NEW TRADE DEAL DOES NO HARM, BREAKS NO GROUND

The romantics who think international commerce works best when bureaucrats determine trade flows will be pleased.

Canada’s new trade agreement with the United States and Mexico — the United States-MexicoCanada Agreement, or USMCA — is a step back to the time when doing business with America meant limiting your exports, no matter how badly Americans themselves might want them.

Perhaps the biggest cost of securing commercial peace with President Donald Trump was sacrificing Canada’s commitment to freer trade, a pillar of this country’s economic policy for at least three decades, albeit one championed hypocritically on occasion.

The USMCA, assuming the new Congress in 2019 is of a mind to work with the Trump administration, will limit the number of cars and the value of automobile parts that Canada can ship to the United States without paying higher duties. It will force Canada and Mexico to respect the excessively long patents the U.S. gives to its pharmaceutical companies. The agreement opens the door for one party (Washington) to influence trade talks another party (Ottawa, Mexico City) have with a “non-market economy,” such as China. The new terms might even force the Bank of Canada and the Bank of Mexico to keep an eye on Washington as they set monetary policy, thanks to the introduction of a committee that will review the conduct of macroeconomic policy in the three countries.

A setback for freer trade on the continent will be judged a “win” for all involved: Trump gets his first “major” trade deal just in time for the midterm elections; Mexico’s outgoing president, Enrique Peña Nieto, will leave office with significant accomplishment of his own, and the president-elect, Andrés Manuel López Obrador, will avoid beginning his term with the headache of a trilateral trade negotiation; Prime Minister Justin Trudeau will be able to say that he defended his country from calamity.

He and Chrystia Freeland, the global affairs minister and lead negotiator in the talks to update the North American Free Trade Agreement, achieved none of the things they identified as Canadian goals, such as making it easier for professionals to work in the U.S. and Mexico. Instead, their “wins” came on defence, accepting some minor blows to keep the basic infrastructure of Canada’s trading arrangement with the U.S. in place; key to the Trudeau government’s larger goal of positioning itself as a global trading hub with preferential access to the world’s largest economy, the European Union through the Comprehensive Economic and Trade Agreement and Asia via the Trans-Pacific Partnership. Most important was fighting off the Trump administration’s attempt to raze NAFTA’s dispute-settlement chapter.

Dairy farmers and their political allies will be displeased with the Trudeau government’s decision to let more American milk pass through the tariff wall that protects the supply management system. Some retailers may dislike the big increase in the amount of goods Canadians can bring home from the U.S. without paying duties. The new chapter on financial services suggests Canada’s banks will be unable to rely on government policy to shield them from competitive attack from upstarts who use technology to facilitate lending, saving and trading.

As lawyers and lobbyists dig deeper into the 34 chapters of the USMCA, problems could arise. Jim Balsillie, the former co-chief of Research in Motion, said NAFTA might have a new name, but retains the same old flaws. “Provisions in this new agreement raise protections so that pre-existing IP owners, who are predominantly American, can entrench and extend their monopoly rights and rents for decades to come,” he said in a statement.

Still, on the surface, there were no obvious examples of fundamental harm. The limits on automobile exports remove the threat of future duties, and appear to be set at a level that Canada would struggle to reach anyway. It was inevitable that American dairy farmers would get improved access to the Canadian market because the Trudeau government accepted similar provisions to secure a trade agreement with the EU and the other 10 members of the TPP. More optimistic retailers will note that Canadian shoppers still will be expected to pay sales taxes on most of the purchases they make.

Trudeau did well to avoid a major disruption in trade rules that would have hurt investment and further monopolized the time of the trade professionals at Global Affairs Canada. The latter is important, because if Trudeau is serious about freer trade, he will need those men and women to pursue that goal somewhere other than North America.