NAFTA 2.0 – Don't Drink the Kool Aid

  • National Newswatch

The NAFTA 2.0 re-negotiations are like meat in a shark tank. The doomsayers are flocking to print, TV studios and to their pulpits. But recent developments should not be surprising. The U.S. NAFTA re-balancing effort was in trouble from Day One. On January 23, 2017, I wrote: “We must hope for the best and prepare for periodic turbulence.” That turbulence has been increasing, is quite heavy and it could get worse, reaching hurricane force.Canadian and Mexican reactions, including more active support for the Trans-Pacific Partnership (TPP) of Eleven or the Zombie TPP, will inflame U.S. farmers and ranchers, among others concerned about being left behind.Former Prime Minister Steven Harper has accused PM Trudeau of napping on NAFTA. I disagree. Mr. Harper awarded failing grades on the progressive agenda, and not responding to the U.S. demands, even the most outrageous ones. His advice – Canada must keep NAFTA even if it's a bad deal so be prepared to capitulate. I disagree. There is no evidence that Canada is sleeping at the switch. Canadian negotiators are not drinking the Trumpian Kool Aid.Much has been said about Mr. Harper's interventions. I will not add my comments. You can go to the top of this page – click on 'trade' and you will probably find more than you want to know on the subject.I have read Mr. Harper's memo – the whole thing – and would characterize it as a business development piece – dealing with the blindingly obvious in a partisan way.Round Four of the NAFTA 2.0 negotiations was neither inspiring nor comforting. It has dramatically changed the optics and dynamics of the Ross/Lighthizer rebalancing act. The gloves are off. Ambassador Lighthizer has chastised Canada and Mexico for their unwillingness to swallow his poison pills. The normal forced collegiality at the wrap up press conference has been abandoned.Round Five has been delayed. Canada and Mexico have three extra weeks before resuming discussions in Mexico City. They are contemplating how to reconcile the deep and divisive differences over proposals which the U.S. Chamber of Commerce has called poison pills.Don't expect Canada and Mexico to be burning the midnight oil to find ways towards a middle ground on the key U.S. demands. There are no easy, painless difference-splitting solutions. Canada will not go to Mexico City in Round Five cap in hand to give, give, give to try to satisfy Trump's whims.Massaging the TPP text to harvest the low hanging fruit will be a useful exercise and I expect a better harvest at Round Five – better than the results of Round Four.That will not be enough for Lighthizer. He will want home runs and POTUS wants heads on pikestaffs. There is no middle ground for Team Trump. Lighthizer's focus is clawing back perceived NAFTA benefits to Canada and Mexico, and reducing deficits.We shouldn't expect balance, indeed, any payment. Commerce Secretary Wilbur Ross considers NAFTA is a difficult negotiation with so much to claw back and nothing at all to give to Canada and Mexico in return. This “Take Take Take” approach fits the Lighthizer model. But did Ambassador Bob really need Ross to admit and publicize that the Trumpian cupboard is bare by design? Why should Canada and Mexico engage in an everything for nothing stork dance? Perhaps it is all part of an evil plan to keep Canada and Mexico off guard.The Trump Administration is not currently considering withdrawing from NAFTA, at least according to Lighthizer, President Trump, in a moment of rare candour, told Republican Senators that his threat to tear up NAFTA is a negotiating ploy. Several good Senators quickly lined up to rat him out to Inside U.S. Trade's Jenny Leonard.“Trust me”, POTUS says – “I will make NAFTA better.” Like he made Obamacare better? This assurance from the lifetime record-holder of the Washington Post's Pinocchio awards must be treated with considerable skepticism. Remember POTUS assured Prime Minister Trudeau that NAFTA needed only a few “tweaks”. Some tweaks.What will Canada and Mexico do in Round Five in Mexico and the early December Round in Washington? Running on the spot and treading water are not options.Ambassador Bob Lighthizer has a “Field of Dreams” approach to re‑inventing U.S. trade agreements and trade policy. But no one has come. U.S. insularity and isolation are not attractive. NAFTA 2.0 is a one-man show for a one-man audience.Who is writing the NAFTA script and who is calling the shots? There are no footprints or fingerprints to trace the poison pills back to industry stakeholders or to Congress. The rejection of the Trumpian brinksmanship by business and farm groups seems overwhelming, but so far, it has been ignored by Lighthizer.Bailing on MexicoShould Canada have thrown Mexico under the bus? Should this be a priority? No – I would rather have Ambassador Lighthizer fighting on two fronts than Canada and Mexico being in that position. It is not clear what Canada would gain from abandoning Mexico. The support for bailing on Mexico is misinformed. If Canada was to bail on Mexico it would lose an important ally and tarnish its halo with other trading partners.Should Canada capitulate to unreasonable U.S. demands?Absolutely not. There is no reason to accept a bad deal for the sake of keeping NAFTA. We need to understand the implications of life without NAFTA and how long it would take to adjust. Canadian negotiators are working long hours to find mutually beneficial improvements in NAFTA. I would trust their skills and experience.Canada went into NAFTA 1.0 for defensive reasons. NAFTA 2.0 was also a defensive initiative for Canada, with much more at stake because of nearly 30 years of integration, since CUSTA entered into force in January 1989.Progressive vs Conservative AgendasMr. Harper believes that Canada is wasting its time proposing and promoting progressive non-trade initiatives. True, these initiatives are based on Liberal policies and priorities. They were never at the top of the Harper government's shopping list and are not even close to making President Trump's list.Canada is not pursuing a progressive agenda alone:
  • France wants to include a “green veto” in its ratification of CETA.
  • Within the E.U. there is a widespread consensus on the need for European companies to be protected against environmental and social dumping.
  • A UN working group recently discussed creating a legally binding tool guaranteeing the enforcement to ensure multinational corporations respect and protect human rights. This initiative will never be at the top of the U.S. hit parade, but France has adopted such a law.
The TPP of ElevenCanada and Mexico need to expand the scope of their free trade agreements as much as possible to hedge against possible NAFTA trade losses. Completing the TPP of Eleven is a high priority.The Gang of Eleven has been working hard towards signature of a TPP of Eleven at the APEC meetings in Da Nang, Vietnam November 11-12.This is not an easy task. First it is important to strip out “freeze” benefits which might flow to the U.S. from TPP amendments to generally applicable legislation. The Intellectual Property Chapter will likely be a victim to this purge.New Zealand wanted changes to the TPP in Investor State Dispute Settlement. Prime Minister Ardern has softened her opposition to ISDS in TPP. Why? – promoting dairy and other farm exports is of paramount importance to New Zealand. And PM Ardern has found a way under domestic law to ban foreign purchases of housing.There have been concerns about maintain concessions made based on a 12 member agreement. Japan has cautioned about changes which could create problems for reviving the entire pact in a timely way. Will Canada be able to ensure that it is not whipsawed by double dipping on NAFTA and TPP market access?Vietnam – whose largest gain would have been more or less free access to the U.S. – has identified provisions it wants to freeze relating to:
  • e-commerce;
  • local storage requirements for personal information and e-commerce data (Japan opposes).
Reports from Urayasu, Japan claim significant progress in narrowing issues.Not mentioned in dispatches from the preparatory meetings are suggestions about re-branding the TPP. The NAFTA and TPP brands have been trashed and tarnished. Would a new addition to the alphabet soup of trade agreements make it easier for the U.S. to rejoin the agreement? Don't hold your breath waiting for that.Canada and Mexico advanced requests for changes (or freezes) in June. It is not clear that any have been resolved or are still in play. Following its “progressive” approach to NAFTA 2.0, should we anticipate proposals from Canada to:
  • expand the New Zealand Maori Chapter or introduce an indigenous peoples' chapter;
  • make labour standards in TPP countries more palatable to Canadian labour representatives – Come on down Jerry Dias;
  • include a chapter on trade and gender;
  • modify the chapter on trade and the environment which would actually mention climate change?
None of these changes would be easy to sell and could delay agreement beyond Da Nang.Japan would not be amused. Reuters reports,“Japan hopes to finalize the deal at the APEC meeting to show other nations that it can act as a champion of free trade and hopes Washington will eventually reconsider and return to the deal.Will Japan decide to freeze its agricultural market access concessions? President Trump will be visiting Tokyo November 5-7 with Ambassador Lighthizer in tow.POTUS will be carrying demands from U.S. beef, pork, rice and soybean producers that he try improve their market access to Japan and other Asian countries. Their stakeholders do not want to lose ground to Canada, Australia, New Zealand and others in a TPP of Eleven. Japan should be mindful of Lighthizer's approach on supply-managed products in NAFTA. National farm co-operative JA Zenchu has been monitoring that situation and is no doubt actively lobbying.Given the range of Japan-U.S. issues which will be discussed in the Trump-Abe summit, there will be pressures on Japan to go slow on making the TPP of Eleven a reality.All the more reason for a full court press to conclude it and find other ways to diversify Canada's trade.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