Neighbour Networks.

It's a lot easier for a few neighbouring countries to remove barriers to trade among themselves than it is for all the world's nations to agree on a free trade pact

The Europeans have shown the way. In 1948, Belgium, the Netherlands, and Luxembourg took down barriers among themselves and called their agreement the Benelux Customs Union. No duties or tariffs were to be charged on goods traded among the three countries, and the tariff on goods imported into the Union was the same for all three countries.

Jean Monnet, a French diplomat, thought the success of the Benelux Union could be expanded. He and France's Foreign Minister, Robert Schuman, cooked up the idea of pooling the resources of the iron and steel industries of France and West Germany. Together, they could avoid duplicating each other's efforts and be more competitive. Also, if they linked themselves through trade, maybe they could stop fighting destructive wars with each other; there had been three in less than a century. In 1952, the European Coal and Steel Community came into being; France, West Germany, Italy, and the Benelux countries were members.

From that modest start, the European Union (EU) has grown to include the entire economies of 15 countries, with several more clamouring to get in. Almost a quarter of all the world's trade is now accounted for by the European Union.

In terms of expanding trade, the EU has been an enormous success. People elsewhere in the world have noticed this and tried to copy it.

* ASEAN co-ordinates trade policies and promotes economic cooperation in South East Asia.

* EUROMED is a group of 12 Mediterranean countries that have agreed to establish a free trade zone by 2010.

* APEC is formed by 18 countries around the Pacific Rim who hope to create "free trade and investment in the region" by 2010 for its higher income members, by 2020 for the rest.

* Mercosur is a small trading club (0.3% of world trade) with Argentina, Brazil, Paraguay, and Uruguay as it members.

* NAFTA is a free trade agreement with only three members -- Canada, the United States, and Mexico -- but it accounts for nearly 8% of world trade.

Of course, NAFTA (the North American Free Trade Agreement) is the one that concerns Canada most. It is up and running and its membership includes the United States, which is far and away our biggest trading partner.

Amid great controversy the Free Trade Agreement (FTA) between Canada and the United States came into effect in 1989. Five years later, Mexico joined and the FTA became NAFTA -- the North American Free Trade Agreement. Those who opposed free trade still do; those who supported it still do. But, on balance, in terms of trade, Canada has done well out of the deals.

Before 1989, about 5% of Canada's exports to the U.S. were frequently caught up in trade disputes. Today, battles centre on such things as salmon and wheat. These are very important to the people involved in fishing and farming but they account for a very small part of trade between the two countries. Their value is measured in tens of millions of dollars in the context of two-way trade worth more than $1 billion a day. For exporters, the big benefit of NAFTA is that Canada now has secure access to the enormous American market. Canadian exports to the U.S. rose from $105 billion in 1988 to $245 billion in 1997. During the same period, imports have gone from $92 billion to $210 billion. But, while exporters are happy many union members are not

The Canadian Labour Congress (CLC) argues that workers have been losers in the free trade deals. Hourly wages have remained pretty much at a standstill while there have been significant increases in productivity. In other words, workers are working harder but they're not making any more money. CLC economist Andrew Jackson says that competition from Mexico and the U.S. keeps wages down, while profits to corporate shareholders go up.

The number of factory jobs in Canada has gone down since the free trade agreement came in. But, free trade may not be the villain. Factory jobs had been declining as a percentage of total employment for several years before free trade; the trend has just continued. Some industries have suffered. Home and office furniture was protected in Canada by a 15% tariff. The protection was wiped out in 1993 along with about 17,000 jobs. However, some Canadian furniture companies have done very well since free trade by increasing productivity. It seems to have been the small and inefficient manufacturers that have suffered the most.

The most important gain for Canada is that our trade with the world's biggest economy is based on a set of rules. This is very important. The United States has a long history of taking protectionist action against imports. The political system in the U.S. is such that every widget manufacturer has the ear of politicians. If that manufacturer lobbies hard for protection, he is likely to get it. But, a rules-based system cuts into the power of politicians to meddle in trading policy. It gives Canadians some very valuable protection from the whims of politicians.

Canada's Liberal government is now so happy with its membership in NAFTA that it wants to make the club bigger. According to some observers, the desire to expand NAFTA to include Central and South America is more than it seems on the surface. It has as much to do with politics as trade.

Canadian foreign policy has almost always had the same objective -- finding a way to offset the enormous power of the United States. Canada has done this by encouraging the U.S. to join international organizations. Within these groups Canada can find like-minded allies; together they can work as a counterbalance to American strength that would be impossible if they worked alone.

On its own, Canada is vulnerable to the trading clout of the U.S. But, if Canada can join with 20 members of the NAFTA club they can keep America in check. Of course, Americans are not stupid. They can see through our plots. But, the lure of open trade with a huge and growing market outweighs the disadvantage of not being able to throw their weight about quite so much.

So, with Canada cheerleading in the background, the Summit of the Americas got under way in Miami, Florida at the end of 1994. With the guest list including prime ministers and presidents from the Caribbean, the leaders of 34 countries attended the conference. The leaders agreed to work for the setting up of a Free Trade Area of the Americas (FTAA) by 2005. That's an ambitious goal when you consider what's involved.

Since the Miami Summit, meetings have taken place all over the hemisphere. There was a Second Summit of the Americas in Santiago, Chile in 1998. Every year or so, 34 trade ministers meet to review progress. In the background, armies of bureaucrats are working out the millions of details that must be settled before a deal can be signed. How are smaller economies (Jamaica, for example, has an economy that's only 1% the size of Canada's) going to be guaranteed equal treatment in the FTAA? How can labour laws and pollution controls be integrated among 34 countries? What happens to NAFTA?

One thorny problem that must be sorted out is how governments go about buying goods and services. Politicians have a favourite way of rewarding their supporters. It is to make sure that when huge government contracts are awarded they are awarded to friends rather than strangers. There are laws in Canada which make this kind of thing difficult. This is not to say it doesn't happen in Canada, but it isn't easy to do and keep it quiet. In Latin America there are very few controls and using public money to fill up the bank accounts of pals is a common practice.

Canada's Bombardier Inc. ran into this problem in 1997. The company had a contract to build subway cars for Mexico City pretty much sewn up. Bombardier's only competitor for the $450, million deal could not meet the technical specifications. But, Construcciones y Auxiliares de Ferrocarriles is well connected to Mexico's governing Institutional Revolutionary Party (PRI). The mayor of Mexico City at the time was a PRI man. It probably only took one phone call to get the contract with Bombardier torn up. Canada's Ambassador to Mexico said some quite undiplomatic things about corruption. Ambassadors are not supposed to say such things and he was brought home.

But, this kind of insider dealing on contracts is a time-honoured activity in Latin America. We may call it corruption, but with our southern cousins it's embedded in their system of government. Rooting it out will be one of many problems that will have to be dealt with if there is going to be a true free trade zone stretching from Grise Fiord on Ellesmere Island to Ushuaia on Tierra del Fuego.

SUGGESTED ACTIVITIES:

1. In 1823, U.S. President James Monroe spoke to the U.S. Congress and put forward what came to be known as the Munroe Doctrine. He stated that European nations no longer had the right to colonize or meddle in the affairs of any part of North or South America. During the 1870s and 1880s, the Monroe Doctrine took on new meaning as a justification for the United States to exercise control over the entire continent. In 1904, President Theodore Roosevelt said the Monroe Doctrine gave the U.S. the right to intervene in any Latin American nation guilty of internal or external misconduct. Since then, many U.S. presidents have used the Doctrine to justify invading countries or destabilizing their governments. Appoint a team of students to prepare a research paper on U.S. intervention in the hemisphere and to assess the effect these have had on how Washington is viewed elsewhere on the continent.

2. One of the arguments used by people who oppose free trade is that it threatens our national sovereignty. This argument was given focus during and after the MMT fuel additive debate in the summer of 1998. Canada had banned the use of MMT because of suspicions it might be harmful to the environment. U.S.-based Ethyl Corp., which makes MMT, took Ottawa to court on the ground that the ban violated its right to carry on business as guaranteed under NAFTA. The federal government settled out of court, paying Ethyl Corp. almost $20 million for legal costs and lost profits. In addition, the company is allowed to sell MMT in Canada. One Canadian, angered of the decision, wrote a Letter to the Editor of the Globe and Mail: "What's next?" asked Mark Bartelt, "Will some U.S. handgun manufacturer threaten to sue us because our gun-control laws prevent them from selling their products here?" Discuss.

Website

Free Trade Area of the Americas -- http://www.alcaftaa.org/English Version/view_e.htm

FACT FILE

In 1997, more than 29% of Canada's Gross Domestic Product came solely from exporting goods to the United States, up from 18% a decade earlier.

FACT FILE

About 60% of all world trade now takes place within regional free trade groups or groups that have agreed to set up a free-trade zone by a specified date.

Website

Free Trade Area of the Americas -- http://www.alcaftaa.org/English Version/view_e.htm

RELATED ARTICLE: THE GRAND BARGAIN

The two biggest free trade groups in the world sit on either side of the North Atlantic Ocean. The dream of many free traders is to join these two groups together. In 1994, the United States launched its plan for union under the title "Open Markets 2000." But, the EU is pre-occupied with expanding to include the nations of central and eastern Europe, so linking with North America is on the back burner. But, looking to the east, North America plans to be part of a free trade zone of Pacific nations. The Free Trade Area of the Americas hopes to get up and running by 2005. The grand bargain is to link all these regional groups and create global free trade.

RELATED ARTICLE: THE BICYCLE THEORY

Going uphill, you've got to keep pedaling or you'll start going backwards. Free traders say this applies to international trade negotiations just as much as bicycling. In the early 1960s, the members of the General Agreement on Tariffs and Trade (GATT) began talks to cut trade barriers; the so-called Kennedy Round, After the agreement was signed the negotiators went home to rest. During the late 1960s, while the free traders had stopped pedaling, protectionists scored some major successes. The same thing happened in the early 1980s after the GATT's Tokyo Round. Protectionism might have had a heyday after the Uruguay Round, except that regional groups were now firmly established. NAFTA, the EU, APEC, and other groups have kept the bicycle on the move.

RELATED ARTICLE: DEFINITION

NON-TARIFF BARRIER -- A barrier to trade that does not involve a tax on imported goods. Some countries are very creative in finding ways of blocking imports. Japan, for example, has a system of exclusive supplier contracts which make it almost impossible for a non-Japanese company to distribute its products. France was able to slow down the demand for imported electronics goods by insisting that each product go through a minute inspection.