Saturday, August 19, 2017


NAFTA has been a clear win nationally for Canada and the other the two trading partners. There are elements of the NAFTA that have challenged us, however, most prominent of which was the displacement of some labour sectors at the outset of the agreement and to a lesser degree as the trade process evolved and affected our economy. As an avid advocate for NAFTA, and trade generally, I am always concerned when displacing labour effects pain and is left unaddressed, as, in addition to being unfair, it excites opposition from some labour sectors against trade in general.

When there is a large asymmetry in labour law which generates inter-jurisdictional variation in labour remuneration, between trading partners, that creates a labour rate arbitrage in favour of a single trading partner, workers in the elevated partner's jurisdiction can be negatively affected. The goal of trade is to improve mutual and relative living circumstances in the trading jurisdictions by having all parties exercising themselves in areas where they have a comparative advantage. Regulatory arbitrage, the most pernicious of which is a labour rate arbitrage created by regulatory misalignment between partners is a fair agenda item in retooling NAFTA.

The "production distortions" caused by regulatory generated arbitrage need to be addressed, and given the history of NAFTA, they are readily identifiable and quantifiable. The labour rate arbitrage can be readily addressed by a "labour rate tariff" imposed on jurisdictions who are distorting trade by allowing lax or exploitive labour policy. The tariff should be calculated on a "purchasing power parity" basis - that is to say, that the labour assessment would be calculated against a given wage's capacity to purchase a given basket of goods in the jurisdictions of concern. If the tariff is calculated in this way, the "production distortions" are eliminated and the benefit of "true" comparative advantage is realized.

Trade agreements properly designed are a tide that raises all boats; this is one means to address labour concerns and maintain enthusiasm for "free" trade and support our export sector.
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