NAFTA 2.0 – Frontal attack on Canadian and Mexican Sovereignty

  • National Newswatch

Civil Society is fond of grumbling about trade negotiations infringing on national sovereignty. Until NAFTA 2.0 they have been wrong.Total rebalancing of NAFTA to benefit the U.S. makes their concerns very real. The key U.S. demands are a frontal attack on Canadian and Mexican sovereignty.The pace of meetings has slowed down. The two meeting rooms across from my desk were empty all day. Activity is expected to pick up Monday as the U.S. tries to project appearances of momentum and progress.There are fewer cleared advisors around over the weekend and some have gone home. The extreme nature of the U.S. demands has had a chilling effect on progress.Normally negotiators will have mandates or guidance from Ministers for each issue on the various negotiating tables. Each position is tabled and explained. No one ever sees the light and wisdom of the opponent's position.A ritual stork dance follows – a careful narrowing of numerical gaps and removing square brackets – towards a mutually unacceptable closure at the end of the process or close to it. If and when that process stalls, the real horse trading begins among chief negotiators.Most differences can be resolved this way – but much depends on the relationships between the chief negotiators – built on trust and experience.Neither Canada nor Mexico is ready to do this with the U.S. First, there isn't enough trust in the Trump Administration to reveal bottom lines. Nor will the poison pill big asks from Ambassador Lighthizer be engaged easily or at all. For half a dozen issues the current and future position is not to engage – because the U.S. demands are totally unacceptable. There is no bottom line when one's position is refusal to engage.I do not expect any movement on Ambassador Lighthizer's key demands this round, nor the next two. The negotiators need time to consult and reflect. The sixth session scheduled for Washington could be Doomsday.The low hanging fruit remains to be picked and it is still possible that several more chapters can be closed this week. But will the appearances of collegiality survive? Given Lighthizer's belligerent approach, the relationships must be strainedThe world is watching the circus – lest they be next. Politico reports on the mood in Japan and Japan's preference for multilateral negotiations. The impact of throwing away the TPP is real. The 9% decline in pork exports to Japan in August is significant. The E.U. and others with preferential access will leave U.S. hog farmers scrambling for new access for the record herd.Agriculture Secretary Perdue wants to reduce prohibitive Japanese tariffs on beef and pork and dairy and other products. Talk to POTUS, Sonny – he threw it all away – and Japan doesn't share Trump's love of the bilateral trade agreements.Lighthizer's demand to scrap NAFTA Chapter 19 is unacceptable to both Canada and Mexico. Canada will push back with proposals to make the system work better. These proposals will likely take aim at U.S. practices which delay and undermine the effectiveness of panel selection and procedures.Canada and Mexico want to keep Chapter 19 and make it more functional. Lighthizer simply wants to scrap it. Canada cannot contemplate any further weakening of the system, let alone its elimination. Discussions on this chapter will go nowhere fast – even at warp speed.On automotive rules of origin, Lighthizer appears to be ignoring auto industry power brokers and leaders. He reportedly told them he is in this negotiation for the workers. This would not be the first time a negotiator has claimed this but they do not normally drink their own Kool-Aid as enthusiastically as Ambassador Bob appears to.There is no discussion of the 5 year sunset proposal – not even offers for 10 or 15 years. Trade agreements are not only about tariffs. They are about attracting and solidifying investment. No country is likely to buy into serial harassment.Governments are faced with justifying trade negotiations to the voters. The potential broadly based benefits are an important part of the selling pitch. What will be the reaction to admissions that every five years the U.S. will reduce NAFTA benefits to Canada and Mexico?Mexico is not pleased about several U.S. proposals but none more than the proposed changes in U.S. trade remedies laws which would permit Floridian fruit and vegetable farmers to run roughshod over normal anti-dumping rules.Don't expect the Government of Mexico to get angry– but it will get even.Mexico does not sit still for U.S. protectionism. Inside U.S. Trade reports imports of U.S. beef, pork, corn and other grains could be targets.U.S. interests lobbying for the special dumping provisions are delusional in their belief that Mexico could not retaliate without a change in NAFTA (which the U.S. would block).Will Mexico pay any attention to the niceties if it considers others have bent or broken the rules? Don't expect Mexico to wait six years for a WTO Panel to adjudicate the U.S. measures.In 2009, Mexico imposed penalty tariffs on about 90 U.S. products in retaliation for U.S. denial of access to Mexican truckers to U.S. roads. The Mexican measure hit products from 40 states worth $2.4 billion.In the Country of Origin Labelling (COOL) dispute, Canada published an advance warning of retaliation list in the Canada Gazette. The filing of the list got attention of key Congressional leaders and potential U.S targets. Hearts and minds followed – and the dispute was settled, more or less, peacefully after a six year dispute which cost Canadian livestock producers billions of dollars.Much of the U.S. business community and virtually all farmers and ranchers do not want Lighthizer to rock the NAFTA boat with his unrealistic demands. So far, their concerns are falling on deaf ears. Ambassador Bob is concerned only with satisfying the whims and priorities of POTUS.There is little being done or which can be done to develop compromises – the gaps are simply too wide – and unacceptable. The negotiators are between a rock and a hard place. Canada and Mexico have political concerns and problems too.The following U.S. proposals are among those which will impact sovereignty:
  • unilaterally require re-negotiation and clawback every five years;
  • demands that U.S. be able oversee and control Canadian policy decisions;
  • disciplines on discretionary pricing outside WTO rules;
  • unbalanced procurement rules and rules of origin;
  • remove the safeguards of effective dispute settlement.
Amid the speculation surrounding the timing of the next rounds of meetings, possible suspensions of talks and expectations that the negotiators will soon run out of both gas and time, many are wondering how Ambassador Lighthizer will summarize the week.There are rumours that Minister Freeland is getting under his skin. She has an irritating habit of speaking her mind and tenaciously defending Canadian interests. Perhaps Ambassador Bob needs a 2017 calendar with the year circled.How long can the running on the spot continue? Mexico has apparently tired of efforts to work with TPP texts. Steve Verheul will continue to insist on real detail in the U.S. proposals.The U.S. proposals for major adverse changes for Canada and Mexico will require time to digest the proposals, at least, that would be normal practice. The gaps between the frontal attacks on Canadian and Mexican sovereignty and political reality are too broad to bridge. Lighthizer does not want a negotiation, he wants a capitulation.The negotiations may yet crash and burn – but not likely this week.Can Lighthizer accept delays in his unrealistic and unreasonable schedule? I suspect that an overly aggressive response to delays will result in Congress, Ag and business lobbies doubling down in their push back. Failure to keep up the pressure will send a message that the strong language and aggressive posturing was a charade (the world can only hope).Delays to try to engineer compromises will put the timetable on a collision course with Mexican and U.S. elections. And Trade Promotion Authority must be renewed in 2018. POTUS may find that there will be tighter controls on Administration negotiators. Would his answer be termination to keep his promise, leaving Congress to clean up the mess?There is low hanging fruit to be harvested. Telecommunications and e-Commerce and perhaps another chapter are likely to be closed this round. Mexico has agreed with Canada on the importance of a trade and gender agreement, but the new issues, those important to the Trump Administration, have not been received warmly at all – they threaten to put the whole negotiation into a deep freeze.Why is Lighthizer advancing positions which the U.S. knows are not acceptable to its neighbours? It appears to be about dividing, conquering and blame casting. Lighthizer needs to be able to point at “bad actors” to justify terminating NAFTA. He seems determined to paint Canada and Mexico as troublemaking obstructionists, frustrating POTUS' efforts to deliver on his election promises.Terminating NAFTA would open the way for separate bilateral negotiations with Canada and Mexico. It seems likely that termination of CUSTA will be packaged with termination of NAFTA. Lighthizer prefers to bludgeon trading partners into submission one at a time.The one sided U.S. take, take, take approach is frustrating. It is the trade negotiating equivalent of Jerry Reed's country classic “She got the goldmine (I got the shaft).” We are a long way from “Everything is Beautiful”.Peter Clark, president of Grey, Clark, Shih and Associates, is one of Canada's leading international trade strategists. His clients in Canada and around the world include governments, corporations and trade associations. He is a frequent media commentator and columnist.  Follow him on Twitter at @jpclark14