Canada’s NAFTA Strategies – Play Hardball

By | July 26, 2017

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.


Globe and Mail, 17 July 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.