Just when you thought the world could not get any more surreal, Theresa May’s Government is reportedly thinking of signing us up to the North American Free Trade Agreement (Nafta) as a fallback for failing to secure a deal with the European Union.
Of all the bad ideas that this Government has come up with on international trade, this may be the worst.
To begin with, no responsible Prime Minister should be contemplating leaving the EU without a new trade deal in place. Every business leader I have spoken to is adamant that abandoning our biggest market with no deal for the future is the worst outcome imaginable. No deal means throwing the British economy under the bus.
Then there is the reality of Nafta itself. Since coming into force in 1994, the agreement has locked the economies of Canada, Mexico and the USA into a free trade zone that has delivered none of the benefits that were promised – but a host of unwelcome effects.
Like so many free trade deals before and since, Nafta was sold as a massive opportunity for working people and their prospects. Forecasts spoke of hundreds of thousands of new jobs in all three countries. The reality could not have been more different.
At least two million Mexican farmers lost their livelihoods, as a result of being brought into direct competition with heavily subsidised US industrial agriculture. The new jobs created in Mexico’s maquiladora (manufacturing) sector were so badly paid that the minimum wage collapsed to just a fifth of the value it had enjoyed in the 1980s.
Academics argue over exactly how many hundreds of thousands of US jobs were lost as a direct result of Nafta, but trade unions representing US workers are in no doubt that it was a disaster. Donald Trump spoke to the experience of ordinary working people when he dubbed Nafta the “worst trade deal ever made”. Hillary Clinton was forced to agree that the deal “has not delivered”.
It’s not just jobs that are at risk. Nafta has been responsible for a race to the bottom in standards across North America, with working conditions declining along with wages. Canada used to enjoy high social and environmental protections before Nafta, but these have been gradually watered down over the past two decades in order to conform to the lower standards of the USA.
One of the mechanisms responsible for this trend is in Nafta’s infamous Chapter XI, which was the first time the principle of “investor-state dispute settlement” (ISDS) was introduced to a major regional trade agreement. This system allows foreign investors to sue a host government in their own exclusive judicial system if they can argue their profits have been harmed by social or environmental regulations, and it has been successfully used by multinational companies against the public interest in hundreds of cases to date.
Canada has been particularly hard hit by ISDS cases under Nafta, and has seen crucial public health measures scrapped as a result. ISDS rulings have also undermined Mexico’s attempts to protect fragile ecosystems, and even President Obama was faced with a massive $15bn (£11.3) ISDS suit when he halted the construction of the highly controversial XL Pipeline on environmental grounds.
Back in the UK, the coalition government commissioned a cost-benefit analysis from the London School of Economics in 2013 as to what granting ISDS powers to North American firms would mean for our economy. Theresa May would do well to remind herself of the assessment’s conclusion: the UK would see no benefits from introducing ISDS – only costs.
Nafta may not even survive long enough for the UK to join it. This week sees the fourth round of renegotiation talks between the three parties in a desperate attempt to save what they can of the deal, and all signs point to an increasing distance between their positions.
Trump has threatened to tear up Nafta if Canada and Mexico do not grant him greater concessions, and the US Government is now proposing a “sunset clause” to terminate the agreement automatically in five years unless specifically extended. Mexico has stated that it will pull out of Nafta independently if it is in the national interest to do so – a stance that has the backing of major Mexican business federations.
Nafta is on life support, with some business leaders giving it no more than a 30 per cent chance of survival. Yet this is the dog’s breakfast that Theresa May suggests could make up for the loss of our nearest and most important trading partners: the 27 remaining EU member states.
Never has a Government looked so clueless, and never have the consequences of its failure been so grave.
Barry Gardiner is a Labour MP and Shadow Secretary of State for International Trade
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