The Final Round NAFTA?

A little more than a year after negotiations began on a revised North American free-trade agreement, a deal looks possible, although big questions remain.

For much of the past two months, Mexican and American negotiators have wrestled with the U.S. demand around the content rules for our most-traded commodity, the automobile. North Americans produce 17.5 million cars or trucks annually. The original U.S. demand of 85 per cent North American content with 50 per cent of that “Made in the USA” has apparently morphed into 75 per cent North American content with 40 per cent to 45 per cent made by workers making US$16 or more a hour.

The devil is always in the details, but Canadian industry and its workers can live with this and, if this gives U.S. President Donald Trump his “win,” then we are on our way to a deal.

So, too, with the “sunset” clause. Originally, the United States wanted the new agreement to lapse after five years – something investors said would freeze investment, especially into Canada and Mexico. U.S. Trade Representative Robert Lighthizer reportedly says it will now be 16 years with a review after six years. We can live with that.

On dispute settlement, or Chapter 19, the picture is murky and we will need clarification. The Trump team originally wanted to jettison the binational mechanism, and it appears there will be investor-state provisions, something U.S. industry lobbied hard to retain, and some form of recourse, beyond the U.S. system, for energy and infrastructure. Canada and Mexico need to stand firm. We need recourse from U.S. trade-remedy legislation – countervail, anti-dump and, as the Trump administration misapplies it, national security.

If reports are accurate, there appears to be near-agreement on agriculture (good for Canadian farmers) and on intellectual property (unchanged) but again, the devil will be in the details.

The negotiators were originally aiming for 30-plus chapters of NAFTA but until now only nine had been closed and, of course, nothing is truly closed until it is all done.

So what remains and how might they be resolved? From Canada’s perspective, assuming we can work out dispute settlement, we need to see action on three more items.

  • Government procurement: Canada wants to retain open access, but the United States is offering a derisory dollar-for-dollar deal. If we cannot work this out, we should leave it to governors and premiers to work out the kind of reciprocal procurement deal that they achieved in 2010. This could be regional or national; the incentive for both sides is that an outside bidder curbs local price-fixing. This will be important especially if Mr. Trump proceeds with his trillion-dollar “Big Build” infrastructure initiative.
  • Labour mobility: We want to update for the digital age the ease of passage for designated occupations. Businesses, especially those with North American supply chains, need this to maintain competitiveness. In the current U.S. environment, this is probably a stretch. We would do well if we can maintain the current list and punt this over to a separate negotiation.
  • Dairy access: Mr. Trump continues to single this out. It is time to reform supply management just as we did with our wine industry through the original Canada-U.S. free-trade agreement in 1987 and then our managed trade in grain. Provide adjustment assistance but open up our dairy and poultry industries, which make good products and, like our beef and pork sectors, and now our grains and pulse production, they can be world-beaters.

While Mr. Trump thinks negotiations can wrap up this week, we will likely see fall leaves and probably snow before the deal is done. Legislative ratification, especially in the United States, is an even bigger question mark. It will likely be the next Congress, chosen in November and taking office in January, that will give “up or down” approval to the new accord. It won’t be easy.

The coming days – more likely weeks – will be a test of Canadian negotiators. They are a very experienced team and they are up to the task as long as the government has their backs.

This is the bigger question: Can the Trudeau government take the political flak that will inevitably come its way? It won’t be sunny ways. If it can stick it out, the Trudeau government will make as big a contribution to Canadian well being and competitiveness as Brian Mulroney and his Progressive Conservative government did with the original Canada-U.S. FTA and then the NAFTA. It would be no small legacy.



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