What Canada wants, and how to get it
The renegotiation of the North American free-trade agreement is going to be a long journey, and it’s barely started. But so far, the Trudeau government has been making all the right moves in dealing with, and manoeuvring around, the Trump administration. Ottawa has been smart – and perhaps more importantly, it has been lucky.
Smart: Studiously avoiding public disagreements with a volatile President Donald Trump, while mounting a quietly effective campaign to remind other actors in the U.S. political system – members of Congress, governors, business leaders – how important Canadian trade is for the U.S. and just how interconnected the two economies are.
Lucky: It’s easy to stir up American voters with talk of Mexicans stealing their jobs or of nefarious Chinese trade practices. There’s next to no constituency for demonizing Canada. “Nefarious Canadian trade practices” sounds like a Stephen Colbert punchline. Last January, according to a recently leaked transcript, Mr. Trump told the Mexican President that renegotiating NAFTA was mostly about Mexico. “We do not have to worry about Canada,” he said. “We do not even think about them.” He was probably telling the truth.
In fact, if the only countries in NAFTA were Canada and the U.S., it’s unlikely that Mr. Trump would have made reopening the deal a political priority, or even an issue.
But NAFTA is a three-party agreement, which puts Canada in the thick of Mr. Trump’s need to be seen reshaping his country’s trade relationship with Mexico. And though the U.S. demands released last month were remarkably moderate – compared to Mr. Trump’s rhetoric, everything is – there are no guarantees. We might end up with a better NAFTA. We might end up with one much worse. Talks begin Aug. 16.
At those talks, which will last into next year and beyond, Ottawa has to stand up for Canada’s interests – behind closed doors. But there’s little benefit in making noise in public. The Trudeau government clearly gets this, and has studiously avoided personally antagonizing Mr. Trump, or disagreeing with him publicly. That is prudent. It’s also not going to be easy to keep up.
Consider the case of Mexican President Enrique Pena Nieto. In private talks, such as January’s leaked conversation, he and his ministers have repeatedly told Washington that, contrary to Mr. Trump’s absurd election promise, Mexico is obviously not going to pay for a wall along America’s southern border. But at the same time, Mexican leaders have tried to avoid publicly contradicting Mr. Trump, particularly when standing right next to him.
As a result, many Mexicans think Mr. Nieto looks weak. National pride demands that Mexico’s leader be seen to be clashing with his political nemesis, Mr. Trump.
The Trudeau Liberals could easily find themselves facing similar pressures. Late last month, after demands from the opposition to emulate the Trump administration and publicly release its negotiation objectives, Mr. Trudeau said that maintaining what he called a “fair” dispute settlement mechanism is essential for Canada.
The Prime Minister is of course right – this is a long-standing Canadian demand, and it should be. It’s in the current treaty because Canada insisted on it. Without an independent mechanism for assessing NAFTA trade disputes, the Americans would be free to act as judge, jury and executioner of their own trade complaints. NAFTA wouldn’t be a binding contract; it would an aspirational wish list, to be violated at will. An independent dispute settlement mechanism is Issue No. 1 for Canada. But is there any upside in the PM saying so, publicly? As the negotiations progress, and Mr. Trump repeatedly jumps into the fray on Twitter, Mr. Trudeau will surely feel pushed to respond. He should resist the impulse – even though, in the short run at least, many Canadians may hold it against him.
In addition to preserving an independent dispute adjudication mechanism, Canada must also ensure that the U.S. doesn’t tilt a renewed NAFTA to its advantage. That includes moves to benefit American pharmaceutical companies in ways that extend patent protections and push up drug costs. It includes a U.S. desire to give American online retailers a leg up compared to Canadian retailers, by exempting significant amounts of foreign online purchases from duties and sales taxes. And then there’s the U.S. goal of creating a giant “Buy America” exception inside NAFTA, which goes directly against the whole idea of free trade.
On the other hand, Canada may not want to try to bring softwood into the talks. Trying to fix that endless dispute through NAFTA might reduce Canadian negotiating leverage elsewhere.
And as for agricultural supply management, if the Americans push the issue, Ottawa should be happy to lower the trade barriers – and the high prices paid by Canadian consumers for dairy and other foods.