New NAFTA only a smidgen more free

Calgary Herald - - CANADA - An­drew Coyne Com­ment

When the re­vamped, Trumpi­fied NAFTA was first an­nounced, the gen­eral re­ac­tion here was re­lief. Disas­ter had been averted. The agree­ment had been saved. Ma­clean’s magazine fea­tured For­eign Af­fairs Min­is­ter Chrys­tia Free­land on its cover by the head­line, You’re Wel­come, Canada.

This was prob­a­bly over­stated. The worst-case sce­nario for the talks was never that Don­ald Trump would pull out of the agree­ment. Whether or not he ever had any in­ten­tion of do­ing so, the chances he could get Congress to pass the nec­es­sary leg­is­la­tion were al­ways re­mote.

Rather, it was the po­ten­tial for Trump to turn a sim­ple free-trade agree­ment among sov­er­eign states, in which each coun­try re­mained free to set its own trade and mone­tary poli­cies, into a kind of cus­toms and cur­rency union. As I wrote in March of last year:

“It is not in­con­ceiv­able that, in their ob­ses­sion with the trade bal­ance, (the Trump ad­min­is­tra­tion) might de­mand some sort of limit on how much the Cana­dian dollar could de­pre­ci­ate. (Or) sup­pose Canada were to strike a free-trade agree­ment with China … (Trump) can­not pos­si­bly view that with equa­nim­ity … So sup­pose they were to re­act by de­mand­ing that we con­vert NAFTA into a cus­toms union, with a com­mon ex­ter­nal tar­iff.”

My worst fears, then, have not been re­al­ized. The re­vamped NAFTA (we are un­der no obli­ga­tion to call it USMCA, just be­cause Trump says we must) con­tains nei­ther ex­plicit lim­its on ex­change rate move­ments nor a com­mon ex­ter­nal trade regime. It does con­tain, how­ever, mea­sures that hint at both.

Chap­ter 33 of the draft text, while af­firm­ing the im­por­tance of “mar­ket-de­ter­mined ex­change rates,” could as eas­ily open the door to po­lit­i­cally de­ter­mined ex­change rates. All it would take would be for the U.S. to claim a de­cline in the Cana­dian dollar was not due to mar­ket forces, but rather was the re­sult of some ne­far­i­ous scheme of cur­rency ma­nip­u­la­tion.

To be sure, most of the lan­guage in the chap­ter is merely about the need for “trans­parency” and “re­port­ing.” Even the strange new tri­par­tite Macroe­co­nomic Com­mit­tee is sup­posed to just “mon­i­tor” and “con­sider” each coun­try’s mone­tary and ex­change rate poli­cies. But then there’s that bit about any party be­ing able to de­mand “con­sul­ta­tions” with an­other when­ever it sus­pects the lat­ter is en­gaged in “com­pet­i­tive de­val­u­a­tion,” or to haul it into trade court (“dis­pute set­tle­ment”), with ap­pro­pri­ate penal­ties im­posed if it has not been “trans­par­ent” enough.

It prob­a­bly doesn’t mean any­thing. Folks at the Bank of Canada seem un­fussed by it. Still, it’s un­set­tling to see such in­tru­sive lan­guage in a trade agree­ment, es­pe­cially at the be­hest of an ad­min­is­tra­tion with such a ten­u­ous, para­noid grasp of trade and mone­tary pol­icy as this one.

Then there’s Ar­ti­cle 32.10, now no­to­ri­ous as the “China clause.” Not only would “a Party,” say Canada, be obliged to sub­mit the text of any free-trade agree­ment with a “non-mar­ket coun­try” to the United States (and Mex­ico) for their “re­view,” but if they didn’t like what they saw, “the other Par­ties” would be al­lowed to “ter­mi­nate this Agree­ment” and re­place it “with an agree­ment as be­tween them … com­prised of all the pro­vi­sions of this Agree­ment.”

This has been ex­plained away as be­ing no dif­fer­ent than the sta­tus quo: any party can with­draw from NAFTA on six months no­tice. But what’s de­scribed here isn’t the U.S. with­draw­ing from NAFTA, but the U.S. and Mex­ico kick­ing Canada out of it. Is this likely? Prob­a­bly not. But if the clause is en­tirely mean­ing­less, it’s hard to un­der­stand why it was in­cluded. Cer­tainly the Chi­nese seem to think it means some­thing, to judge by their loud, an­gry protests.

These are by no means the only con­cerns that have come to light. Politico Pro Canada ed­i­tor Alexan­der Panetta has un­earthed half a dozen sim­i­lar pro­vi­sions giv­ing the U.S. un­prece­dented power “to scru­ti­nize, mi­cro­man­age, or pun­ish its neigh­bors’ trade poli­cies,” on mat­ters rang­ing from dairy ex­ports to coun­ter­feit goods. In­deed, the longer one looks at the text, the harder it is to see the promised “wins,” at least if free trade is your ob­jec­tive.

In only two ar­eas was trade no­tice­ably lib­er­al­ized, sup­ply man­age­ment and cross-bor­der pur­chases, and then only by a smidgen. Ev­ery­where else the move­ment is in the other di­rec­tion, where there was any move­ment at all. We can prob­a­bly be thank­ful the Lib­er­als were un­able to insert the threat­ened gen­der, In­dige­nous and cli­mate change chap­ters into the agree­ment.

But nei­ther did they make any head­way on gov­ern­ment pro­cure­ment or mo­bil­ity rights for pro­fes­sion­als.

While the Chap­ter 19 bi­na­tional dis­pute set­tle­ment pan­els were re­tained, and a sun­set clause mostly averted, trade in au­tos is now sub­ject to a raft of re­stric­tions that will shel­ter un­com­pet­i­tive man­u­fac­tur­ers and drive up prices for con­sumers: higher North Amer­i­can con­tent quo­tas, new “non-Mex­i­can” quo­tas (set­ting how much con­tent must be pro­duced by work­ers earn­ing more than $16 an hour), plus agree­ment that Cana­dian and Mex­i­can cars would be ex­posed to Sect. 232 “na­tional se­cu­rity” tar­iffs when ei­ther coun­try’s ex­ports ex­ceed a cer­tain quota.

Per­haps these con­ces­sions were un­avoid­able. But in other ar­eas the Trudeau gov­ern­ment seems to have taken the op­por­tu­nity of the talks to insert cer­tain changes un­bid­den, in line with their own ide­o­log­i­cal pref­er­ences. It wasn’t Don­ald Trump, I sus­pect, who in­sisted on scrap­ping NAFTA’s Chap­ter 11 in­vestor-state dis­pute set­tle­ment process, which pro­tected for­eign in­vestors from ar­bi­trary dis­crim­i­na­tion and ex­pro­pri­a­tion.

Nei­ther was it Trump, I am cer­tain, who de­manded re­moval of the agree­ment’s pro­por­tion­ate en­ergy-shar­ing pro­vi­sion, which pre­vented fed­eral gov­ern­ments from di­vert­ing cross-bor­der en­ergy flows in favour of do­mes­tic cus­tomers, as they had done un­der the Na­tional En­ergy Pro­gram.

These are be­ing claimed as “wins” for Canada, but in fact they are only wins for gov­ern­ment. To the ex­tent they have any ef­fect, it can only be to re­strain trade and dis­cour­age in­vest­ment in this coun­try. The “Trump made us do it” ex­cuse only stretches so far.

JUSTIN TANG / THE CANA­DIAN PRESS

Prime Min­is­ter Justin Trudeau and For­eign Af­fairs Min­is­ter Chrys­tia Free­land in Ot­tawa on Oct. 1 af­ter a new trade deal was reached. The “wins” for Canada in the USMCA were in fact only wins for gov­ern­ment, writes An­drew Coyne.

Comments

Newspapers in English

Newspapers from Canada

© PressReader. All rights reserved.