EVEN A BAD NAFTA COMPROMISE MAY BE GOOD ENOUGH FOR CANADA
Hypnotic trade drama will conclude with no wins, Kevin Carmichael writes.
If the NAFTA saga was a cartoon, our eyes would be spinning.
For months, Justin Trudeau and Chrystia Freeland have used every opportunity to repeat they would prefer no deal to a bad deal. It’s hypnotic.
What kind of NAFTA compromise will Trudeau accept, perhaps as early as next week? A good one.
Why? Because he won’t settle for a bad one.
You can see why the government would be tempted to try mind control; the deal it eventually accepts quite likely will be a bad one, at least based on the parameters that Freeland set when talks began more than a year ago.
There will be no wins. Mexican officials admit they took a hit to ensure their country would retain a high level of preferential access to the U.S. market. The cost of peace will be the same for Canada. The negotiating that remains is all about lowering that price to something Trudeau and Freeland judge most of the rest of us will accept.
No one knows what is going on in Washington, home base for the NAFTA talks after earlier attempts to move from country to country.
Still, the mood around the periphery is rather positive. A Washington-based consultant who gets paid lots of money to keep track of what’s going on in the U.S. capital told me he had increased his odds of an agreement next week to 70 per cent from about 60 per cent earlier this month.
Flavio Volpe, president of the Automotive Parts Manufacturers’ Association, who enjoys access to negotiators as a key stakeholder, told BNN Bloomberg that he thought there was a good chance the U.S. and Canada will find a compromise.
One of the reasons insiders think an agreement is likely is that the end-of-month deadline — unlike so many others — is real, or at least as real as it gets in a negotiation like this. The Mexicans want to resolve NAFTA before president-elect Andrés Manuel López Obrador takes power Dec. 1, and the Trump administration appears keen to show it can complete a significant trade agreement ahead of midterm elections in November.
Steve Scalise, one of Trump’s foot soldiers in Congress, was introduced to many Canadians this week when he warned that Trudeau risked missing the train. His remarks got people excited because Canadian officials have courted Congress aggressively, a strategy that appeared to have worked because lawmakers had been pushing back against Trump’s threat to go ahead without Canada.
But Scalise ended up sounding a note of desperation; it turned out he was essentially a voice alone. The signal was that the Trump administration wants a settlement more than it has let on.
That doesn’t mean Canada is in the driver’s seat. Trump and the outgoing Mexican government appear ready to proceed. Trudeau’s advantage is that the approval process will be easier with Canada on board. That’s valuable currency, but it’s not a blank cheque.
As Mexico discovered, there will be no getting out of this situation without giving Trump a trophy.
Mexico visibly sacrificed on automobiles, and Canada will have to do the same on dairy. That can be done without blowing up supply management. If it can’t, Trudeau would have little choice but to walk away: He has no political mandate to dismantle a pillar of the agriculture industry, no matter how many economists and columnists join Maxime Bernier in screaming about the injustices of the “dairy cartel.” The U.S. would have to end some of its own farm subsidy programs, and there has been no indication Trump would do so.
We are here because of Trump’s obsession with the U.S. trade deficit. His deal with Mexico would ensure that a significant amount of automobile production occurs in plants that pay high wages. That likely will result in fewer imports from Mexico. Trade between the U.S. and Canada essentially is balanced, but Trump is popular with farmers, so evidence that he pried open a new market for them matters.
If Freeland was in combat with a normal U.S. trade representative, the talks might be over. However, she’s dealing with Robert Lighthizer, a former lawyer for Big Steel whose ideas about how trade should work were cast in the 1980s. He is on a personal mission to scrap Chapter 19, which lays out the disputesettlement system that Trudeau insists must remain.
The prime minister is right to take a hard line. The whole point of a trade agreement is to provide certainty. Even before Trump, the U.S. made capricious use of punitive tariffs. The introduction of Chapter 19 didn’t end U.S. harassment, but it made it that much harder. The definition of a “bad deal” is ambiguous, but most would agree that a commercial agreement without a mechanism to tame a bully would be little use to a country such as Canada.
“A deal with no way to solve differences is no deal,” said Milos Barutciski, a veteran trade lawyer at Borden Ladner Gervais in Toronto.
No deal is a possibility; the talks are taking place in Trump land after all. However, the Canadian dollar rose this week because investors are being told by their highly paid advisers that an agreement is likely.
At first glance, the deal could look bad. But under the circumstances, if it provides a counterweight to Trump’s love of tariffs, it probably will be good enough.