A free-trade lesson for Canada

And so it begins. Earlier this week, the Office of the United States Trade Representative (USTR) released a list of the negotiating objectives it hopes to achieve when the U.S., Canada and Mexico meet next month to begin “tweaking” the North American Free Trade Agreement.

While it’s still early days, the USTR’s list provides more reason to hope than despair. In a clear nod to Trump’s base, its language has the flavour of economic nationalism. But it also includes many good suggestions that would genuinely improve the pact, if implemented. But that’s a big if. While Canada and Mexico are likely to accept some of the USTR’s terms, others will almost certainly prove controversial — many for the wrong reasons. Notwithstanding Ottawa’s protrade talking points, when it comes to protecting too many sectors of our economy, Canadians are known to act every bit as protectionist as Trump sounds in his stump speeches to the U.S. heartland.

Given that Trump rode to power at least in part on a wave of protectionist sentiment, it is no surprise that the USTR expresses some goals that suggest the U.S. is approaching trade as a zerosum game. The very first item on the list, for example, is a commitment to “improve the U.S. trade balance and reduce the trade deficit with NAFTA countries.”

That makes no sense, as any economist worth his salt will tell you. In a trade-liberalized world, nations produce those goods and services that it’s to their comparative advantage to produce, and import those goods and services for which it’s not. This naturally leads to trade surpluses in some sectors and deficits in others.

That’s not a bug, it’s a feature of free trade, and it’s not a reality U.S. negotiators can just wave away. The U.S. might try to create the appearance of fulfilling this objective by protecting targeted industries (such as, say, manufacturing) through “Buy American” policies or other protectionist measures. We hope not, but it’s something our negotiators will have to be ready for.

But beyond these worries, the USTR is also pushing for a number of commendable changes. Among other things, it wants to reduce the burdens businesses face complying with cross-border regulatory differences; to have all partners adhere to international labour and environmental standards; to ensure non-discriminatory practices in government procurement (albeit with a discouraging number of exceptions); and to expedite e-commerce across borders and raise the value of goods North Americans can buy online without paying duties (to US$800, up from CAD$20, although no duties would be better). Such changes would get us a little closer to what genuinely “free” trade means. There’s a lot of positive material for our negotiators to work with here.

But other demands will make Ottawa squirm. The U.S. wants to eliminate nontariff barriers to agricultural exports; promote competition in telecommunications; provide open conditions for services trade; and eliminate barriers to investment in all sectors. In other words, it wants Canada to dismantle the various measures its erected to protect powerful industry groups in our agricultural, telecommunications, financial services and other sectors, which only hurt our consumers and the economy.

Ottawa talks a good game on free trade, but if history’s any guide, it’s not about to sacrifice these special interest groups on the free trade altar. In both its recent CETA and TPP negotiations, it proved unwilling to give much ground. That’s unlikely to be different this time. But we do note that there are two important distinguishing factors at play in NAFTA 2.0: transparency and a highly engaged electorate.

Canadians can expect a great deal of transparency about what’s coming down the tubes on NAFTA. Not because the Liberals have at last decided to start delivering on their long-promised transparency agenda, but because in 2015, the U.S. Congress passed the Bipartisan Congressional Trade Priorities and Accountability Act, which gave the House and Senate unprecedented powers to monitor trade talks and provide input on them. The act also includes public notice and consultation requirements, which is what led to the negotiating objectives being published this week, and will result in draft changes to the agreement being released as well.

This is an important difference from both the CETA and TPP talks, where the public was kept largely in the dark about those agreements’ terms during their negotiation. The enhanced transparency around NAFTA will either put more pressure on our leaders to serve consumers’ best interests (as opposed to interest groups’), or at least expose them for their double talk on free trade.

Second, unlike with CETA and TPP, the government is not starting with a blank slate. Millions of people already rely on NAFTA’s terms, and will not treat proposed changes as mere academic exercises.

Perhaps this will tip the scales in those moments when the government has to choose between concessions that are good for all Canadians, or those that benefit only a select few. It would be a welcome surprise if it ended up being the Trump administration—so widely derided for its protectionist rhetoric—that ends up making Canadian trade freer.