Commentary

The U.S. Shifts its Economic Crisis onto Canada

Motor Coach Industries, a Manitoba-based bus manufacturer announced recently that it may close its facilities in Winnipeg and lay off 1,300 workers due to the economic recession. Motor Coach has a number of smaller assembly facilities in the United States, which it intends to keep open.

Motor Coach rejected an offer of handouts from the provincial government in return for closing its U.S. plants and concentrating its operations in Manitoba. Company officials pointed out that because of the "Buy American" laws of many American state and municipal governments, 65 percent of the assembly of its buses must take place in the United States. Since the U.S. is the main market for its buses, it will be forced to close its Canadian operations and keep its American plants open if it wishes to remain in business.

New Flyer Industries, another Manitoba-based bus manufacturer, recently announced the layoff of 500 workers and is also considering the transfer of most of its production to its plants south of the border for the same reason.

The North American Free Trade Agreement (NAFTA) specifically outlaws preferential buying policies by any level of government. This rule has been used to force Canadian provincial governments to drop Canadian or provincial content specifications in the tendering of contracts. However, American governments continue to flout these provisions with impunity. As is the case with softwood lumber, wheat, potatoes and various other products, "free trade" is a one-way street. When it favours American interests, the NAFTA treaty is enforced; when it is counter to American interests, it is ignored. When the NAFTA dispute resolution agencies rule against the Americans, their decisions are either ignored or the American government simply rewrites its own trade laws.

Historically, recessions and depressions have hit the Canadian economy harder than the American economy. This reflects the branch-plant character of the Canadian economy. U.S. multinationals are much more likely to close their Canadian branch plants than their American operations, which are usually larger. It is also easier politically for them to close their foreign branch plants. Now we are witnessing Canadian-based companies doing the same thing because of the "Buy American" and other protectionist policies of American governments.