Fraser Forum

Trade policy as social engineering—the downside of more NAFTA vetoes

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Trade policy always involves social engineering. If you change the rules under which goods and services can come into your country, that will change who does what for a living and for how much money. To a greater or lesser extent, depending on the size and depth of the deal, your country is going to get re-engineered.

The Canada-U.S. free trade deal brought big changes in Canada’s economic landscape. We traditional free-traders, “neo-liberals” in the jargon of progressivism, can’t deny that. (Funny how putting “neo” in front of a word that has generally good connotations can make it seem sinister. Maybe somebody should invent “neo-progressive.”)

The saving grace of the free-trade position is that by being as complete as you can in opening up your economy to foreigners, you don’t play favourites—everybody’s ox gets gored. The destruction part of “creative destruction” is as widespread and anonymous as possible and it causes the “creative” part to be as big as possible. It’s true, of course, that some people will do better and others worse as a result of free trade. But we don’t consciously try to pick winners.

By contrast, Canada’s official position going into the renegotiation of NAFTA is that we want special provisions in a new agreement to protect the interests of women and indigenous people. It’s not clear exactly what the government has in mind or whether its asks have any chance of being incorporated into the deal—in fact, it seems they don’t, except perhaps as window-dressing. But its goal presumably is that the deal be more selective in terms of industries subject to full liberalization (or should that be full neo-liberalization?) than would otherwise be the case.

The big drawback to that type of agenda is that the process now becomes much less anonymous. We don’t just cut tariffs and other impediments to trade in all industries, we now have to figure out in which industries indigenous and female interests are most important. We also have to figure out what’s in the best interest of these groups. All of a sudden, the information requirements for good policy go way up. We also likely have to give up other potential benefits of a broader deal in order to get these exemptions.

The working assumption of most people who favour group-specific carve-outs seems to be that what’s best are go-slow provisions, that trade shouldn’t be liberalized as much in industries where women or indigenous people are a larger part of the workforce as it will be in other industries. In effect, the pain, if pain there is, should be drawn out as long as possible—which is not everyone's idea of how best to deal with pain, of course.

There are lots of potential objections to such an idea:

Would delay really help the groups you want to help, or would it mainly raise profits for whoever owns the firms that operate in this industry?

Will women’s and indigenous people’s interests be used as a cover for garden-variety protectionism?

Even if measures do end up being aimed at their declared targets, is delaying what may be inevitable adjustment really the best policy for the people you want to protect?

Might full and rapid adjustment with generous adjustment assistance not be a better policy?

And what happens when the interests of these targeted groups differ across the three countries? For instance, what if declines in female-intensive textile production in Canada and the United States would come about largely because of the expansion of female-intensive textile production in Mexico? In such cases, which country’s women’s interests prevail?

In democracies, trade negotiations always have to take into account the interests of citizens, not just as individuals but also in the groups they form themselves into as they address their governments. If groups are politically important, their interests will be taken into account whether or not they get formal mention in the document being negotiated. But writing them in probably strengthens their position.

The worry is that it gives them a veto.

On too many policies, these days, too many groups have effective vetoes. Big-bang social engineering has its disadvantages and unfairnesses, yes. But so does social engineering that evolves into a permanently ossified status quo. Which is where many democracies seem to be going these days.

Women and indigenous peoples are consumers, too. Big-bang trade deals maximize consumer benefits. If we can pair that with generous assistance for losers—all losers, not just losers in designated groups—that would be social engineering without favourites or vetoes.

 

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