Dairy and the NAFTA Negotiations

POLITICO

Morning Trade

A daily speed read on global trade news

With help from Megan Cassella

 A PESSIMISTIC VIEW ON CANADA DEAL TIMING FROM UP NORTH: Colin Robertson, a former Canadian diplomat who is vice president at the Canadian Global Affairs Institute, told Morning Trade he thinks the negotiations could drag on for weeks because of the difficulty Trudeau faces in reaching a deal on dairy before the Oct. 1 election in Quebec.

“I think talks could go on into October. Like the World Series, there are still innings to be played and [we should] expect surprises,” Robertson said.

Quebec is Canada’s largest dairy-producing province, accounting for nearly half of the country’s farms and about 37 percent of its milk productionIn addition to the upcoming vote for the Quebec National Assembly, the French-Canadian province will also be a prime battleground in the next federal election, which many expect in October 2019.

To stay in power, the Liberals will have to pick up seats there to offset likely losses in Atlantic, where they currently hold all the seats, and perhaps in British Columbia because of a pipeline controversy, Robertson said.

A Canadian government spokesman did not directly say whether the elections are complicating the talks but told Morning Trade that “the federal government is in touch and consults regularly with provincial and territorial governments on the NAFTA negotiations. In fact, Prime Minister Trudeau held a call with provincial and territorial premiers just over a week ago to update them on progress.”

As for timing, Freeland knows a swift resolution is important, but Canada will take the time needed to get a good deal, an aide said.

Two industry officials — one American and the other Canadian — speaking on the condition they not be identified, doubted the fast-approaching Quebec election was having much impact on the negotiations. “Sure, the Quebec election adds another political angle to it here, but by no means is the political sensitivity new,” the Canadian industry aide said. “I don’t think the Quebec election is going to be holding back things in the ag context.”

Dairy plays both ways with the electorate, Robertson added. “While all Quebec parties fiercely defend supply management. Some producers favor the end of supply management as they think — and I think correctly — that Canadian cheese can be world busters and that we can be as competitive as New Zealand and Australia. Of course there will have to be adjustment assistance. But it is affordable, if costly in the short term, and there is no reason our dairy and poultry can’t be as successful as our beef pork grains and lentils. Mr. Trump may force us to do what we should do,” he said.

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G7 Trade and Trump

Trump’s global trade war

‘Today is a bad day for world trade,’ says Cecilia Malmström, the European trade commissioner.

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The Trump administration ratcheted up the brinkmanship by announcing new duties on steel and aluminum imports from the European Union, Canada and Mexico | Chip Somodevilla/Getty Images

 

Donald Trump’s move to slap penalties on imports from U.S. allies including the EU is moving the country to the brink of a global trade war — with U.S. consumers, farmers and manufacturers caught in the middle — as the White House tries to wrest concessions from reluctant trading partners.

The Trump administration will impose new duties on steel and aluminum imports from the European Union, Canada and Mexico after failing to reach deals with them to address national security concerns related to the imports, Commerce Secretary Wilbur Ross said Thursday.

The decision has implications for farmers in key Midwestern states who will see their exports crimped, consumers who are expected to pay more, workers who may see cost-cutting in export-heavy industries and global relations with crucial trading partners as the U.S. tries to exert pressure on China.

“Today is a bad day for world trade,” said EU Trade Commissioner Cecilia Malmström, who tried to persuade the Trump administration to permanently exempt the EU from the new tariffs and begin trade negotiations instead.

“Throughout these talks, the U.S. has sought to use the threat of trade restrictions as leverage to obtain concessions from the EU. This is not the way we do business, and certainly not between longstanding partners, friends and allies,” she said.

European Commission President Jean-Claude Juncker said the EU now had “no choice” but to challenge the U.S. action at the WTO.

It also indicates that the U.S. administration has given up hope of finishing NAFTA negotiations with Canada and Mexico in the near future. That raises the question of whether Trump will have the patience to wait until later this year or possibly even 2019 to get a new agreement, or if he will make good on a campaign promise to pull out of the 24-year-old pact. In addition, Mexico’s presidential elections are just a month away, and a new government may feel populist pressure to avoid giving any concessions to the Trump administration.

Mexico condemned the move and provided a partial list of $3 billion worth of U.S. imports that it will hit with retaliatory duties. The items include manufactured goods like lamps as well as agricultural imports from its neighbor like pork, apples and various cheeses.

European Commission President Jean-Claude Juncker said the EU now had “no choice” but to challenge the U.S. action at the WTO and to proceed with initial plans to retaliate on $3.3 billion worth of U.S. exports including items like yachts, whiskey bourbon, lipstick and orange juice. Those duties are expected to go into effect in mid-June.

Agricultural products make up about one-third of the total EU retaliation list in terms of value, with goods like kidney beans, rice, cranberries and peanut butter facing tariffs. The list also hits about $1 billion worth of U.S. iron and steel goods.

“This action puts American workers and families at risk, whose jobs depend on fairly traded products from these important trading partners. And it hurts our efforts to create good-paying U.S. jobs by selling more ‘Made in America’ products to customers in these countries,” said House Ways and Means Chairman Kevin Brady (R-Texas).

The action also casts a pall over the coming G7 meeting in Canada, where Trump will meet with other leaders of the world’s seven leading Western economies, including Canadian Prime Minister Justin Trudeau, French President Emmanuel Macron and German Chancellor Angela Merkel.

“Mr. Trump will be like the proverbial skunk at the garden party given the protectionism,” said Colin Robertson, a former Canadian trade negotiator and vice president of the Canadian Global Affairs Institute. “He is the outlier anyway, but this is simply going to make those two days of discussions more tense.

A threat to domestic production

The latest move is another outgrowth of a Trump administration investigation released earlier this year that found that the overall volume of imports posed a threat to U.S. national security by undermining domestic production of the two metals.

The U.S. imported $29 billion worth of steel in 2017 — about half of which came from the EU, Canada and Mexico. Canada supplied more than 40 percent of the $17.8 billion worth of aluminum the U.S. bought in from foreign suppliers last year.

China is largely blamed as the primary source of global excess capacity in both the steel and aluminum sectors. But the U.S. imported just $1 billion worth of steel and $1.7 billion worth aluminum from China last year because of extensive duties that have been in place for years.

The EU, Mexico and Canada argued that they are such close allies of the U.S. they are unlikely to cut off steel and aluminum shipments in times of war. But the Trump administration rejected that reasoning.

“There is potential flexibility going forward. The fact that we took a tariff action does not mean there can not be a negotiation” — Wilbur Ross, U.S commerce secretary 

Despite the brinkmanship, Ross said the Trump administration wants to continue negotiations. He said he’s still planning to make a trip to Beijing this weekend even after the U.S. announced it would slap tariffs on $50 billion in Chinese goods, jeopardizing a fragile agreement to reduce the U.S. trade deficit with China. And Ross also said there’s still scope for negotiations with Canada, Mexico and the EU that could reduce or eliminate the tariffs.

“There is potential flexibility going forward,” Ross said. “The fact that we took a tariff action does not mean there can not be a negotiation.”

Surprise for neighbors

The decision to impose tariffs came as a shock to Canada and Mexico, as both countries thought that they would be spared from the levies because of earnest negotiations that they have had with administration officials over NAFTA. One U.S. industry official who had been in contact with negotiators from both sides said neither country had been notified by the White House as of Wednesday evening and they were learning of the possibility of tariffs from news reports.

But after nine months of NAFTA negotiations, there is no clear end to the talks and therefore Canada and Mexico were added to “the list of those that will bear tariffs,” Ross said.

Canadian Foreign Minister Chrystia Freeland had traveled to Washington on Tuesday to discuss the issue, among other matters, with U.S. Trade Representative Robert Lighthizer. But she left having made little progress in discussions and having little idea of what the Trump administration’s plans were, two sources briefed on the meeting said.

“Canada considers it frankly absurd that we would in any way be considered to be a national security threat to the United States,” Freeland told reporters Wednesday. “I would like to absolutely assure Canadian participants, those who work in steel and aluminum industries, that the government is absolutely prepared to and will defend Canadian industries and Canadian jobs.”

Other Republican members of Congress were quick to criticize the move.

“This is dumb. Europe, Canada, and Mexico are not China, and you don’t treat allies the same way you treat opponents,” Sen. Ben Sasse (R-Neb.) said in response to the action. “We’ve been down this road before — blanket protectionism is a big part of why America had a Great Depression. ‘Make America Great Again’ shouldn’t mean ‘Make America 1929 Again.’”

The Aluminum Association, which represents much of the aluminum companies in the U.S., also said that it was “disappointed” by the announcement. “Today’s action does little to address the China challenge while potentially alienating allies and disrupting supply chains that more than 97 percent of U.S. aluminum industry jobs rely upon,” said Heidi Brock, the group’s president and CEO.

But defenders of the administration’s action said it was badly needed to restore order to international steel and aluminum sectors.

“This situation needs to be dealt with. The rest of the world has enabled China to continue to produce massive amounts of steel with excess capacity into the hundreds of millions that has totally disrupted the global steel industry,” said Dan DiMicco, a former trade adviser to Trump.

DiMicco, who was a long-serving CEO of U.S. steelmaker Nucor, said China has always found ways to circumvent previous restrictions by sending products via Canada and Mexico, as well as Vietnam and South Korea, where they are slightly modified or relabeled before being sent to the U.S.

“If the whole world had dealt with this problem originally as we talked about for the better part of a decade now, we wouldn’t be where we’re at,” he said. “But we are where we’re at because nothing’s been done and it’s time to get it done.”

In that regard, the Trump administration hopes other countries will follow the lead of the EU, which has announced plans to impose safeguard restrictions on imports, so it isn’t hit with product diverted from the U.S.

“We look forward to other countries doing very similar things to shut down this very global problem,” Ross said.

Megan Cassella, Adam Behsudi and Hans von der Burchard contributed reporting.

 

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Trump, Trade Deficits and Trudeau

President Donald Trump repeated his controversial claim on Thursday that the U.S. has a trade deficit with Canada to swipe at Canadian Prime Minister Justin Trudeau, a day after boasting about attempting to bluff the Canadian leader on the subject.

“We do have a Trade Deficit with Canada, as we do with almost all countries (some of them massive),” Trump said on Twitter on Thursday morning. “P.M. Justin Trudeau of Canada, a very good guy, doesn’t like saying that Canada has a Surplus vs. the U.S. (negotiating), but they do…they almost all do…and that’s how I know!”

The Office of the U.S. Trade Representative says the U.S. in 2016 had a goods and services trade surplus with Canada of $12.5 billion. And Trump’s own 2018 economic report, which was released last month and signed by the president, also notes that the U.S. runs “a net bilateral surplus only with Canada and the United Kingdom.”

But Trump and his top trade official, USTR Robert Lighthizer, argue that official statistics understate the size of the U.S. trade deficit with Canada, as well as with Mexico, because the data doesn’t reflect the value of imports from China and other suppliers that first enter the U.S. and are then re-exported to one of the North American neighbors.

“You have a number of — $30, $40, $50 billion worth — of transshipments that have nothing to do with the U.S. economy,” Lighthizer told reporters in January of this year, at the end of a round of talks to renegotiate the North American Free Trade Agreement. “We end up having wrong numbers about Canada, wrong numbers about Mexico.”

The president’s early morning tweet came after he bragged to donors at a closed-door fundraiser in Missouri on Wednesday evening that he recently told Trudeau the U.S. had a trade deficit with Canada, even though he wasn’t sure of the details. He said the Canadian prime minister refuted his claim.

“I didn’t even know,” Trump said, according to audio obtained by POLITICO. “I just said, ‘You’re wrong.’”

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Trump also reportedly asked staff to check on Trudeau’s assertion that the U.S. does indeed have a trade surplus with Canada. He then said that the statistics don’t include energy and timber, “and when you do, we lose $17 billion a year,” he said. ‘It’s incredible.”

The White House defended Trump’s comments at a press briefing Thursday afternoon and appeared to embrace his formula, telling reporters that the data showing a surplus are “not complete.”

“The president was accurate because there is a trade deficit and that was the point he was making,” said White House presssSecretary Sarah Huckabee Sanders, adding: “There are plenty of things, once you take into the full account all of the trade between the two countries, that show that there actually is a deficit between those two.”

The latest back-and-forth over the deficit comes as the U.S. is negotiating with Canada and Mexico to modernize NAFTA, which took effect in 1994. Trump in recent weeks has repeatedly mentioned a U.S. trade deficit with Canada in the context of the NAFTA talks. “We have large trade deficits with Mexico and Canada,” he has said, using that to defend his argument that the agreement has been a “bad deal” for Americans.

But Canada’s Foreign Affairs Ministry, which is leading the NAFTA talks for Ottawa, brushed off Trump’s latest remarks.

“Canada and the United States have a balanced and mutually beneficial trading relationship. According to their own statistics, the U.S. runs a trade surplus with Canada,” Adam Austen, a foreign affairs spokesperson, said Thursday. “We are energetically at work modernizing and updating NAFTA to support good jobs and the middle class in Canada, the United States, and Mexico.”

Trump’s latest remarks are unlikely to have any significant effect on the ongoing talks, which are set to resume next month with another formal negotiating round, to be held outside Washington, D.C.

“I think people just look at this and say, ‘There he goes again,’” said Colin Robertson, a former Canadian diplomat who was part of the country’s original NAFTA negotiating team. “I think people think Trudeau has managed Trump well to the national interest. They know that you can’t insult him, because our prosperity depends on our ability to trade with the U.S.”

“So don’t get diverted,” Robertson added. “Don’t get fussed by this.”

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Perimeter Security

We are making progress on a more accessible border with U.S.

Colin Robertson Thursday, Nov. 27 2014 Globe and Mail

Tragedies can divide people and nations. They can also bring them together in shared solidarity as was recently demonstrated by Canada and the United States around our still-developing security perimeter.

In the aftermath of 9/11, the United States retrenched. The 49th parallel became a real border. Since then both countries, at the initiative of Canadian governments – Liberal and Conservative – have worked to create a security perimeter within which people and goods can circulate. Last month, the perimeter concept passed a critical confidence test.

The recent assassination of Canadian soldiers on Canadian soil by adherents of radical Islam (mental health also played a role) could easily have resurrected American fears of a soft-on-security Canada.A week earlier, Politico, the popular Washington insiders’ daily, ran a story describing “the real terrorist threat next door.”

Headlined “Fear Canada,” it rehashed the tale of millennium bomber Ahmed Ressam and the Toronto 18 warning that the U.S. has much more to fear from Canada. Even if the piece had a South Park “Blame Canada” quality, it could have found an audience in perfervid Washington. But it didn’t.

Instead, the U.S. reaction to the assassinations has been empathetic and understanding.

Within days, U.S. Secretary of State John Kerry laid a wreath at our national cenotaph, symbolizing American sympathy and solidarity. This past weekend, at the Halifax International Security Forum, the congressional delegation led by Republican Senator John McCain and Democrat Senator Tim Kaine expressed the same sentiment, acknowledging that such events could also happen in the United States.

So what has changed?

A lot, including the development of a verifiable security “perimeter” – a word once forbidden from the official Canadian lexicon for fear it would somehow undermine Canadian sovereignty.

The “Smart Border” Accord, negotiated by then Deputy Prime Minister John Manley and Homeland Security Adviser (and later Secretary) Tom Ridge, kicked off the process with its checklist of thirty plus deliverables. It succeeded.

Mr. Manley and Mr. Ridge trusted each other. They set deadlines and demanded that their officials reconcile their differences before the two met.

But progress is not always in a straight line. When former prosecutor Michael Chertoff succeeded Mr. Ridge, border co-operation froze. Enforcement became the order of the day.

A more accessible border was Prime Minister Stephen Harper’s first ask of Mr. Obama during the President’s visit to Ottawa in February, 2009. When it went nowhere, Mr. Harper renewed his request and, in December, 2011, the Harper agenda became a shared plan for border and regulatory collaboration.

Converging Canadian and American public attitudes towards security help the process.

An IPSOS poll, released at the Halifax Forum, says that 60 per cent of Canadians and two-thirds of Americans see the world as a more dangerous place, underlining the case for co-operation.

A second look by the Chicago Council on Global Affairs at recent Canadian and American polling concluded that strong majorities – 57 per cent in Canada and 72 per cent in the U.S. – support closer co-operation on border security.

Border and regulatory co-operation is delivering results:

Enhancing collaborative cross-border law enforcement most visibly through the “Shiprider” program where enforcement officers of both nations jointly police the Great Lakes.

Harmonized approach on who can enter the perimeter. Canada is introducing an electronic travel authorization system that will parallel the existing U.S. visa-free system for pre-screening entry from travellers from visa-free countries.

Systematic information sharing on immigrant and refugee applicants, including entry information on third-country nationals thus allowing our two countries to share information on who has entered.

Joint border infrastructure planning to improve passage, including 28 binational ports-of-entry committees created to ensure local input.

Other tangible improvements include additional trusted-traveller lines at our ports of entry. Over a million Canadians subscribe to the “fast-pass” NEXUS program.

There is still work to do.

We need to merge the various trusted-traveller programs (and include Mexico). We need to roll-out the “single window” program so businesses and travellers can provide information to both governments once, not umpteen times in different formats.

The financing of the Detroit customs plaza remains unresolved. “Once inspected, twice (and eventually thrice) cleared” is still more rhetoric than reality. Border officials on both sides still behave with an “enforcement” mentality rather than as expeditors of goods and people.

We need to make permanent border and regulatory oversight within our Privy Council Office. Changes to the U.S. government’s North American oversight, recommended in the recent Council on Foreign Relations report, deserves attention.

But we are making progress and passing real tests. Our continental perimeter, one that will eventually include Mexico, is taking shape.

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