‘Astonishing’ China clause gives Trump leverage

‘ASTONISHING’ RESTRICTION ON CANADIAN INDEPENDENCE, EXPERTS SAY

Canada’s efforts to forge trade deals with other countries are now far less likely to lead to free-trade negotiations with China, experts predict, because of a clause in the new North American deal that appears to give the United States unprecedented leverage over its partners’ other trading relationships.

The U.S.-Mexico-Canada Agreement (USMCA), which will replace the North American Free Trade Agreement if the three countries’ legislatures approve it, was finalized late Sunday after a long negotiating process made uncertain by the mercurial nature of the administration of U.S. President Donald Trump. That uncertainty has increased the Canadian government’s eagerness to expand trade with other nations, particularly in Asia and South America.

However, the USMCA includes language that requires signatories to give notice if they plan to negotiate a free trade deal with a “non-market country,” and to allow the other two signatories at least a month to review any agreement before it is signed. It explicitly states that if one of the signatories enters into such an agreement, the other two have the right to withdraw from the USMCA with six months’ notice.

The use of the phrase “non-market country” seems a clear reference to China. Under Trump, the U.S. has complained to the World Trade Organization that China should not be considered a “market economy.” However, the USMCA clause does not rely on WTO definitions — the way it is worded, if the U.S., Canada or Mexico “determines” a country isn’t a market economy, then for the purposes of the clause, it isn’t.

Paul Evans, a professor at the University of British Columbia, said the “astonishing” clause appears to pull Canada into line with the U.S. as the Americans engage in an escalating trade war with the Chinese — as of last month, the Washington and Beijing had slapped new tariffs on US$360 billion worth of bilateral trade in goods. “It’s a severe restriction on Canadian independence and capability,” said Evans.

Toronto trade lawyer Lawrence Herman agreed. “It was part of Canada’s concession to the U.S., to show Trump and co. that Canada can be counted on as an ally in dealing with China,” he said.

“This goes both ways, of course, and assures that Canada gets information on all U.S.-China trade talks as well.”

Peter Clark, an Ottawa trade consultant, said the U.S. is trying to “control our negotiations with China” with an unusual provision that had not been discussed publicly until now. “This type of extra-territorial pressure is unique to this agreement,” he said.

Asked at a press conference in Ottawa Monday how much influence the clause would give the U.S. over potential free-trade negotiations between Canada and China, Prime Minister Justin Trudeau did not answer directly.