NAFTA: What Next?

Despite Trump’s threats, it won’t be easy to cut Canada out of NAFTA, experts say

OTTAWA—U.S. President Donald Trump’s threat to leave Canada out of a new NAFTA deal heightened tensions and capped an already dramatic week of negotiations, but some experts say the threat isn’t quite as direct as it seems.

On Saturday, Trump threatened to go it alone with Mexico on a revised agreement or to terminate NAFTA entirely.One U.S. trade lawyer said the “real test” of President Donald Trump’s trade policy lies with his base of support, who may not back any attempt to cut Canada out of a revised NAFTA.

“There is no political necessity to keep Canada in the new NAFTA deal,” he tweeted, while on his way to play golf. “If we don’t make a fair deal for the U.S. after decades of abuse, Canada will be out. Congress should not interfere w/ these negotiations or I will simply terminate NAFTA entirely & we will be far better off.”

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With memories fresh from U.S. tariffs on steel and aluminum, Canadian officials are mindful that Trump’s threats aren’t all bluster.

But experts say it won’t be quite that easy to cut Canada out of a revised North American Free Trade Agreement.

For starters, Congress has a critical say on trade agreements, noted Toronto-based international trade lawyer Lawrence Herman.

“Trump has no authority from Congress to end NAFTA and do a bilateral deal with Mexico as he threatens. I suspect lots of political pushback and, importantly, legal challenges to any such attempt,” Herman said on Twitter.

U.S. trade lawyer Dan Ujczo said he doesn’t see a procedural barrier to going forward with Mexico alone, but he does think political considerations would scuttle such a move.

“The issue is whether Congress will stand up to the president,” Ujczo said in an interview Sunday. “It’s a political question, not a procedural question. At the end of the day, it will be up to Congress to decide whether we can proceed with a bilateral deal as opposed to a trilateral.”

Aside from the procedural questions, including a six-month notice requirement, Trump would also certainly face a backlash from members of Congress, state governors and U.S. business leaders whose constituencies and companies would pay an economic price if Canada — America’s largest goods export market in 2017 — were left out.

Even before trade negotiations got underway, Ottawa had begun a concerted strategy to reach out to U.S. stakeholders to drive home the benefits of Canada-U.S. trade and what it meant economically to their individual districts.

That’s helped build valuable allies.

On Friday, Thomas J. Donohue, president and CEO of the U.S. Chamber of Commerce, issued a statement stressing that a revised NAFTA must include all three countries.

“NAFTA’s many strengths rest on the fact that it ties together three economically vibrant nations, drawing upon each of our strengths to boost the competitiveness of the whole. If you break off one member of this agreement, you break it all, and that would be bad news for U.S. businesses, for American jobs, and for economic growth,” Donohue said.

He warned that unless the new deal is a trilateral one, it won’t get congressional backing or the support of the business community.

In the view of the Canadians, this gives them leverage at the bargaining table, an assessment backed by Ujczo.

“Right now, the U.S. has the negotiating leverage in the negotiating room but Canada has the leverage in terms of Congress, the business community and the general U.S. public, but that balance will not last forever,” Ujczo said.

Ujczo said the “real test” of the president’s trade policy lies not with Trump but rather with his base of support.

“I think the real question is where is Trump’s base on Canada,” he said.

“I can say as someone who lives in Ohio, I don’t think for the time being there’s a great deal of support to proceed with a deal absent Canada,” he said.

But he cautioned that the issues that appear to be sticking points in Canada-U.S. discussions — Canada’s supply management system, dispute settlement and cultural protections — aren’t likely to find many defenders south of the border.

In the meantime, while Trump continues to churn the waters, Ujczo notes that these threats and “theatrics” are part of his negotiating tactics.

“Don’t underestimate the strategy of good cop, not-so-good cop and bad cop,” he said. “Others can decide who falls into what category.”

It’s all part of the president’s no-compromise bargaining style, as he bluntly stated in private comments revealed by the Star’s Daniel Dale on Friday.

In an off-the-record conversation with Bloomberg journalists, leaked to Dale by a source, Trump said that any deal with Canada would be “totally on our terms.”

Trump grumbled about Canada on social media on Saturday, reprising views that the northern neighbour had been taking advantage of the U.S. “for many years” and that NAFTA was one of the “worst trade deals ever” that cost the U.S. “thousands of businesses and millions of jobs.

“We were far better off before NAFTA — should never have been signed … We make new deal or go back to pre-NAFTA!” Trump said on Twitter.

Canada’s Foreign Affairs Minister Chrystia Freeland speaks during a news conference at the Canadian Embassy after talks at the Office of the United States Trade Representative, in Washington, Friday, Aug. 31. Freeland told the press that NAFTA negotiations are “making progress,” but aren’t “there yet.” Freeland added that a “win-win-win agreement is within reach.”

Trump’s comments ignore data that shows U.S. exports in goods and services have soared since NAFTA was signed. The U.S. Trade Representative’s Office says that U.S. exports to Canada are up 181 per cent from 1993 and U.S. exports of services to Canada are up from pre-NAFTA levels by some 243 per cent.

For now, the Canadians are insisting they won’t be rattled by Trump’s Saturday warning that Canada could be left out of a revised North American Free Trade Agreement.

And as they prepare to resume negotiations Wednesday, they say they are optimistic. Driving that optimism was agreement on auto content that would favour Canada and the United States because of their higher-wage workers, making it less appealing for manufacturers to move production to Mexico. While that was part of the preliminary deal reached by Mexico and the U.S., it follows on proposals made by Canada earlier in the talks.

“If implemented it would be very progressive for Canadian workers and Canadian labour. It was important for the United States and Mexico to get that work done,” said one official familiar with the discussions.

“We continue to work, we continue to talk, we continue to make progress. But for the government of Canada to sign an agreement, it needs to be in the best interests of Canada and Canadians,” the official said.

At this key time, Canada cannot let up on its targeted cultivation of U.S. contacts, former Canadian diplomat Colin Robertson said, in order to keep pressure on the White House not to leave Canada by the wayside.

“Keep calm and carry on with our current strategy of working Congress and the states, especially governors, and reminding U.S. business that we matter to each other,” said Robertson, a vice-president and fellow at the Canadian Global Affairs Institute.

Given Trump’s sharp-elbowed trade tactics, that strategy will remain in place going forward, Robertson said, to protect Canada’s interests.

“Normally we use the president/administration as a shield against a protectionist Congress. Now we are using Congress and the states, especially governors, as a shield against a mercantilist president,” Robertson said in an email exchange with the Star.

“I think it will oblige us to make a strategic shift in our long-term advocacy in the U.S.A.,” he said.

Others caution that Trump’s tactics have badly damaged Canada-U.S. relations.

The president’s treatment of Canada through this process is the “definition of insanity,” Bruce Heyman, the former U.S. ambassador to Canada, told CNBC’s Squawk on the Streeton Sunday.

“The U.S. has all the leverage in the world, but just because you can doesn’t mean you should. When you take your best friend, your greatest ally in the world and start squeezing them, you can win but I will tell you, the relationship will be damaged much longer than it will take the ink to dry on a new NAFTA deal,” Heyman said.



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