CETA: Lessons from NAFTAEugene Beaulieu,

Professor, Department of Economicsand

Program Director International Economics, The School of Public PolicyThe University of Calgary

CETA: Lessons from NAFTA• Motivation for these historic

agreements• The political economy• Key features of NAFTA/CETA• Impacts of NAFTA – lessons from

CUSTA/NAFTA• Economic and political importance of

CETA for Canadawww.policyschool.ca

Motivation for CUSTA/NAFTA1. US protectionism/unilateralism2. Strong economic case:

– Harris/Cox and the MacDonald Commission

3. CUSTA and NAFTA were historic agreements at the time

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Political economy of CUSTA/NAFTACUSTA:• Enormous political debate in Canada – culminating in 1988

referendum on free trade (aka general election)• Not a political issue in the USNAFTA:• the opposite

“Little white lies and malicious whoppers” Paul Krugman

CETA:• An important agreement but not a big political issue in Canada• Not a big political issue in the EU

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www.policyschool.ca 7

Canada: the emergence of "New trade theory": The Predicted Effect of CUSTA on Canada

Model Assumptions/Focus Study Results

General equilibrium:· Classic trade

theory

· New trade theory

perfect competition;

constant returns to scale

imperfect competition;

rationalization effects

(scale economies)

Brown and Stern (1987)

Hamilton and Whalley (1985)

Markusen and Wigle (1987)

Wigle (1988)

Canadian Dep. of Finance (1988)

Harris and Cox (1985)

-0.3%

0.6%

0.6%

-0.1%

2.5%

8.9%

Macroeconomic: Sectoral Magun et al (1988) 2.5%

Impact of CUSTA/NAFTACUSTA/NAFTA extremely successful • Reduction in trade barriers increased NA

trade dramatically – and trade dependence– Rationalization, increased scale– NA supply chains– Increased productivity

• Maybe “too” successful? – North American file has been dropped –

complacency, lack of political willwww.policyschool.ca

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PLW

DMAGRDATG

CAF

MDV

BRBMNEBHSZWE

ARMSSD

MNGMUS

ALBNAMISLBWAJAMGEOBRNBIHGAB

EST

SLVPRYBOLJORTKM

PAN

LBNCRITUN

URYGTM

BGR

LUX

DOMHRVLKA

BLR

AZEECUMARAGO

NZL

UKR

ROU

CZE

KAZPERDZA

IRL

PRTFINGRCEGY

HKG

CHL

SGP

MYS

DNK

THA

COLVENZAF

AUT

ARG

BEL

POLNORSWECHESAU

NLD

TUR MEX ESPAUS

CAN ITARUSBRA

GBRFRA

050

100

150

200

250

Ave

rage

Tra

de/G

DP

0 500000 1.0e+06 1.5e+06 2.0e+06 2.5e+06GDP in million USD

trade share Fitted values

Trade Share of GDP and Country Size in 2012

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185018551860186518911916192919341939194419491954195919641969197419791984198919941999200420090

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

Share of Total Canadian Exports to the United States, 1850-2010

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ABW

ALBARG

ARMAUS

AUT

AZEBEL

BGRBIH

BLZ

BMU

BOLBRA

BRN

CAN

CHECHL

CHN

CPV

CYP CZE

DEUDZA

EGYESPESTEUNFIN

FJI

FRAGBR

GEOGHAGRC

GTM

HKG

HRVHUN

IDN

IND

IRL

ISLISR

JAM

JPN

KAZ KGZKHM

KORLBNLKA

LTU LUX

LVA

MAC

MDAMDG

MDV

MEX

MKD

MLIMLT MNTMOZ

MUSMYS

NCLNIC

NLDNORNZLOAS

OMN

PAKPOLPRT

PRY

PYF

ROMRUS RWASENSERSGP

SLV

SVKSVNSWE

TCA

TGOTHA

TUR

UGA

UKR

URYUSA

WSM

ZAF

0.2

.4.6

HH

I im

ports

0 .2 .4 .6 .8HHI exports

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1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 20111.00%

2.00%

3.00%

4.00%

5.00%

6.00%

7.00%

Canadian Share of World Exports: 1995-2012

Total all products Primary commodities, excluding fuelsFuels Manufactured goods

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43

24

21

10

Share of World Merchandise Trade by Region (%): 2005

Europe Asia North America Rest of World

37

30

17

15

Share of World Merchandise Trade by Region (%): 2012

Europe Asia North America Rest of World

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ALB

ARG

AUSAUTAZE BEL

BGRBIH

BMU

BOL

BRA

CAN

CHECHLCHN CYP

CZE

DEUDZA

ESPEST

EUN FIN

FJI

FRAGBR GEOGRC

GTM

HKG

HRV HUNIDNIRL ISL

ISR JPN KAZKORLBN LTULUX

LVA

MAC

MDGMDV

MEX

MKD

MLT

MNTMUSNIC

NLD NORNZL

OMN

PAK POLPRT

PRYPYF

ROMRUS SERSGP

SLV

SVKSVNSWETHATUR

UGAURYUSA

WSM

ZAF

0.2

.4.6

.8

.2 .4 .6 .8 1HHI computed from regional destination

Fitted values Export HHI measured from country data

HHI based on country vs HHI based on region

Economic and political importance of CETA for Canada

• Trade diversification• Strategic• Push NAFTA agenda

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14

Table 1: Summary of House Rollcall Votes on CUSTA, NAFTA and GATTThe Distribution of Votes in the House of Representatives.

CUSTA NAFTA GATTVotes Number Percent Number Percent Number PercentNay 40 9.8 200 46.08 146 33.64Yea 368 90.2 234 53.92 288 66.36

Total 408 434 434The Distribution of Votes in the Senate.

Nay 9 9.8 38 38.4 24 24.0Yea 83 90.2 61 61.6 76 76.0

Total 92 99 100

· consensus in policy toward similar countries (CUSTA); division inpolicy toward different countries (NAFTA)