PM’s trade agenda seen as barrier to progress
WHITE HOUSE VIEWS PRIME MINISTER’S ‘PROGRESSIVE’ AGENDA AS BARRIER TO STRIKING DEAL
Justin Trudeau’s “progressive” trade agenda — the insistence on including gender parity and Aboriginal issues in trade negotiations with the United States — is being cited as a barrier to progress by senior figures in the U.S. administration, according to people familiar with the matter.
Donald Trump’s top dealmakers are said to be complaining that Canada is not negotiating and that, in the event of a collapse of the North American Free Trade Agreement, a bilateral deal with Mexico might be easier than one with Canada because it is willing to be flexible on U.S. content requirements.
The pessimism on the U.S. side is reflected by the fact that Trade Representative Robert Lighthizer won’t even be in Montreal later this month for the next round of talks, instead preferring to head to Davos, Switzerland, as part of Trump’s delegation to the World Economic Forum.
The attempt to impose progressive chapters on labour, the environment and women into a prospective free trade deal with China scuttled those prospects last month.
But a senior Canadian government official said the idea that NAFTA is in trouble because of two chapters out of the 28 being negotiated is “total nonsense.”
He said the progressive agenda remains a priority for the Trudeau government but the U.S. is really frustrated by the rejection of proposals the Canadian side has labelled “non-starters” — the inclusion of a five-year sunset clause; the scrapping of the dispute resolution mechanism; strict U.S. content rules in autos; the end of supply management; and the opening up of Canadian government procurement.
The official said Ottawa is not convinced Trump will pull the plug on NAFTA, as was reported Wednesday, but that there is a “heightened probability” such an outcome may come to pass, regardless of progress at the negotiating tables in Montreal on Jan. 23.
The most striking development in the past few days has been the indication that there may indeed be progress in Montreal.
Former prime minister Stephen Harper recently criticized the Trudeau government in a memo that questioned the pursuit of progressive trade policies and the speed with which it rejected American proposals as red lines that would not be crossed.
Yet, as Foreign Affairs Minister Chrystia Freeland made clear at the cabinet retreat in London, Ont., on Thursday, Canada’s position has softened.
Canadian negotiators have been doing some “creative thinking” on the more “unconventional” U.S. proposals, she said.
The likely manifestation of that creative thinking is flexibility on the rules of origin proposals put forward by the Americans. Trump would like to see up to 85 per cent of all components in autos being sourced from within the NAFTA region, with 50 per cent of the content coming from the U.S.
The U.S. content requirement would decimate the Canadian car industry, according to Jerry Dias, president of the Unifor trade union.
But he said raising the amount of NAFTA region content to around 75 per cent from the current 65 per cent is “quite do-able.”
Officials say discussions are now taking place about raising the NAFTA region content requirement.
Progress is also possible on the sunset clause proposal, if it is watered down into an agreement to hold periodic reviews of the new deal.
The U.S. demand to scrap the Chapter 19 dispute resolution mechanism remains nonnegotiable for the Canadian side, but there is the possibility for reform of the Chapter 11 investor-state settlement terms.
The trickiest subjects on which no progress has been made are supply management and government procurement.
The question now is whether the president will decide to blow up NAFTA (or at least try — the legal mechanisms for withdrawal are uncertain and Congress may block a U.S. exit).
Market reaction to the reports that an exit is imminent will have given Trump pause for thought.
U.S. stocks fell slightly after the Reuters report and the chief investment strategist at Charles Schwab was quoted as saying the U.S. pulling out of NAFTA would represent a risk to the markets.
Trump’s proudest boast is the performance of the S&P 500 and the Dow Jones index since he became president.
Political allies like Pat Roberts, the Republican senator from Kansas, said Thursday they are “making progress” in their attempts to persuade the president of the potentially detrimental impact of a NAFTA withdrawal.
Yet while it would be a disruption, a new report by BMO Capital Markets suggests it would not be catastrophic for Canada.
BMO forecasts Canadian GDP growth of nine per cent over the next five years. Termination of NAFTA, and a reversion to World Trade Organization level tariffs, would knock around one per cent off that growth, BMO estimated.
A relatively modest reversal would result because Canadian policy would not be static — the collapse of NAFTA would likely trigger looser monetary policy, a weaker dollar, new trade deals and adjustments to fiscal policy.
Prices would rise marginally for consumers, while industries such as transportation equipment, clothing, food and beverages would be impacted adversely.
But in the words of BMO chief economist Doug Porter, termination would be a “manageable risk” to which policy-makers, businesses and markets would adjust in relatively short order.
It was a guileless move to give Trump the pretext for a NAFTA withdrawal — the excuse that the Canadians are playing checkers when he wants to play chess. But the truth is, if it wasn’t that, it would be something else.
As Freeland said, Ottawa is looking for compromise and hoping for the best, while defending the national interest.
In doing so, it should be preparing for the worst, in the knowledge that even the worstcase scenario may not be that bad.