Author Archives: Lawrence Herman

About Lawrence Herman

Counsel on International trade and investment, global business transactions & public policy

Dealing with Dictators

Canada doesn’t need a US-style Magnitsky Act to deal with putative dictators like Nicolas Maduro of Venezuela, Vladimir Putin of Russia, Robert Mugabe of Zimbabwe or others.

We could easily deal with Maduro or any situation involving the trampling of basic human rights and democratic principles with a few tweaks to the Special Economic Measures Act.

SEMA was passed in 1992, twenty-five years ago, and hasn’t been updated since. It’s true, as spokespersons at Global Affairs have said, the legislation doesn’t allow Canada to apply sanctions as the US has done in response to recent developments in Venezuela.

Reflecting the international context of a bygone era, section 4 of SEMA says:

 The Governor in Council may, for the purpose of implementing a decision, resolution or recommendation of an international organization of states or association of states, of which Canada is a member, that calls on its members to take economic measures against a foreign state, or where the Governor in Council is of the opinion that a grave breach of international peace and security has occurred that has resulted or is likely to result in a serious international crisis,

(a) make such orders or regulations with respect to the restriction or prohibition of any of the activities referred to in subsection (2) in relation to a foreign state as the Governor in Council considers necessary; and

(b) by order, cause to be seized, frozen or sequestrated in the manner set out in the order any property situated in Canada that is held by or on behalf of

(i) a foreign state,

(ii) any person in that foreign state, or

(iii) a national of that foreign state who does not ordinarily reside in Canada.

Section 4 was worded that way because, at the time, the international community didn’t believe there was a need to counter actions within countries that were offensive or abusive but not peace-threatening.

So because the Venezuelan situation isn’t a “grave threat to international peace and security”, SEMA doesn’t allow the cabinet to impose sanctions or asset freezes on Maduro and his cohorts as the US has done.

A simple change to section 4 could be made, bringing into the 21st century by giving the federal cabinet the power to sanction persons (individuals or entities) in cases where the Governor in Council (in legal parlance) is of the opinion that unacceptable acts like corruption, criminal behavior or human rights violations have occurred or are likely to occur within foreign countries.

A few words such as “. . . or serious human rights abuses, corruption or infringement of democratic principles . . . “ inserted in section 4 would do the trick. Easily done.

Last May, the Commons Foreign Affairs Committee unanimously supported changes to SEMA along these lines. It’s not clear why the Trudeau government hasn’t followed through with a draft bill.

Canada’s NAFTA Strategies – Play Hardball

An op-ed piece of mine in the Globe and Mail Report on Business, outlined the implications of the USTR’s statement of the Trump administration’s NAFTA renegotiations and Canada’s possible response.

CANADA WILL HAVE TO PLAY HARDBALL on US NAFTA DEMANDS

Globe and Mail, 17 July 2017

LAWRENCE L. HERMAN © 2017

So we now know what the American objectives are in the forthcoming NAFTA renegotiations.

Some of what was sent by the US Trade Representative to the Congress July 17th [Monday] isn’t a big surprise, having been signalled before and in its initial fast track notice tabled with the Congress last May.

There’s a lot about modernizing NAFTA, improving the agreement to add provisions on trade in services, digital commence, intellectual property and even reference to establishing “strong and enforceable environmental obligations” and other things that, subject to careful reading, could be acceptable as a basis for negotiations.

However, there are at least four major bombshells, signalling an extremely aggressive stance by the Americans, making it difficult to Canada to accept the document as a basis for negotiations.

The first – not unexpected – is the US objective to eliminate the binational panel system in Chapter 19 of the NAFTA, the system that was first painfully negotiated in the bilateral Canada-US Free Trade Agreement in the 1980s and later replicated in the NAFTA. Canada made many compromises as part of the FTA talks to get the binational panel system accepted by the US side.

For the Americans to now seek its removal is a major assault on a fundamental Canadian interest and could effectively scuttle the talks.

The second attack – also part of the negotiated deal under the FTA/NAFTA – is the US objective to remove all restrictions on Buy America preferences at the state and municipal level, including on all federally funded program for a huge array of local projects.

What the US is seeking here effectively is a wholesale carve-out of preferential programs that run up against some of the key principles of open trade and GATT-based non-discrimination. Talk about trade distortion, these Buy America preferences will allow it in spades.

The third salvo is the US objective of removing the right of Canada (and Mexico) to be excluded from US safeguard actions against imported goods. Safeguards are global import restrictions that apply when US industries are being injured by an unexpected flood of imports that are neither dumped nor subsidized. Under the NAFTA, Canada and Mexico are exempted from such actions unless their exports “contribute importantly” to the injury caused to US producers. The US wants that out.

The fourth bombshell is the objective to reduce or eliminate barriers to US investments “in all sectors” in the NAFTA countries. This is an aggressive demand and suggests the US wants an end to Canada’s restrictions on American investments in such things as telecommunications, health care, education and cultural industries.

These four areas together comprise an extremely tough set of US objectives that go to the heart of the trading relationship and represent an assault of existing NAFTA rules as far as Canada is concerned, putting the very underpinning of the deal in play.

There are other parts of the USTR notice that could be contentious but possibly less so in comparison to these four items. These stated American objectives alone will make it difficult for these talks to get off to a smooth and friendly start.

I appreciate that some of this may be an over-dramatic reaction. Assessing all of this in a less hurried and more deliberate manner will be important. After all, the July 17th document is a statement of ideal objectives on the part of the US government. These don’t have to be taken as diktat or an end-game by either Canada or Mexico. We have to get to the table with the Americans and start some horse-trading as the dynamics unfold over the next several months.

The US Congress will also be weighing in to the process. As pointed out in a recent C. D. Howe report, over the last several decades, the Congress has re-asserted its jurisdiction in trade matters and will have an important voice in the NAFTA negotiations, and possibly a moderating one.

Perhaps some of the more egregious parts of the USTR’s position will be toned down once Congressional committees have a look. Canada has been solidifying contacts and enlisting supporters on Capitol Hill that could help to curb some of the most aggressive positions the USTR has tabled.

What also must not be lost in all of this, of course, is that we are talking about negotiations. Canada and Mexico don’t have to accept the US position as the basis for the negotiating agenda. The federal government will have the opportunity to set out its own set of objectives for the talks and Canada can be equally aggressive in making clear to the Americans where its fundamental NAFTA interests lie.

What unfolds over the next weeks and months for Canada-US relations in the long haul will be critical.

 

NAFTA – Everyone’s Chattering

There’s no end to the advice – well-intended on not – that Foreign Affairs Minister Chrystia Freeland and her team are getting from NAFTA experts and non-experts, far and wide.

Interest and engagement over NAFTA and other trade issues amongst Canadians these days thanks to Mr. Trump is probably unprecedented. But one has feel sympathy for ministers and senior officials in Ottawa trying to digest all of this unsolicited advice.

Let alone trying to make some sense of where NAFTA is going in advance of any request from the Trump White House to sit down at the table.

I’m as much at fault as anyone else in offering gratuitous views on strategy and tactics in this period of Never-Land, in advance the US triggering the start of re-negotiations under the Fast-Track system, supposedly set for August 18 or thereabouts.

We’ll see if that time-table holds. Remember, it takes Two-to-Tango (or three in the case of the NAFTA).

That means that even if the Trump team sends Canada and Mexico a request to start the talks, this isn’t a demand and a take-it-or-leave it proposition to arrive in Washington the next day with a negotiating team.

There will be inevitable to-ing and fro-ing before the negotiating framework and agenda can be settled. This will take time. Probably the actual business of negotiating won’t start in earnest until sometime later in the fall.

Whenever they do start, I’ve predicted that these will be tough and nasty, even with some soothing comments here and there from USTR Lighthizer and Commerce Secretary Ross.

That being said, the negotiating process will be fluid, with lots of horse-trading and the inevitable give-and-take. And much of this will, perforce, be behind closed doors. That’s how trade negotiations work.

It’s clear that the skilled and battle-hardened trade team in Ottawa is continuing to work up Canada’s own set of NAFTA demands and planned counter-thrusts. These are people that are probably the best and most experienced trade negotiators anywhere. Canadian interests will be fiercely defended.

For the rest of us, as engaged as we are, it would be wise to let matters unfold a bit. The Canadian government is doing a top-notch job of showing how important the NAFTA is to the United States. Let’s see what Trump & Co. put on the table to get a better sense of where all of this is going.

 

NAFTA and Beyond – Canadian Trade Strategies

As Canada enters the difficult and contentious NAFTA negotiations with the US, here are some thoughts in a Globe and Mail op-ed piece on some elements for Canada’s overall trade strategies, not forgetting either the Trans-Pacific Partnership Agreement (which has been signed by all countries, even the US) and the World Trade Organization Agreement, where Canada has a lot at stake as well. The Globe article is here: https://tgam.ca/2shQ0Yw

NAFTA Negotiations – Alternative Ways to Settle Disputes

Here is a short piece published by the C. D. Howe Institute, 24 May 2017, suggesting some options for Canada in NAFTA negotiations if the US demands removal of the existing binational panel system (in Chapter 19) for dumping and subsidy cases.

While not advocating that Canada should give in, the article suggests how State-to-State mechanisms in NAFTA Chapter 20 could be re-jigged to provide a possible and effective alternative.

Using NAFTA Chapter 20 CDH 24 May 2017