Sadly, trade deal is still subject to the whims of the U.S. president

Canada’s trade deal with Mexico and the U.S. remains fatally flawed.

In some key areas, the new U.S.-Mexico-Canada Agreement (USMCA) promises to be better than the North American Free Trade Agreement (NAFTA) it replaces. In others, it will be significantly worse.

In yet others, it is not exactly clear what the ultimate effects will be.

But overall, the USMCA — like NAFTA before it — remains subject to the whims of U.S. President Donald Trump and his successors.

With one important exception (which I will get to later), the U.S. president retains the power to override the free-trade elements of the deal for reasons of “national security.”

To be more precise, he can slap ruinous tariffs on just about any Canadian export to the U.S.

Canada has scored three unambiguous wins in this deal. First, NAFTA provisions that allowed foreign investors to challenge Canadian laws before nonjudicial trade panels, have been scrapped.

Over the years, U.S. companies used this so-called Chapter 11 investor-state dispute settlement mechanism to overturn Canadian environmental laws that interfered with their profits.

All of this cost the Canadian government an estimated $300 million in penalties and legal fees.

Oddly enough, Trump was the driving force behind the move to eliminate Chapter 11. Luckily for Canada, he succeeded.

Second, the new deal does away with a requirement that Canada export a constant proportion of its oil and gas to the U.S. That clause, which dates back to the 1989 Canada-U.S. Free Trade Agreement, was added at the behest of the petroleum industry in order to prevent future Canadian governments from pursuing nationalist energy policies aimed at self-sufficiency.

As political economist Gordon Laxer has argued, this so-called proportionality clause has interfered with the government’s ability to scale back carbon emissions and fight climate change. Its removal is a plus for Canada.

Third, the new deal limits Mexico’s ability to woo auto manufacturers from Canada and the U.S. with the promise of cheap labour.

Under the new rules, auto companies that want to qualify for tariff-free treatment in North America must ensure that 40 to 45 per cent of their content is manufactured at factories that pay at least $16 U.S. an hour. That’s a win for both Canadian and American autoworkers.

Although the final formulation was suggested by Canadian negotiators, this too began as a Trump demand.

If most of Canada’s gains in the USMCA can be ascribed to Trump, so can some of its losses. Trump became consumed with attacking Canada’s supply management system for dairy farmers. It should come as no surprise, then, that Canadian dairy takes a hit under the new deal.

In a brand new concession, Canada agreed to let the U.S. and Mexico vet any future trade deal Ottawa might make with a “nonmarket economy” like China. If the other parties disliked the proposed deal, they could — in effect — kick Canada out of the USMCA.

That’s a very Trumpian clause.

Canada also agreed to let a tripartite committee monitor its exchange-rate and tax policies. In a scathing critique of the deal published by rabble.ca, political scientist Duncan Cameron calls this an attack on the Bank of Canada’s independence. And perhaps it is.

But the real problem with the USMCA is that, like NAFTA, it’s a fraud. It doesn’t guarantee the key benefit it promises: free-trade access to the huge U.S. market.

True, Trump has effectively agreed not to use his extraordinary national security powers against the Canadian auto industry. But he is insistent on maintaining the right to slap arbitrary tariffs on anything else — as he has with steel and aluminum.

Whatever that is, it’s not free trade.