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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Negotiating NAFTA: How it works

Behind the scenes of how Canada’s ‘dream team’ negotiates NAFTA

Chief negotiator Steve Verheul, and Canada’s top two officials in Washington, David MacNaughton and Kirsten Hillman, are among the dozens involved in the sensitive trade talks, which see negotiators holed up in a different North American capital’s hotel board rooms every few weeks to hash out the text.

Mexico’s Economy Secretary Ildefonso Guajardo, Canada’s Minister of Foreign Affairs Chrystia Freeland, and U.S. Trade Representative Robert Lighthizer exit a press briefing during the third round of negotiations to rework NAFTA.The Hill Times photograph by Andrew Meade

PUBLISHED :Wednesday, Oct. 18, 2017 12:00 AM

Every few weeks this fall, roughly 300 Canadians, Americans, and Mexicans descend on a hotel in one of their respective capitals for about five days. While lobbyists chat in the hotel coffee shop or restaurant and reporters troll for tidbits of news, trade negotiators are holed up in hotel board rooms, sometimes 20 to a room, hashing out how to rework the North American Free Trade Agreement, at times until the wee hours of the morning.

The hundreds of Canadians working on the highly secretive NAFTA renegotiation operate largely behind the scenes and work on a need-to-know basis, but the talks nevertheless follow a formula familiar to the experienced team, say trade experts.

“There’s a considerable effort to keep things fairly quiet in public,” said Queen’s University professor emeritus Robert Wolfe, adding the relatively few leaks to media on Canadian strategy is no mistake.

Representatives of businesses and other groups getting updates or serving in advisory roles have signed non-disclosure agreements.

The negotiations, ongoing since August, involve 28 “tables” or negotiating rooms, each hashing out what will likely become a chapter in the final deal’s text.

These NAFTA talks are different from past trade talks in that the time between rounds is only a few weeks, whereas in other talks it might be months. Also, the politicians leading the talks from the three countries fly in for the end of each round, typically dining with each other, sitting down for formal meetings, and approving a joint communiqué on what was accomplished.

During the latest round, the fourth, in a Washington-area hotel, negotiators seemed to have finished the low-hanging fruit where the three countries could easily agree, and moved on to stickier subjects. “Substantially all” initial text proposals have been tabled, according to the three sides’ joint communiqué at the end of the round.

Canada, the United States, and Mexico have touted progress after effectively closing chapters on small- and medium-sized enterprises and competition, but tensions grew in the fourth round, which ended Oct. 17, as American negotiators were accused of pushing non-starters and United States President Donald Trump mused again about pulling out of the deal if his country doesn’t get what it wants.

After the breakneck speed of initial negotiations, there will now be more time in between, the communiqué said, with Mexico set to host the fifth round of talks in Mexico City from Nov. 17-21. More negotiating rounds will be scheduled through the first quarter of 2018.

Based on past practice, like with the Trans-Pacific Partnership trade deal, there wouldn’t be many Canadians involved who know very much of the big-picture details, and Mr. Wolfe’s sense is with NAFTA even less are in the loop.

“They are being very careful. They really do not want to negotiate in public, they really do not want something being said in Ottawa that could cause a firestorm in the White House because there’s a completely unpredictable negotiating environment.”

It’s a necessity born of the alchemy of several factors: a tight timeline ahead of 2018 elections in Mexico and U.S., the intensity of interest in Canada, and the volatile situation under Mr. Trump and his America-first rhetoric.

 

The tables

The chief negotiators’ table seems to meet all the time during a round, observers noted, made up of John Melle of the United States, Kenneth Smith of Mexico, and Canada’s Steve Verheul. They also would have met early on to determine the topics each table would focus on—which are likely to become the chapters of the deal’s text.

Each table, or negotiating room, works with the text in their chapter alone, while the chief negotiators carry with them the full text and will cover the contentious issues. They usually meet at the beginning and end of the day to debrief with their table leads and funnel key information up to the political leads, in Canada’s case Foreign Affairs Minister Chrystia Freeland (University-Rosedale, Ont.). Sometimes a chief negotiator might interrupt a head of one table if their discussion becomes relevant, but “they try and do it in tandem so they’re not upsetting the process,” said former Canadian diplomat Colin Robertson.

Last week, U.S. Commerce Secretary Wilbur Ross circulated a list of 28 topics not previously made public. Global Affairs Canada did not respond to confirm if the list was accurate, after some observers noted oddities, namely the lumping of trade remedies in with dispute settlement and a “securities annex,” which sources told Inside U.S. Trade was not a topic being covered in the talks or something the three countries were looking to include in a new deal.

Other topics included agriculture, customs, energy, environment, digital trade, intellectual property, labour, rules of origin, and technical barriers to trade. While there is a table on gender, which Canada said was a priority, a chapter dedicated to Indigenous people was absent. That’s likely still being handled at the chief negotiators’ table, said Mr. Wolfe.

As much as Canada may publicly push for the above goals and environmental standards, the reality is defensive issues are taking the top spot, said Ottawa-based trade strategist Peter Clark. Hotly contested issues are rules of origin, the review of Chapter 19’s dispute settlement, and supply management, which came into the crosshairs this week as the U.S. demanded its end, according to media reports.

Most of the tables are working from a single unified text, with sections in square brackets highlighting separate language where the sides disagree. A particular clause could have three different versions, or perhaps two, if only one is the odd country out on language agreement. The tables work off that piece of paper until they reach consensus, or one single text they all agree on.

Often the Canadian chapter heads managing each table would be from Global Affairs Canada, but also from the government department responsible for the area. That’s the case with Canada’s chief agriculture negotiator Frédéric Seppey, who observers note is in a uniquely—and historically—public position given the complexity of the highly technical file. Other negotiator names are not public and Global Affairs did not respond to a request for that list.

Other than the heads and their supporting staff, the hundred or so Canadians in Arlington, Va. supporting the negotiations this week didn’t divide into sectors. There are legal staff, regional and provincial experts, including those from the respective department or the embassy in Washington.

“They’re the resource people. They’re to help you from falling into [an] abyss,” Mr. Clark said, adding Canada’s Ambassador to the United States David MacNaughton—the country’s quarterback when it comes to Congress—has a big team working for him, including his No. 2 Kirsten Hillman, deputy head of mission, who used to be Canada’s chief negotiator for the TPP.

“They’re aware where all of the bodies are buried, where Canada has leverage, which states are big suppliers to Canada. He puts it all together,” said Mr. Clark, referring to Mr. McNaughton. He was speaking last week from Washington where he said the sides were going in the rooms to negotiate late in the evening, often with at least half a dozen people from each country. By Sunday, he noted the pace of the meetings had slowed.

In an interview last month, Rideau Potomac Strategy Group president Eric Miller, a former vice-president with the Canadian Council of Chief Executives, called them the “dream team.” Ms. Hillman has the technical knowledge from her years working in trade, including on the TPP, and Mr. MacNaughton, while not a deep trade expert, has the “complete trust” of Prime Minister Justin Trudeau (Papineau, Que.).

Both Mr. Wolfe and Mr. Robertson sit on a trade-experts council that acts as an advisory sounding board to the deputy minister of trade, who briefs the group periodically and seeks their views. There are also a number of advisory groups from various business sectors, Mr. Robertson added. Those groups likely have their own lawyers looking at the language of the deal and aware of the sensitivities.

“That’s why these things run over three or four days, because you are constantly checking back to verify,” Mr. Robertson said.

As much as the action is where the negotiating teams meet, there’s also that chain of check-ins and a fairly complex behind-the-scenes process in Ottawa to develop negotiating objectives and to ensure there is broad support within the government, Mr. Wolfe added.

Hotels make a good space for these sorts of negotiations, said Mr. Robertson, explaining in his experience how they would reorganize tables to fit in a big square or triangle to fit the three sides. Principal negotiators for each country would be in the front row, with those in supporting roles behind.

In this round, Mr. Clark said the board rooms can hold around 20 people.

“Each table will have its own dynamic and it is a reflection in part of the personalities at the table,” said Mr. Robertson, but what’s different here is that the players know each other quite well, many of whom would have been at the table for TPP.

“The rhythm depends on what it is you’re negotiating,” he added.

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NAFTA: Fish or Cut Bait

It’s time for Trudeau to fish or cut bait in the NAFTA talks

NAFTA negotiators are meeting again in Washington this week with their sights on the “elephants in the room”: the U.S. demands around dispute settlement, rules of origin, “Buy American” on procurement and a sunset clause.

The Americans, who initiated the renegotiation of the North American free-trade agreement to reduce the U.S. trade deficit, are expected to lay out their positions on the various “elephants.” There are also U.S. demands specific to Canada – supply management of our dairy markets – and specific to Mexico – wages, trucking and agricultural exports.

For Prime Minister Justin Trudeau, who is also meeting with President Donald Trump at the White House and then with President Enrique Pena Nieto in Mexico City, this week will be a test of his personal diplomacy. Can he convince his counterparts that a renewal of the North American idea of three sovereign nations, united in managing their common space to mutual advantage, requires taking a bigger view?

Mr. Trump promised to put “America First.” He is delivering and not just in his tweets.

Trade-remedy action by the U.S. Commerce Department is at a 16-year peak. Canada’s Bombardier joins Canada’s softwood industry as the latest victim of punitive penalties. Commerce Secretary Wilbur Ross claimed “NAFTA rules are killing our jobs.” In an unfortunate turn of phrase, U.S. Agriculture Secretary Sonny Perdue said agricultural trade is “like policy toward North Korea – all options are on the table.”

Rescinding NAFTA would be disruptive and hurt all three economies.

In the absence of a free-trade deal with the United States, Most Favoured Nation tariff rates, as negotiated under the World Trade Organization, would apply. The Peterson Institute for International Economics estimates that tariffs on all products would rise to an average of 3.5 per cent for the United States, 4.2 per cent for Canada and 7.5 per cent for Mexico – a terrible deal for all.

This will also result in trade diversion – the markup on Heinz ketchup, for example, could have Canadians switching to Salisbury or Tesco, now that the Canada-Europe trade deal is in place. Continuing trade diversification – a resurrected Trans-Pacific Partnership, potential deals with India and China – need to be part of Mr. Trudeau’s message to Mr. Trump.

A rescinded NAFTA would have an attitudinal effect on border administration. With the Canada-US FTA (1989), border agents took a “pass, friend, pass” attitude, further facilitating the passage of goods, people and services. After the attacks on Sept. 11, 2001, “security and enforcement” replaced “facilitation.” The border thickened.

If NAFTA is to be renovated and not rescinded, Canada and Mexico must redouble their advocacy efforts in the United States. With a focus on the state and local level, the message is simple: Jobs and investment depend on preferred access to Canada and Mexican markets.

Normally, the U.S. president is our shield against congressional protectionism. This time, the protectionist push is coming from the Trump administration. We need to push back with help from allies in the American Farm Bureau Federation, U.S. Chamber of Commerce and auto manufacturers.

In his meetings on Capitol Hill, Mr. Trudeau will repeat to legislators our message about the jobs and investment in their state depending on Canadian trade and investment. The Canadian Business Council recently complemented this with a map that identified 7,705 Canadian-owned businesses across 434 of the 435 congressional districts.

The Trudeau government sees the NAFTA talks as an opportunity to advance its progressive trade agenda. In putting forward Canada’s NAFTA objectives, Foreign Affairs Minister Chrystia Freeland said that “too many working people feel abandoned by the 21st Century global economy.” Mr. Trump and his supporters understand this message. Trade is blamed, even if most change is created by technological innovation and automation.

Trade works – on this, the economic evidence is clear. But if the gains of trade are seen to advantage only the rich and business, then populism will curb and roll back trade liberalization.

What if we put a tiny levy on all North American commerce and then distributed it for training and income-support to sectors and regions adversely affected by trade? It would lift some of the burden from local and state governments. This should be part of Mr. Trudeau’s discussion with Mr. Trump and Mr. Pena Nieto.

If the leaders buy in, then there is no reason that the NAFTA renegotiations cannot gain new life, meet their deadlines and set the model for future progressive trade agreements.

NAFTA Renegotiations: Fish or Cut Bait

NAFTA_Renegotiations_Montage.JPG

Image credit: Canadian Press

POLICY UPDATE

by Colin Robertson
CGAI Vice President and Fellow
October, 2017

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Table of Contents


NAFTA Renegotiations: Fish or Cut Bait

It’s fish-or-cut-bait time for the NAFTA renegotiations.

Negotiators reassemble in Washington this week (Oct. 11-15) with their sights on the elephants in the room – the U.S. demands around dispute settlement, rules of origin, “Buy American” on procurement and a sunset clause.

The Americans, who initiated these renegotiations to reduce the U.S. trade deficit, are expected to lay out their positions on the various “elephants”. There are also U.S. demands specific to Canada – supply management  – and specific to Mexico – wages, trucking and agriculture exports.

For Prime Minister Justin Trudeau, who this week will see first President Donald Trump in Washington and then President Enrique Peña Nieto in Mexico City, it will be a test of personal diplomacy. Can Trudeau persuade his counterparts to compromise on the “elephants” and keep the negotiations moving forward?

At the midway point in the scheduled seven rounds, the low-hanging fruit – chapters on small and medium-sized enterprises, competition, transparency and anti-corruption – are ready for harvest. They will likely resemble what had been previously negotiated in the stillborn Trans-Pacific Partnership (TPP) agreement. Trump withdrew the U.S. from the TPP shortly after his inauguration.

The auspices going into this round are not good.

Trump promised to put “America First” and he is delivering. From Jan. 20 through Sept. 20, 2017, the Commerce Department has initiated 65 Anti-dumping (AD) and Countervail (CVD) investigations – a 48 per cent increase from the previous year and a 16-year peak in the number of initiated investigations.

The U.S. Commerce Department has sided with Boeing in making protectionist decisions against Bombardier’s sale of its C-series jets. Inspired leaks that the U.S. side will seek to impose 50 per cent Made-in-America content on the North American manufacture of autos  follow on the heels of Commerce Secretary Wilbur Ross’s Washington Post piece: “NAFTA Rules are Killing our Jobs”. In an unfortunate turn of phrase, Agriculture Secretary Sonny Perdue said agricultural trade policy is “like policy toward North Korea – all options are on the table”.  Perdue promised to press Canada’s supply management policy and consider seasonal limits on Mexican produce.

President Trump’s continued  musings –“bring me some tariffs”, “I happen to think that NAFTA will have to be terminated if we’re going to make it good.”and tweets about rescinding NAFTA only aggravate the situation. Mexican Foreign Minister Luis Videgaray has said that Mexico would leave the negotiations if the U.S. gave notice that it was invoking NAFTA article 2205 rescinding the agreement.

After Washington, another round is scheduled weeks later in Mexico City. If there is deadlock on the “elephants”, negotiations could take a long pause, or be suspended. Finishing the negotiations by Christmas is doubtful especially given the kind of detail work, for example, that would have to go into the tracing formulas for rules of origin. Passage through Congress will also require real effort from the administration and its track record so far (repeal of Obamacare, tax reform, infrastructure spending) is not encouraging. The Trump administration continues to be understaffed, politically inexperienced and chaotic.

The biggest unknown is Trump himself.

Trudeau meets Trump this week in the White House and then goes to Mexico City to see Peña Nieto. Trump came close to rescinding NAFTA on day 100 of his administration. He continues to make threats about scrapping NAFTA. Is it another example from Trump’s playbook, The Art of the Deal? Is he serious about renegotiation or is he simply dangling increasingly unacceptable offers that would oblige a suspension or breakdown in negotiations? Mr. Trudeau should politely tell Mr. Trump to fish or cut bait.

Foreign Minister Chrystia Freeland has suggested that Mr. Trudeau will “explain really clearly to the President … that Canada is not America’s problem.” Some have suggested that this is a gentle poke at Mexico. This would be a strategic mistake and it would play directly into the divide-and-conquer tactics that Mr. Trump describes in the Art of the Deal. Mexico is a good neighbour, fellow middle power and our third largest trading partner. We need to build on this relationship.

For now, Canada and Mexico must redouble their advocacy efforts in the U.S., especially at the state and local level, to put pressure on the Trump administration if NAFTA is to be revised and not rescinded.

Elephants in the Room I: Rules of Origin

The U.S. wants to revise the current rules of origin to ensure a higher percentage of this U.S.-only content.  Secretary Ross claimed in a recent Washington Post column that, “these NAFTA rules are killing our jobs”. The numbers he used are suspect, argues former Mexican trade negotiator Luis de la Calle. The Peterson Institute’s Caroline Freund writes that U.S. content requirement in NAFTA could hurt U.S. manufacturing.

Rules of origin were first introduced in the Autopact (1965) to ensure most of the production took place in Canada and the U.S. and then the Canada-U.S. Free Trade Agreement (CUSFTA) and NAFTA extended this principle. To qualify as made in North America, autos must have 62.5 per cent content, i.e., parts, made in Mexico, the U.S. or Canada. Cars now contain an average of 30,000 parts (when we did NAFTA it was closer to 20,000 parts). Before a car is assembled, it crosses the Canada-U.S. border an average of seven times.

During the TPP negotiations, U.S. Trade Representative Mike Froman was prepared to lower the current threshold to less than 50 per cent in order to do a U.S. deal with Japan. Canada and Mexico protested but the decider was the U.S. congressional auto caucus, which forced Froman to back down.

Recent leaks in Inside US Trade suggest that USTR Robert Lighthizer wants a 50 per cent U.S. domestic content requirement. The suggested U.S. proposal would increase the NAFTA regional value content requirement from 62.5 per cent to 85 per cent and include an expanded tracing list that includes all components of a car. Supply chains are carefully designed to ensure quality, timely delivery and best price, so disrupting current processes is not something the manufacturers, parts-makers or tertiary suppliers want to see. UNIFOR and the UAW want more made in Canada and the U.S., arguing that Mexican wages are kept artificially low.

Elephants in the Room 2: Dispute Settlement

Dispute settlement covers two dimensions: investor state and trade remedies. The U.S. wants to remove both chapters from the agreement and have disputes settled solely through the U.S. trade remedy system. This is a red line for Canada and Mexico. The Trump administration sees dispute settlement as an infringement on U.S. sovereignty; it is taking a hard line not just in NAFTA renegotiations, but also at the World Trade Organization (WTO), blocking appointments of new appellate judges to the Dispute Settlement Body (DSB).

Investor-state dispute settlement (ISDS) currently contained in NAFTA’s Chapter XI, was included at the Americans’ behest to prevent appropriation of investments in Mexico. However, it has been applied mostly against Canada, usually over initiatives taken by a provincial government for which the federal government must pay the price.

As trade scholar Larry Herman observes, “the successful Chapter 11 claims against Canada would be in the order of $320 million versus $5.0 billion claimed or approximately 6.4% of total damages claimed over 23 years. While this is still substantial, it does put these amounts in perspective.” TransCanada had filed a $15 billion suit under Chapter XI over former president Barack Obama’s rejection of the Keystone pipeline permit but it was suspended after Trump issued the permit.

We are not sure yet what the Americans want to do on ISDS. Given our experience, we are promoting institutionalization of permanent courts to provide more certainty in case law and more transparency in deliberation. We took this approach in the Canada-European Union Comprehensive Economic and Trade Agreement (CETA) and TPP.

Trade Remedy, or Chapter XIX, deals with disputes related to countervail (products with prices lower than the cost of production) or anti-dump (products produced with subsidies). Examples include the softwood lumber dispute and now Boeing’s complaint about Bombardier.

U.S. trade remedy afflicted Canadian products – raspberries, lumber, fish – during the lead-up to the original CUSFTA negotiations in 1985. Dispute settlement was essential to Canada in its negotiation of CUSFTA and NAFTA. Canada would have walked if we had not secured tribunals independent of the U.S. trade remedy system. The Mexican congress passed a non-binding resolution shortly before the negotiations began, insisting that we maintain Chapter XIX.

Herman notes that, softwood lumber excepted, Chapter XIX has not been used as much in recent years – some argue its very presence keeps the system honest.

Could improvements be made to Chapter XIX? Yes, but what form they will take must be negotiated. As with tracing rules of origin, the devil is always in the detail.

Elephants in the Room 3: Five-Year Sunset Clause and Government Procurement

The proposed five-year sunset clause is a non-starter for Canada and Mexico, and business in all three countries opposes it because it removes certainty around investments.  As Canadian Ambassador David MacNaughton wryly observed: “If every marriage had a five-year sunset clause on it, I think our divorce rate would be a heck of a lot higher than it is…One of reasons you do (a trade agreement) is to create an environment within which business can make investments. (In) many of those investments people will look to 20 years’, 25 years’ payback. If you have to do it every five years, the pricing of political risk is very high.”

U.S. negotiators are proposing a “dollar for dollar” opening of North American procurement markets that would greatly reduce Canadian and Mexican access to the U.S. market. Canada and Mexico want to curb, if not exclude, ‘Buy American’ provisions at the federal and state level but the U.S. wants to roll back its NAFTA commitments.

Ongoing Disputes: Softwood Lumber and Bombardier-Boeing

Softwood lumber negotiations continue outside of NAFTA. The relevant provinces – British Columbia, Alberta, Ontario, Quebec and New Brunswick – have all appointed special envoys.  It is hard to see an early resolution. If history is any guide, resolution won’t happen until the pot is sweetened with Canadian cash. Even then, we will likely wind up with another managed trade deal of five years’ duration. Not a great solution.

The Boeing-Bombardier dispute is potentially more dangerous and could affect the negotiations in the same fashion that shakes and shingles nearly scuttled the CUSFTA negotiations in 1985-1986. The Boeing suit against Bombardier over subsidies may have a basis but given the subsidies (state, local and federal) that Boeing enjoys, is there injury?

The Commerce Department announcement on the last day of the Ottawa round of negotiations made a statement, but embarrassed the Canadian hosts. As Trudeau repeated, Canada “will not do business with a company that is busy trying to sue us and put aerospace workers out of business”.

The Boeing suit strikes at Quebec pride in its aerospace champion. The Couillard government has framed it as an affront to Quebec. Bombardier workers live in Trudeau’s riding and the Boeing officials, likely encouraged by senior Trump officials, would appear to have behaved with a surprising lack of sensitivity. BHP made the same mistake during its Potash Corp. bid and it was a major contributing factor to the deal’s collapse.

The Negotiators and the Negotiations

There is good personal chemistry at the chief negotiator level. U.S. negotiator John Melle is a long-time USTR official responsible for North America. Mexican chief negotiator Kenneth Smith is another long-time negotiator and was a member of the Mexican NAFTA team in 1993 before heading Mexico’s NAFTA office in Washington.  Canada’s chief negotiator, Steve Verheul, was chief negotiator for CETA and prior to that chief negotiator for Agriculture Canada.

Canadian Foreign Affairs Minister Chrystia Freeland and Mexican Economic Secretary Ildefonso Guajardo work together well as trade ministers. They like each other and they are in regular contact. USTR Lighthizer is a seasoned trade lawyer who served in the Reagan administration. To get a sense of the trio’s dynamic, watch the body language when the three minsters are together.

Negotiations are taking place at 28 tables. Chapters covering telecoms, small and medium-sized enterprises, competition and food safety are essentially done and they are close to closing those on digital trade and anti-corruption. To get a sense of what these chapters might look like as well as the format of the new North American accord, look to the 30 chapters in the Trans-Pacific Partnership Agreement that was signed a year ago February in New Zealand but which Trump rejected. Ironically, the U.S. negotiating team is using the TPP language for much of their suggested draft language for the NAFTA 2.0 text.

Canada and Mexico want to expand the list of business travellers eligible for the NAFTA fast-pass into the digital age. There may or may not be an energy chapter (the U.S. leans against it). If there is, it would include Mexico. Regardless, there is continuing trilateral co-operation on energy with regular ministerial meetings and efforts to consolidate and ease the flow of oil, gas and electricity through the 150 Canada-U.S. crossings and the 81 refineries that import Canadian oil or gas.

No surprise – the U.S. is pushing Canada on supply management around dairy. The likely give here (in return for something from the U.S.) would be more quota for U.S. producers similar to that given to the Europeans in CETA. We should reform our dairy industry, given the growing demand for protein in Asia. We should look to the examples of New Zealand and Australia, who shed supply management to become world-beaters in dairy products.

The U.S. wants Canada to raise the customs threshold (de minimus) for packaged goods (currently $20 and for Mexico $50 USD) to something approaching their $800, but retailers fear that they will be put out of business.

The Trudeau Visit

Prime Minister Trudeau will travel to Washington (Oct. 10-11) for meetings with President Trump and members of Congress, then to Mexico City (Oct. 12-13) to see President Peña Nieto.

The Canada-U.S. and NAFTA file have a permanent place on Trudeau’s desk. His January cabinet shuffle named Chrystia Freeland as Foreign Affairs minister, leaving her with the North American trade file. Get this wrong and it will certainly not help the Trudeau government’s re-election prospects in 2019. A special unit within the PMO focuses on Canada-U.S. relations and there is a cabinet committee headed by Transport Minister Marc Garneau. The Clerk has also made the Canada-U.S. relationship priority for deputy ministers.

Since January there has been a very public advocacy and outreach into the U.S. including Mr. Trudeau speaking on energy in Houston and on trade to the governors in Rhode Island. Ministers and MPs, premiers and legislators from all provinces have also been working their counterparts both in D.C. and throughout the states.

With all the balls in play, Mr. Trudeau must demonstrate the skills of a conjurer during this week’s visits. He must persuade Mr. Trump that a renegotiated NAFTA serves U.S. interests while at the same time holding firm on those interests we share with Mexico – rules of origin and dispute settlement – and those specific to Canada – supply management, softwood lumber and Bombardier. Normally, the U.S. president is our shield against congressional protectionism. This time, the push is coming from the Trump administration.

In his meetings with Congress, Mr. Trudeau can point out to each congressman the trade of their state and district with Canada and the jobs that depend on Canadian trade and investment. The Canadian embassy has parsed this information in its state fact sheets and it is now complemented with an interactive map by the Canadian Business Council that identifies 7,705 Canadian-owned businesses across 434 congressional districts.  The Canadian message is to remind Americans that Canada is their No. 1 export market and that we are a reliable neighbour and ally, pointing to, for example, Canada’s commitment to increased defence spending in the recent Defence Policy Review.

Work with our U.S. Allies

In the coming weeks, Canada and Mexico will need to redouble their outreach to Capitol Hill and into each state, pointing out the benefits of trade and underlining the cost should NAFTA be rescinded. We have allies – notably the Farm Bureau, U.S. Chamber of Commerce and auto manufacturers and their suppliers for whom supply chain disruption will be costly.

Warning of an “existential threat” to North American economic security, U.S. Chamber CEO Tom Donohue recently described the Administration’s proposals on sunset clause, dispute settlement and rule of origin as “poison pills”. Donohue observes “U.S. exports to Canada and Mexico generate nearly $37,000 in annual export revenue for every American factory worker. And in the first eight months of 2017, exports from the United States to our NAFTA partners were worth four times as much as those to China.” Rescind NAFTA warned Donohue and “The United States could then reasonably expect trade retaliation … higher tariffs … broken supply chains … and potentially less cooperation on other priorities like anti-terrorism and anti-narcotics efforts. And who would be hurt the most as a result? The very Americans that this administration seeks to put first.”

What Canada Wants

In a speech at the University of Ottawa and remarks before the Standing Committee on International Trade (Aug. 14) Foreign Minister Freeland compared the negotiations to “renovating a house” and laid out her main objectives:

  • Modernize the 23-year-old NAFTA to recognize the technological and digital revolution;
  • Make it a progressive “fair trade” agreement, using CETA as a model, through inclusion of chapters on the environment, labour, gender equality and Indigenous peoples;
  • Reforming dispute settlement to ensure governments have the right to legislate in the public interest with fair dispute settlement (Chapter XIX);
  • Easing business travel (Chapter XVI), cutting red tape and focusing more on harmonized regulatory co-operation;
  • Preserving supply management and cultural exception.

The progressive trade agenda is still taking definition. Environment and labour, side letters in the original NAFTA, are key elements in the progressive trade agenda along with provisions relating to the rights of Indigenous peoples and gender equality.

For a sense of what it might look like, the Canada-Chile FTA has been amended to add new chapters on sanitary and phytosanitary measures, technical barriers to trade, and trade and gender, making technical amendments to the existing government procurement chapter, and adding new, progressive elements to the investment chapter.  These amendments will enter into force once both Canada and Chile have completed their respective domestic implementation processes.

What If the Negotiations Break Down?

NAFTA would remain in effect between Canada and Mexico although if the TPP-11 negotiations are successful, the new TPP would effectively replace the Canada-Mexico NAFTA. If the U.S. rescinded NAFTA, Canada and the U.S. would revert to CUSFTA. This may prove a weak shield because CUSFTA contains Chapter XIX.

Rescinding NAFTA would be disruptive and hurt all three economies. At that point, most-favoured-nation tariff rates, as negotiated under the WTO, would apply, After withdrawing from the deal, the Peterson Institute’s Chad Bown says that tariffs on all products would rise to an average of 3.5 per cent for the U.S., 4.2 per cent for Canada and 7.5 per cent for Mexico – a terrible deal for all.

The consumer would be the biggest loser. As we have seen with softwood lumber tariffs, it would divert trade. Instead of buying Heinz ketchup, which would be subject to a seven per cent tariff, we may switch to Salisbury or Tesco.

A rescinded NAFTA would likely have an attitudinal effect especially at the border on trade.

After CUSTFA was implemented (1989), border agents took a “pass, friend, pass” attitude. This further facilitated trade in goods, people and services. After 9/11 this facilitation attitude changed to that of security and enforcement. The border thickened. Mitigated by the Smart Border accord (2001), and the current Beyond-the-Border (BTB) and Regulatory Co-operation Council (RCC) initiatives, the ongoing NAFTA consultations have underlined that border frustrations remain the number one complaint of business.

For Canada, plan B is continuing to ease passage of goods, people and services at the border through the RTB and RCC discussions. These take place on a separate track to the NAFTA negotiations. They are making progress to reduce redundancies and duplication and on establishing a paperless, cashless and single-portal access for business.

We are likely months, rather than years, from submitting customs papers in electronic form through a single portal to Canadian and American authorities that will address all the needs of the respective departments. Originally promised under Smart Border – the accord that John Manley and Tom Ridge negotiated after 9/11, it will make the passage of goods much easier. It would avoid the problem of having to show up at the border with pages of forms and cash.

We are also making big border infrastructure investments, most notably the construction of the Gordie Howe Bridge between Windsor and Detroit, that is scheduled to open in 2022. There are also plans to improve the existing Ambassador Bridge.

There are also other instruments facilitating trade that would remain in place, most notably the Defence Production Sharing Agreement (DPSA) between Canada and the U.S. Dating back to the Second World War, DPSA is the overarching agreement from which much of the favourable defence trade treatment of Canadian companies interested in doing business with the U.S. Department of Defense (DOD) has arisen.  This includes specific language in the U.S. Defense Federal Acquisition Regulation Supplement (DFARS) regarding the special DOD access for Canadian companies.

Through DPSA, the Defense Development Sharing Agreement (DDSA), and NAFTA, the U.S. and Canada each enjoy unique defence trade status with the other.  With limited exception, DPSA allows Canadian suppliers to compete for U.S. government defence contracts under the same terms applied to U.S. suppliers.

Additionally, there are the Canadian exemptions to the U.S. International Traffic in Arms Regulations (ITAR). While recent tightening of the exemptions is aggravating, it works for Canadian companies.

Canada needs to take full advantage of our current bilateral and regional agreements, most notably the recently implemented (Sept. 21) CETA. We need to put effort into creating a TPP of 11. The government has announced it is working on an FTA with ASEAN. Then there are the Canada-China discussions and ongoing Canada-India negotiations. Our trade commissioner service, working with the provinces and Canadian business, needs reinvigorating to expedite commerce.

Pre-Clearance Pending…

The U.S. passed pre-clearance legislation last December and Canadian legislation is in the Senate. When it is done, then we can proceed with pre-clearance at Billy Bishop Airport in Toronto and in Quebec City, for cross-border train travel from Montreal and Vancouver and some marine ports, and pilots for rail cargo and intermodal traffic. About 12 million passengers now pass through airport pre-clearances on Canadian soil, and there are only about five to 15 strip searches per airport per year. What will happen when we pass our marijuana legislation is anyone’s guess.

The Trade Deficit Question

In July, USTR Lighthizer provided Congress with a list of U.S. objectives with the underlying goal of reducing U.S. trade deficits. NAFTA negotiations began in mid-August, after the USTR secured trade promotion authority from Congress. Foreign Minister Freeland has argued that Canada-U.S. trade is virtually in balance. Even Secretary Ross puts Canada in the “blameless deficit” category because the U.S. is “not self-sufficient in energy.”

But the administration seems consumed with goods, especially manufactured goods being made in America. A series of executive orders are aimed at “Buy American and Hire American” with a focus on steel and aluminum. That penny is still to drop. It could mean tariffs that will affect supply chains.

China, as we heard during the campaign, is the main target for trade action but Trump’s enthusiasm is tempered by the realities of geo-politics, namely North Korea, and the recognition that China must play a key role in containing or curbing the rogue state.

Canadian Attitudes to Trade

When the Mulroney government negotiated CUSFTA in 1988, the country was divided: about 25 percent in favour, 25 per cent dead against and about half in the middle. It was the main issue in the 1988 election. While Brian Mulroney and his Progressive Conservatives won with a majority (with 43 per cent of the vote), they only carried three provinces: Alberta, Quebec and Manitoba.

This time around the Liberals and Conservatives are united behind NAFTA. Surveys say Canadians like NAFTA. Canadians trust Prime Minister Trudeau to negotiate a good deal and they are also prepared to let him walk if it is not. And surveys also say that Canadians don’t think much of President Trump. He is the most unpopular U.S. president in our life-time and this sentiment is shared in much of the globe.

NAFTA Worked But…

By all economic analysis – Canadian, American, Mexican, OECD, World Bank and IMF – NAFTA has worked for all three nations with trade tripling since 1994. But there continues to be a lot of misinformation and myth about its shortcomings as we witnessed during the 2016 U.S. presidential election.

NAFTA broke new ground in its day but it was drafted before the digital age. The Trudeau government sees NAFTA as an opportunity to advance its progressive trade agenda because, as Freeland told the House International Trade Committee when she put forward Canada’s NAFTA objectives, “too many working people feel abandoned by the 21st century global economy.” But if the gains of trade are seen to advantage only the rich and business, then populism will curb and roll back trade liberalization.

Even if most change is created by technological innovation and automation, trade is held accountable and this has led to the demonization of NAFTA since its implementation (1994) especially by U.S. Democratic politicians (including Hillary Clinton and Barack Obama) and now Trump. While congressional Democrats, with few exceptions, have traditionally opposed freer trade, Republicans until recently supported it.

Today, public opinion polls show Trump supporters to be the most vociferous anti-free traders. Ironically, the U.S. public supports freer trade.

Time is an Issue.

The Mexicans have a presidential election in July and the ruling PRI party and centre-right PAN party don’t want NAFTA to intrude into the presidential campaign lest it give an advantage to the leftist candidate, Andres Manuel Lopez Obrador (AMLO), The Americans don’t want it to intrude into November’s mid-term elections. The timetable set by the Trade Promotion Act under which the USTR is proceeding has a fixed congressional schedule for approval that potentially takes up to a year before the congressional up or down votes.

Further Reading

The NAFTA negotiations receive daily coverage by Canadian media. The US publications Politico and Inside US Trade have daily insights into the negotiations. CSIS Andrea Durkin edits the excellent Trade Vistas – its graphics are superb. The Wilson Center’s Canada Institute is closely following the negotiations and Director Laura Dawson publishes a regular insightful newsletter. The Canadian American Business Council CEO Scotty Greenwood’s weekly looks at the broader Canada-US relationship. NASCO’s Rachel Connell edits the useful North American Now. My go-to for NAFTA trade policy commentary is the Peterson Institute for International Economics. I wrote a CGAI NAFTA Primer that includes a list for further reading.

TOP OF PAGE


About the Author

A former Canadian diplomat and a member of the teams that negotiated the Canada-U.S. FTA and NAFTA, Colin Robertson is Vice-President and Fellow at the Canadian Global Affairs Institute and Executive Fellow at the University of Calgary’s School of Public Policy. He is Senior Advisor to Dentons LLP. He is a member of the NAFTA Advisory Council to the Deputy Minister of International Trade. A Distinguished Senior Fellow at the Norman Paterson School of International Affairs at Carleton University, he is a member of the advisory councils of the Conference of Defence Associations Institute and the North American Research Partnership and participant in the North American Forum. He is a past president of the National Capital Branch of the Canadian International Council. He is an honorary Captain (Royal Canadian Navy) assigned to the Strategic Communications Directorate. He writes a regular column on international affairs for the Globe and Mail and he is a regular contributor to other media.

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Trudeau to DC and Mexico

Trade troubles face Trudeau on trip to Washington and Mexico City

NAFTA tensions, Bombardier spat pose challenges for PM on 4-day visit to U.S. and Mexico

By Katie Simpson, CBC News Posted: Oct 10, 2017 5:00 AM

Prime Minister Justin Trudeau and U.S. President Donald Trump take part in a joint press conference at the White House in February. Trudeau plans to discuss NAFTA, security issues and NATO with Trump during his stay in Washington.

Prime Minister Justin Trudeau and U.S. President Donald Trump take part in a joint press conference at the White House in February. Trudeau plans to discuss NAFTA, security issues and NATO with Trump during his stay in Washington. (Sean Kilpatrick/Canadian Press)

Katie Simpson is a senior reporter in the Parliamentary Bureau of CBC News. Prior to joining the CBC, she spent nearly a decade in Toronto covering local and provincial issues.

Related Stories

Prime Minister Justin Trudeau plans to talk trade, security and gender equality during his four-day trip to the United States and Mexico that begins Tuesday. But there is little doubt one of those subjects will get more attention than the others.

Trudeau is facing multiple trade-related challenges with both countries.

Talks on the North American Free Trade Agreement (NAFTA) have slowed and soured, with the mood expected to get worse, and Canada is frustrated by the U.S. decision to slap 300 per cent duties on Bombardier’s CSeries planes.

The softwood lumber dispute has also not yet been settled.

Trudeau arrived in the Washington area late Tuesday afternoon. He will also take questions during a keynote address at Fortune Magazine’s Most Powerful Women Summit in the evening.

Cultivating relationships

Trudeau will shift gears early Wednesday when he visits the congressional ways and means committee on Capitol Hill — an opportunity to share his message about the importance of Canada/U.S. trade with influential lawmakers.

On the eve of talks, U.S. President Donald Trump continued to threaten the viability of the deal, this time to Forbes.

“I happen to think that NAFTA will have to be terminated if we’re going to make it good. Otherwise, I believe you can’t negotiate a good deal… . [The Trans-Pacific Partnership] would have been a large-scale version of NAFTA. It would have been a disaster,” he said in an article published Monday.

“I consider that a great accomplishment, stopping that. And there are many people that agree with me. I like bilateral deals.”

Politics News
‘What would be terrible is completely going backwards and pulling out of this agreement’
00:00 07:01

‘What would be terrible is completely going backwards and pulling out of this agreement’7:01

Despite the president’s renewed threats, Congress has some power to intervene.

“Congress is potentially our shield against an administration which is the most protectionist that we’ve seen,” said Colin Robertson, a former Canadian diplomat.

Robertson thinks it is smart for Trudeau to ramp up his so-called charm offensive with U.S. politicians outside of the White House. 

“This is something he will have to continue to cultivate,” Robertson added.

Face time with Trump

But the most anticipated moment of the trip will be Trudeau’s face-to-face meeting with Trump.

The pair have developed a positive rapport, according to a spokesman in the Prime Minister’s Office, and are looking to further develop that relationship.

But their meeting takes place at the same time the fourth round of NAFTA talks begin, also in Washington. The PMO confirmed Tuesday those talks have already been extended so ministers from Canada, the United States and Mexico could all attend a meeting next Tuesday.

There is little positivity left at the negotiating table, especially as the U.S. is expected to make its most contentious demands during this round of discussions.

“I think they [the talks] are going poorly, they’re having difficulty even nailing down the low-hanging fruit,” said Jerry Dias, president of Canada’s largest private-sector union, Unifor.

Trudeau G20 Germany 20170708

Trudeau and Trump speak at the G20 summit in Hamburg, Germany, in July. (Ryan Remiorz/Canadian Press)

U.S. proposals on the rules for automobile content, dispute resolution and the dairy industry are expected to be unveiled this week. The U.S. has already been accused of making demands that neither Canada nor Mexico would ever agree to.

The PMO spokesman said Trudeau plans to discuss NAFTA, but noted that the real work is being done by negotiators behind the scenes.

Trudeau also plans to bring up Canada’s frustration with the U.S. Department of Commerce over the Bombardier duties.

Foreign Minister Chrystia Freeland has been outspoken on this issue, calling the duties “baseless and absurdly high.”

Trudeau also plans to discuss security with Trump, integrated operations and NATO, according to the spokesman.

Freeland and her parliamentary secretary on Canada-U.S. relations, Andrew Leslie, will accompany Trudeau to Washington.

Trudeau Apec 20161119

Trudeau will move on to Mexico City Thursday for a meeting and state dinner with Mexican President Enrique Pena Nieto. Both face increasing pressures from the Trump Administration when it comes to NAFTA. (Sean Kilpatrick/Canadian Press)

Meetings in Mexico

Trudeau will round out his North American tour with a stop in Mexico City.

President Enrique Pena Nieto has a full day of meetings planned with Trudeau and, again, trade will likely be the key point of discussion; so much so that International Trade Minister Francois-Philippe Champagne will join Trudeau and Freeland for this leg of the trip.

Canada and Mexico hold wildly different positions on several aspects of NAFTA, most notably labour standards.

But the prime minister’s spokesman says other issues will come up, including gender equality.

Trudeau is also expected to take some time to visit some of the regions hard hit by two earthquakes that struck this past summer.

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NAFTA: San Antonio conference

Trade Experts Say Trump’s Anti-NAFTA Blasts Have Clouded Renegotiation Talks

Shari Biediger September 29, 2017

While former Mexican and American diplomats blamed President Donald Trump’s broadsides against the North American Free Trade Agreement for harming U.S.-Mexico relations, San Antonio Mayor Ron Nirenberg brought the current trilateral trade renegotiation talks home by pointing out the almost 200,000 local jobs that are at stake.

“We employ about 63,000 people as a result of NAFTA, and the indirect impact, it’s 135,000 jobs,” Nirenberg said during a panel discussion on the NAFTA renegotiations. “And if you look at it overall, the benefit San Antonio families have had as a result of very positive and inclusive environment with trade in Texas, the bulk of our GDP growth has come from the fact that we have been involved [in support of NAFTA] locally.”

At a forum co-hosted by the Rivard Report and St. Mary’s University on Friday morning, former U.S. Ambassador to Mexico Antonio Garza acknowledged that job losses across the nation have driven some of the anti-NAFTA rhetoric.

While former Mexican and American diplomats blamed President Donald Trump’s broadsides against the North American Free Trade Agreement for harming U.S.-Mexico relations, San Antonio Mayor Ron Nirenberg brought the current trilateral trade renegotiation talks home by pointing out the almost 200,000 local jobs that are at stake.

“We employ about 63,000 people as a result of NAFTA, and the indirect impact, it’s 135,000 jobs,” Nirenberg said during a panel discussion on the NAFTA renegotiations. “And if you look at it overall, the benefit San Antonio families have had as a result of very positive and inclusive environment with trade in Texas, the bulk of our GDP growth has come from the fact that we have been involved [in support of NAFTA] locally.”

At a forum co-hosted by the Rivard Report and St. Mary’s University on Friday morning, former U.S. Ambassador to Mexico Antonio Garza acknowledged that job losses across the nation have driven some of the anti-NAFTA rhetoric.

As part of the “NAFTA 2.0: The Future of North American Trade” forum, Rivard Report publisher Robert Rivard moderated the discussion between Garza and Mexico Ambassador to the U.S. Gerónimo Gutiérrez, who talked about NAFTA’s history, including the most recent round of the trade negotiation talks that took place in Ottawa, Canada.

“We are in better shape now than we were at the beginning of the year,” Gutiérrez said, avoiding direct criticism of U.S. officials. “We are talking to each other. We have good communication with Trump. But that doesn’t mean we agree on everything.”

Garza said that although he believes negative rhetoric around immigration and NAFTA has drawn down the reservoir of goodwill between Mexico and the U.S., he also remains optimistic about NAFTA’s future.

“In the wake of the response to Harvey, and the solidarity we’ve shown following the earthquakes in Mexico, we’re seeing the very best in human nature,” Garza said. “And if we could somehow distill that … we could resolve some of the major challenges we have.”

Gutiérrez said NAFTA has been oversold and underexplained. “Oversold in the sense that it was not a solution to every problem the U.S., Mexico, or Canada has in terms of its development and it was never intended,” he said. “But the numbers don’t resonate to someone in Ohio maybe [who lost a job].” He believes the good news of NAFTA is better told through stories and people.

Nevertheless, he believes the first three rounds of talks only set the stage for tougher ones to come. The timetable set to complete negotiations – by the end of this year or the start of 2018 – is too ambitious, he said.

Although many state and national analysts consider the trade deal to have had far-reaching and positive economic effects on all three countries, NAFTA opponents argue that the U.S. lost high-paying jobs and gained a mounting trade deficit. Trump campaigned on protectionist ideals in 2016, and against NAFTA.

In the U.S. currently, the number of jobs that depend on foreign trade is at 14 million, Bexar County Judge Nelson Wolff said. Nearly 5 million of those jobs come from trade with Mexico and Canada, countries that buy $600 billion goods from the U.S. – cars and parts, food, and fuel – every year. Almost 400,000 jobs in Texas are supported by NAFTA-created commerce, according to the Texas-Mexico Trade Coalition.

The 1993 signing of NAFTA occurred in a courtyard of La Villita in San Antonio. As the agreement is cross-examined and renegotiated, some political and civic leaders remain optimistic that NAFTA 2.0 will uphold the neighborly relationship it affirmed 24 years ago.

“History has shown time and again that protectionism does not work,” said Wolff, who was San Antonio’s mayor when NAFTA was signed. “One country’s overregulation of free trade leads to another country’s terror. They lose economic activity, competitiveness, innovation declines and ultimately, jobs are lost. This reality seems to be lost in the current dialogue about the North American Free Trade Agreement.”

Bonnie Arbittier / Rivard Report

Bexar County Judge Nelson Wolff attends NAFTA 2.0: The Future of North American Trade at St. Mary’s University.

U.S. Trade Representative Robert Lighthizer has said that during the trade talks this week some issues related to small- and medium-size business were resolved. He also said delegates made significant progress on competition policy, digital trade, state-owned enterprises, and telecommunications.

In another discussion at Friday’s forum, former Canadian diplomat Colin Robertson said he remains positive about the treaty’s prospects, despite Trump’s rhetoric. Robertson called upon delegates to not only be as pioneering in renegotiating NAFTA as they were in creating it, but simply to get it done.

“I’d be happy to call it the ‘Trump Trade Agreement.’ Whatever we have to do to get it approved,” he said. “Make [this version] different but something that will sustain public support because if the people don’t like it and [it’s] simply done for business, it’s not going to fly.”

Gerry Schwebel, International Bank of Commerce’s corporate international division’s executive vice president, was in Canada earlier this week for the negotiations.

“At the end of the day, governments don’t trade. People trade,” he said. “And I think it’s important that we, the people, those of us who are engaged in the process tell the story and stay engaged, whether at the local chamber level or state level or coalitions.”

U.S. Chamber of Commerce Senior Vice President of International Affairs Jodi Hanson Bond was also in Canada this week and said protectionism will not help U.S. businesses now or in the long term.

“We need to have an open mind and an open market. That protectionist sentiment will keep you from growing,” she said. “You can blame a country for those [job] losses, but that country’s name is ‘innovation.’”

Bond said the U.S. Chamber is working to help the agriculture industry in “red states” understand NAFTA’s contribution to food exports, “because farmers had no idea who was buying their crops,” and because if NAFTA “goes off the cliff, it will be a disaster for those red states.”

Robertson, Bond, and Schwebel encouraged forum attendees to ensure their voices are heard, noting that if more people outside the state of Texas understood the stakes, NAFTA would not be at risk. One visit to the border would do it.

Schwebel described Laredo as “sitting on the 50-yard-line of the Super Bowl of Trade,” adding, “you could say the same for San Antonio.”

On a panel with North American Development Bank Acting Managing Director Alejandro Hinojosa and policy development consultant Luz María de la Mora Sánchez, Nirenberg criticized anti-NAFTA statements out of Washington.

“It simply belies the fact that we would take on this protectionist mode as we get into what should be a very serious negotiation to modernize one of the most significant trade agreements in human history,” he said. “Unfortunately, the backdrop of negotiations has been poisoned by national campaign rhetoric.”

Nirenberg brought up ongoing issues with immigration as well. “So it makes it very difficult to govern in that environment when it’s your own local community that is suffering.”

The 1994 creation of NADBank in San Antonio was a side agreement to NAFTA. Since then, the bank has funded many infrastructure improvements along the border, including wastewater treatment. Those improvements are more than about attracting businesses and creating jobs across the border. It’s brought quality of life to an entire region.

“North America is a region,” said De la Mora, who served as a negotiator during the first NAFTA negotiations 23 years ago. “We take it for granted. We never really took the time to explain to people what’s at stake … Trump has said, ‘NAFTA has been a disaster,’ and it’s been the worst trade deal ever negotiated. That’s the way it has been presented.

“We felt like we were in a war.”

Every country has lost, and gained, jobs because of NAFTA, she said. “Mexico and Canada are coming to the table to update and modernize the agreement,” she said. “But the U.S. perspective is of isolation, nationalism, protectionism and, with all due respect, racism.”

De la Mora said choosing how to communicate NAFTA’s impact is important. “What we really need to do is find a story that makes sense to people, that really touches them,” she said. “We have not done a good job at that.”

Making a case for the proposed Toyota-Mazda plant to be built in San Antonio is a story that begins with NAFTA, Nirenberg said. “NAFTA is why we have an integrated supply line with Mexico today.”

Rivard said the publication contacted the U.S. Department of Commerce and the Trump administration’s communications staff about participating in the forum, but received no response. Also invited to participate was Texas Secretary of State Rolando Pablos, who said he was unable to attend because he was working on Hurricane Harvey recovery efforts in Houston.

At the start of the forum, Rivard announced that proceeds from sponsorship of the event will fund a new $10,000 scholarship at the San Antonio-Mexico Friendship Council, aid to Mexican earthquake victims, and nonprofit journalism.

“While other people are talking about building walls and closing borders, we want to create a scholarship where more young people can come from Mexico and Canada and throughout the United States to St. Mary’s to study international business and relations,” Rivard said.

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Can Trump pull USA from NAFTA

Can Donald Trump pull the U.S. out of NAFTA all on his own?

Some lawyers say withdrawal without congressional approval would be unconstitutional, but the politics of the play might be another matter

CHARLESTON, WV - MAY 05: United States Republican Presidential candidate Donald Trump models a hard hat in support of the miners during his rally at the Charleston Civic Center on May 5, 2016 in Charleston, West Virginia. Trump became the Republican presumptive nominee following his landslide win in indiana on Tuesday.(Photo by Mark Lyons/Getty Images)

Listening to President Donald Trump, or reading his Twitter musings, sure leaves the impression he claims unfettered power to yank the United States clear of the North American Free Trade Agreement whenever he feels like it. “I think we’ll end up probably terminating NAFTA at some point, okay?” Trump said in a rambling late-summer speech in Phoenix. He followed up with this classic Trumpian Tweet: “We are in the NAFTA (worst trade deal ever made) renegotiation process with Mexico & Canada. Both being very difficult, may have to terminate?”

A superficial reading of NAFTA lends some support to the notion that Trump might have the power to act on his bluster. The deal among Canada, the U.S. and Mexico, which came into force in 1994, does include Article 2205, which lets any of the three countries back out on six-months notice. And, since U.S. presidents have broad power over foreign affairs, that might seem to be Trump’s clause to trigger. Indeed, some trade experts read it that way—but others see it differently.

READ MORE: NAFTA: A brief historyFor instance, Riyaz Dattu, of the law firm Osler, Hoskin & Harcourt in Toronto, says Trump’s problem is that while presidents negotiate trade deals, Congress passes the laws to make them a reality in the U.S. “President Trump would have to get Congress to repeal the [NAFTA] provisions that were written into U.S. law,” Dattu says. He concedes, though, that the potential clash over presidential and congressional clout when it comes to quitting a trade deal is “an area that has not been tested.” Trade and constitutional lawyers on both sides of the border agree that if Trump tried to act unilaterally, a court battle would likely ensue, perhaps ending up in the U.S. Supreme Court.

That assumes, however, sufficient political will among Trump’s foes to fight him over NAFTA. Colin Robertson, a former diplomat with long experience in the U.S., who has analyzed the new NAFTA talks in depth for the Ottawa-based Canadian Global Affairs Institute, predicts Trump would carry the day. “In a practical sense, if he says, ‘I’m pulling the plug,’ I don’t think there will be enough pressure in Congress to question his authority,” he says.

RELATED: NAFTA: What each country wants out of a new deal

Still, Robertson says potent U.S. domestic forces have already pulled Trump back from the brink once when he was close to trying to exit the agreement on his own say-so alone. When his administration was approaching its 100th day in power last April, rumours spread that he was contemplating a hasty NAFTA withdrawal. The U.S. farm lobby weighed in with the White House against that precipitous move, Robertson says, and succeeded. NAFTA supporters hope that if Trump again came close to abrogating, domestic forces would rally once more rally to persuade him to retreat.

If not, the question of Trump’s unilateral power to turn his anti-NAFTA rhetoric into reality will stop being an intriguing debating point for lawyers, and turn into a matter of massive real-world implications for a continental economy.

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Can Trump pull out of NAFTA?

Can Donald Trump pull the U.S. out of NAFTA all on his own?

Some lawyers say withdrawal without congressional approval would be unconstitutional, but the politics of the play might be another matter

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Canada has Edge in NAFTA Negotiations

Experience, outreach give Canada an edge in achieving NAFTA renovation goals

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NAFTA

Canada v Mexico: Trump seeks to divide and conquer in Nafta negotiations

Both countries are scrambling to best handle a president who ranks among the more unpredictable elements of the upcoming negotiations

Justin Trudeau and Donald Trump.
Justin Trudeau and Donald Trump. Photograph: Jonathan Ernst/AFP/Getty Images
 The rhetoric against a neighbouring country dominated Donald Trump’s presidential campaign: a billion-dollar wall, a crackdown on immigration, and a steep border tax. Yet when Trump fired the opening shot in his trade war, it was aimed not at Mexico – but at Canada.

First came an average 20% tariff on Canadian softwood lumber. Months later the Trump administration piled another tariff of nearly 7% on the sector.

Trump launched a broad attack on several sectors north of the border. “Canada, what they’ve done to our dairy farmworkers is a disgrace,” he told reporters. “We can’t let Canada or anybody else take advantage and do what they did to our workers and to our farmers … included in there is lumber, timber and energy. So we’re going to have to get to the negotiating table with Canada very, very quickly.”

The sharp reversal – a few months earlier Trump had characterised the US-Canada relationship as “outstanding” – came as a surprise to many.

“Step aside, China and Mexico: Canada is now Donald Trump’s whipping-boy du jour on trade,” said the Canadian Press, while Politico offered their thoughts on why president had not gone after Mexico first: “Canada is an easy target and doesn’t have as many weapons to fight back.”

Others said it was long overdue. “Canada was getting a free ride,” said Federico Estévez, a professor at the Autonomous Technological Institute of Mexico. “All of the fire was headed south of the US border – so Canada was getting off easy.”

Estévez pointed to the looming renegotiations of the North American Free Trade Agreement to explain the turnaround. “I think Trump understood something basic, which is that the US will not be able to tweak Nafta or rework it unless it splits up Canada and Mexico and makes Canada squirm just as well,” he said. “You want to open up some battlefronts – and that’s what he’s effectively done, to the surprise of everybody.”

With the renegotiations slated to begin on 16 August, all of the interactions of past months – from pleasantries to attacks – are again under the microscope. Against a backdrop of grievances over trade deficits and protectionist policies, officials in both Canada and Mexico are also scrambling to shore up strategies to best handle a president who ranks among the more unpredictable elements of the upcoming negotiations.

Both countries have much at stake. Canada sends about three-quarters of its annual exports to the US while nearly 400,000 people a day cross the shared border. In Mexico, some 80% of exports end up in the US.

Mexican and Canadian officials have been laying the groundwork for months. Trudeau’s inner circle have fostered close contacts with the Trump administration, while representatives from Canadian government and business have been criss-crossing the US to reinforce how Americans benefit from their relationship with Canada, said Colin Robertson of the Canadian Global Affairs Institute.

“There have been, I think, 170 visits by Canadians to the States since January. And not just to Washington but also into Trump territory,” he said. “And it’s not just ministers, it’s legislators and premiers and provincial legislators.”

The aim, said Robertson, is to mitigate what he described as Trump’s “situational politics”, which see the president shift stances depending on the audience he’s addressing. He pointed to Trump’s swipe at Canadian dairy as an example, as it came while the president addressed an audience in Wisconsin.

In Mexico, the job of managing relations with the Trump administration has fallen to Luis Videgaray, a foreign minister whose experience in the world of finance has overlapped with Trump’s son-in-law Jared Kushner.

Despite initial setbacks – Trump signed an executive order to build the border wall and tweeted that Mexico would pay for it even as Videgaray was heading to Washington to meet with Kushner – the minister and his small team have earned some plaudits as the threat of Trump has apparently diminished for Mexico and the peso bounced back after a Trump-inspired slump.

So far, Mexico’s strategy for handling Trump seems to lie in trying to save some provisions of Nafta at all costs, such as investor protections, analysts say.

The government closed online consultations late last month, though it has attracted criticism for appearing to pay closer attention to the country’s big business elite while ignoring the interests of smaller firms and beleaguered workers.

“I’ve not read the national interests of Mexico spelled out,” said Carlos Heredia of the Centre for Research and Teaching of Economics. “There hasn’t been any sort of open consultation – the online consultation is sort of a joke – but there’s nothing saying, ‘We are going to represent the national interest of Mexico, not just the top echelons of business and politics.’”

Mexico released its objectives for Nafta negotiations last week. It joined Canada in opposing US plans to eliminate dispute resolution mechanism known as Chapter 19, but also will propose anti-graft initiatives and provisions for small business and the digital economy. Energy will also be on the table as Mexico approved a reform to open its oil industry in 2013.

From immigration to the environment, Trump’s political stances – widely despised in both Mexico and Canada – could colour discussions at the negotiating table, raising questions of how America’s neighbours will respond.

While Trudeau’s approval ratings remain high, suggesting many Canadians are comfortable with his reluctance to chastise Trump, Mexico’s Enrique Peña Nieto is even more unpopular than the US leader – and his apparent unwillingness to talk tough with Trump is widely as a weakness.

“The greatest problem of the Mexican response to Trump has been that the Mexican government has acted over and over again as if the constituency of its foreign policy were only one person: Donald Trump,” said Carlos Bravo Regidor of CIDE. “This has left it open to vulnerabilities, the most of important of which is an inability to voice the legitimate grievances Trump causes many regular Mexicans.”

Despite their differences, Trump has demonstrated a level of cordiality and friendship with Trudeau, said Laura Dawson, who heads the Canada Institute at Washington’s Wilson Centre.

“It’s kind of funny in the tweets that I’ve been reading. When he’s talking about his two neighbours, he calls them, Justin and the Mexican president,” she said. “I don’t know if he doesn’t know Trudeau’s last name, I don’t know if he knows Peña Nieto’s name at all – but its always Justin and the Mexicans.”

What’s certain is that Canada and Mexico now realise they’re in it together. “There was some public opinion, at least in Canada, that we could go at it alone, without Mexico because they’re in the crosshairs and we’re not. I think that that sentiment has really subsided,” said Dawson, pointing to official statements from both countries that reiterate the importance of the trilateral agreement.

While Trump has gone after both neighbours, he’s also demonstrated that he’s open to changing his mind on things, said Dawson.

“He’s willing to find a parade and get in front of it, so I think that if Canada and Mexico are skillful enough about giving the president some wins that he can claim – you know, modernisation of the agreement, certain things that affect labour or manufacturing – I think they can also move ahead on the modernisation agenda on the Nafta.”

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