Newman on NAFTA: Mitigating Collateral Damage

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Canada is a trading nation.

That is why developments in the past year to both our current and potential trading relationships are so troubling.

Look at the four pillars of our trade policy. NAFTA, The Trans Pacific Partnership, CETA, the trade agreement with the European Union, and a potential Free Trade Agreement with China.

The most important of these is NAFTA that ties our economy to those of the United States and Mexico. By more than a country mile, the U.S. Is our most important market, with seventy-two per cent of our exports going to the United States.

A year ago, Donald Trump had just been elected President of the United States. He had run on a campaign to either change NAFTA or‎ end the treaty. Almost no one thought that he would be reckless enough to actually end NAFTA, we thought that Mexico with a favourable trade balance with the United States in the hundreds of millions of dollars could be under some pressure. ‎ Canada, with an almost equal trade balance with the United States, we thought was relatively safe.

That view‎ was heightened when Prime Minister Justin Trudeau visited Washington after Trump took office last winter. When it came to Canada, the President said, all NAFTA needed was a few “tweeks.”

Well five months into renegotiating NAFTA the talks are stalled. The Americans have made a series of demands that would gut the treaty as we now know it. Both Canada and Mexico have rejected the demands, but the reality is most of the demands would affect Canada more than Mexico.

For instance, ending the independent dispute settlement mechanism and replacing it with domestic U.S. Tribunals in trade disputes with the Americans would turn every issue into a rerun of the one-sided softwood lumber dispute we periodically have with the Americans.

And the U.S. claim that American companies should be able to compete for Government procurement contracts in ‎Canada and Mexico, but “Buy American” policies could limit Canadian companies from competing in their country, has to be the most one sided trade proposals ever.

There are also American demands for a “Sunset clause,” that could bring an end to NAFTA every five years, new, tougher content rules for contents in cars manufactured between the three countries, and an end to corporations being able to sue governments for damages in trade disputes.

The current stand-off has many observers believing that President Trump will give the required six month notice to end American participation in NAFTA early in the new year.

He will do that to increase pressure on Canada and Mexico to give in to American demands. But if they don’t, NAFTA would be terminated.

If that happens, or even if it doesn’t, Canada had been hoping to expand its trade with the rest of the world through three new trade deals.

A year ago, that prospect seemed bright. It is less so today.

Foremost among the new trade arrangements is CETA. That is the trade and investment arrangement with the European Economic Union that went into effect in September.

Unfortunately, there are problems. In the on-going negotiations to form a new coalition government in Germany, the Green Party has been demanding the cancellation of German participation in CETA. If that were to happen, it would effectively kill the deal.

The other problem looming with CETA is NAFTA. As reported here before, European companies are holding back on ‎investment decisions in Canada until they see if operations they set up in here will also have access to the United States. In other words, if NAFTA fails there will be a negative impact on CETA too.

The other two pillars of our trade policy are in the Asia – Pacific. So far, this autumn, they have both brought disappointments.

The effort to resuscitate the Trans-Pacific Partnership without the United States seemed ready for fruition at the APEC Summit last month‎. But at the last minute Canada balked at signing. Canadian participation in the TPP remains a work in progress.

Likewise, negotiations with China for a Free Trade Agreement. ‎Business people traveling with Prime Minister Trudeau to Beijing and beyond this past week had hoped that the start of negotiations would be announced while the Prime Minister was in China. There was no such announcement. Only that preliminary talks will continue.

So, the trade landscape twelve months on is more complicated, more confusing than it appeared a year ago. The coming twelve months will be more challenging, more difficult and more important than the year just past.

This will have to be the top priority of the Trudeau government.

Because, Canada is a trading nation.

Don Newman is Senior Counsel at Ensight and Navigator Limited, a Member of the Order of Canada, Chairman of Canada 2020 and a lifetime member of the Canadian Parliamentary Press Gallery.