Protectionist policies may be obstacle to talks, report says
Dispute over dairy sector among issues that could thwart process: analysts
Canada may have to pare back some of its more protectionist trade policies in order to successfully navigate negotiations over the North American Free Trade Agreement, a report released Tuesday says.
Analysts at policy think tank Fraser Institute said Canada may encounter resistance on issues such as protecting the dairy industry, limits on foreign investment in the finance and telecommunications sectors, and certain intellectual property (IP) provisions.
Such snags could cause delays in broader negotiations, it said.
Steven Globerman, a senior fellow at the Fraser Institute who wrote the report, said officials may be overly optimistic about the U.S. government’s willingness to ignore some of its main concerns with the current deal.
NAFTA negotiations are scheduled to begin Wednesday.
“I think there’s almost a feeling of complacency that somehow the three parties are going to find a way,” said Steven Globerman, a senior fellow at the Fraser Institute who wrote the report.
The fallout of failing to come to a deal likely means that Canada and the United States would go back to the U.S.-Canada Free Trade Agreement, signed in 1987.
Many provisions under the earlier trade deal are very similar to NAFTA, Globerman writes, meaning that under a certain scenario the two countries would have to fall back on trade agreements established years before the initial Canada-U.S. trade agreement.
“The Canadian government needs to be thinking about what the implications are of the Canada-U.S. free trade agreement in fact going away, and falling back to the World Trade Organization,” Globerman said in an interview.
He said a fall back to WTO terms “would not mean economic Armageddon” for companies, but would lead to higher tariffs for both U.S. and Canadian suppliers in some sectors, including auto parts manufacturing.
Still, Globerman said he was fairly confident the three countries will successfully update the current terms of NAFTA.
While a return to earlier trade rules is not expected, observers have outlined several areas of contention likely to come up during the talks.
The foreign affairs office has so far attempted to frame the negotiations as a positive for Canada, saying modernized terms could be a “win-win-win” for the three countries.
In a speech Monday morning, Foreign Affairs Minister Chrystia Freeland laid out Canada’s goals in the negotiations, including cutting “red tape” for businesses and allowing for the freer movement of people between the three countries.
She also made clear that there were certain areas in which Canada would not make concessions, though she did not elaborate on specific aspects of NAFTA.
“In all these discussions, we will come to the table with goodwill, and Canada’s characteristic ability and willingness to seek compromise and find win-win solutions,” she said in prepared remarks.
“But we are committed to a good deal, not just any deal. That will be our bottom line.”
Meanwhile, Freeland also suggested her office was open to renegotiating some dispute resolutions within Chapters 19 and 11.
Dispute resolutions in both chapters have always been highly contentious areas of the deal, with the U.S. explicitly saying it aims to renegotiate anti-dumping provisions included under Chapter 19.
Freeland also said Canada would be open to negotiating the terms of resolutions between investors and the state, typically categorized under Chapter 11.
The change could have a significant impact on major investments and cross-border infrastructure projects, in which private businesses are able to appeal government decisions.
She said Canada is open to amending Chapter 11 “to ensure that governments have an unassailable right to regulate in the public interest.”
Environmental organizations and social justice groups have long opposed the resolution, saying it gives large corporations outsized influence over private business.
Last June, Calgary-based TransCanada Corp. filed a lawsuit against the U.S. government under Chapter 11 after former president Barack Obama vetoed its Keystone XL pipeline proposal. The company argued the decision was politically motivated, and not based on years of study on the project.
Some investors claim that Chapter 11 provides a highly necessary backstop should governments make political decisions that cause snags for private business.
“In the Canadian context, it is probably true that our courts would defer more to governments and hence the notion that foreign investors are getting better treatment under NAFTA,” said Mark Warner, the principal counsel at MAAW Law based in Toronto.
Experts say that any changes to NAFTA could take years to implement. Major tweaks to the current policies, they say, could also be opposed by U.S. Congress, which could effectively stall renegotiations.