A NAFTA Primer for Canadians
by Colin Robertson
CGAI Vice President and Fellow
Table of Contents
- How did we wind up in negotiations?
- Who are the negotiators?
- How long will the negotiations last?
- What do the Americans want?
- What do the Mexicans want?
- What does Canada want?
- Is NAFTA unpopular?
- Recent polling on NAFTA
- Canadians like trade
- What about softwood lumber?
- What happens if we don’t get a new NAFTA?
- Did NAFTA work?
- What is in a trade agreement?
- Further reading
- Appendix: NAFTA and the TPP
- About the Author
- Canadian Global Affairs Institute
After months of speculation, ministers and negotiators from Canada and Mexico fly to Washington this week to hear how the Trump Administration wants to change the North American Free Trade Agreement (NAFTA), the set of rules managing continental trade since 1994. Partnered with the Mexicans, Canada is well equipped to advance our own objectives and use the talks to even greater advantage.
The NAFTA re-negotiation is part of a bigger exercise by the Trump Administration aimed at reducing US trade deficits, bringing jobs back to the USA, and getting a ‘fairer’ deal for Americans in their trade agreements.
Market access and rule-making are the twin pillars of trade policy and this is what the negotiators will spend their time discussing. Seven rounds are scheduled from now until Christmas, when both the US and Mexico hope a deal can be done. The Trump Administration wants the deal through Congress well before the November, 2018 midterms. The Mexicans want it out of the way before their presidential election in July, 2018.
North America is home to over 480 million people and over one-quarter of the world’s economic output. That makes us one of the most competitive regions in the world, according to the Bush Institute. Under NAFTA, total trilateral merchandise trade has reached nearly US$1trillion, representing more than a three-fold increase since 1993.
With 77.8 per cent of our merchandise exports destined to our NAFTA partners, one in six jobs in Canada depends on trade. As Foreign Minister Chrystia Freeland observed, Canada’s economy is 2.5 percent larger every year, thanks to NAFTA: “it is as if Canada has been receiving a $20 billion cheque each year since NAFTA was ratified.”
But it is time to update our continental economic constitution.
The path that led to these negotiations has been contentious and, at times, acrimonious, especially in the wake of President Trump’s threats to ‘tear up the NAFTA’, build a wall on the Mexican border, deport ‘illegal immigrants’ and impose a border tax.
All three nations successfully negotiated new rules and improved market access in the Trans-Pacific Partnership (TPP) that President Trump pulled out of after taking office. The TPP, now under resuscitation efforts by the other 11 partner nations, including Canada and Mexico, involved many of the same negotiators. Inevitably, the stillborn TPP will be a reference point for chapters in a new agreement.
A NAFTA 2.0 must bridge some profound differences.
The Americans want to rescind the current dispute settlement process for countervail and anti-dumping cases, leaving Mexico and Canada to rely on the U.S. trade remedy system. For Canada and Mexico, this is a non-starter. A fair dispute settlement mechanism will be essential to any new agreement.
For Canada, the overriding objective is a deal that sustains and improves access to the US market. Trade with the U.S. (nearly three-quarters of our trade) accounts for an estimated 1.9 million Canadian jobs.
The border continues to be as much chokepoint as gateway. We made progress in the Harper era to reach beyond-the-border and to embrace regulatory cooperation. But this work needs a re-boot.
We have some house-keeping to take care of: the legislation enabling more US customs clearance operations for cross-border passage by air, sea and rail. We also need to figure out, with the US, how to manage the new refugee flow from the USA resulting from Mr. Trump’s immigration changes, real and anticipated.
The experienced Canadian team, having honed their skills negotiating free trade deals across the Atlantic and the Pacific, are well positioned.
First, surveys show that Canadians are confident in the Trudeau government’s ability to negotiate a good deal on their behalf. Canadians don’t like Mr. Trump. Neither do Mexicans or the rest of the world according to Pew surveys. The antipathy towards Mr. Trump will give the Trudeau government elbow room.
Second, the U.S. has taken the idea of a border tax off the table. This would have been a show-stopper. But the driving force for the tax came from House Speaker Paul Ryan, whose support for a re-negotiated NAFTA will be necessary.
Third, the economic auguries are good. Canadians are optimistic about their future prospects. The OECD projects unemployment in Canada (6.1 per cent) and the U.S. (4.3 per cent) at the lowest point in a decade – lost jobs are always blamed on trade – while growth in Canada (2.3 per cent) and the U.S. (2.4 per cent) will lead the G7. Mexican unemployment is at 4.3 per cent with growth projected at two per cent.
Fourth, there is broad public support in all three countries for continental free trade. A Pew survey conducted in May says NAFTA enjoys the support of three in four Canadians and six in 10 Mexicans. Surprisingly, half of Americans (51 per cent) say NAFTA has been a good thing for the US.
President Trump’s focus on NAFTA has brought hitherto silent support for NAFTA to the surface, especially in the U.S. farm community, a core part of the Trump base. Their support for NAFTA is one reason why Trump decided to renegotiate, rather than scrap, NAFTA.
The Canadian outreach campaign –at the political level it has netted meetings with 50 governors and lieutenant governors and over 200 congressmen– has revealed that we have more allies than we thought for continuing our mutually-profitable continental trade. Canada and Mexico must continue cultivating their support. We will need it when the new deal reaches Congress.
The auspices for a new deal are good, but fasten the seatbelts. Negotiators will need to contend with threats and counter-threats, midnight tweets, and other noise.
Negotiations are traditionally conducted in secrecy but the US system is leaky by nature and by design and it is exacerbated by the current factionalism on Capitol Hill and within the Trump administration. To sustain public support Canadian negotiators will have to keep consulting with stakeholders and then explain, explain, explain.
Canadian governments should use the negotiations as an opportunity to improve Canadian competitiveness. Canadians want their governments to regulate for public safety and sovereignty but there are still thickets of red tape that need weeding. We need new and better connections – rail, road and pipe -to our ports. And we need to take another swing at inter-provincial trade barriers.
Trade promotion could do with a boost. Canada can compete continentally and globally as we proved in the decade of trade-led growth that followed the 1988 Canada-US FTA . The premiers have taken to sales and marketing like ducks to water. So should our big city mayors.
The ‘Canada brand’ is strong and, for now, Justin Trudeau represents the ‘face’ of Canada. Let’s leverage this into more trade and investment that creates and sustains jobs. As Canada’s top salesman, Mr. Trudeau needs to lead this parade.
During the remarkable 2016 American election campaign, Donald Trump called NAFTA the “worst trade deal ever” and promised to tear it up, along with the TPP and Trans-Atlantic Trade and Investment Partnership (TTIP).
After his election, the U.S. withdrew from the TPP. The TTIP was put in the freezer. Threats to “terminate” NAFTA continued until just after his 100th day in office when, as President Trump tells it, telephone calls from Prime Minister Justin Trudeau and President Enrique Peña Nieto persuaded him to “give renegotiation a good, strong shot.” Opposition from both sides of Congress and the farm community likely weighed significantly in the Trump decision.
At the ministerial level, Robert Lighthizer is the United States Trade Representative (USTR). A long-time litigator and former USTR official during the Reagan era, he will work closely with Commerce Secretary Wilbur Ross, whom Trump has charged with overseeing the negotiations, with the support of Peter Navarro, Director of Trade and Industrial Policy. John Melle, a long-time senior official at the USTR responsible for North America, will direct the day-to-day negotiations.
Foreign Affairs Minister Chrystia Freeland, who previously served as Trade minister, will oversee the Canadian team. Steve Verheul, a long-time agriculture trade negotiator and chief negotiator for the Canada-European Union Comprehensive Economic and Trade Agreement (CETA), will be Canada’s chief negotiator.
Ms. Freeland has also named an advisory committee of eminent Canadians including former Conservative leader Rona Ambrose and former Harper cabinet minister James Moore, Assembly of First Nations Chief Perry Bellegarde and Canadian Labour Congress president Hassan Yussuff. A Canada-U.S. cabinet committee chaired by Transport Minister Marc Garneau will keep watch. The NAFTA file will also sit prominently and permanently on Trudeau’s desk.
Mexican Economy Minister Ildefonso Guajardo will oversee the negotiations with veteran trade negotiator Kenneth Smith Ramos, currently director of Mexico’s NAFTA office in Washington, as their chief negotiator.
The negotiating teams will be drawn from the professional trade policy officers in government ministries. Canadian Chief Negotiator Steve Verheul told the Trade Committee (August 14) that there will be 28 tables of negotiators. They will be tasked to come up with language for the individual chapters e.g. procurement, intellectual property, services, of the new deal. Where trade policy was once about tariff rates it is increasingly about regulations around, for example, labour and the environment. Trade is now a horizontal issue that cuts across government.
In addition to the input from their respective executive offices, domestic agencies and departments, the negotiating teams will also rely on advice from their respective ambassadors: Canada’s David MacNaughton in Washington and Pierre Alarie in Mexico City; Mexico’s Dionisio Pérez-Jácome Friscione in Ottawa and Geronimo Gutiérrez Fernández in Washington; the U.S.’s Kelly Knight Craft in Ottawa and Roberta Jacobson in Mexico City.
The Mexicans, in outlining their objectives, described well the actual negotiating process:
“As in all negotiations, in the modernization of NAFTA, there will be different levels of interaction between the negotiating teams of the three countries. At the technical level, those responsible are the negotiating heads. At a next level, there will be the undersecretaries or their equivalents, who will be in charge of advancing those topics that after the technical work so require, and at the strategic level will be the secretaries or ministers who will lead the negotiation process in each country.”
The preliminary negotiations will begin in Washington on Aug. 16 for three or four days, after which the negotiating teams will go home, take stock and reconvene at roughly three-week intervals, likely rotating between respective capitals (or cities with direct air connections), with seven scheduled rounds before Christmas.
Both Mexico and the U.S. would like the negotiations over by Christmas or early in the New Year lest they intrude into their election cycles. The TPA, which enabled the negotiations, expires in July although there is a provision to extend it. Mexico will elect a new president, Chamber of Deputies and Senate in July. U.S. midterm elections for the House of Representatives and one-third of the Senate take place in November.
The U.S. initiated these negotiations and while it wants an early conclusion, USTR Robert Lighthizer said in June that completing the negotiations by the year’s end was a “very, very quick time frame and we’re not going to have a bad agreement to save time.” Under the TPA, the USTR will have to give Congress notice after negotiation of any agreement and this starts a process that can last up to six months before Congress holds an up or down vote on the agreement.
Trade negotiations almost always take longer than anticipated. It took four years, and a contested election in Canada, to negotiate and then implement the Canada-U.S. Free Trade Agreement. NAFTA took over three years, with elections in both Canada and the U.S. resulting in additional side agreements on labour and the environment. CETA, most of which will be implemented in September, took eight years. The Doha round of the World Trade Organization negotiations began in 2001 and there is no end in sight. The TPP negotiations started in 2006, with Canada and Mexico joining in October 2012. While agreement was reached in 2016, the U.S.’s withdrawal means it must be renegotiated before it can go into effect.
The U.S. objectives, mandated by congressional oversight in the Trade Promotion Authority, reflected the input from dozens of meetings and formal hearings with stakeholders and over 12,000 comments received online through the Federal Register.
In mid-July Lighthizer submitted to Congress a summary of American objectives designed to “seek a much better agreement that reduces the U.S. trade deficit and is fair for all Americans by improving market access in Canada and Mexico for U.S. manufacturing, agriculture, and services … Since NAFTA was implemented in 1994, the U.S. bilateral goods trade balance with Mexico has gone from a $1.3 billion surplus to a $64 billion deficit in 2016. Market access issues have arisen in Canada with respect to dairy, wine, grain and other products — barriers that the current agreement is unequipped to address.”
The U.S. negotiating objectives also include the addition of chapters on the environment and labour (currently side agreements) and on the digital economy, including data flows, as well as “to eliminate unfair subsidies, market-distorting practices by state-owned enterprises, and burdensome restrictions on intellectual property.”
The US had some specific asks of Canada including raising the Canadian customs inspection and duty (the de minimus level) threshold for imports entering by mail or UPS or FedEx from its current level of $20. The US level is $800 while Mexico’s de minimus level is $50. While e-commerce shoppers of Amazon, eBay and others would like this and it would lift some of the regulatory burden for small and medium sized business that depend on sourcing material from south of the border, Canadians retailers say this could put them out of business. But Perrin Beatty, Canadian Chamber of Commerce CEO got it right when he said that Canada is “literally spending dollars to collect dimes,” while “important trade facilitation programs and enforcement issues are not pursued as aggressively because of resource constraints.”
The US has also identified Canada’s protectionist dairy supply management system as a target. It needs reform. It deprives Canadians of choice (a 270 percent duty on foreign cheese beyond a tiny quota is a mighty deterrent) and does nothing to encourage development of our cheeses as a world-class premium product. But, when it comes to farm subsidies, the US is no slouch, with its support for American dairy, sugar, corn and other produce. The US also enjoys a 5-1 advantage in the dairy trade with Canada.
The US has also identified the rules of origin need to be enforced and better defined. Canada and Mexico want to preserve the rules of origin for autos establishing North American-sourced content at 62.5 percent. As Prime Minister Trudeau told state governors Canada and the US make things together. The auto trade is probably the best example and, as both Trudeau and Chystia Freeland have observed, Ontario-based Magna “employs 62,000 Americans, 22,000 Mexicans, and 20,000 Canadians – building auto parts and components that rely on supply chains that crisscross the borders.”
The Mexicans, after similar consultations with industry, educators, agricultural groups and other stakeholders, tabled their objectives in early August. They want to strengthen Mexico’s growing energy sector. They want to protect intellectual property and to improve access for goods and services. They want greater labour market integration. They would like improved rules of origin to guarantee regional benefits. They want to unify agriculture, animal and health safety regulations. They want a stronger dispute resolution mechanism and all parties in the Mexican congress recently voted to sustain the bi-national panels (Chapter 19) that hear complaints about illegal subsidies and dumping and then issue binding decisions.
In a speech at the University of Ottawa and remarks before the Standing Committee on International Trade (August 14) Foreign Minister Chrystia Freeland compared the negotiations to ‘renovating a house’ and laid out her main objectives:
- Modernize the 23 year-old NAFTA to take into account the technological and digital revolution;
- Make it a progressive “fair trade” agreement, using CETA as a model, through inclusion of chapters on the environment to address climate change, labour, gender equality, indigenous peoples;
- Reforming dispute settlement to ensure governments’ have the right to legislate in the public interest with fair dispute settlement (Chapter XIX);
- Improvements for business through easing business travel (Chapter XVI), cutting red tape and focusing more on harmonized regulatory cooperation;
- Preserving supply management and cultural exception.
Consultations on NAFTA – the government has received over 21, 000 submissions – have underlined the need to ‘Do no Harm’. Canadians understand that trade has worked to their advantage. Planning on the Canadian side falls into in three baskets:
Defensive Interests: We want to preserve the dispute settlement mechanism for countervail and anti-dump, i.e., NAFTA Chapter 19. Canada attempted unsuccessfully to have anti-dumping duties and countervailing duties done away with in the FTA negotiations in the mid-1980s but then settled for a dispute settlement system that was rolled into the NAFTA. We may have to push back on US efforts to broaden the scope of US trade remedy intervention around safeguard action and national security. If water is raised (doubtful), Canadian negotiators can be expected to enunciate longstanding Canadian policy and, if necessary, draw on the recent CETA agreement that explicitly declares that water in its natural state is not subject to the terms of the agreement.
Modernization: This should be relatively easy to agree on especially on use of technology to create e-authorizations for customs clearance. This is already underway, but not completed, in the regulatory cooperation and beyond-the-border initiatives. Modernization, Minister Freeland and the negotiators told the Trade Committee, will also draw from the work already done in the TPP agreement and CETA. This could include the e-commerce chapter that Commerce Secretary Wilbur Ross has made a priority. Canada would not be unhappy to see the end – or reform – of the investor-state dispute settlement mechanism, i.e., NAFTA Chapter 11. As trade law expert Larry Herman chronicles, it has cost Canadian taxpayers a lot of money, especially with its successful application by U.S. industry over provincial government practices.
Offensive interests: Ms. Freeland has said she will push on the environment, labour, indigenous people, and gender equality. A consistent theme in the ongoing stakeholder consultations is the need more streamlining at the border. In some cases, the NAFTA provisions are not used because they involve too much work filling in forms and getting approvals. Canada wants to expand labour mobility to include occupations not included in original NAFTA (so as to cover, broaden the scope and depth of government procurement, and curb the application of U.S. trade remedy laws.
Support for NAFTA is lowest in the U.S., hardly surprising as most presidential candidates, especially Democrats, have consistently campaigned against NAFTA since its negotiation in 1992.
Bill Clinton campaigned against it in his election victory over NAFTA architect George H. W. Bush, but then embraced it as president (as did the Chrétien Liberals) after the incorporation of side deals on the environment and labour. But passage in Congress required an all-out White House campaign. Even then, most Democrats voted against its passage.
Donald Trump was especially critical of NAFTA in the 2016 campaign but Hillary Clinton also promised NAFTA reforms, as both she and then-candidate Barack Obama did in 2008.
The big change has been the shift in GOP support. It became free trade-minded with Ronald Reagan, and still enjoys significant support, if declining support, with Capitol Hill GOP. But Donald Trump mined the discontent of Rust Belt and working-class voters, who blame NAFTA for job loss and industry dislocation, even though technological innovation, notably robotics and its productivity gains, is more responsible.
Surprisingly, the recent focus on NAFTA has galvanized what public opinion surveys say is a quiet majority of support for continuing the North American free trade regime. This is especially significant in the U.S. because the negotiation and implementation of a new accord will depend on Donald Trump’s ability to achieve congressional agreement.
Both Canada and Mexico have launched unprecedented outreach campaigns in the USA involving their ministers, premiers and governors, and legislators at all levels of government as well as key business and labour stakeholders reaching out to their American counterparts and reminding them that NAFTA works for them as well. This effort will need to be sustained.
In recent weeks, the major business associations in each country have all rallied around a renewed NAFTA. The national chambers of commerce of the U.S., Canada and Mexico have launched the North American Economic Alliance as a platform for an updated trilateral agreement on the principle of “do no harm.” The Business Council of Canada, the Business Roundtable and the Consejo Mexicano de Negocios have also warned about “disrupting supply chains that enable our companies and workers to produce globally competitive goods and services.”
There is also support from the auto workers. In a recent release, the leaders of Unifor Canada and the U.S. United Automobile Workers argue jointly for a deal “to raise wages and labour standards in Mexico; ensuring that autos and auto parts granted tariff-free access are actually made in North America and meet high enough content rules; structuring the agreement to achieve greater trade balance, and to ensure that workers in each country get a fair share of the benefits of the industry.”
Farm groups have also come out in support of NAFTA with U.S. Agriculture Secretary Sonny Perdue, a former Georgia governor, telling farmers that “First of all, the principle is: ‘Do no harm.’ Overall, agriculture’s done very well under NAFTA and we hope to continue that.”
The Canadian Cattlemen’s Association, the Confederación Nacional de Organizaciones Ganaderas in Mexico and the National Cattlemen’s Beef Association sent a joint letter to Trump, Trudeau and Peña Nieto urging them “not to jeopardize the success of the men, women and families engaged in the cattle and beef industries of each of our countries, who depend on the success that market access provides under NAFTA.”
A recent Pew survey (May 2017) revealed that NAFTA enjoys the support of three in four Canadians and six in 10 Mexicans. Surprisingly, half of Americans (51 per cent) say NAFTA has been a good thing for the US.
A recent Nanos survey of U.S. business (July 2017) revealed that 45 per cent of U.S. businesses think the U.S. economy is better off because of NAFTA, while 25 per cent think the economy is worse off and 13 per cent think there has been no impact.
After a decline in support for free trade agreements in general during the 2016 campaign, a plurality of Americans support them again, according to another 2017 Pew Research Center survey. According to Pew, political partisanship is linked to views of NAFTA, most notably in the U.S. In a switch of historical allegiance, about two-thirds (68 per cent) of Democrats but only 30 per cent of Republicans see NAFTA as good for the U.S. Gender, age and race also divide Americans with women, youth, Hispanics and African-Americans more likely to back freer trade.
In Mexico, the Pew survey reveals that 59 per cent of those who identify with the governing PRI party and 68 per cent of those supporting the PAN (the party of former presidents Fox and Calderone) support NAFTA.
Most Canadians back free trade. According to Pew, supporters of all three parties – Conservatives (83 per cent), Liberals (82 per cent), NDP (70 per cent) – say it has been a good thing for Canada.
Canadians have consistently backed freer trade since the early 1990s when the rewards of the Canada-U.S. FTA ushered in a decade of economic growth. That agreement was no sure thing with Brian Mulroney’s Progressive Conservatives fighting the 1988 election on the issue. They won a majority of the seats (with 43 per cent of the popular vote) but only carried three provinces – Alberta, Manitoba and Quebec – with the Liberals and NDP and most premiers opposed to the agreement.
Today, the Trudeau Liberals are champions of freer trade and a renewed NAFTA enjoys strong support from the Conservatives as well the premiers. The premiers and provincial legislators are vital to the Canadian campaign reminding Americans that we are their biggest export market and that trade with Canada generates an estimated nine million American jobs.
Recent surveys by NANOS and IPSOS reveal that the Canadian public has confidence in the Trudeau government’s ability to negotiate a good deal and people are also willing to cut the government a lot of slack in its NAFTA renegotiation. A recent Angus Reid survey also showed that Canadians are ready to make changes to the supply management system that protects the dairy and poultry industries but with a higher cost to consumers.
Softwood lumber, or timber as it is called in the U.S., was likely the first trade dispute, dating back before Confederation to the George Washington administration when Massachusetts timber merchants (Maine was then part of Massachusetts) sought redress for competition from New Brunswick lumber used in shipbuilding. It has been a regular, unfortunate and visceral feature of Canada-U.S. relations for much of the last half century. The rancour over shakes and shingles almost undid the negotiations leading to the 1988 Canada-U.S. FTA. A series of carefully negotiated agreements have managed the trade but with the expiry of the 2006 agreement in September 2015 and inability to secure a deal in the year-long moratorium that followed, Canadian lumber producers are once more paying export duties.
At the crux of the dispute are our different practices on domestic support and taxation, with most U.S. timber harvested from private lands (as in our Maritimes) rather than public lands (as in the rest of Canada). Even though the industry is increasingly integrated in terms of ownership, there remain lots of small timber holdings, especially in the southeastern U.S., that view Canadian practices as subsidized by government. Any deal is likely to once more see a managed trade deal with a quota on Canadian lumber imports after which a levy would kick in. Any deal is also complicated by the requirement for the provinces – British Columbia is the biggest supplier, Alberta, Ontario, Quebec and New Brunswick – each with their own particular forestry practices, to agree on how they will divvy up the trade.
A deal may be in the making with Canadian supply capped at around 30 per cent of U.S. requirements. In the meantime, the Conference Board of Canada estimates that the U.S. levies will result in the reduction of 1,100 jobs this year, underlining the need for a deal as well as market diversification.
If the US were to rescind NAFTA they would have to give six months’ notice of withdrawal (and this might be litigated given the US system). The NAFTA would stay intact between Canada and Mexico. Canada-U.S. trade would revert to the provisions of the 1989 Canada-U.S. Free Trade Agreement. If that were also rescinded, then the most-favoured nation (MFN) provisions negotiated under the WTO would apply with the U.S. MFN duty rate generally lower than the Canadian rate (2.2 per cent versus 3.2 per cent).
A more probable scenario is an impasse or breakdown in negotiations, as happened during the Canada-U.S. FTA talks. There could well be threats and counter-threats around retaliation. During the country-of-origin labelling (COOL) dispute, Canada and Mexico prepared a retaliatory list of goods on which they would apply higher duties. We would have targeted, for example, California wine. California has the biggest congressional delegation and they did not look kindly on sacrificing their wine sales to protect ranchers.
This targeted approach in potential trade retaliation helped convince the U.S. Congress to rescind the COOL legislation in December 2016 and thus conclude a dispute that had dragged through both NAFTA and WTO since 2008. You can be sure Canada and Mexico will have a new retaliatory list in hand should, for example, plans for a border tax re-emerge.
By any economic estimate NAFTA worked. But as the Council on Foreign Relations recently observed:
“Economists largely agree that NAFTA has provided benefits to the North American economies. Regional trade increased sharply [PDF] over the treaty’s first two decades, from roughly $290 billion in 1993 to more than $1.1 trillion in 2016. Cross-border investment has also surged, with U.S. foreign direct investment (FDI) stock in Mexico increasing in that period from $15 billion to more than $100 billion. But experts also say that it has proven difficult to tease out the deal’s direct effects from other factors, including rapid technological change, expanded trade with other countries such as China, and unrelated domestic developments in each of the countries. Debate persists regarding NAFTA’s legacy on employment and wages, with some workers and industries facing painful disruptions as they lose market share due to increased competition, and others gaining from the new market opportunities that were created… In the years since NAFTA, U.S. trade with its North American neighbors has more than tripled, growing more rapidly than U.S. trade with the rest of the world. Canada and Mexico are the two largest destinations for U.S. exports, accounting for more than a third of the total.”
To underline the increasingly integrated nature of continental trade, a Wilson Center study concluded that Mexican exports to the U.S. market contain 40 per cent U.S. content and Canadian exports to the U.S. contain 25 per cent U.S. content.
But did NAFTA exacerbate social inequality? Did it unduly benefit some, i.e., investors, while failing to help with adjustment assistance or retraining those affected by trade and technological change? We can and have to do better in ensuring the gains of trade are broadly shared and that trade lifts all boats, not just the yachts.
Trade agreements set out the rules of the road for trade including how to manage disputes. Where once they focused on tariffs – the government levy on imports – they increasingly address regulations and standards.
NAFTA, now 23 years old, was pathbreaking in its scope and breadth and while it has remained evergreen, a revision to take into account, for example, the digital economy, makes a lot of sense. The TPP effectively would have achieved this goal and NAFTA 2.0 will probably resemble it, at least in its framework of the 30 chapters in both the TPP and CETA versus the 22 chapters in NAFTA. (see annex for the chapters)
A trade agreement begins with a preamble (declaratory and intended to be inspirational), objectives and general definitions. Then comes the heart of the agreement – trade in goods, technical barriers to trade, procurement, investment and services, intellectual property, anti-corruption, competition, labour, environment, competitiveness, regulatory coherence, transparency – and finally any other provisions and then annexes with specific obligations.
I learned my trade policy during the negotiation of the Canada-U.S. FTA, led by Simon Reisman, and then NAFTA, led by John Weekes. Throughout and since I have benefited from the tutelage of Michael Hart, Canada’s preeminent trade policy historian and the late Bill Dymond. With Michael in the lead, we wrote a book, Decision at Midnight: Inside the Canada-US Free Trade Negotiations, that is still a good primer on Canada-U.S. trade policy. Michael, Bill and I wrote the explanatory document to the FTA and then, as NAFTA was negotiated, Michael and I wrote NAFTA: What’s it all About. It was a big help in the NAFTA parliamentary implementation, until recently the biggest piece of implementing legislation, another reminder of the cross-cutting scope of trade agreements. Bill and Michael went on to direct Carleton University’s Centre for Trade Policy and Law that has spawned many able trade policy experts. One of the most notable is Dr. Laura Dawson who now heads the Canada Institute at the Wilson Center in Washington. With its sister institute for Mexico, headed by Duncan Wood, they are a continuing source of knowledge and inspiration on North American integration.
I have benefited over the years from the work of the Peterson Institute for International Economics and especially the thoughtful advice of Gary Hufbauer and Jeff Schott. The Peterson Institute continues to track NAFTA through its superb research, seminars and conferences on A Positive NAFTA Renegotiation.
The Bush Institute in Dallas has done excellent work on North American competitiveness and their mapping project, led by former diplomat Matt Rooney, deserves attention.
Scott Miller and Andrea Durkin at the Center for International Strategic Studies produce Trade Vistas, a great way to learn more about trade and trade policy.
The Council on Foreign Relations has done excellent work on North American integration. CFR fellow Edward Alden’s Failure to Adjust: How Americans Got Left Behind in the Global Economy (2016) is a must-read.
In Canada, the C.D. Howe Institute, the Conference Board, the Canada West Foundation and the Institute for Research on Public Policy have all given continuing attention to Canada-U.S. and North American trade policy. I recommend a recent series of IRPP essays on redesigning trade policy and the ongoing trade policy work of the Centre for International Government Innovation (CIGI). Agriculture Canada has a very good website with some superb graphics, including the ‘supply chain hamburger’. The Canadian Embassy’s state fact sheets are excellent.
For podcasts, listen to a quartet I recently hosted on The Global Exchange with fellow CGAI collaborators Laura Dawson and Eric Miller (in the aftermath of the U.S. objectives), John Weekes and Rob Wright (on the big picture), Sarah Goldfeder (on the U.S. process) and Lawrence Herman (on dispute settlement). Larry is Canada’s legal expert on trade disputes and his own website is a wealth of information.
For intelligent commentary on how we can improve North American economic integration, the SAGE (Strategies, Advocacies, Gateways, Engagement) group, a loose association of Canada-U.S. business groups steered by Dan Ujczo, is doing good work in reimagining the Canada-U.S. relationship.
The Pacific Northwest Economic Region (PNWER), led by the indomitable Matt Morrison, has an active group looking at specific proposals. The Council of the Great Lakes Region led by Mark Fisher has written to Trudeau and Trump with specific recommendations including expanding the integrated border enforcement teams (IBET) and creating a free trade zone in the region.
A lot of practical work is done by the North American Strategy for Competitiveness (NASCO) directed by Tiffany Melvin, Rachel Connell and Jennifer Fox (in Ottawa) and by the Canadian/American Border Trade Alliance led by longtime CEO Jim Phillips. The Canadian American Business Council (CABC), led by the irrepressible Scotty Greenwood, has put forward 10 useful proposals around Canada-U.S. trade including making permanent the Regulatory Cooperation Council; creating a zero-tariff zone; mutually recognized standards, testing and certification; revising procurement rules to include all jurisdictions, state and federal, in Canada and the U.S., i.e., buy “Canada-U.S.”; further integration of our energy potential through joint infrastructure and regulatory standards; easier movement by professionals; and more predictable border processing. The best state-level Canada-U.S. business council is in Arizona and led by Canadian Honorary Consul Glenn Williamson. They make trade real. We should clone him and put him in every U.S. state.
The Canada-U.S. business relationship is an ongoing preoccupation for the Business Council of Canada, Canadian Chamber of Commerce, the American Chamber of Commerce in Canada, Canadian Manufacturers and Exporters and IECanada – Canadian Association of Importers and Exporters.
The case for North American integration is made in the tripartite report Building a North American Community (2005), sponsored by the Canadian Council of Chief Executives (now the Business Council of Canada) first led by Tom D’Aquino and now by Canadian chair John Manley (who succeeded Tom as CEO), the Council on Foreign Relations and Consejo Mexicano de Asuntos Internacionales. The Council on Foreign Relations published a subsequent report, North America: Time for a New Focus (2014) authored by General (Ret’d) David Petraeus and Robert Zoellick. Petraeus also authored The Next Great Emerging Market? Capitalizing on North America’s Four Interlocking Revolutions (2015) for Harvard’s Belfer Center. Eric Miller, John Dillon and I authored a report Made in North America (2014) for the Business Council of Canada.
The School of Public Policy at the University of Calgary, the School of Global Studies at the Universidad Anáhuac México Norte, the College of Public Service and Community Solutions, and the Morrison Institute at Arizona State University hosted the third in a series of conferences about the North American process. I have also benefitted from recent panel appearances with scholars including Carleton University’s Reisman Chair Meredith Lilly and Ottawa University’s Patrick Leblond.
The NAFTA, TPP and CETA agreements are all available on the Global Affairs Canada website. Below are the chapters in the NAFTA and TPP (likely the framework model for a NAFTA 2.0).
- Chapter 1: Objectives
- Chapter 2: General Definitions
- Chapter 3: National Treatment and Market Access for Goods
- Annex 300-A: Trade and Investment in the Automotive Sector
- Annex 300-B: Textile and Apparel Goods
- Chapter 4: Rules of Origin
- Annex 401: Specific Rules of Origin
- Chapter 5: Customs Procedures
- Chapter 6: Energy and Basic Petrochemicals
- Chapter 7: Agriculture and Sanitary and Phytosanitary Measures
- Chapter 8: Emergency Action
- Chapter 9: Standards-Related Measures
- Chapter 10: Government Procurement
- Chapter 11: Investment
- Chapter 12: Cross-Border Trade in Services
- Chapter 13: Telecommunications
- Chapter 14: Financial Services
- Chapter 15: Competition Policy, Monopolies and State Enterprises
- Chapter 16: Temporary Entry for Business Persons
- Chapter 17: Intellectual Property
- Chapter 18: Publication, Notification and Administration of Laws
- Chapter 19: Review and Dispute Settlement in Anti-dumping/Countervailing Duty Matters
- Chapter 20: Institutional Arrangements and Dispute Settlement Procedures
- Chapter 21: Exceptions
- Chapter 22: Final Provisions
- Annex I: Reservations for Existing Measures and Liberalization Commitments
- Annex II: Reservations for Future Measures
- Annex III: Activities Reserved to the State
- Annex IV: Exceptions from Most-Favored-Nation Treatment
- Annex V: Quantitative Restrictions
- Annex VI: Miscellaneous Commitments
- Annex VII: Reservations, Specific Commitments and Other Items
The Trans-Pacific Partnership (minus specific country-by-country obligations):
- 1. Initial Provisions and General Definitions
- 2. National Treatment and Market Access for Goods
- 3. Rules of Origin and Origin Procedures
- 4. Textiles and Apparel Goods
- 5. Customs Administration and Trade Facilitation
- 6. Trade Remedies
- 7. Sanitary and Phytosanitary Measures
- 8. Technical Barriers to Trade
- 9. Investment
- 10. Cross-Border Trade in Services
- 11. Financial Services
- 12. Temporary Entry for Business Persons
- 13. Telecommunications
- 14. Electronic Commerce
- 15. Government Procurement
- 16. Competition Policy
- 17. State-Owned Enterprises and Designated Monopolies
- 18. Intellectual Property
- 19. Labour
- 20. Environment
- 21. Cooperation and Capacity Building
- 22. Competitiveness and Business Facilitation
- 23. Development
- 24. Small and Medium-Sized Enterprises
- 25. Regulatory Coherence
- 26. Transparency and Anti-Corruption
- 27. Administrative and Institutional Provisions
- 28. Dispute Settlement
- 29. Exceptions and General Provisions
- 30. Final Provisions
- Annex I – Cross-Border Trade in Services and Investment Non-Conforming Measures
- Annex II – Cross-Border Trade in Services and Investment Non-Conforming Measures
- Annex III – Financial Services Non-Conforming Measures
- Annex IV – State-Owned Enterprises and Designated Monopolies Non-Conforming Measures