By the time you read this the fate of the free world may already have been decided by voters in Texas and Ohio. At least, to the extent that it matters whether Hillary Clinton or Barack Obama answers the phone at 3am. As things have heated up in the last few weeks, there is one issue that the candidates have been raising alot – NAFTA. In the last debate in Ohio both candidates promised to force Canada and Mexico to renegotiate NAFTA by threatening to pull out. Meanwhile,CTV news in Canada revealed that a senior Obama policy adviser spoke with Canadian officials at the consulate in Chicago and reassured them that all this talk about pulling out of NAFTA was just campaign rhetoric. But what could either candidate possibly mean?

George W Bush already jumped all over the comments at the debate, claiming that backing out of NAFTA could worsen relations with Canada and prompt the Canadian government to pull its 2,500 combat troops out of the NATO mission in Afghanistan. Of course, this is the same George Bush that could not care less that from 2001 to mid 2005 the US repeatedly violated NAFTA and WTO tribunals that ruled that the US was violating its trading obligations under NAFTA and the WTO by implementing tariffs on Canadian softwood lumber. If the idea is that Canadian military participation is contingent on the US honoring the letter of its international agreements and treaties (or at least the agreements that directly affect Canadian industries), Bush didn’t exactly set a good precedent.

The difficulty of the NAFTA issue is obvious from how the candidates tie themselves in knots over whether it is a good thing or a bad thing – apparently it helps some people and hurts others, what a surprise! Isolating the effects of NAFTA from the effects of competition with other countries (especially in Asia), skill-biased technological change, exchange rates, and even poor innovation and product quality by some American manufacturing giants, is extremely difficult. The current pains of the US auto industry would seem to have more to do the quality of the product than with where the products are manufactured, since assembly and production of parts for both Toyotas and GMs occurs in Canada, Mexico, the US, and elsewhere. To further complicate matters, even within a purely North American context, one cannot look at job losses in the US in isolation from other factors that have hurt US competitiveness, especially rising healthcare costs and an unattractive level of government debt and fiscal/external imbalance that make Canada or Mexico a more attractive place to invest.

One of the red herrings raised by both candidates is the need for better labor and environmental standards. This always makes me chuckle, first because over half of US-NAFTA is with Canada, which has equal or better labor and environmental standards than the US. Second, because there is no evidence that North American trade and investment is responsible for worsening pollution in Mexico – if anything, the US industries that locate there tend to be less polluting than the industries they have driven out. The cost advantages of production in Mexico, especially with regard to the industries that have moved there (like auto assembly), seem to be based much more on lower labor costs than on sweatshops or high polluting industries.
Third, because the US fought hard to include investor protections for US companies that are precisely designed to prevent local governments from imposing environmental or labor regulations that will hurt the profits of US companies.

In fact, very few trade agreements have built in labor and environmental standards. One of the few WTO cases to actually consider environmental standards, the case of Mexico, etc. vs. US "tuna-dolphin"
, ruled against the enforcement of domestic environmental standards (in this case a ban on certain tuna-fishing practices that endangered dolphins) by the US, The panel argued that "If the US arguments were accepted, then any country could ban imports of a product from another country merely because the exporting country has different environmental, health and social policies from its own. This would create a virtually open-ended route for any country to apply trade restrictions unilaterally ? and to do so not just to enforce its own laws domestically, but to impose its own standards on other countries. The door would be opened to a possible flood of protectionist abuses." Trade agreements are almost always written to specify what actions cannot be taken, and those are of course actions that interfere with trade. They are very rarely written with explicit directives for domestic policy, and why would they? No country wants to give away its ability to set its domestic laws. But the biggest problem is enforcement – even if `trade specific’ environmental and labor standards were incorporated into a trade agreement, most countries actually have pretty reasonable labor and environmental laws on the books. The issue is mainly that these countries willingly turn a blind eye to abusive labor and environmental practices or don’t have the budget to fully regulate and control domestic businesses. This is the main reason Mexico lags the US in terms of labor and environmental standards – not the laws on the books, but the reality on the ground. But it seems unlikely that a renegotiated NAFTA would include strong international enforcement mechanisms for this kind of thing, because the one thing the US hates even more than low labor and environmental standards in other countries is having international bureaucrats or tribunals dictating and enforcing laws within its own borders. If the candidates are serious, they should spell out how they would implement sanctions against individual firms that are found to violate the common labor and environmental standards in another country without taking knee-jerk and blanket actions against all producers of a particular product, like they did in the WTO tuna-dolphin case.

Perhaps the most troubling part of the talk of pulling out of NAFTA is the dangerous precedent it would set for other trade treaties. Canceling a trade treaty (or any kind of international treaty) is virtually unheard of. In the early 20th century, a fairly integrated world economy that was not governed by formal trade treaties was fragmented by protectionist policies everywhere, partly a response to the Great Depression. Part of the reason for the whole post WWII trade architecture – the WTO, GATT, NAFTA, European Economic Community, etc. – was to prevent the type of unilateral deviations from free trade that look appealing in the short term but can trigger a protectionist responses that ultimately can prove quite damaging. Countries could have easily lowered tariffs through informal bilateral negotiations after WWII, but it was thought that international treaties would provide a more solid ground to stand on and make it substantially harder (politically and otherwise) to renege on agreements.

Although there is not really an international court or binding enforcement mechanism for treaties like NAFTA, there is clearly a disincentive for countries to promise to do one thing in the context of a compromise between competing interests, and then attempt to renegotiate after the fact if the outcome is not exactly as they wanted. This is not perceived as fair, in personal life or in international politics, and could severely damage America’s reputation on the world stage – in some ways it would be much worse than America’s refusal to sign many international covenants and treaties. With both Hillary Clinton and Barack Obama talking about a return to US multi-lateralism and better relations with America’s allies, threatening to cancel NAFTA unless it is re-negotiated on favorable terms would be a huge step backwards. I think it is fairly obvious that such statements are intended as meaningless campaign rhetoric and pandering to Rust-Belt voters by both candidates, and should be regarded as such by all serious observers. The real question is not why Barack Obama’s adviser made the stupid mistake of admitting that the campaign was pandering, but why the media does not (and will not 10 months from now) make it obvious to the public why pulling out of NAFTA is the same thing as American breaking its promises and that trade treaties are not casual agreements that should be exploited for political advantage.