ON THE SOUTH LAWN OF THE WHITE HOUSE WEDNESDAY, DONALD TRUMP LAMENTED HOW CANADA HAD BEEN ‘VERY DIFFICULT’ OVER NAFTA. BUT IS IT ALL A PRELUDE TO A DEAL BEING REACHED ON ‘SKINNY NAFTA’?
‘Not happy’ with Canada, but sees a win for the U.S.
Donald Trump’s negotiating strategy is to sow confusion among those sitting across the table.
A report last year suggested he schooled his top trade negotiator, Robert Lighthizer, in the art of the deal. “You tell them, ‘this guy is so crazy he could pull out at any minute’. And by the way, I might,” he is reported to have said.
His latest blast at Canada, in which he said this country has been “very difficult” during negotiations, “very spoiled,” has knocked the Canadian side off balance.
There were hopes that Trump was starting to favour a “skinny” NAFTA, a slimmed down version of the agreement, centred on an increase in North American content for autos.
But on the south lawn of the White House, the president did not sound in conciliatory mood — which may have been the point.
“(Canada and Mexico) have taken advantage of the U.S. for a long time. I’m not happy at their requests. But I will tell you, in the end, we win and we will win big,” he said, in typically pugnacious fashion.
Earlier Trump had tweeted that “big news was coming” for American autoworkers. White House officials later confirmed to Bloomberg that the president was referring to an announcement that China is set to slash tariffs on imported passenger cars, not the agreement that has apparently been struck with Canada and Mexico to increase the North American content in autos made on the continent.
Trump’s comments muddied the water, which was, no doubt, their intended purpose.
But there have been signs in recent days that the president has been coming around to the idea that it would be good to get NAFTA out of the way quickly.
The socalled “skinny” deal would likely be less comprehensive than a complete overhaul of the existing NAFTA but would have the benefit for Trump that changes to rulesoforigin in autos could be made without a vote in Congress.
The temperature has been rising around the negotiating table. Sources suggest that Global Affairs Minister Chrystia Freeland and Lighthizer, have been in vocal disagreement in recent days.
After Justin Trudeau visited New York last week and said Canada “doesn’t feel a deal with a sunset clause is much of a deal at all,” Lighthizer responded with a rare public statement, in which he said there remain “gaping differences” between the U.S. and Canadian positions. “We are nowhere close to a deal,” he said last Thursday, point ing to outstanding issues like agriculture and intellectual property.
However, that evening, Trump phoned Trudeau in a call that was interpreted as an olive branch by the Canadians.
While relations between Freeland and Lighthizer have been frosty, communications between Finance Minister Bill Morneau and U.S. Treasury Secretary Steven Mnuchin have been cordial and frequent.
The two spoke on Tuesday evening and it is understood that Mnuchin talked about seeing a “landing area” for a deal. On Fox News Sunday, he said the administration would be open to a “skinny deal”, though it remains focused on a new NAFTA that would go through Congress.
The apparent proximity of a deal has persuaded the Canadian side to be flexible in its demands — and in what it might be prepared to give up.
Privately, it is acknowledged that Canada will have to concede more access to the managed dairy sector, in the same way that the market was opened up to European Union countries under the proposed TransPacific Partnership trade deal.
At one point, Canada had five “red lines” that would scupper a deal: the U.S. proposal to dismantle Canada’s supply management system for dairy; U.S. demands for a fiveyear sunset clause; the American call to impose strict U.S. content rules on autos; proposed reforms to Chapter 11, the investorstate dispute settlement, and the U.S. bid to kill Chapter 19, the binational expert panels that adjudicate on disputes.
An agreement on increased North American content in autos between Canada, Mexico and the United States, raising the content level to nearly 75 per cent, has reduced the number of irritants.
There are also signs that Canada is prepared to give up on Chapter 11, the arbitration mechanism that allows investors of a NAFTA country to bring proceedings directly against another NAFTA government. Since Canada has been the subject of the highest number of investor state arbitration claims, the Trudeau government is not sad to see it go.
This leaves Chapter 19, which binds the U.S. to the decisions of a tribunal comprised of representatives from both countries, and the sunset clause as the two items on which Canada is not prepared to bend.
As Fen Osler Hampson details in his excellent new book, Master of Persuasion — Brian Mulroney’s Global Legacy, there are shades of history repeating itself.
On October 4, 1987, the basic elements of a free trade deal between Canada and the U.S. had been reached, except for the key issue (for Canada) of a binding dispute settlement. At 9 p.m., three hours before the expiration of the fasttrack authority from Congress that made a deal possible, then Treasury Secretary James Baker called Prime Minister Brian Mulroney to say talks were deadlocked over the dispute settlement issue. Mulroney said he wanted to talk to President Ronald Reagan and asked how it was possible for the U.S. to conclude a nuclear arms deal with the Russians but was not able to sign a trade deal with its ally and neighbour.
After Mulroney and Reagan spoke, and with two hours until deadline, Baker burst into the room where the Canadian team was assembled and flung down a piece of paper. “All right, there is your goddamn dispute settlement mechanism. Now can I send a report to Congress?”
The anecdote suggests Chapter 19 really is a red line and Trump would be advised not to push the issue if he wants a deal.
As Mulroney’s former chief of staff, Derek Burney, said in an interview, Trump’s goal is to increase the number of jobs in the Midwest. “There isn’t a vote in the Midwest that will turn on dispute resolution,” he said.
That was also the advice of the Wall Street Journal in an editorial last Friday that was damning of Lighthizer’s hard line, which the newspaper argued was setting up Trump “for an embarrassing political and economic failure”.
The WSJ advocated the “selfrescue option” of a “skinny NAFTA” that would not alter U.S. law, and therefore wouldn’t require a vote in Congress.
“This would be a significant victory for Mr. Trump … He will have resolved great uncertainty in automobile production, while putting the NAFTA issue behind him, so he and his economic team can focus on China,” it said.
One interpretation of Trump’s comments on the south lawn of the White House on Wednesday is that he was softening up his negotiating partners before pushing for a final deal and abandoning what the WSJ called the “failed negotiating strategy” of his trade representative.
IN THE END, WE WIN AND WE WILL WIN BIG.