Global Trade Watch

The chief economist at the Canadian Auto Workers Union is a critic of Canada's free-trade arrangements with the US, encompassed in the North American Free Trade Agreement (Nafta).

"Our experience with the US is that they preach the language of free trade but they are only interested in looking after their own corporate interests," he says.

"America has just played with the dispute-resolution panels. Nafta is toothless and America will protect America's interests."

As Canberra prepares for the start of the free-trade deal with the US, Australia and its businesses are looking for opportunities to take advantage of a less-fettered flow of goods and services between the two countries.

But already there are signs that the US is extracting more concessions from Australia on copyright and medicines. It's a hard-headed approach the Canadians know all about.

The trick to gaining benefits from an FTA , according to the Canadians, is to ensure short-term opportunism doesn't overpower long-term gains. And don't become over-reliant on commodities, Stanford says.

"What we are best at, and Australia is the same, is digging stuff out of the ground. That's good for the commodities industry but in the long term you will never compete in the high-tech, globalised world. Free trade with America is really quite damaging to your value-added industries," Stanford argues.

"Nafta has been a visible regression for Canada and I think the same thing will happen in Australia".

Charles Barrett, vice-president for program strategies and delivery at the Conference Board of Canada, is a strong supporter of Nafta but he provides a similar warning.

He says the issue of becoming overly reliant on resources in the US-Australia trade relationship "could be more of a problem for Australia than Canada".

The distance between Australia and the US means local companies wanting to trade with America will have to do it in bulk. And economies of scale dictate it's the commodity industries that will dominate that relationship.

Canada's free-trade deal with the US (which began in 1989 before being succeeded by Nafta, which included Mexico in 1994) provides lessons for Australian companies wanting to take advantage of the FTA .

Canada and Australia are economically similar with small populations, highly urbanised, similar economic growth and unemployment rates. Both economies have a large service sector, broad-based manufacturing, large-scale mineral and energy developments, productive primary industries and a rapidly expanding base of high technology.

The main difference lies in geography. Canada has an international market of 100 million people within five trucking hours of its border. More than 80 per cent of its exports and imports go to, or come from, the United States.

In contrast, only 10 per cent of Australia's exports go to the US, while 18 per cent of imports come from that country.

The US-Canada-Mexico trade relationship is huge. Nafta is the world's largest trading bloc with a gross domestic product of more than $US11.4 trillion ($14.6 trillion). After 1989, trade between Canada and the US almost tripled, to $US678 billion in 2002, according to an International Trade Canada report.

More than $US2 billion in goods flows across the border each day, everything from fruit to aeronautical engines.

Barrett says one of the big benefits of Nafta has been allowing Canadian companies to find things they are good at.

"Some of our sectors were forced to become competitive, like the Canadian wine industry. Others, like the chemicals and pharmaceutical industries, have done well from it by being able to concentrate on research.

"Within manufacturing, we have seen a clear move towards more specialisation and more export orientation. For manufacturers it's been a win all round," Barrett says.

For Australian companies, the clear message is to find a specialisation and become good at it. "Finding a niche is absolutely the key message," he says.

Scott Sinclair, a senior trade researcher at the Centre for Policy Alternatives, says disputes in the timber, wheat and beef industries demonstrate that secure access to the US market is not achievable.

"He claims the US government ignores the rules when politics come into play.

Canadian wheat and beef producers both sectors in which Australia hopes to benefit from the free-trade agreement are constantly faced with "harassment, or tariffs, or shut outs", he says. Everyone agrees that the dispute resolution process has not worked as the Canadians would have wished, but Barrett adds that it's a price Canada had to pay if it wanted "secure access to the US market".

Stanford warns that disputes inevitably arise, and not to expect any favours from the US. Sinclair agrees. "My advice to Australian organisations is to be tough. Trade policy with the US is a very tough game. A trade deal might help, but it doesn't count for much in Washington."

Stanford has one other piece of advice for Australian companies. Watch out for the Mexicans.

He argues that Nafta allows Mexican companies using inexpensive labour to sell cheaper goods via the USA.

"That's all about low wages, and that could cause big job losses [for Australia]," he says. Overall, free trade with the US has been a negative for the Canadian economy, he says.

"When you compare the promises of Nafta with what happened, it makes you either laugh or cry in your beer."