NAFTA deal hinges on dairy, drugs and trade dis­putes

Canada may be able to reach an agree­ment with the U.S., but there are stick­ing points

The Niagara Falls Review - - Canada & World - ANDY BLATCHFORD

OT­TAWA — Cana­dian and U.S. of­fi­cials say the path to a rene­go­ti­ated North Amer­i­can Free Trade Agree­ment is open­ing up, and could come to­gether this week.

But to get to the fin­ish line, there are a num­ber of ob­sta­cles to move out of the way.

Dis­pute set­tle­ment: NAFTA con­tains three mech­a­nisms for set­tling dis­putes. One of them, known as Chap­ter 11, is de­signed to cre­ate pre­dictable in­vest­ment con­di­tions by al­low­ing com­pa­nies to sue govern­ments for un­fair treat­ment. Chap­ter 19, the sec­ond mech­a­nism, en­ables in­dus­tries to fight puni­tive an­tidump­ing and coun­ter­vail­ing du­ties. The third, Chap­ter 20, lets coun­tries sue other coun­tries. In the orig­i­nal NAFTA ne­go­ti­a­tions, Chap­ter 19’s in­clu­sion was a key con­di­tion for Canada. It has been used over the years in bat­tles against soft­wood lum­ber du­ties. Fast for­ward to the NAFTA 2.0 talks and Chap­ter 19 is still make-or-break for Canada. The Trudeau gov­ern­ment has re­peat­edly stated it won’t budge on its po­si­tion that Chap­ter 19 re­main in a rene­go­ti­ated NAFTA. The U.S., on the other hand, wants to elim­i­nate Chap­ter 19.

Dairy: Canada’s pro­tected dairy in­dus­try, a long­time bull’s eye of U.S. Pres­i­dent Don­ald Trump’s an­gry tweets, has emerged as a ma­jor late-stage ir­ri­tant. Dairy is a po­lit­i­cally charged is­sue in Canada and was widely ex­pected to be among the fi­nal NAFTA stum­bling blocks. In Canada, it’s a near-$20-bil­lion in­dus­try that em­ploys more than 220,000 peo­ple. The sec­tor’s sup­ply-man­age­ment sys­tem is con­sid­ered sa­cred in Que­bec and On­tario, which have the big­gest provin­cial pop­u­la­tions and, thus, wield the most po­lit­i­cal in­flu­ence. The Trump ad­min­is­tra­tion, how­ever, has de­manded that Canada get rid of its tar­iffs on dairy, as well as poul­try and egg prod­ucts, to open up op­por­tu­ni­ties for Amer­i­can farm­ers. Ot­tawa seems pre­pared to con­sider con­ces­sions to Washington on Canada’s dairy mar­ket, while also try­ing to pre­serve the sup­ply-man­age­ment sys­tem.

Phar­ma­ceu­ti­cals: U.S. trade pol­icy states that other coun­tries should con­trib­ute more to the hefty costs of re­search and de­vel­op­ment by pay­ing more for phar­ma­ceu­ti­cals. In par­tic­u­lar, the U.S. wants Canada to be more trans­par­ent in how it de­ter­mines drug prices and changes to how they are set. It also wants longer patent-style pro­tec­tions on bi­o­logic treat­ments. Un­der its new

deal with Mex­ico — which Trump has urged Canada to sign — the U.S. says there’s an agree­ment on pro­vi­sions that in­clude 10 years of data pro­tec­tion for bi­o­logic drugs and an ex­panded list of prod­ucts that are eli­gi­ble for pro­tec­tion. Ex­emp­tions on cul­tural

prod­ucts: U.S. law­mak­ers have called on Canada to weaken its pro­tec­tions for cul­tural in­dus­tries ex­empted from NAFTA. U.S. Trade Rep­re­sen­ta­tive Robert Lighthizer has ar­gued that “the cul­tural ex­emp­tion is very of­ten just cul­tural pro­tec­tion­ism.” Prime Min­is­ter Justin Trudeau has con­nected the is­sue to bilin­gual­ism — as an im­por­tant tool to pro­tect cul­ture, lan­guages, cre­ative sec­tors and artists. Que­bec has in­sisted it’s cru­cial to main­tain pro­tec­tions in this area to main­tain its fran­co­phone cul­ture. Sun­set clause: The U.S. ini­tially pro­posed that a new NAFTA in­clude a so-called sun­set clause to en­sure the deal is rene­go­ti­a­tion ev­ery five years. Canada has pub­licly re­jected the idea, say­ing a sun­set clause would leave too much un­cer­tainty for po­ten­tial in­vestors. This week, how­ever, the U.S. and Mex­ico agreed on a watered-down ver­sion. Their new bi­lat­eral deal would ex­pire af­ter 16 years with re­views ev­ery six years. It’s un­clear whether Canada would ac­cept the new pro­posal.

De min­imis: The U.S. has been press­ing both Canada and Mex­ico to raise their de min­imis thresh­olds, which rep­re­sent the max­i­mum value of an item that con­sumers can buy on­line from a for­eign coun­try with­out pay­ing du­ties or taxes. The thresh­old for Amer­i­can cus­tomers or­der­ing items from other coun­tries is US$800. In com­par­i­son, Cana­di­ans can spend up to just $20 be­fore the du­ties kick in. In its deal this week with Washington, Mex­ico agreed to raise its level to US$100 from US$50.

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