NAFTA

Nafta Negotiators Set to Look for Small Wins After U.S. Threats

  • Talks on trade pact set to resume Wednesday in Mexico City
  • Mexico warns Nafta death will impact U.S, security cooperation
NAFTA is in real trouble, says Gregory Valliere, chief global strategist at Horizon Investments.

As Donald Trump pushes to overhaul U.S. trade ties abroad, negotiations with his two biggest export markets are resuming in hopes of finding new common ground on easier subjects — leaving the most contentious U.S. demands for later.

The fifth round of North American Free Trade Agreement talks starts Wednesday in Mexico City, two days earlier than initially scheduled. It’s the first meeting since U.S., Mexican and Canadian negotiators extended talks to March and added more time between sessions, abandoning Trump’s previous deadline.

U.S. Trade Representative Robert Lighthizer capped the last session by chastising Mexico and Canada for balking at certain demands — it was the U.S. that sought the extension, according to two government officials familiar with the proceedings who spoke on condition of anonymity. The most contentious U.S. demands are on dairy, automotive content, dispute panels, government procurement and a sunset clause.

Mexico is warning talks could impact immigration cooperation with the U.S., while Canada is effectively holding up the Trans Pacific partnership — a deal Trump quit, that was also effectively a Nafta update — as it pushes for improvements. Lighthizer has complained that Mexico and Canada aren’t agreeing to what was already in TPP.

One government official said Nafta negotiations this week are expected to focus on smaller issues related to modernizing the deal, and the thorniest discussions will be put off until later rounds. Many observers expect the same.

“Instructions are ‘let’s keep the ball moving, let’s not have fireworks,’” said Welles Orr, a former assistant U.S. Trade Representative under George H. W. Bush who is now a senior international trade adviser in law firm Miller & Chevalier’s international trade practice in Washington. U.S. lawmakers are fully focused on tax reform and that’s left little bandwidth to push quickly for a Nafta deal, Orr said.

He expects a handful of deals “on noncontroversial items to at least keep the pace of negotiations going and so that they can at least claim they’re making progress.”

‘Litmus Test’

Nafta covers more than $1 trillion a year in trade and government officials have described essentially two sets of negotiations — one focused on modernizing a 23-year-old agreement for an Internet era, and another where Mexico and Canada essentially rejected high-profile U.S. demands on subjects that bear Trump’s finger prints, like dairy and autos.

The negotiations, which started in August, cover 28 areas of trade. The countries have so far reached substantially or fully completed deals on chapters covering competition rules and small- and medium-sized enterprises. Chief negotiators are expected to arrive Friday and the ministers — Lighthizer, Chrystia Freeland and Ildefonso Guajardo — will join next week. A spokeswoman for Lighthizer declined to discuss the upcoming round.

Canada and Mexico are the first- and second-largest buyers of U.S. goods, but the U.S. still has a $53.1 billion merchandise trade deficit with Mexico through September of this year, and a shortfall of $12.4 billion with Canada. Trump has regularly criticized trade deficits and wants to reduce them; Canada and Mexico have said they’re not the best way to measure the success of a trade agreement.

“Nafta has become kind of a litmus test of U.S trade intentions” for other U.S. trading partners in Asia and Europe, said Colin Robertson, senior adviser at the Dentons LLP law firm and a former Canadian diplomat. The U.S. demands signal they’re seeking “a substantial redo” of a pact, and those kinds of negotiations typically take years, he said.

Remove Exports

The willingness to fight in public was obvious at the last round. Lighthizer said he was “surprised and disappointed by the resistance to change,” while Guajardo said Mexico has limits to what it can accept. Canada’s Freeland criticized a “winner-take-all mindset.” While Canada and Mexico may be able to compromise, the real question is whether the U.S. can too.

“What they’re asking of the Canadians and Mexicans is to take away their exports,” said Chad Bown, senior fellow at the Peterson Institute for International Economics. “It’s really back to the Trump administration to decide for itself how serious they are about those proposals. If they are serious about them, I don’t see a serious outcome.”

Mexican Foreign Minister Luis Videgaray warned over the weekend that Mexico will be less likely to cooperate with the U.S. on security and immigration if Nafta talks collapse. “It’s a fact of life and there is a political reality that a bad outcome on Nafta will have some impact on that,” he said in an interview Saturday at the Asia-Pacific Economic Cooperation summit in Vietnam. “We don’t want that to happen and we’re working hard to get to a good outcome.”

When asked on Nov. 2 about a deal, National Economic Council Director Gary Cohn offered conciliatory words. “We’re trying,” he said in Washington. “Negotiators are continuously meeting, and we’re continuously trying to get to a point where we think that American- based companies and American-based manufacturers are treated fairly in the agreement.”

Trump may have wiggle room after U.S. automakers urged him to keep Nafta, a pact he has said has led to one-sided trade and cost jobs.

Nafta Impact

Linda Hasenfratz, chief executive officer of auto parts maker Linamar Corp., said in an earnings call last week she sees four key areas of dispute — auto rules, the sunset clause, the dispute panels and government procurement. “There’s an opportunity to come to resolution on each of these issues if all parties want that to happen,” Hasenfratz, who sits on Canada’s Nafta advisory council, said on a Nov. 7 earnings call.

An American proposal for 50 percent U.S. content in vehicles has “no chance” of being agreed to, she said, but the overall content requirement could be raised from the current threshold, which requires 62.5 percent of a vehicle be sourced from the three Nafta countries.

If that happens, “there’s a chance we could win some new work,” Hasenfratz said. If Nafta dies, she said it’s likely they’d revert to World Trade Organization tariffs of between 2 and 2.5 percent. “The bottom line is, one way or another, we would deal with the 2 percent,” she said. “No one is going to spend billions of dollars shifting work to different countries for 2 percent.”

Reverting to WTO tariffs would cut Canadian GDP growth by a total of about 1 percent over five to 10 years, Royal Bank of Canada said in a report Friday. “The odds that NAFTA will be torn up, not simply amended, appear to be increasing,” Senior Economist Nathan Janzen wrote. “The end of NAFTA would be a negative outcome for the Canadian economy, but a manageable one.”

— With assistance by Kristine Owram, and Randy Woods

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The 8-11 Effect: Get the Border Right

 

Why it’s so important for Trudeau to fix the Canada-U.S. border

Colin Robertson The Globe and Mail Tuesday, Sep. 13, 2016

Call it the 9/11 effect. Fifteen years on we are still paying the price of that tragic day. It changed how we trade. Tourism to Canada by Americans has never recovered. It also altered, probably permanently, the easy trust that characterized what was once the “longest undefended border.”

The trade effect with the United States is the most evident. A smart and secure border must be the Trudeau government’s priority with the next administration.

Notwithstanding a series of initiatives – Smart Border, Security and Prosperity, and now Beyond the Border, the border has thickened. While rail shipments have increased, especially for oil in the absence of new pipelines, trucks remain the primary mode of cross-border transport although truck traffic is down almost 20 per cent since 9/11.

A study by Statistics Canada (2015) concluded that the premium paid to move goods across the border rose, from 0.3 per cent of the value of goods shipped prior to 9/11, to about 0.6 per cent after 9/11 because of inspection and a surge in paperwork required for passage.

Verification programs for “secured” carriers and goods and regulatory co-operation have mitigated border delays. But we are still awaiting the promised single electronic portal that will satisfy the information requirements of governments and their agencies.

The Nexus card, held by over one million Canadians, has become the fast pass with special lanes at the land border and at airports. It is smart security. Finding the baddies is like looking for a needle in a haystack. You shrink the size of the haystack through advance screening.

The “trusted traveller” formula is now being applied to employers because so much of our trade is intrafirm, including servicing, or moving goods as part of supply chain manufacturing, especially in the auto industry.

We still have work to do.

Both the U.S. Congress and our Parliament have yet to pass the enabling legislation for preclearance, benefiting travellers at Billy Bishop and Jean Lesage airports and those travelling south by train from Montreal and Vancouver. We also need to implement the long-promised Entry/Exit system that will give us an accurate portrait of who is coming and going within North America.

Tourism from the U.S. has not recovered: it is just over half of what it was in 2000.

We need to do a lot more to aggressively promote travel to Canada in the U.S., starting with the estimated 38 million Americans living within a two hour drive of the border. We are safe, we are close, and the U.S. dollar enjoys a 30-cent premium.

Part of the problem is the requirement for a passport. Only 38 per cent of Americans, compared to 70 per cent of Canadians, hold passports. Provincial governments should work with border states to make the smart drivers licenses, that also allow land border transit, the default option.

Canadians, meanwhile, continue to flock south. We spend over 238 million nights a year in the U.S.: over 8 million nights in Las Vegas and 91 million nights in Florida. And even with our drooping loonie, it is estimated that this year Canadians will spend $20.5-billion in the U.S., with Americans spending $9.5-billion in Canada.

The trust issue requires constant effort by Canadian leadership.

The 9/11 Commission worried about lax Canadian immigration standards. This was fixed by the Harper government. But still there is suspicion that Canada is the broken back door. In February, the Senate Homeland Security committee held hearings on Canada’s decision to take in the Syrian refugees to be sure we were not taking any “shortcuts.”

Americans feel more vulnerable, ranking terrorism second only to the economy and ahead of health care, according to a recent Pew survey.

Even while President Barack Obama was making his first official trip to Canada in February, 2009, drones began patrolling our shared border. Wisconsin Governor Scott Walker mused last year, while seeking the Republican nomination, about building a wall with Canada. A subsequent Bloomberg poll revealed that 41 per cent of Americans agreed with this idea.

The 9/11 effect has changed how Americans view the world and manage their borders. There is still too much emphasis on enforcement and not enough on expediting legitimate travel. If we have learned anything from 9/11 it is that the answer is not more guns, guards and gates but rather smart screening and risk management.

In our daily dealings with the U.S. we need to remind them that our shared economic prosperity is predicated on the ability to trade goods and services. But because Americans put a premium on security, Canadians need to constantly reassure them and visibly demonstrate that we have their back.

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Canada-USA Relations under Justin Trudeau

Trudeau Seeks a Beyond-Keystone Reboot to Canada-U.S. Relations
Danielle Bochove Bloomberg  October 22, 2015

Climate policy seen as most likely area for substantive change
First Trudeau must make himself known on trade and ISIS

“It’s more than Keystone,” could well be Justin Trudeau’s mantra on managing Canada’s vital relationship with the U.S.

Even before formally taking office, Prime Minister-elect Trudeau is racing to build a closer relationship with President Barack Obama. He spoke with Obama by telephone on Tuesday and stressed the need for the two countries to work more closely on environmental cooperation and to broaden a bilateral conversation that, under Stephen Harper, was dominated by the controversial pipeline. One of Trudeau’s first tasks may be to send an envoy to Washington to begin aligning positions on climate change, analysts said.

A more immediately amicable relationship could serve multiple objectives for Trudeau: delivering quickly on a key pledge to shore up the country’s international reputation by establishing a common front with the U.S. ahead of climate change negotiations in Paris, and managing the rejection by Obama of the Keystone XL project, which may be announced soon.

“One of the things that has been a challenge within the relationship between Canada and the U.S. is it has in many cases been focused on a single point of disagreement, a single pipeline,” Trudeau said after the Obama call.

Trudeau has made much over the past year of the need to build a closer and more productive cross-border relationship as part of his overall critique of Harper, whom he handily defeated in Monday night’s Canadian election. He promised to end the “hectoring” tone in the relationship and to set up a special cabinet committee “to oversee and manage” issues between the two countries.

The 43-year-old Trudeau will likely have his first official meeting with Obama at the G20 leaders’ summit in Turkey Nov. 15. There, the migrant crisis and Canada’s pledge to end its participation in the aerial portion of the campaign against ISIS in Syria and Iraq will be front and center. Trudeau has pledged to take in additional refugees and to increase Canada’s efforts in training local ground forces.

A day later, the new prime minister is expected to attend an Asia Pacific meeting in Manila where trade partners will want him to bring greater clarity to his government’s stand on the Trans Pacific trade partnership.

But it’s the Paris Climate Change Conference in December Trudeau has spoken most about, promising to attend with Canada’s provincial premiers. “I indicated to Mr. Obama that I felt that it was important that Canada demonstrates a level of positive engagement on the environmental file on the international stage,” Trudeau said in his first post-election press conference.

Over the past year, Trudeau’s party repeatedly blamed Harper’s aggressive and single-minded pursuit of a single cross-border energy project for a fractious relationship with the White House.

“For the past couple of years we haven’t heard of Canada in the United States except for Keystone. And in the last year, that all just seemed rather silly, quite frankly,” Stephen Blank, a long-time U.S. scholar on Canada, said in an interview.

The Canadian side of the world’s biggest trading relationship puts great emphasis on the importance of good inter-personal connections at the top. “There’s more than just structural issues involved, there’s personalities,” said Bill Graham, a former Liberal foreign and defense minister. Referring to Harper and Obama, he said: “I don’t think their relationship was in any way either warm or productive and I don’t think that was helpful to Canada.”

It is, of course, always easier for Democrats to get along with Liberals, and Republicans with Conservatives, but Trudeau seems to have taken aboard the advice of former Prime Minister Brian Mulroney, a Conservative, that it is the responsibility of any Canadian leader to develop a good working relationship with whoever is U.S. president.

Trudeau’s first move in that direction should be to initiate a substantive conversation with the White House on environmental policy before Paris, said Colin Robertson, a former diplomat and now vice president of the Canadian Global Affairs Institute. Given the tight time line, he thinks it likely Trudeau will send a high-level emissary to Washington to begin aligning the country’s positions; senior Trudeau adviser Gerald Butts, the former President of the World Wildlife Federation-Canada, would be the obvious choice, he said.

Disagreement exists as to whether there’s time left to do much business with Obama. Blank feels any progress made on climate will be “toxic” to the next Republican-dominated House and could prove ephemeral. Others, including Christopher Sands, Director of the Center for Canadian Studies at Johns Hopkins University, argue that the Canada-U.S. Free Trade Agreement was signed in 1988, the last year of Ronald Reagan’s presidency. “Conventional wisdom for Canadian diplomats is the last year of an administration is not a bad time to push,” Sands said.

Allan Gottlieb, who headed up Canada’s foreign service for the elder Trudeau and then served as U.S. ambassador in Washington under Mulroney, said he came to appreciate the importance of the close personal ties while watching Ronald Reagan cut through blockages at Mulroney’s urging.

For many analysts, Trudeau’s stated intent to expand North American ties, including with Mexico, and develop a continent-wide climate policy has the potential to define his government. Gottlieb is fond of quoting former French president Charles de Gaulle that “to be a great leader, you need only have one idea.” Trudeau’s father’s one great idea, Gottlieb said, was making his vision of a strong federalist nation, thrust upon him by the potential break-up of Canada, a cornerstone of his international relations.

“It’s the times that give the opportunity for greatness to arise,” he said. While it remains to be seen if Justin Trudeau’s “one idea” will emanate from his embrace of environmental concerns, “it would be a great mistake to underestimate him.”

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