National Post (National Edition) - - FINANCIAL POST - TER­ENCE COR­CO­RAN

Af­ter months of se­cret talks sur­rounded by thick wads of eco­nomic non­sense and po­lit­i­cal pos­tur­ing, the North Amer­i­can Free Trade Agree­ment rene­go­ti­a­tion process seems headed for an ap­pro­pri­ate and de­sir­able con­clu­sion: No New NAFTA.

Not that the old NAFTA is per­fect. That’s not the point. The prob­lem is that the New NAFTA was shap­ing up to be at best a mar­ginal im­prove­ment in ex­ist­ing con­ti­nen­tal trade rules. A more likely out­come, judg­ing by var­i­ous leaks and the fuzzy lan­guage of ne­go­tia­tors, was an agree­ment that en­trenched rules that would un­der­mine rather than pro­mote freer trade.

The pos­si­bil­ity of a Bad NAFTA seemed even more likely af­ter The Wall Street Jour­nal re­ported this week that U.S. Pres­i­dent Don­ald Trump, meet­ing with global auto in­dus­try lead­ers, sug­gested the United States could im­pose a 20-per-cent tar­iff on im­ported au­tos along with tough emis­sions con­trols on im­ported cars while U.S. made (or would that be North Amer­i­can made?) ve­hi­cles would be ex­empt.

How can free trade be ad­vanced when such spon­ta­neous bursts of eco­nomic ig­no­rance are even part of the dis­cus­sion? In­stead of strug­gling to ac­com­mo­date the na­tional pro­tec­tion­ist ten­den­cies that have been on dis­play from all three NAFTA coun­tries, a bet­ter op­tion would be to send every­body home to re-learn some ba­sic prin­ci­ples of trade and maybe look to other coun­tries for guid­ance.

For Canada, a good model for a game-chang­ing na­tional trade agenda would be Aus­tralia. Over the last 20 years, Aus­tralia did what Canada needs to do to lib­er­ate it­self from the clutches of trade ideas and the­o­ries that are not in the best in­ter­ests of the Cana­dian econ­omy and con­sumers.

The two sec­tors of the Cana­dian econ­omy that drive trade pol­icy are au­to­mo­biles and agri­cul­ture. They are also the prime ob­sta­cles to a Good NAFTA. Aus­tralia solved the au­to­mo­bile and farm trade prob­lem by do­ing what free-trade the­ory sug­gests: It uni­lat­er­ally stopped treat­ing them as na­tional pro­tec­torates and turned them over to mar­ket forces.

Most Cana­di­ans likely missed the news last Oc­to­ber that Aus­tralia no longer has an auto in­dus­try. It’s gone. Done. No new cars are made in Aus­tralia. Af­ter decades of pro­tec­tion­ist poli­cies and sub­si­dies, the coun­try aban­doned at­tempts to main­tain a na­tional sym­bol of eco­nomic mus­cle.

The last made-in-aus­tralia car rolled off a Gen­eral Mo­tors assem­bly line in Oc­to­ber 2017, fol­low­ing the ear­lier clo­sure of Ford and Toy­ota plants. “Au­to­mo­tive sur­ren­der,” said Jim Stan­ford, for­mer Cana­dian auto-union economist, now with an eco­nomic in­sti­tute in Can­berra. Stan­ford said the fi­nal im­pact of the end of auto mak­ing “on the na­tional labour mar­ket, gross do­mes­tic prod­uct, and Aus­tralia’s in­ter­na­tional bal­ance of pay­ments will be sig­nif­i­cant.”

Not quite.

The lat­est Aus­tralian eco­nomic re­ports show a strong trade sur­plus, in­clud­ing a cen­tral bank fore­cast that shows in­creased growth over the next two years, and gen­eral op­ti­mism on the fu­ture of the labour mar­ket.

One of the great side ben­e­fits of the Aus­tralian ex­am­ple is the non-ex­is­tence of an ut­terly mean­ing­less de­bate — along Canada-u.s. lines — over whether the coun­try has an auto trade deficit or sur­plus. In fact, the top im­ported prod­uct into Aus­tralia is mo­tor ve­hi­cles, val­ued at US $29bil­lion in 2017. That’s mea­sured against the value of mo­tor ve­hi­cles ex­ports: zero. The les­son is that com­par­a­tive stats on trade are use­less ide­o­log­i­cal di­ver­sions.

An­other bonus for Aussie con­sumers: With no na­tional in­dus­try to pro­tect, the coun­try is re­mov­ing tar­iffs and im­ped­i­ments to au­to­mo­bile im­ports, bring­ing more choice and lower prices.

All of this does not mean that Canada should not or could not con­tinue to pro­duce au­to­mo­biles. If mar­ket and eco­nomic con­di­tions are right, then com­pa­nies will con­tinue to build cars in Canada. The les­son from Aus­tralia is that there is no need for Cana­dian gov­ern­ments to con­tinue to pro­tect pro­duc­tion or lav­ish sub­si­dies on au­tomak­ers. Each new Cana­dian plant an­nounce­ment comes with a politi­cian stand­ing at the podium with a cheque, the lat­est be­ing the ex­pan­sion of a Toy­ota plant in On­tario val­ued at $1.4 bil­lion, with $220 mil­lion in fed­eral and pro­vin­cial sup­port.

From cars to cows, Aus­tralia leads the way on trade. In 2001, the coun­try un­rav­elled its agri­cul­tural-con­trol regime, dereg­u­lated the in­dus­try, re­moved gov­ern­ment price con­trols and es­tab­lished an open mar­ket for dairy prod­ucts. Prices are mar­ket based against in­ter­na­tional com­pe­ti­tion.

With dereg­u­la­tion came consolidation. The num­ber of farms de­clined by half, putting dairy farm­ing on a com­pet­i­tive ba­sis to face mar­ket trends as they de­vel­oped. To­day Aus­tralia ex­ports of dairy prod­ucts ex­ceed $3 bil­lion a year and is ranked fourth in world dairy trade be­hind New Zealand, the EU and the United States. Canada’s dairy ex­ports hit $400 mil­lion in 2017. A litre of milk in Canada is es­ti­mated to cost 35-per-cent more than in Aus­tralia.

If the NAFTA ne­go­ti­a­tions fail to pro­duce a new agree­ment this week or next, and if the talks drag into next year, not much has been lost so far. Any ex­tended de­lay pro­vides Canada with an op­por­tu­nity to review its ne­go­ti­at­ing po­si­tion on the two in­dus­tries that are said to be among the stum­bling blocks.

On cars and cows, we have noth­ing to fear but cheaper milk and maybe even cheaper cars and an end to sub­si­dies.


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