The market downturn and the credit crisis has evoked a great deal of interesting rhetoric from around the world, including Gordon Brown’s declaration that the days of ‘unbridled’ capitalism were over. Sarko made a similar comment about ‘remoralizing’ a ‘laissez-faire’ economy, which has prompted a horde of professional chatterboxes to stampede left towards the false comforts of bureaucratization and the smothers of regulation. Of course, the tiresome language being deployed will do little to fix the problems of the crisis, not to mention the potential disaster of implementation, but that will not keep the talkers from talking.
As the deregulation backlash begins worldwide, there is still some hope for the global economy to be had. Of particular note is the recent agreement between Canada and the EU to get going on a free trade agreement. But when I say FTA, I don’t mean an FTA of the vanilla sort that we routinely sign with countries (largely unnoticed) or is unreasonably blocked by Congress (Columbia, ahem), or even of the super-variety as is the case with NAFTA. No, this one is world-changing:
The proposed partnership goes a lot further than Nafta. In addition to allowing free trade in goods and services, it would harmonize regulations, open up the air-travel market, and boost opportunities in government-procurement. Most important, it would free the labor market so that skilled workers could move easily back and forth across the Atlantic.
Or, as the WSJ calls it, ‘NAFTA-Plus.’ This is really big news for several reasons. First, the timing – although probably planned quite some time ago – is fortuitious as it will probably be later seen as an economic invigorating force for Canada and the big EU countries directly (France, UK, Germany, Italy) and allied economies indirectly (US, other EU countries). Second: Canada is the United States’ largest trading partner by price volume; an FTA of this scale between the EU and Canada will not only further move Canada as more of an EU economy than a North American one, but will do so at the expense of many trade advantages it has with the US, especially regulatory harmonization.
And finally, as the article notes, the free-labor component is what really separates this deal from anything else. In effect, Canada is ‘joining’ the EU through something of a backdoor agreement, similar to EU accomodations made with the Swiss to preserve their neutrality de jure without foregoing the benefits of EU membership, particularly that free labor piece. Through this, Canada is making a historically sharp break with the North American economy and choosing to go the European route.
Why? Although Canada still remains firmly ensconced within the NAFTA trade regime (and politically/economically dedicated to it, at that), the EU deal is an opportunity that simply cannot be passed up. And with 9/11 and immigration hysteria walling off a once-unimaginably free border, not to mention cheap potshots by the Clinton and Obama campaigns at NAFTA last Spring, Canada is hedging its bets. Not only is the EU deal an economically wise move, but one that bolster Prime Minister Stephen Harper’s free trade bona fides at a declining US’s expense. The irony is truly rich.
Unfortunately, it seems as though the United States is in no position to properly compete. Under the current administration, whose time is quickly running out, there is no stomach for free labor agreements, especially while little is being done to try and push through a critical FTA with Columbia. And given the political climate, further freeing up the economy by freeing cross-border labor restrictions is probably the last thing that an Obama administration would pursue. Interestingly enough, John McCain may be the only candidate – Republican, Democrat, or otherwise – that would genuinely entertain the notion of a free labor agreement with Canada and the EU. But, alas, though McCain isn’t out yet, his chances don’t look excellent for Nov 4th.
America will surely get some indirect benefits of this agreement with the Canadians, but our overall position will continue to decline as we voluntarily forego the use of important tools for economic growth like larger free trade areas, lower tax rates, and free labor agreements – all for short-term political gain. Interestingly, it seems that the steady leadership of Canada’s Conservatives will prove a model worthy of emulation, and may be the best hope for capitalism in the wake of this global storm.
