No improvement, but the damage appears minimal
Mostly unaltered NAFTA could have been worse
As the song says, did I shave my legs for this? All that cross-border yelling, a solid year of bluster and petulance, dire rhetoric about “stabs in the back” and “special places in hell,” fake deadlines and all-night negotiations, and we end up with pretty much the agreement we started with? All that was required to fix NAFTA, that destroyer of American jobs and pox on its prosperity, the deal Donald Trump memorably complained was “the worst agreement in history,” was to change its name — from North American Free Trade Agreement to US-Mexico-Canada Agreement? Seriously?
Not quite. The result is certainly a far heave from some of the more apocalyptic scenarios we had been entertaining ourselves with. But neither is it the largely unaltered “NAFTA 2.0” of much initial comment. There are substantive changes in there, most of them bad, and not all of them imposed by an overbearing U.S. on an unwilling Canada.
Still, it’s not quite the conflagration we’d been banking on, is it? Trump is the bully in middle school who threatens to take your lunch money, only to settle for a half a slice of your pizza. Or, in this case, 3.6 per cent of it.
That’s the share of the Canadian dairy market to which the U.S. will now have tariff-free access, a slight advance on the 3.25 per cent market share the U.S. had negotiated under the Trans Pacific Partnership — before Trump withdrew from it. (Oh, and “milk price classes 6 and 7” are eliminated, for fans of that dispute. It involves skim milk solids.) There are also some minor increases in tariff-free imports in the other supplymanaged sectors: eggs, chicken, cheese and so on. Everything else will face the same triple-digit tariffs, as before.
That’s unfortunate. Supply management is a blight on the Canadian political and economic landscape we could well do without. The NAFTA re-negotiations were an ideal opportunity to bargain it away, as it should have been in the original NAFTA. That it remains more or less intact — even the dairy lobby could manage only a half-hearted jeremiad of imminent lactodoom in response — is one of the chief disappointments in this agreement.
Still, what did you expect? There was never any chance of these negotiations resulting in a deepening and broadening of NAFTA — not with protectionists on both sides of the table. The only question was whether the status quo protectionists on this side — who wished to preserve all of NAFTA’s existing exemptions — could hold out against the expansionist protectionists on the other, who wished to cut NAFTA into little mercantilist pieces. As it turns out the answer is: surprisingly well.
While there can be no pretending this is an improvement overall on the original, the damage appears relatively slight. In particular, U.S. demands to eliminate NAFTA’s Chapter 19 binational dispute resolution panels and to impose a fiveyear sunset clause on the agreement, the much advertised “deal-breakers,” appear to have been dropped or watered down.
For its part, Canada has agreed to raise its notoriously stingy “de minimis” thresholds for applying taxes and duties to crossborder purchases — another “concession” that isn’t really a concession — though only from $20 to $40, for taxes, and $150 in the case of duties. (By comparison, an American can import US$800 duty-free.)
After that, however, the good news starts to thin out. The auto unions might like the 75 per cent (up from 62.5 per cent) North American content rule, as they do a new rule requiring that 40 per cent of an auto’s content be made by workers earning at least $16 an hour, but consumers will likely have to pay thousands of dollars more for a new car as a result.
Likewise, the U.S. has agreed to exempt Canada and Mexico from its socalled Section 232 “national security” tariffs on autos, but only in exchange for quotas on Canadian and Mexican auto exports, albeit well in excess of current levels. Meanwhile, tariffs on Canadian steel and aluminum remain in place, at least for now.
We appear to have made no progress on loosening “Buy America” restrictions on government procurement, or on expanding opportunities for professionals to work in the States. We have accepted higher levels of patent and copyright pro- tection, at the expense of both consumers and (in the case of public drug plans) taxpayers.
Worse, we have colluded with the U.S. in phasing out NAFTA’s Chapter 11 investor-state dispute settlement (ISDS) process as it applies to us. A bêtenoire to the left, it is normally limited to adjudicating complaints that a particular law or regulation discriminates against foreign businesses, in violation of the “national treatment” rule that is standard in most trade agreements. This is surely only fair: would we prohibit dumping toxic waste only for foreign firms, while their domestic rivals were given carte blanche?
But perhaps the most disturbing provisions in the agreements are two inserted near the end, one suspects in deference to Trump’s personal obsessions. The first would potentially restrict Canada’s ability to strike free-trade agreements with China and other “non-market” countries. A USMCA party would have to inform the others before it began negotiations, and allow them to review the final text before signing. If that sounds innocuous, there’s this: “entry by any party into a free-trade agreement with a non-market country shall allow the other parties to terminate this agreement on six-month notice.”
The second demands that each country refrain from “competitive devaluation” of its currency, which certain unnamed countries supposedly use to gain an “unfair competitive advantage” over their rivals. It’s backed by mandatory consultations and dispute settlement panels, the whole overseen by a shadowy tri-national Macroeconomic Committee. (Take that, globalists!)
Probably it’s nothing. Probably neither of them is. Probably. But the potential restrictions on Canada’s sovereignty are concerning. Free trade and floating exchange rates are the foundation stones of Canada’s prosperity, and we should zealously guard against any restrictions on either.
There’s much else still to be examined in the deal — uncertainties, fine print, players to be named later. And of course there is the Great Uncertainty himself, President Trump, who has not shown himself greatly bound by any previous commitment, convention or law.
But for now the verdict would appear to be: could have been better, but could have been worse. A lot worse.
STILL, WHAT DID YOU EXPECT?