Thomas d’Aquino

NAFTA 2.0: Carpe Diem

Policy - - In This Issue - Thomas d’Aquino

The North Amer­i­can Free Trade Agree­ment was over­due for a proper up­date. As Canada, Mex­ico and the United States em­bark on the rene­go­ti­a­tion of the con­ti­nen­tal trade deal, the process will be a test not only of Canada’s ne­go­tia­tors but of what Tom d’Aquino refers to as the

sang-froid of the Trudeau gov­ern­ment’s ap­proach to the Trump ad­min­is­tra­tion.

Dur­ing his bid for the pres­i­dency of the United States, Don­ald Trump de­nounced the North Amer­i­can Free Trade Agree­ment (NAFTA) as “the worst trade deal in his­tory.” He promised to rene­go­ti­ate terms more favourable, in his view, to the United States or walk away. The NAFTA, which came into force in Jan­uary 1994, was built on the foun­da­tions of the 1987 Canada-U.S. Free Trade Agree­ment. Both agree­ments at the time rep­re­sented the high­est achieve­ment of trade­craft and in­spired a bevy of fu­ture trade agree­ments world­wide.

But even the stur­di­est of in­sti­tu­tions lose their edge if they do not keep up with the times. It has been clear to con­ti­nen­tal trade ac­tivists such as my­self for two decades that the NAFTA needed to be up­dated. How many of us re­mem­ber de­bates in the late 1990s about the need for a NAFTA-plus? Or the hugely am­bi­tious Se­cu­rity and Pros­per­ity Part­ner­ship (SPP) con­cluded in 2005 by Prime Min­is­ter Paul Martin and pres­i­dents Ge­orge W. Bush and Vi­cente Fox? These ini­tia­tives did not bear fruit. So, we should not be sur­prised or dis­ap­pointed by calls for a mod­ern­iza­tion of the NAFTA. Af­ter all, the economies, in­dus­tries and work forces of North Amer­ica have changed greatly since 1994 and more ad­vanced and pro­gres­sive trade agree­ments have been crafted to deal with the new en­vi­ron­ment shaped in large part by the dig­i­tal revo­lu­tion.

The bold and far-reach­ing Trans-Pa­cific Part­ner­ship (TPP) in re­cent years was a laud­able ef­fort at em­brac­ing North Amer­ica and the Pa­cific re­gion within a frame­work of ad­vanced poli­cies and rules. Trashed by the Trump ad­min­is­tra­tion, the TPP with­out the

par­tic­i­pa­tion of the U.S. is more or less on life sup­port. On the other hand, the Canada-Euro­pean Union Com­pre­hen­sive Eco­nomic and Trade Agree­ment (CETA), while ap­pli­ca­ble only to Canada and the Euro­pean Union, is ar­guably the most ad­vanced agree­ment of its kind in the world. Some pro­vi­sions of both the TPP and the CETA pro­vide good ex­am­ples on how best to im­prove the NAFTA.

Ne­go­ti­a­tions on the mod­ern­iza­tion of the NAFTA of­fer Cana­di­ans, Amer­i­cans and Mex­i­cans an op­por­tu­nity to craft “new age” pro­vi­sions that will en­hance job cre­ation and worker ad­just­ment, spur in­no­va­tion, gen­er­ate higher lev­els of pros­per­ity and boost the con­ti­nent’s global com­pet­i­tive­ness. This is a carpe diem mo­ment for all three coun­tries which can lead to a triple win.

Be­fore mov­ing from the sta­tus quo to the new NAFTA, it is im­por­tant to ac­cu­rately as­sess what has been the ef­fect of the cur­rent agree­ment. In an ad­dress in Ottawa on Au­gust 14, For­eign Af­fairs Min­is­ter Chrys­tia Free­land high­lighted the suc­cesses of the NAFTA. “The North Amer­i­can Free Trade area is now the big­gest eco­nomic zone in the world,” she de­clared. “Canada, the U.S. and Mex­ico to­gether ac­count for a quar­ter of the world’s GDP, with seven per­cent of its pop­u­la­tion. Since 1994, trade among the NAFTA part­ners has roughly tripled, mak­ing this a $19-tril­lion-dol­lar re­gional mar­ket, with 470 mil­lion con­sumers. Canada’s econ­omy is 2.5 per­cent larger ev­ery year than it oth­er­wise would be, thanks to the NAFTA. (It is as if Canada has been re­ceiv­ing a $20 bil­lion cheque each year since NAFTA was rat­i­fied.)”

Add to Free­land’s out­line of the ben­e­fits of the NAFTA the fact that in North Amer­ica we have built the most ad­vanced cross-bor­der sup­ply chains in the world. Canada, the United States and Mex­ico make vast quan­ti­ties of high qual­ity prod­ucts to­gether. We share re­search, tech­nolo­gies, and closely in­te­grated trans­porta­tion sys­tems. To­gether we cre­ate mil­lions of well-paid jobs. The broader achieve­ments of the NAFTA are some­times over­looked. In Canada, think­ing and work­ing within a dy­namic con­ti­nen­tal mar­ket has made our work­force and our in­dus­tries more glob­ally-minded. In Mex­ico, the NAFTA has helped ad­vance de­moc­ra­ti­za­tion, fi­nan­cial sta­bil­ity and the rule of law. In the United States, the NAFTA has demon­strated that shared sovereignty, as is the case with in­de­pen­dent dis­pute-set­tle­ment mech­a­nisms, can lead to a more orderly man­age­ment of trade.

The NAFTA is far from per­fect, how­ever. It clearly has led to some job dis­place­ment to Mex­ico due to its lower wage con­di­tions. It has not lived up to its as­pi­ra­tions via its side agree­ments on labour and the en­vi­ron­ment. The hard-won dis­pute-set­tle­ment pro­vi­sions have not per­formed op­ti­mally. Reg­u­la­tory re­form re­mains in the slow lane and gov­ern­ment pro­cure­ment is still quite con­strained.

On July 17, the Trump ad­min­is­tra­tion via the of­fice of the United States Trade Rep­re­sen­ta­tive (USTR) tabled a sum­mary of its ne­go­ti­at­ing ob­jec­tives. A high pri­or­ity is re­duc­ing the United States trade deficit al­though no in­di­ca­tion is of­fered as to how this would be ac­com­plished. The ne­go­ti­at­ing ob­jec­tives in­clude con­tro­ver­sial sub­jects such as the elim­i­na­tion of Chap­ter 19 in­de­pen­dent dis­pute-set­tle­ment pan­els and tougher rules of ori­gin. At var­i­ous times in re­cent months, sub­jects of spe­cial in­ter­est to Canada have been tar­geted for crit­i­cism by ad­min­is­tra­tion of­fi­cials. These in­clude: agri­cul­tural trade and in par­tic­u­lar sup­ply man­age­ment, for­eign own­er­ship re­stric­tions, the pro­tec­tion of cul­tural in­dus­tries, and rules gov­ern­ing in­tel­lec­tual prop­erty. At the time of writ­ing, the soft­wood lum­ber dis­pute re­mains un­re­solved.

On Au­gust 3, the Mex­i­can gov­ern­ment re­leased its ne­go­ti­at­ing pri­or­i­ties. They in­clude main­tain­ing pref­er­en­tial ac­cess for goods, elim­i­nat­ing bar­ri­ers to trade, im­prov­ing cus­toms pro­ce­dures and up­dat­ing labour and en­vi­ron­men­tal chap­ters. It calls on the United States and Canada to “mod­ern­ize all NAFTA dis­pute res­o­lu­tion mech­a­nisms (in­vestor-state, state-state, as well as anti-dump­ing and coun­ter­vail­ing du­ties, and fi­nan­cial ser­vices) to make them more ag­ile, trans­par­ent and ef­fec­tive.”

Free­land sig­naled clearly that Canada sees some at­trac­tive op­por­tu­ni­ties in the ne­go­ti­a­tions ahead. These in­clude bring­ing into the NAFTA do­main sec­tors such as ser­vices and e-com­merce—a move that will be wel­comed by Canada’s tech­nol­ogy sec­tor.

Free­land shed some light on Canada’s ne­go­ti­at­ing pri­or­i­ties in her Au­gust 14 ad­dress at the Univer­sity of Ottawa. While no doubt not wish­ing to show Canada’s hand in too much de­tail, the broad out­lines of the gov­ern­ment’s strat­egy have be­gun to take shape. Rather than deal with the United States on a de­fen­sive ba­sis, Free­land sig­naled clearly that Canada sees some at­trac­tive op­por­tu­ni­ties in the ne­go­ti­a­tions ahead. These in­clude bring­ing into the NAFTA do­main sec­tors such as ser­vices and e-com­merce—a move that will be wel­comed by Canada’s tech­nol­ogy sec­tor. She has iden­ti­fied cut­ting red tape and har­mo­niz­ing reg­u­la­tions as a core ob­jec­tive. Draw­ing on the ex­am­ple of the CETA, she sig­naled that Canada would seek a freer mar­ket for gov­ern­ment pro­cure­ment. Also, draw­ing on the CETA, the min­is­ter is seek­ing the eas­ing of re­stric­tions on the move­ment of pro­fes­sion­als across bor­ders, in­di­cat­ing a de­sire to re­view NAFTA’s Chap­ter 16.

Ad­dress­ing Canada’s “na­tional in­ter­est”, Free­land in­sisted that the gov­ern­ment will sup­port a process “to en­sure anti-dump­ing

and coun­ter­vail­ing du­ties are only ap­plied fairly when truly war­ranted” and, sig­nif­i­cantly, de­clared that the NAFTA ex­cep­tion to pre­serve Cana­dian cul­ture and the sys­tem of sup­ply man­age­ment are to re­main un­touched. In de­fend­ing in­de­pen­dent bi­na­tional re­view pan­els cur­rently con­tained in Chap­ter 19 of the NAFTA, Free­land is echo­ing the af­fir­ma­tion of Prime Min­is­ter Trudeau that this pro­vi­sion re­mains cen­tral to Canada’s ne­go­ti­at­ing po­si­tion.

Since it be­came clear that a NAFTA rene­go­ti­a­tion un­der Pres­i­dent Trump was in­evitable, the Trudeau gov­ern­ment has spo­ken of the at­trac­tions of a mod­ern­ized and “pro­gres­sive” NAFTA. The clear­est in­di­ca­tion to date of Cana­dian think­ing on the mean­ing of “pro­gres­sive” was re­vealed by Free­land’s com­mit­ment to push for labour safe­guards and en­vi­ron­men­tal pro­tec­tion as part of the core Agree­ment. Add to this com­mit­ment the in­ten­tion of Canada to pro­pose in­te­grat­ing chap­ters on gen­der rights and In­dige­nous peo­ples. While the re­cently up­dated Canada-Chile Free Trade Agree­ment in­cor­po­rates ref­er­ence to gen­der rights, the in­clu­sion of In­dige­nous peo­ples is a first in North Amer­i­can trade dis­cus­sions. Ex­plicit lan­guage deal­ing with In­dige­nous peo­ple is yet to be re­vealed, but we can be cer­tain that this ne­go­ti­at­ing ob­jec­tive will cap­ture con­sid­er­able at­ten­tion in Canada, and es­pe­cially in Mex­ico, where the eco­nomic ben­e­fits of the NAFTA are per­ceived not to have ben­e­fit­ted the coun­try’s In­dige­nous pop­u­la­tion.

The Trudeau gov­ern­ment’s de­sire to in­tro­duce such pro­gres­siv­ity into a new NAFTA and fu­ture bi­na­tional and mul­ti­lat­eral free trade agree­ments is sen­si­ble. The pro­tec­tion of labour rights and the ad­vance­ment of “fair trade” rules will res­onate in both Re­pub­li­can and Demo­cratic circles in the United States. It also will res­onate in gov­ern­ment and op­po­si­tion circles in Mex­ico where NAFTA has not de­liv­ered on its prom­ise to pro­mote strong growth and re­duce the still broad in­come gap be­tween rich and poor.

While some crit­ics are con­cerned about at­tempts to in­tro­duce pro­gres­siv­ity into so called “new age” trade agree­ments, I be­lieve they are short­sighted. When I was a pro­fes­sor of in­ter­na­tional trade many years ago, it was con­sid­ered un­ac­cept­able to link trade and com­merce with so­cial ob­jec­tives. Forty years of ex­pe­ri­ence at the fore­front of pri­vate sec­tor en­gage­ment with trade agree­ments and see­ing the un­even ef­fects of glob­al­iza­tion have taught me oth­er­wise. In this age of rag­ing populism marked by in­come in­equal­ity, na­tion­al­ist and pro­tec­tion­ist fer­vour, and deep sus­pi­cion of elites, trade agree­ments must serve both eco­nomic and so­cial ob­jec­tives in or­der to win pub­lic ac­cep­tance. The Prime Min­is­ter and his team have man­aged with skill and sang-froid the chal­leng­ing cir­cum­stances brought on by the Trump ad­min­is­tra­tion. The vig­or­ous “all Amer­ica” out­reach to the U.S. ad­min­is­tra­tion, the Congress and gover­nors, car­ried out by the fed­eral and pro­vin­cial gov­ern­ments, the busi­ness com­mu­nity and by other in­ter­ested ac­tors, has been re­mark­ably ef­fec­tive. Close con­sul­ta­tions with the Mex­i­can po­lit­i­cal lead­er­ship con­tinue to be fruit­ful. The Cana­dian ne­go­ti­at­ing teams are ex­pe­ri­enced and ready. And in Free­land, Canada has a knowl­edge­able and in­de­fati­ga­ble spear­head.

With ne­go­ti­a­tions just get­ting un­der­way, it is im­pos­si­ble to fore­tell their di­rec­tion. One scenario is that the Trump ad­min­is­tra­tion sup­ported by the Congress will push for a rapid out­come with some demon­stra­ble wins. This would give the pres­i­dent a badly needed po­lit­i­cal vic­tory in ad­vance of next year’s mid-term elec­tions. From Mex­ico’s per­spec­tive, a con­clu­sion of talks by the year’s end would be ideal given its na­tional elec­tions next July. While Canada, if nec­es­sary, could play for more time, an early con­clu­sion of the ne­go­ti­a­tions would serve the na­tional in­ter­est so long as pri­mary ob­jec­tives re­lated to NAFTA mar­ket ac­cess and dis­pute set­tle­ment are not sac­ri­ficed.

As the NAFTA ne­go­ti­a­tions move for­ward, Amer­i­cans, Cana­di­ans and Mex­i­cans should em­brace a broader vi­sion of North Amer­ica: of three sov­er­eign na­tions work­ing in har­mony; of a con­ti­nent where the rule of law reigns supreme, diver­sity is an as­set, and hu­man rights are val­ued above all; of an in­clu­sive eco­nomic sys­tem where jobs are plen­ti­ful and in­come in­equal­ity is fall­ing; of ad­vanced in­dus­tries shar­ing tech­nolo­gies and best work prac­tices; of the best hu­man tal­ent avail­able from any part of the world; of con­ti­nent-wide ed­u­ca­tional co­op­er­a­tion; of world-class in­fras­truc­ture and ad­vanced trans­porta­tion sys­tems; of en­ergy de­vel­op­ment that pow­ers our col­lec­tive strength.

Ex­plicit lan­guage deal­ing with In­dige­nous peo­ple is yet to be re­vealed, but we can be cer­tain that this ne­go­ti­at­ing ob­jec­tive will cap­ture con­sid­er­able at­ten­tion in Canada, and es­pe­cially in Mex­ico, where the eco­nomic ben­e­fits of the NAFTA are per­ceived not to have ben­e­fit­ted the coun­try’s In­dige­nous pop­u­la­tion.

With the ex­cep­tion of a few die-hard ad­vo­cates, this vi­sion presently has lit­tle cur­rency. Some will ar­gue that such a vi­sion in the face of Trump populism does not stand a chance. But the Great Repub­lic is much big­ger than any sin­gle leader or move­ment and the logic sup­port­ing closer co­op­er­a­tion on many fronts across the con­ti­nent is over­whelm­ingly strong. A suc­cess­ful rene­go­ti­a­tion of the NAFTA and a mod­ern­ized Agree­ment could over time serve as the driv­ing force for a North Amer­i­can re­nais­sance that will se­cure the re­gion’s global pri­macy for many decades to come.

Thomas d’Aquino, Canada Chair of the North Amer­i­can Fo­rum, was the CEO of the Cana­dian Coun­cil of Chief Ex­ec­u­tives from 1981-2009 thomas.daquino@in­ter­coun­sel.ca

IStock photo

The Am­bas­sador Bridge be­tween Wind­sor and Detroit, by far the busiest land cross­ing be­tween Canada and the U.S., it­self a sym­bol of the suc­cess of free trade.

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