Hey Ottawa, show us your NAFTA Plan B

The federal government says it has a Plan B in case the North American Free Trade Agreement talks fail. Now is the time to reveal it.

The talks themselves are mired in confusion. Donald Trump, the U.S. president, continues to badmouth the trade and investment pact between his country, Canada and Mexico. But his top official on the file, U.S. trade representative Robert Lighthizer, insists a deal is within reach.

Meanwhile, Canadian chief negotiator Steve Verheul struck a particularly pessimistic tone this week, telling an Ottawa audience that under Trump’s leadership, the U.S is being unusually obdurate.

In the important area of government procurement, Verheul said, the Americans have tabled the worst offer they have ever made in any trade talks anywhere. Certainly, Trump is not playing by the usual rules. Most trade talks are driven by powerful business and industrial groups looking for advantage. Governments may make the final decisions, but they are usually careful to take the views of these so-called stakeholders into account.

When negotiating details that affect the auto industry, for example, governments will usually seek advice from the car companies themselves.

But in these talks, the Americans don’t seem to be following the usual pattern. They are taking positions that in some cases the relevant stakeholders don’t want.

The U.S. demand for a five-year limit on a renewed NAFTA deal, for instance, is not supported by any major American business group. It does seem to be, however, what Trump wants. The Canadian side has tried everything to get through to Trump. It has tried charm. It has tried logic. It has tried chatting up some of the business titans that Trump is thought to heed.

With its wide-ranging appeal to the World Trade Organization (WTO) over U.S. treatment of Canadian softwood lumber, it has even tried showing some backbone.

So far, it has not succeeded. Nor has it been able to answer whether Trump means it when he says he wants a deal in which only America wins, or whether he is merely posturing in order to gain an advantage.

All of this might not matter if time were not a factor. But it is. The longer this impasse goes on, the more uncertain the future looks.

Those thinking of investing in Canada want to know what kind of access they would have to the giant U.S. market should NAFTA talks fail.

Without that knowledge, the safest place to invest for those hoping to service the U.S. market is the U.S.

All of which is to say that it’s time for Canada’s Plan B to be unveiled.

The government says there is one. As well, both Prime Minister Justin Trudeau and Foreign Affairs Minister Chrystia Freeland have said they prefer no NAFTA deal to one that is bad for Canada.

Since it appears that a bad deal is in the offing, what should Canada do to prepare for a world without NAFTA?

Up to now, the government has refused to say. But there are some things it can build on.

First, almost half of Canada’s exports to the U.S. are outside of NAFTA entirely. In most cases, that’s because they are products, such as crude oil, that are already entitled to enter the U.S. market duty-free. But about 11 per cent of exports come from firms that prefer to pay the minimal tariffs the U.S charges most nations rather than go through the NAFTA hassle.

Second, the WTO — which didn’t exist when NAFTA came into effect in 1994 — performs some of the same functions as the North American trade pact. It keeps the average tariff between the two countries at the low rate of 3.5 per cent. And it includes a dispute resolution system that allows member countries to challenge one another’s trade practices.

Third, there are other markets for Canadian goods and services. The revised Trans-Pacific Partnership, which links Canada to 10 other Pacific Rim nations, is flawed, but it underlines the fact there is a big world out there.

In short, there is plenty of material upon which to build a NAFTA Plan B. According to the government, it has built one. But what is it?

Thomas Walkom appears Monday, Wednesday and Friday.