmental, labour and social standards – as part of maintaining a playing field that is fair as well as free. Achieving that may entail a substantial upward harmonization of social standards along with social transfers to assist all parts of the trading area in meeting these standards. Morici suggests this is a positive, albeit not an easy, option in the NAFTA context: "A social framework that requires the enforcement of reasonable standards throughout North America and that provides Mexico with the financial and technical resources necessary to act would be much more productive than trade sanctions. A free trade agreement could thus resolve the problem of social dumping in a way that otherwise would not be possible."(78)

NAFTA’s critics, associating the agreement with deepening social inequalities and diminishing redistributive transfers by governments,(79)  have remained very sceptical that its free-trade orientation could accommodate the kind of framework referred to above. Instead, labour and social advocates have tended to look to European community models for inspiration on incorporating such elements as: freer movement of labour as well as capital; social charters spelling out common social rights and obligations; the European Union Maastricht treaty’s "social chapter" (to which Great Britain is no longer a holdout); EU "structural funds" and other European social investment vehicles. Of course the European experience of market integration has its own critics who allege continuing social and democratic deficits. A bigger problem in borrowing from Europe is how to separate the social solidarity elements from the institutions of political integration. Surely a "social NAFTA" would need to have some common budgetary capacity and policymaking institutions; yet it is difficult to see how that ceding of sovereignty to a supranational level would be politically feasible in any of the three countries.

Undoubtedly, in dealing with the social and political sides of economic integration, Europe’s historical experience is both much greater than and much different from that of North America.(80) Some Canadian analysts point out that social-charter proposals in this country have been linked as well to domestic constitutional debates in which a primary aim of advocates has been to entrench rights to existing programs (e.g., medicare), and social and labour protections within Canada – to preserve a Canadian "acquis" in the face of external trade-related pressures; this is in contrast to an outward orientation that sees the social aspect as facilitating transition towards a transnational economic union. Gilbert Winham and Elizabeth De Boer argue that: "In Europe, the Social Charter coincides with internationalism; in Canada, a charter is associated with nationalism and protectionism."(81) Canadian social-charter proponents might take issue with that, arguing they are not against socially responsible forms of liberalized international trade resulting from economic integration within and beyond North America. Winham and De Boer do acknowledge the likelihood that social dimensions will feature prominently in post-NAFTA rounds of negotiations, observing that: "As regional trade blocs take in poorer and more diverse partners, the question of standardization in health, safety, and employment will keep resurfacing. … support by labor and other groups will make this an issue to watch in hemispheric trade talks in the future."(82)

NAFTA Impacts on Social Policies and Programs

NAFTA contains a broad provision in Annex II whereby each country "reserves the right to adopt or maintain any measure with respect to the provision of public law enforcement and correctional services, and the following services to the extent that they are social services established for a public purpose: income security or insurance, social security or insurance, social welfare, public education, public training, health, and child care." This general exclusion from NAFTA free-trade rules covers future as well as current measures. Although the NAFTA social exemption has yet to be tested by dispute settlement panels, it is alleged to be weakened by certain deficiencies. Other aspects of NAFTA have also given cause for concern. For example, in the agreement’s first year it was reported that the U.S. tobacco company Philip Morris was threatening to use the investor-state procedures of Chapter 11 to sue the Canadian government for hundreds of millions of dollars for "expropriation" of trademark if, as part of anti-smoking health measures, legislation were passed imposing plain-packaging requirements on cigarette manufacturers.(83) While such threats of legal action may not be well-founded enough to deter governments, they create uncertainty and a "chill" effect.

The most important anxiety to have arisen to date has been the safeguarding of provincial government "non-conforming" measures in Canada’s decentralized system of public and mixed public/not-for-profit/private delivery of health and social services. In addition to the Annex II general national reservation, NAFTA provided a two-year period for provinces and U.S. states to reserve, through a detailed enumeration and listing process under Annex I, any of their existing measures that might conflict with NAFTA rules. As the December 1995 deadline approached, concerns mounted about the adequacy of the general reservation, given that the U.S. government was said to be interpreting it very narrowly to cover only services directly delivered by governments; such an interpretation would then not protect many Canadian health and social services that are delivered "for a public purpose" but use non-governmental providers.

Public sector unions and health groups obtained legal opinions suggesting that the general exclusion was vulnerable to such ambiguities and to being further undermined by the effects of funding cuts and deregulation of services. The British Columbia provincial government also expressed strong concerns. While the federal and some provincial governments maintained that Canada’s medicare system was not at risk, the deadline for listing subnational reservations was extended to April 1996. At that time an agreement was also secured among the NAFTA partners to make all non-conforming provincial/state measures in place as of 1 January 1994 indefinitely reserved from challenge under NAFTA investment/national treatment rules.

Some critics were not fully reassured, however. The 1996 agreement does not cover financial services or future provincial initiatives in the health and social services area. An associate of the Canadian Health Coalition argued that:

… the struggle to protect Canada’s health care sector from NAFTA is far from over. NAFTA is so vast and convoluted that few people, including many on government, understand how to interpret its manifold clauses. (…)

NAFTA was not so much designed to shield health care or other social services as to open up the economy to multinational corporations. The health care sector is not protected from intellectual property provisions of NAFTA, and consequently, escalating drug costs are threatening to bankrupt provincial drug plans and hospitals. Similarly, our public health insurance system was not shielded in the financial service chapter of the trade agreement, and many questions regarding its future remain unanswered by federal officials.(84)

Concerns of this sort have resurfaced in the context of the MAI negotiations. In light of the NAFTA experience, it has been argued that Canada must obtain a clear and unbound reservation for public and social services in any international investment agreement. The Canadian parliamentary committee which studied the 1997 draft MAI text concurred, recommending that: "in consultation with subnational levels of government, Canada must achieve an unbound reservation for health, education and social services."(85)

NOTE #7  NAFTA AND CULTURAL ISSUES

Like its social dimensions, NAFTA’s treatment of cultural and educational matters has been defined more in the negative – i.e., what is or is not adequately protected by being excluded – than in terms of the agreement’s capacity to promote shared objectives in these areas. Again this is in contrast to European integration frameworks. Some argue that a purely economistic view of the NAFTA relationship is mistaken; that in addition to its environmental and labour attachments, the agreement could pave the way for intensified trilateral cooperation in social, cultural and educational fields.(86) Addressing the tenth annual conference of the North American Institute (NAMI) in Santa Fe, New Mexico in August 1998, Canadian foreign affairs minister Lloyd Axworthy indicated that it was timely to consider deepening the overall relationship among the three NAFTA countries.(87) Mr. Axworthy expanded on the challenge of "building a North American Community" in a September speech in Chicago that deserves citing at length:

If we can get North American co-operation right, not only will our own countries benefit but we would provide an important model of regional co-operation in a fluid and uncertain world. This would be an alternative model to that presented by the European Union, for example, in that it would be institutionally much lighter and would draw together economies at different stages of development.

We have a long way to go, however, before we achieve that level of finely tuned co-operation [beyond just trade and economics] … We need to update our shared instruments and institutions to deal with challenges across a broad spectrum: everything from shared natural environment to movement of goods and people, and to education and human resources. … We need to look ahead and develop a vision of what we want a North American community to be. And in doing so, we have to deal with the tensions inherent in globalization. This means developing a sense of "North Americanness," while at the same time preserving our separate national identities.

For Canadians, culture gives a sense of shared identity as citizens and represents a core component of our collective vision as a nation. Americans and Mexicans also have their own sense of what constitutes culture and cultural identity. The challenge, then, is to develop a North American "footprint" that treads lightly enough so that it does not crush the existing landscape formed by our distinctive histories and cultures.(88)

However, the Canadian cultural debate during the first decade of continental free trade has been primarily galvanized, not by a sense of new opportunities, but by persistent fears that Canada’s distinctive cultural identity and values would surely become even more vulnerable to "Americanizing" influences within an increasingly integrated North American market. The debate has revolved around the survival of Canada’s cultural defences against U.S. domination; hence the culture-trade linkage remains an anxious and vexing one.

The "Cultural Exemption" within the FTA/NAFTA

The Canada-U.S. free-trade negotiations of the mid-1980s took place in the context of several decades of domestic regulatory and financial support policies designed to nurture and protect Canadian "cultural industries" in the face of mainly American competition, and to boost the amount of "Canadian content" in important areas of cultural activity – music, books and magazines, films, broadcasting, etc. Preserving and promoting cultural expression that was uniquely Canadian was associated politically with essential national identity and unity objectives. At the same time, Canadians continued to be willing consumers of large volumes of American cultural products; for example, they purchased almost 80% of all U.S. magazines sold abroad. As described by John Thompson, Canada’s "quest for cultural sovereignty" has evoked little understanding or sympathy from American policymakers, who view that market position as passive and benign – simply supplying Canadian consumer demand – and who have increasingly objected to protectionist cultural policies that might in any way restrict such lucrative markets for U.S. cultural exports.(89)

The result of these fundamentally divergent attitudes of the two countries towards culture and trade resulted in a somewhat ambiguous compromise in the FTA. The key provision seems to exempt Canadian cultural policies from free-trade rules, except for a few specific undertakings.(90) However, the same provision affirms the right of the U.S. to retaliate and seek appropriate compensation – of "equivalent commercial effect" to any loss claimed – in regard to any such policies deemed inconsistent with FTA rules.(91) In effect, it was an agreement to disagree which left Canadian culture officially outside the agreement but as exposed as ever to U.S trade actions. The FTA provisions were essentially carried over as they were into the NAFTA.(92)  The cultural exemption clause does not apply to U.S.-Mexico trade.

The problem is that the FTA/NAFTA provisions entrenched rather than resolved Canada-U.S. differences. Indeed, bilateral cultural trade disputes have multiplied and taken on a high profile during the 1990s, with a number of measures to support Canadian culture’s share of the domestic market being targeted by the U.S. as unfair barriers to trade and investment. The ambiguities within the FTA/NAFTA exemption persist, and neither country has sought to apply FTA/NAFTA dispute resolution procedures to cultural matters.(93) Moreover, the current cultural battles, such as the case involving U.S. "split-run" magazines, are being contested more in terms of global trading rules.(94) Within the GATT/WTO commitments, the General Agreement on Trade in Services (GATS) allows Canada to continue to exempt cultural industries. However, other WTO rules, including some in areas of intellectual property, copyright, and so-called trade-related investment measures (TRIMS) apply to Canadian cultural industries in complex ways that are likely to be tested by new challenges. For example, the U.S. has protested revisions to Canadian copyright laws which it says deny royalties to American performers in contravention of NAFTA and WTO rules.(95)

Protecting and Projecting Culture beyond NAFTA

The FTA/NAFTA exemption for culture has been questioned on a number of grounds. Cultural groups especially argue that it has not provided effective insulation from powerful U.S. commercial interests and threats of retaliation, which, they contend, have influenced Canada to back away from more nationalistic policies in areas such as book publishing and film distribution. With regard to films, U.S. producers, notably the major Hollywood film studios, have also continued to enjoy certain historic rights in the Canadian market; this gives them a privileged position objected to by European competitors like Polygram, and over which the European Commission has taken Canada to the WTO. From a longer-term perspective, it has been argued that the NAFTA exemption perpetuates an unsatisfactory status quo while failing to provide any constructive framework for working out better international understandings and disputes procedures that accept some national cultural policy objectives as legitimate.

Keith Acheson and Christopher Maule observe that:

Attempts to insulate the cultural industries from the liberalizing commitments accepted in other industries have not succeeded. The United States has successfully pursued its cultural interests in disputes with Canada within existing international agreements and through informal bilateral channels. The Canadian policy of selective and discriminatory granting of access creates disparities of treatment among American interests and between those American companies, which have received access, and similar companies from other countries. These disparities are a breeding ground for trade disputes. Similar challenges will arise if a MAI is negotiated and culture is exempted from the obligations of the agreement.(96)

In short, the lesson of NAFTA in the cultural field is that exemptions leave many problems unresolved and may prove to be inadequate or perverse defences against external challenges. Being essentially reactive rather than forward-looking, they are not very helpful when it comes to addressing issues such as the impact of new global technologies (e.g., Internet or satellite-based) on culture, or in seeking greater access for Canadian cultural goods and services in other countries. Indeed exports of Canadian cultural products excluding film have doubled since 1990, reaching $1.5 billion in 1997. Sustaining that positive direction of expanding cultural trade requires an orderly and reciprocal rules-based international framework.

Recognizing such challenges, Canada hosted an International Meeting on Cultural Policy in June 1998 which included ministerial representation from 20 countries, with the aim of forming an international network that will seek ways to preserve and promote cultural diversity. Although the U.S. was not invited to that meeting, Canada’s other NAFTA partner, Mexico, is a member of a four-country contact group (along with Canada, Sweden and Greece) and will host the next meeting in 1999.(97) Canadian cultural groups, while remaining deeply sceptical of the provisions in current international trade and investment agreements (the GATT/WTO and the proposed MAI, as well as the FTA/NAFTA), have also been exploring constructive international alternatives. An important report released in June 1998 suggests that, instead of relying on inadequate exemptions in flawed commercial agreements, work should go forward towards establishing a separate international agreement on culture that would advance the concept of "global parallel rights" in the cultural area.(98)

Obviously these initiatives face many hurdles and move very far beyond what the NAFTA provides for. Nevertheless, even if NAFTA seems so far to have accentuated rather than attenuated Canada-U.S. cultural disputes, perhaps, if Minister Axworthy is right, it can evolve in the direction of a regional community arrangement that will help to bridge such divergences and foster more cooperative solutions.

DAY TWO: CANADA AND THE EUROPEAN UNION:
TOWARDS A TRANSATLANTIC MARKETPLACE
(Briefing Notes #8 and #9 by Peter Berg)

SESSION 1
HIGHLIGHTS OF CANADA-EUROPE TRADE AND ECONOMIC RELATIONS

DOCUMENTATION

• Department of Foreign Affairs – Fact Sheet and Overview
  of Canada-European Union and Economic Relations 1976-1997

• Joint Political Declaration on Canada – EU Relations (December 1996)
  and Prime Minister’s Press Release on May 1998 Canada-EU Summit

• Chapter by David Long, "Canada-EU Relations
  in the 1990s," in Canada among the Nations 1998

SESSION 2
SECTORAL ISSUES AND AREAS
FOR FUTURE BILATERAL AGREEMENT

NOTE #8: AN OVERVIEW OF CANADA’S CURRENT TRADE
IRRITANTS WITH THE EUROPEAN UNION

Introduction

In 1997, two-way merchandise trade between Canada and the European Union (EU) exceeded $40 billion, a not insignificant achievement. Trade in services adds roughly another third to the total. Given the scale of this economic relationship, one should not be surprised that a number of bilateral irritants have arisen. However, there is also no denying that Canada-EU trade relations have, in recent years, been dominated by a long list of quantitatively minor, albeit no doubt individually important, trade disputes, some of which have remained unsolved over lengthy periods. It is generally recognized that removing or reducing trade irritants can be a time-consuming process that can distract government officials from the loftier pursuit of enhancing the overall trade relationship; hence the number of disputes that have dragged on is a continuing concern.

It is also worth mentioning that disputes involving primarily Canada and a single member of the EU can have broader repercussions for overall Canada-EU relations. It has been said that there is an inherent "predicament for Canada in dealing with a bloc of countries like the European Union, which operates on the basis of solidarity. A dispute over a single issue affecting the interests primarily of a single Member State, in this case Spain, automatically affects negatively relations with the entire European Union…this problem is likely to be compounded in the future as the EU takes in more members."(100)

Of course no trading relationship, much less a large and complex one, can ever be categorized as free of conflict. It is also true that the trade irritants in question have been, or are being, examined in an orderly manner, largely through World Trade Organization (WTO) dispute resolution mechanisms. With the possible exception of the battle over turbot stocks (resolved bilaterally by Canada and the EU in April 1997) and the controversial use of leghold traps in catching fur-bearing animals (settled through the signing in December 1997 of a Canada-EU agreement on humane trapping), these disputes have not been nearly as high-profile or as contentious as many of those involving our neighbour to the South.

Most of the disputes in question involve transactions in primary products, such as food and food products, fish, forest products and asbestos. Unresolved priority issues, grouped together by primary sector, are highlighted below.(101)

Agriculture

Canada continues to have concerns with the protection afforded by the EU’s Common Agricultural Policy (CAP) to its agricultural producers. CAP’s existence both harms Canada’s access to EU markets and affects its sales to third-country markets in the sense that our exports must compete with those subsidized by the EU. Particularly irksome have been recent increases in EU subsidies on barley and oat exports in response to the decline in world grain prices. It is hoped that the upcoming enlargement of the EU membership will precipitate changes in CAP’s current configuration and future subsidy policy.

Another bone of contention is the EU’s grain-import regime, which according to Canada is not consistent with the EU’s WTO commitments to refrain from imposing a duty on cereal imports in situations in which the import price is greater than the EU intervention price plus 55%. Canada maintains that the EU’s use of U.S. commodity market quotations as reference prices for the calculation of duties instead of a duty calculation derived from "transaction value" is harmful to the interests of Canadian exporters of premium-priced products. Canada requested an WTO panel in July 1995, but this request was removed when a refund agreement was concluded with the EU in December of that year. Following additional controversy, another agreement was reached during the 1997-98 crop year. A Canadian return to the WTO has not been ruled out.

In recent years, in keeping with its adoption of a precautionary approach to food safety, the EU has accelerated its use of import-restricting measures designed to protect the health and safety of its residents. Canada has argued that these measures have not always been based on sound science. A prime example is the EU’s lack of approval of all of Canada’s varieties of genetically modified (GM) canola, which has prevented Canada from exporting canola into the EU since 1997 and hampered two-way trade in oilseeds.

Similarly, exports of Canadian tallow and its derivatives are being obstructed by of a ban on certain high-risk materials which, it is thought, can eventually lead to bovine spongioform encephalopathy (BSE), otherwise known as "mad cow disease." Canada and the U.S. both claim that subjecting tallow and its derivatives to heat during the manufacturing process removes the BSE agent; this country has therefore sought to have tallow exports excluded from the coverage of the ban.

Yet another instance where the EU has erected barriers to trade in the name of health and safety is the 1989 decision to ban the use of growth-promoting hormones in livestock and imports of beef produced with such hormones. Canada, along with the United States, has opposed the ban on the basis that it cannot be supported on scientific grounds and therefore represents an unjustified use of a non-tariff barrier to trade. After direct consultations with the EU failed to resolve the dispute, Canada requested a WTO dispute settlement panel in 1996. Reports issued by both the panel (August 1997) and the WTO Appellate Body (January 1998), set up in response to an appeal of the initial panel’s decision, were favourable to Canadian interests. The EU now has until May 1999 to ensure that its measures on Canadian beef imports conform to WTO rules.

Finally, access to EU markets is also being restricted for quality-designated Canadian wines. For example, the EU wants Canada to require its wine producers to refrain from using certain EU-origin names, such as champagne, port and sherry. The Canadian industry has been informed that it has until September 1998 to arrive at an agreement with the European Commission on such product appellations as well as on Canadian wine-making standards, in order to ensure that human health of EU residents is not threatened. Access to the EU market will be blocked if no agreement is signed by then.

Fish

The resolution of Canada’s dispute with Spain (and by extension the EU) over access to the domestic turbot fishery has been mentioned above. Technically, this dispute was over access to the resource stock, not over trade. What continues to be of concern on the trade side, however, is the continuation of elevated EU tariffs on Canadian fish and seafood product exports. Tariff rates for groundfish species of interest to Canada can be found in the 7.5-12% range, while tariffs for Canadian shrimp vary between 12 and 20%, depending on the product. Sales of fish and seafood to EU customers have slumped, from $446 million in 1988 to just over $300 million.

Mining

A large number of European countries have now banned or significantly curtailed the use of chrysotile asbestos, a product that has historically been imported into the EU market. Perhaps the most notable was the 1997 ban imposed by France on the manufacture, import and sale of asbestos and products containing asbestos. The federal government, anxious to protect the fortunes of the Quebec-based asbestos industry, is of the view that bans of this type cannot be supported by scientific evidence, and that controlled use of the product does not jeopardize individuals’ health. In May 1998, the government announced it would initiate consultations at the WTO in order to settle Canada’s dispute with France over this matter.

Forest Products

With the aim of preventing the introduction into Europe of the pinewood nematode (PNW) insect, the EU has since July 1993 insisted that all softwood lumber exports from Canada, with the exception of cedar, be either kiln-dried or heat-treated. The federal government has consistently opposed this regulatory requirement, arguing that there is a minuscule risk of transmission of the insect to European forests. In order to regain the access to the EU market that it has effectively been denied, the government is currently mulling over possible dispute resolution action at the WTO level.

SESSION 3

BEYOND NAFTA TO A CANADA-EUROPE
TRANSATLANTIC MARKETPLACE

NOTE #9 STRENGTHENING THE TRANSATLANTIC TRADE RELATIONSHIP

Introduction

A strong case can be made that Canada’s trade relationship with the European Union (EU), the world’s largest single market, is in need of a sharp boost. While we now export over $23 billion in goods and services to the EU annually, as a proportion of total merchandise exports the EU share has been on the decline - from 12.6% to 5.1% over the period from 1980 to 1997.(102) Moreover, Canada’s exports to the 15 EU member countries have not kept pace with Europe’s economic growth. In fact, at 0.6% of the value of total EU imports, our exports to Europe are minuscule. Also of concern is the fact that the merchandise trade deficit with the EU continues to grow ($7.6 billion in 1997), with services trade also recording a deficit.

Granted, there are sound explanations for the slippage in Canada’s penetration of the European market. The most important of these has been the increasing integration of the North American economy which has resulted in a tremendous rise in our exports to the United States.(103) What is disconcerting, however, is that Canada’s relative trade presence in Europe is shrinking at the very moment that the EU market, as it undertakes an aggressive expansion in membership and adopts a single currency, is expected to grow.(104) As was concluded at a recent Conference Board report on the Canada-EU business relationship, Canada must seize the opportunities presented by the expanding EU market to foster a more active transatlantic business relationship.(105)

Forging Bilateral Links

To that end, the Canada-EU Action Plan, signed in December 1996, aimed to resolve bilateral trade disputes and to examine ways to improve the trade environment by removing existing tariffs(106) and non-tariff barriers such as product standards and technical regulations, making progress in the area of intellectual property rights, removing discriminatory government procurement practices and freeing up services trade. A key element of the Action Plan was the launching of a Joint Trade Study designed to identify the barriers in specific sectors of the economy(107) and to recommend ways of removing them, either bilaterally or multilaterally. A draft of the study document was presented at the May 1998 Canada-EU Summit.

The Conference Board report also pointed to an urgent need for business on both sides of the Atlantic to overcome what appears to be an "information deficit" about each other’s markets. Without such information, business strategies to capture market share will not be effective. The Joint Trade Study is grappling with ways to address this all-important need for transatlantic dialogue. Moreover, a first meeting of European and Canadian small businesses took place in June 1998, and the federal government is also working with the Canadian Advanced Technologies Association (CATA) to advance common trade and investment interests among information, technology and medical device companies.

In addition to its existing ties to Canada, the EU has also attempted to improve its bilateral economic relations with other Western Hemispheric partners, notably the United States, Mexico, and MERCOSUR. In early 1998, following up the December 1995 U.S.-EU "New Transatlantic Agenda" Agreement, the EU Commission stated its intention to explore a "New Transatlantic Marketplace" (NTM) initiative with the U.S. This would encompass the creation of free trade in commercial services by the year 2000; removal of tariffs on industrial goods by 2010; the reduction of standards barriers to trade; and measures in the areas of investment, intellectual property and procurement. However, the proposal subsequently had difficulty gathering the necessary political backing, either in the U.S. Congress or in the EU, where support for the initial proposal could at best be described as fragile. A May 1998 EU-U.S. Summit produced a more modest joint agreement on exploring a scaled-down version – the Transatlantic Economic Partnership (TEP). In September 1998, the EU Commission approved a draft "Action Plan" for the TEP, expressing the hope that a joint plan could be agreed to at the next U.S.-EU Summit in December 1998, and that Brussels and Washington will "reach a closer understanding on the key issues that will be tackled in any new multilateral trade negotiations starting in 2000."(108)

Notwithstanding the setbacks to achieving a quick launch of negotiations on the European Commission’s NTM/TEP proposals, the Government of Canada has remained committed to the notion of "trilateralizing" (Canada, EU, the U.S.) any bilateral EU-U.S. trade initiatives. The federal view continues to be that a successful implementation of a bilateral arrangement excluding Canada could adversely affect Canadian interests. The government also considers a successful outcome at the trilateral level could be a more useful catalyst for achieving multilateral trade liberalization objectives than a dialogue dominated by Brussels-Washington interests. Canada's interests towards participation in these bilateral discussions continue to be thwarted, primarily because of a lack of U.S. interest.

EU foreign ministers have also approved a mandate for fast-track negotiations on a free-trade deal with Mexico; these have received approval from both the European Parliament and the Mexican Senate. The actual negotiations, which began in July 1998, have focused on certain sectors, as opposed to the attainment of a comprehensive, all-encompassing deal. From the Europeans’ perspective, the major factor driving the push for a free-pact was the EU’s loss of market share in Mexico in the post-North American Free Trade Agreement (NAFTA) environment.

Economic relations between the EU and the South American MERCOSUR customs union (Argentina, Brazil, Paraguay and Uruguay) could also see considerable strengthening. Talks to adopt closer economic integration between the two regional blocs could be launched at the first European-Latin American summit, scheduled for Rio de Janeiro in 1999.(109)

Not to be outdone, Canada has jumped on the bilateral bandwagon by launching its own formal negotiations with the European Free Trade Association (EFTA). While not a large grouping of European countries – members include Switzerland, Norway, Iceland and Liechtenstein – a free-trade deal with EFTA could help Canada reverse the sizeable deficit that has accumulated in its trade with the above four countries and also give it a valuable foothold for wider trade negotiations with Europe.

Transatlantic Free Trade: A Realistic Option?

The bilateral discussions that have taken place towards achieving freer trade between the EU and Mexico, and more importantly between the EU and the United States, have become a cause for some concern in Canada. Predicting the future course of trade relations with the EU is, at the best of times, difficult. Whatever the scenario that emerges, however, Canada will want to ensure that its interests are not sidelined in any separate free-trade arrangements between Europe and its NAFTA trading partners.

Useful as is much of the work being performed under the auspices of the Canada-EU Action Plan and, within it the joint trade study, it is difficult to imagine that it will lead to significant trade liberalization. As one analyst of Canada-EU relations has said, "…it is hard to see the Action Plan as the most important feature of Canada-EU relations in the next several years. The Action Plan, after all, for the most part formalizes and repackages activities that were taking place already, such as co-operation on a variety of issues in the WTO."(110)

While it is in Canada’s best interests to continue with its own Action Plan initiatives with the EU, it is also prudent for it to continue with its parallel track of pursuing its market access goals through other means. In this vein, Canada has continued to lobby for an inter-regional approach to trade liberalization, as opposed to a strictly bilateral one. It is of the view that a far more effective approach would involve building on and extending NAFTA to include the EU in a broadly based version of a Transatlantic Free Trade Agreement (TAFTA).

In London in October 1997, Prime Minister Chrétien renewed the Canadian proposal, first voiced in 1994, to set up a TAFTA between the NAFTA countries and the EU. The overall objective was to achieve a removal of industrial tariffs within the designated geographical area by a certain date. At every available opportunity since then, the federal government has continued to state its case for a "community to community" relationship, as opposed to three separate bilateral processes.

Creating a TAFTA would provide the global economy with at least two major benefits. At a time when many Asian countries remain saddled with severe economic difficulties, and the emerging markets of Eastern Europe and Latin America are feeling the effects of "the Asian flu," a strengthening of transatlantic economic ties between the two least disabled economic groupings could serve as an important stimulus for increased economic activity.

Second, an inter-regional link could, on the one hand, help stem any protectionist tendencies arising out of today’s economic malaise and, on the other, provide new momentum for a new Millennium Round of trade negotiations at the World Trade Organization (WTO) level. That organization continues to be the best forum for delivering concrete, long-term results in the trade area. "As long as the goal is not to replace the multilateral system – still less to set up a defensive bloc – but to move beyond the commitments that we accepted in the World Trade Organization, then a new free-trade partnership of Europe and North America could set in motion a competitive dynamic to reduce barriers worldwide. In short, transatlantic free trade could revitalize the totality of the global system – and begin the critical process of bridging potentially exclusionary blocs."(111)

Is such a farsighted approach to trade liberalization attainable? Thus far, the TAFTA concept does not seem to have attracted widespread interest and support on either side of the Atlantic. Obviously, there are still many differences between the two economic blocs and, as has already been noted, the EU continues to pursue separate bilateral processes in its relations with NAFTA members. Of all the options, however, some broader form of strengthened transatlanticism, moving towards a forward-looking free-trade arrangement, still seems to offer the best opportunity for providing economic stimulus to a major component of the world economy and kick-starting efforts to undertake a new global round of trade liberalization.

APPENDIX 1

EXTRACTS FROM THE EUROPEAN PARLIAMENT
RESOLUTION ON EUROPEAN UNION RELATIONS
WITH CANADA

  APPENDIX 2

MEMBERSHIPS IN MAJOR EUROPEAN
AND TRANSATLANTIC ORGANIZATIONS

(1) Stephen Clarkson, "Fearful Asymmetries: The Challenge of Analyzing Continental Systems in a Globalizing World," Canadian-American Public Policy, No. 35, September 1998. For other future scenarios, see also Nicholas Gianaris, The North American Free Trade Agreement and the European Union, Praeger, Westport Conn., 1998.

(2) Beyond official documents produced by the NAFTA governments and intergovernmental bodies, there is a burgeoning analytical literature on NAFTA and its various aspects. From a Canadian perspective, a useful source that is generally supportive of the agreement is Richard Lipsey et al., The NAFTA: What’s In, What’s Out, What’s Next, C.D. Howe Institute, Toronto, 1994. Subsequent private-sector studies have emphasized overall positive effects on business and economic growth. An early collection of critical views is Ricardo Grinspun and Maxwell Cameron, eds., The Political Economy of North American Free Trade, McGill-Queen’s University Press, Montreal and Kingston, 1993. A more recent compendium of mixed reviews covering a wide range of NAFTA-related issues can be found in Stephen Randall and Herman Konrad, eds., NAFTA in Transition, University of Calgary Press, Calgary, 1995. NAFTA has become an entrenched fact of North American economic life, but the NAFTA debate is far from over.

(3) For a more detailed list see Appendix 1.

(4) Rules of origin explicitly discriminate against products from non-member countries and therefore are among the more controversial aspects of regional trade pacts. In the auto sector, the European Commission is also currently pursuing a World Trade Organization challenge of Canada’s duties on imported European automobiles that do not qualify for North American Auto Pact terms incorporated within the NAFTA which link duty-free access to production performance requirements.

(5) Randall, "Managing Trilateralism," in NAFTA in Transition, p. 45.

(6) NAFTA’s Institutions: The Environmental Potential and Performance of the NAFTA Free Trade Commission and Related Bodies, Commission for Environmental Cooperation, Montreal, 1997, p. 11.

(7) For Canada and the U.S., Gary Hufbauer and Jacqueline McFaden argue that: "Our macroeconomic successes and failures have practically nothing to do with the Canada/U.S. Free Trade Agreement (FTA) or NAFTA." However, Mexico is a different case given a more turbulent transition and the effects of the 1994-95 peso crisis. ("Judging NAFTA," Canada-United States Law Journal, Vol. 3:11, 1997, p. 11ff.)

(8) In a recent study Canadian economist John Helliwell found that, before the Canada-U.S. FTA, Canadian provinces were 20 times more likely to trade with each other than with U.S. states. While this "border effect" had dropped to a multiple of 12 by 1993, since NAFTA it has remained stable. Helliwell argues that the focus on external linkages can be misleading given the continued predominance of domestic trade and commercial relationships contained within nations. This is the case even in regard to the most highly integrated economic spaces like the European Union "single market." J. Helliwell, How Much Do National Borders Matter?, Brookings Institution Press, Washington D.C., August 1998. (See also, "The Myth of the ‘Global Economy’," The Ottawa Citizen, 14 September 1998.)

(9) Cf. Notes for an Address by the Honourable Lloyd Axworthy Minister of Foreign Affairs to the Canadian Institute of International Affairs 1998 Foreign Policy Conference, Department of Foreign Affairs and International Trade, Ottawa, 16 October 1998.

(10) Formal free-trade negotiations between Canada and EFTA (comprising Switzerland, Liechtenstein, Norway, and Iceland; the last three of which are also members of the European Economic Area) were launched in October 1998. EFTA is a more important destination for Canadian exports than is Mexico, and in terms of the value of export trade roughly comparable to the South American grouping of Mercosur countries (Brazil, Argentina, Uruguay, and Paraguay).

(11) For the perspective of a prominent Canadian parliamentarian see William C. Graham, "NAFTA vis à vis the EU – Similarities and Differences and Their Effects on Member Countries," Canada-United States Law Journal, Vol. 23, 1997, p. 123-135. The challenge will be to overcome divergent regional interests in order to forge common approaches. For a range of North American and European views see Gavin Boyd, ed., The Struggle for World Markets: Competition and Cooperation between NAFTA and the European Union, Cheltenham, UK, Edward Elgar, 1998, esp. John Dunning, "Re-energizing the Transatlantic Connection," and Stephen Blank and Anne Taillandier, "Atlantic Interdependencies and Free Trade." (The book is the result of a November 1996 Conference held at the University of Montreal’s École des Hautes Études Commerciales and sponsored by the Centre for International Business Studies.)

(12) Roy MacLaren, Canadian Trade Minister at the time of NAFTA’s entry into force (and currently Canada’s candidate for next president of the WTO), has been a strong advocate for this in Europe. Canadian Prime Minister Chrétien proposed a transatlantic free-trade zone in addresses to the French Senate in 1994 and in London in October 1997. Trade Minister Sergio Marchi outlined the desirability of a joint NAFTA-EU approach in an appearance before the House of Commons Standing Committee on Foreign Affairs and International Trade in May 1998. So far, however, the idea of a "TAFTA" seems to have attracted more interest and support in the U.S. than in European circles. (See, for example, Thomas Duesterberg, "Prospects for an EU-NAFTA Free Trade Agreement," The Washington Quarterly, Spring 1995, p. 71-82.)

(13) Jeremy Kinsman, "Transatlanticism: Is Europe ‘Old Hat’?", Behind the Headlines, Vol. 55:3, 1998, p. 8 and 13.

(14)  Gilbert Gagné, "North American Free Trade, Canada, and US Trade Remedies: An Assessment after Ten Years," Paper presented at the annual meeting of the Canadian Political Science Association, Ottawa, June 1998, p.1.

(15) The description here is very abbreviated. For further details, including the relationship to GATT/WTO disputes procedures, see Lipsey et al., The NAFTA (1994), Chapter 8; also Lawrence Herman, "NAFTA – The Broad Strokes: A Canadian Lawyer’s Perspective," Canada-United States Law Journal, Vol. 23:85, 1997, p. 85-107. In many areas, both NAFTA and WTO rules may apply, and recourse to either forum would be possible (e.g., to challenge the U.S. Helms-Burton law targeting foreign investments in Cuba). However, in a few instances, such as challenges to domestic environmental regulations which restrict trade, the party subject to the complaint may request that the dispute be resolved solely through NAFTA mechanisms.

(16)  This has been invoked against Canada in cases involving contested environmental questions and will therefore be dealt with in the briefing note on NAFTA and environmental issues.

(17) Gagné (1998), p. 6, emphasis added.

(18) A roster of 15 – five named by each country – is maintained for this purpose. In choosing an ECC, each party to the dispute selects one member from that roster; the parties then decide by lot which of them will select the third member.

(19) The U.S. Statement of Administrative Action accompanying NAFTA’s entry into force did not even mention this declaration so it is doubtful whether there was ever much U.S. commitment to the process. The report from the single working group which was established, made public only in 1997, did not progress beyond recommendations for minor technical improvements to the existing review process.

(20) Presentation to Canada’s House of Commons Standing Committee on Foreign Affairs and International Trade, Washington D.C., 31 March 1998.

(21) During this period a total of 49 panels were requested, but some were withdrawn or combined; of the 30 completed, 19 involved review of U.S. agency decisions. (Gagné 1998, p. 9.)

(22) See also Wiliam Davey, Pine & Swine. Canada-United States Trade Dispute Settlement: The FTA Experience and NAFTA Prospects, Centre for Trade Policy and Law, Ottawa, 1996.

(23) Gagné (1998), p. 11 and passim.

(24) For example, the Canadian Section of the NAFTA Secretariat, which is responsible for administering Canada’s participation in the dispute settlement provisions, states: "With this volume of trade, disputes are inevitable. It is estimated that about 5% of the $381 billion in Canada’s bilateral trade with the United States is currently under dispute" (1998-99 Estimates Part III – Report on Plans and Priorities, p. 6).

(25)  Department of Foreign Affairs and International Trade, NAFTA: A Partnership at Work, Ottawa, June 1997.

(26)  Lawrence Herman, "NAFTA – The Broad Strokes," Canada-United States Law Journal, 1997, p. 95.

(27) William Graham, "NAFTA vis-à-vis the E.U." Canada-United States Law Journal, 1997, p. 132ff.

(28)  Robert Howse, Settling Trade Remedy Disputes: When the WTO Forum Is Better Than the NAFTA, C.D. Howe Institute Commentary, Toronto, July 1998.

(29) Henry Jacek, "Business and Politics in the Formation and Implementation of Trade Agreements Affecting North America: Dispute Settlement Mechanisms and Labour/Environmental Standards," Paper presented to the Canadian Political Science Association Annual Meeting, Ottawa, June 1998, p. 9.

(30) Ibid.

(31) This is a very summary description of a quite complex agreement. For a more detailed early review, see William Watson, The NAFTA Papers: Environmental and Labor Standards in the NAFTA, C.D. Howe Institute Commentary No. 57, February 1994. The most comprehensive account, which contains the official texts and related intergovernmental agreements, is Pierre Marc Johnson and André Beaulieu, The Environment and NAFTA: Understanding and Implementing the New Continental Law, Island Press, Washington D.C., 1996. There are also much updated information and trilingual documentation available through the Commission’s Website at http://www.cec.org.

(32) See Johnson and Beaulieu (1996), chapter 11.

(33) As Jacek observes:

The business proponents of free trade agreements view these as merely commercial agreements. Their view is that governments should not look at the components or input factors of the price, such as labour costs or environmental damage. The notion of a level playing field across all domestic jurisdictions on these issues is clearly rejected. ("Business and Politics in the Formation and Implementation of Trade Agreements affecting North America" (1998), p. 4.)

(34) Watson (1994), p. 17.

(35) Jack Garvey, "Current Development: Trade Law and Quality of Life – Dispute Resolution under the NAFTA Side Accords on Labor and the Environment," The American Journal of International Law, April 1995.

(36) Four–Year Review of the North American Agreement on Environmental Cooperation: Report of the Independent Review Committee, Commission for Environmental Cooperation, Montreal, June 1998, internet copy, p. 3.

(37) "North American Labor Ministers Meet to Discuss Progress on NAFTA Labor Commission," Communiqué of 18 September 1997, Commission for Labour Cooperation, Dallas (internet copy available at http://www.naalc.org).

(38) Cf. "Ministers Review NAFTA’s Labor Agreement," Press release and attachments, Commission for Labour Cooperation, 8 October 1998.

(39) For a far-reaching assessment see John Audley, Green Politics and Global Trade: NAFTA and the Future of Environmental Politics, Georgetown University Press, Washington D.C., 1997.

(40) However, as compared to European Community Law: "The NAFTA process leaves much less scope for arguing competing trade and environmental values before dispute-settlement panels. It is important to bear this in mind when seeking to determine the extent and manner in which experts could be used by NAFTA dispute-settlement panels." (Dispute Avoidance: Weighing the Values of Trade and the Environment under the NAFTA and the NAAEC, Montreal, Environment and Trade Series No. 3, Commission for Environmental Cooperation, 1996, p. 21.)

(41) Johnson and Beaulieu, The Environment and NAFTA (1996), p. 245-6.

(42)   For succinct reviews of the debate at the time see the following Parliamentary Research Branch publications: Anthony Chapman, The North American Free Trade Agreement: Rationale and Issues, BP-327E, January 1993; William Murray, NAFTA and the Environment, MR-116E, December 1993.

(43) Annette Baker Fox, "Environment and Trade: The NAFTA Case," Political Science Quarterly, Spring 1995, p. 68.

(44) See Johnson and Beaulieu (1996). Because NAFTA calls for higher standards without relaxation, as Jacek puts it: "Business that conforms to the highest national standard now has a NAFTA trade advantage" (1998, p. 7).

(45) "Cabinet Drops Clean, Green Strategy: Environmental Industries Mourn Loss of ‘Valuable’ Program," The Ottawa Citizen, 17 August 1998, p. A3.

(46) For a critical review see Bradly Condon, "The Impact of the NAFTA, the NAAEC, and Constitutional Law on Environmental Policy in Canada and Mexico," in Randall and Konrad, NAFTA in Transition (1995), p. 281-94.

(47) See Donald Abelson, "Environmental Lobbying and Political Posturing: the Role of Environmental Groups in Ontario’s Debate over NAFTA," Canadian Public Administration, Vol. 38:3, Fall 1995, p. 352-81. According to CELA executive director Michelle Swenarchuk:

Several U.S. NAFTA panels have already ruled they can’t do anything about loss of laws. They have been powerless to stop states from lowering forestry standards. If governments want to wipe the slate clean as far as protection of the environment is concerned, there is nothing the NAFTA side deal could do about it. (Quoted in the Winnipeg Free Press, 24 January 1997, p. A12)

(48) Dixon Thompson, "The NAFTA Parallel Accord on the Environment," in Randall and Konrad, NAFTA in Transition, p. 325-26.

(49) Johnson and Beaulieu (1996), p. 241-47.

(50) NAFTA’s Institutions: The Environmental Potential and Performance of the NAFTA Free Trade Commission and Related Bodies, p. 17-18.

(51) One exception cited approvingly was the Land Transportation Standards Subcommittee Working Group on the Transportation of Dangerous Goods which has produced an Emergency Response Guidebook and assisted Mexico in upgrading its regulations.

(52) NAFTA’s Institutions, p. 16.

(53) Ibid., p. 18-19.

(54)  "Major Canadian Companies on List of North America’s Worst Polluters," The Globe and Mail (Toronto), 3 March 1998, p. A3. That report, when finally released on 7 October 1998, found some encouraging signs of a downward trend in North American pollutant emissions. See also "Canadian Factories Fingered in NAFTA Pollution Study," The Globe and Mail (Toronto), 7 October, 1998.

(55)  "NAFTA Watchdog Leashed," The Globe and Mail (Toronto), 2 July 1998, p. B6.

(56) Quoted in "Feds Fear Loss on MMT," The Globe and Mail, (Toronto), 10 July 1998, p. B7.

(57) "Gas War: the Fall and Rise of MMT," The Globe and Mail, (Toronto), 24 July 1998.

(58) Lawrence Herman, "MMT Case set Far-Reaching Precedent: ‘Expropriation’ Takes on New Meaning," The Financial Post, Toronto, 28 July 1998.

(59)  Quoted in "U.S. Firm Hits Ottawa with NAFTA Lawsuit," The Globe and Mail (Toronto), 21 August 1998. See also "NAFTA Process ‘Unacceptable," The Globe and Mail (Toronto), 25 August 1998.

(60) "NAFTA Lawsuits Cloud MAI Discussions," The Globe and Mail (Toronto), 24 August 1998; "Groups Ask for NAFTA Challenge," The Globe and Mail (Toronto), 18 September 1998.

(61) The U.S. implementing legislation for NAFTA did establish a transitional adjustment assistance program for affected U.S. workers. There was no similar special program in Canada. Any effects felt were likely to be much greater in the U.S., where the debate was accordingly more intense, given the much higher volume of U.S.-Mexico trade and the shared border.

(62) See, for example, the chief economist of the Canadian Labour Congress, Andrew Jackson, "A Social Charter and the NAFTA: A Labour Perspective," in William Watson, ed., North American Free Trade Area, Policy Forum Series No. 24, John Deutsch Institute for the Study of Economic Policy, Kingston, Ontario, October 1991, p. 77-93.

(63) Mary Jane Bolle, NAFTA Labor Side Agreement: Lessons for the Worker Rights and Fast-Track Debate, Congressional Research Service Report for Congress, Washington, October 1997, p. 3.

(64) The case involves the Mexican operations of U.S.-based automotive manufacturer Echlin Inc. which also has plants in Canada. ("Labour Groups File First NAFTA Complaint" and "Ottawa Approves Use of NAFTA Side Deal," The Ottawa Citizen, 7 April 1998 and 6 June 1998.)

(65) Bolle, NAFTA Labor Side Agreement (1997), p. 12.

(66) Stephen Herzenberg, Calling Maggie’s Bluff: The NAFTA Labor Agreement and the Development of an Alternative to Neoliberalism, Canadian American Public Policy, Canadian-American Centre, University of Maine, No. 28, December 1996, p. 3.

(67) Ibid., p. 26.

(68) On the contested linkage of NAFTA labour issues to the "fast-track" debate see Bolle (1997), p. 13ff. See also Steve Charnovitz, "Labor and Environmental Issues," in Jeffrey Schott, ed. Restarting Fast Track, Special Report No. 11, Institute for International Economics, Washington, April 1998.

(69) Quoted in "Trade Pact Pits Worker against Worker," Kitchener-Waterloo Record, 11 August 1998, p. A9.

(70) Cf. Henry Jacek, "Business and Politics in the Formation and Implementation of Trade Agreements Affecting North America: Dispute Settlement Mechanisms and Labour/Environmental Standards," p. 4-6.

(71) Andrew Jackson, "A Note on Productivity, Wages, and Profits in Canada in Relation to NAFTA," Submission to the Commission for Labour Cooperation North American Seminar on Incomes and Productivity, Dallas, February 1997, p. 2-6.

(72)  In regard to the treatment of human rights concerns, some commentators have looked to Europe as an exemplary alternative. In contrast to the Americas, European integration processes are viewed as having successfully linked regional economic integration with a supranational institutionalization of human rights and legal norms. (Cf. James Smith, "NAFTA and Human Rights: A Necessary Linkage," University of California Davis Law Review, Summer 1994.) In Canada, the argument for a NAFTA-human rights linkage has been put forward by the International Centre for Human Rights and Democratic Development and by non-governmental coalitions such as Common Frontiers. It also appears that the European Commission will raise human rights as an issue in its bilateral trade talks with Mexico that began in the summer of 1998.

(73) See, for example, Ann Weston, The NAFTA Papers: Implications for Canada, Mexico and Developing Countries, The North-South Institute, Ottawa, 1994; Diana Alarcon Gonzalez, "Trade Liberalization, Income Distribution, and Poverty in Mexico: An Empirical Review of Recent Trends," in Stephen Randall and Herman Konrad, NAFTA in Transition (1995).

(74) Robert Wolfe and John Curtis, "Providing Leadership for the Trade Regime," in Fen Osler Hampson and Maureen Appel Molot, eds., Canada Among Nations 1998: Leadership and Dialogue, Oxford University Press, Toronto, 1998 p. 121.

(75) Ian Robinson, "The NAFTA, Democracy and Continental Economic Integration: Trade Policy As If Democracy Mattered," in Susan Phillips, ed., How Ottawa Spends 1993-1994: A More Democratic Canada?, Carleton University Press, Ottawa, 1993, p. 333-80. Other versions of this essay were also published by the Canadian Centre for Policy Alternatives.

(76) The fact that Mexico has much lower wage rates does not in itself constitute social dumping, as that situation may be commensurate with a lower productivity and cost structure that affords Mexico a legitimate area of comparative advantage. Dumping only results when in import-competing industries the price of labour or other factor-input costs is deliberately kept low or depressed, and there is a failure to maintain and enforce acceptable production and workplace standards, thereby causing material injury to foreign competitors.

(77) Peter Morici, "Implications of a Social Charter for the North American Free Trade Agreement," in The Social Charter Implications of the NAFTA, Canada-U.S. Outlook, National Planning Association, Washington, 1997, p. 8.

(78) Ibid., p. 10.

(79) See, for example, Charles Reasons, "NAFTA and Inequality: A Canadian Perspective," Constitutional Forum, Spring and Summer 1994, p. 72-77.

(80) A useful comparative source is Dorval Brunelle and Christian Deblock, eds., L’Amérique du Nord et l’Europe communitaire: Intégration économique, intégration sociale?, Presses de l’Université du Québec, Sainte-Foy, 1994.

(81) Elizabeth C. De Boer and Gilbert Winham, "Trade Negotiations and Social Charters: The Case of the North American Free Trade Agreement," in The Social Charter Implications of the NAFTA, p. 30.

(82) Ibid., p. 33. Such talks towards the eventual creation of a hemisphere-wide free-trade area were launched at a second Americas summit held in Chile in April 1998, and are proceeding under Canadian chairmanship for the first 18 months of negotiations. While none of the nine negotiating groups deals specifically with environmental, labour and social standards, Canada has pushed hard to incorporate additional consultative processes involving civil-society participation and concerns around these issues.

(83) See David Schneiderman, "Canadian Constitutionalism and Sovereignty after NAFTA," Constitutional Forum, Spring-Summer 1994, p. 97.

(84) Colleen Fuller, "Doctoring to NAFTA," Canadian Forum, June 1996, p. 18.

(85) Canada and the Multilateral Agreement on Investment, Report of the House of Commons Standing Committee on Foreign Affairs and International Trade, Sub-Committee on International Trade, Trade Disputes and Investment, Ottawa, December 1997, p. 37. An "unbound" reservation allows a country to maintain a non-conforming measure and to alter it in the future in any way. The Canadian government accepted the thrust of this recommendation in its April 1998 response to the report.

(86) See, for example, Philip Altbach, "NAFTA and Higher Education, the Cultural and Educational Dimensions of Trade," Change, July/August 1994; Stephen Randall and Herman Konrad, NAFTA in Transition (1995), "Introduction" and Part V "Public Policy and Culture."

(87)  At this meeting Mr. Axworthy announced a Canadian contribution to the funding of the Alliance for Higher Education and Enterprise in North America.

(88) Notes for an Address by the Hon. Lloyd Axworthy to a Meeting of the Mid-America Committee: "Global Action, Continental Community: Human Security in Canadian Foreign Policy," Chicago, 9 September 1998, Department of Foreign Affairs and International Trade, Ottawa, p. 4-5 (Internet copy at http://www.dfait-maeci.gc.ca).

(89) See John Herd Thompson, "Canada’s Quest for Cultural Sovereignty," in Randall and Konrad, NAFTA in Transition, p. 393-410.

(90) Article 2005, paragraph 1 of the FTA states that: "cultural industries are exempt from the provisions of this agreement." The specific undertakings included removal of tariffs on certain products such as sound recordings and payment of royalties by Canadian cable television companies to American broadcasters for the retransmission of their signals on Canadian systems.

(91) Paragraph 2 of Article 2005 states that: "notwithstanding any other provision of the agreement, a Party may takes measures of equivalent commercial effect in response to actions that would have been inconsistent with this agreement but for paragraph 1."

(92) The only addition in the Canadian implementing legislation was to include rental rights for copyrighted sound recordings and computer programs as covered by NAFTA commitments to enforce intellectual property rights.

(93) Cf. Ronald Atkey, "Canadian Cultural Industries Exemption from NAFTA – Its Parameters," Canada-United States Law Journal, Vol. 23., 1997, p. 177-200.

(94) "Split-run" magazines are nominally Canadian editions of U.S. periodicals that enjoy cost advantages because of their large circulations and that have also attracted significant Canadian advertising revenue. In response to competition from split-runs, Canada has introduced various measures that discriminate in favour of the domestic Canadian magazine publishing industry. On U.S. appeal to the WTO, recent panel decisions have ruled against some of these measures, forcing Canada to consider other ways to support domestic magazines that will not run afoul of international trade rules. A bill to that effect, C-55 An Act respecting advertising services supplied by foreign periodical publishers, was introduced in the House of Commons on 8 October 1998 (accessible on the parliamentary internet site at http://www.parl.gc.ca). However, a report from the U.S. International Trade Commission released a few days later strongly attacked Canadian policies to protect culture in international trade and investment negotiations. U.S. Trade Representative Charlene Barshefsky was also quick to condemn the new Canadian legislative measures as "protectionist and discriminatory."

(95) "Canada’s Copyright Laws Violate NAFTA," The Financial Post, Toronto, 12 March 1998. For a detailed examination of the underlying issues, see Lesley Ellen Harris, Copyright Issues in Trade Agreements, Research Report prepared for the Canadian Conference of the Arts, October 1997.

(96)  Keith Acheson and Christopher Maule, "The Culture of Protection and the Protection of Culture – A Canadian Perspective in 1998," Carleton Industrial Organization Research Unit Working Paper Series, Carleton University, Ottawa, February 1998, p. 21; also an earlier essay in this series by the same authors, "Canada’s Cultural Exemption: Insulator or Lightning Rod?", 1996.

(97)  "Ottawa Group Forms International Alliance of Culture Ministers," Department of Canadian Heritage, News Release, Ottawa, 30 June 1998.

(98) Final Report of the Working Group on Cultural Policy for the 21st Century, Canadian Conference of the Arts, June 1998 (electronic version available at http://www.culturenet.ucalgary.ca). In a preliminary report released in January the working group concluded that:

the value of the [FTA/NAFTA] exemption was seriously diminished because of the retaliatory provisions which act as a deterrent for new domestic cultural initiatives. The decision of the United States to use the World Trade Organization to circumvent the FTA/NAFTA exemption was also regarded … as a further indictment of the use of similar provisions in other agreements to fortify Canadian cultural sovereignty. (Internet copy, p. 2.)

In the June final report the working group recommends that:

The Parliamentary Subcommittee on International Trade, Trade Disputes and Investment convene hearings as soon as possible to give shape and substance to a declaration of Global Parallel Rights, which would form an ongoing reference point for the elaboration of international trade and investment agreements as a condition of Canadian ratification. This task should be completed before the Millennium Round of the World Trade Organization negotiations in the year 2000. (Executive Summary and Key Recommendations, Internet copy, p. 7.)

(99) David Long, "Canada-EU Relations in the 1990s," in Fen Osler Hampson and Maureen Appel Molot (eds.), Canada among Nations 1998: Leadership and Dialogue, Oxford University Press, Toronto, 1998, p. 199.

(100) Standing Senate Committee on Foreign Affairs, European Integration: The Implications For Canada, Ottawa, July 1996, p. 36.

(101)  The detailed information that follows has been sourced largely from Foreign Affairs and International Trade Canada’s annual market access document entitled, Opening Doors to the World: Canada’s International Market Access Priorities 1998.

(102)  In contrast to the shifting trend in exports, the share of total imports (about 10%) sourced from the EU has not budged materially in the past 15 years.

(103)  Other contributors include the sluggish economic conditions in Europe through much of the decade, as well as an appreciation of the Canadian dollar.

(104)  The EU market is already greater than the U.S. market.

(105)  The Conference Board of Canada, Strengthening Canada-European Union Business Relations, Report Number 203-97, July 1997.

(106)  Canada continues to face the full effects of the EU’s common external tariff.

(107) Canadian products that could benefit from improved access to the EU market include aluminum, copper, non-ferrous metals, agricultural products, fish and fish products, wood products, chemicals and telecommunications equipment.

(108)  Commission Approves Draft Action Plan for Transatlantic Economic Partnership, Brussels, 16 September 1998 (Internet version accessible at http://www.europa.eu.int/comm/dg01). The relationship of transatlanticism to trade multilateralism at the WTO level is usefully explored by Richard Steinberg in a recent article which suggests that:

...in the near term, uncertainty about the future of liberal multilateralism will prevail: the current combination of bilateral, regional, and multilateral trade policies being pursued by the transatlantic powers could evolve into increased transatlantic cooperation that will buttress liberal multilateralism, or it could decay into increased transatlantic competition and catalyze competitive regionalization.("Great Power Management of the World Trading System: A Transatlantic Strategy for Liberal Multilateralism," Law and Policy in International Business, Vol. 29, Winter 1998, p. 208.)

(109) For further details and analysis see Preparing the EU-MERCOSUR Association: Benefits and Obstacles, Madrid, Institute for European-Latin American Relations, Briefing Paper, July 1998.

(110)  David Long, "Canada-EU Relations in the 1990s," in Fen Osler Hampson and Maureen Appel Molot (eds.), Canada among Nations 1998: Leadership and Dialogue, Oxford University Press, Toronto, 1998, p. 204.

(111)  Notes for an Address by the Honourable Roy MacLaren, Minister for International Trade, to the Royal Institute Of International Affairs, London, England, Foreign Affairs and International Trade Canada, Statement 95/32, 22 May 1995, p. 2.