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NAFTA starting to show its age as deal turns 20

Prime Minister Brian Mulroney signs the North American Free Trade Agreement during a signing ceremony in Ottawa on Dec.17, 1992.

TOM HANSON/THE CANADIAN PRESS

After two decades, the age lines are starting to show on the NAFTA trade deal that at one time made Canada, the United States and Mexico the globe's biggest and most affluent economic zone.

As the North American Free Trade Agreement celebrates its 20th anniversary of implementation Jan. 1, only a few voices would begrudge the pact's birthday congratulations. Its accomplishments are often quoted.

Among the three countries, gross national product has ballooned, although Mexico appears to have gained the most traction. Trade flows have more than tripled – even accounting for the temporary retreat during and immediately after the deep 2008-09 recession.

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No one is saying NAFTA was responsible for all this, but no one can argue that it led to disaster either.

Canadian Trade Minister Ed Fast, who has little patience for free-trade doomsayers, suggests that if there is a problem with NAFTA it is that it was a "20th-century free-trade agreement," rather than a 21st century deal, like the one that Canada signed with the European Union in October.

By that, Mr. Fast means it didn't include sub-national procurement, intellectual-property protection, regulatory co-operation, labour-mobility clauses and some other "innovations." Still, it was at the time a model for the world.

"There were fear mongers back 25 years ago [when Canada signed NAFTA's precursor with the U.S.]. They claimed we were going to lose our sovereignty over fresh water, we would lose our health-care system, our culture, we were going to hollow out our economy and lose millions of jobs, it went on and on and on, and none of that came to pass," said Mr. Fast.

"History has shown us that freer and more open trade has been a boon to Canada's economy and a boon to Canada's long-term prosperity."

The minister is right in referring to the big daddy of trade deals, the Canada-U.S. agreement, as the cause of much angst back in 1987. Mostly, NAFTA grafted Mexico onto the hard-fought bilateral pact. And 20 years later, it's still the Canada-U.S. economic partnership that dominates.

Bank of Montreal chief economist Doug Porter says Ottawa lobbied to create a NAFTA mostly as a defensive manoeuvre after it was clear the U.S. and Mexico would seek their own pact, which geographically would have put the U.S. in the cat-bird seat.

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"In some ways we had no choice. Otherwise we really would have had a hub-and-spoke situation where the United States would have had a free-trade deal with both of us and we couldn't have benefited that much from each other," he said.

For many analysts, the arguments about free-trade deals are not whether they are good or bad, but whether the world had to go in that direction.

Free trade didn't just pop into a policy wonk's mind out of the blue. The march of history was leading the world to freer trade and a globalized economy, despite critics.

Technological changes that revolutionized factories, the advent of mass communications, and innovations in transportation that made moving products around the world faster and cheaper all pointed in one direction. Closed economies sheltered behind high tariffs and non-tariff barriers were going to lose the long game.

Not everyone sees it that way. Leading labour economist Jim Stanford of Unifor says a more targeted approach – such as sectoral arrangements with defined conditions, including the Canada-U.S. Auto Pact – would have brought larger benefits and without the disruptions that free-trade pacts tend to cause.

"Canada can and should be a big player in the world, we should not be insular, but FTAs are not the only way to do that," Stanford said.

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"We should be developing strategies for world-beating industries, but FTAs limit governments' ability to do so and hence are actually inhibiting Canada and relegating us to secondary status in the world."

That's not the majority view, and the argument may be moot because we will never know if Mr. Stanford's approach would have worked, or whether Canada could have found willing partners.

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