Hedging Canada’s trade risks

EDITORIAL: WHAT OTHERS THINK

The British Victorian-era prime minister Lord Salisbury once quipped “it is in our interests that as little should happen as possible.” Even if we wished it, that outcome is not in the cards for Canada today, particularly in securing markets for our exports. On trade, it’s been a roller-coaster week of happenings, some big, some not yet big enough.

At the Davos economic forum, Prime Minister Justin Trudeau announced Canada is joining the retooled 11-nation Comprehensive and Progressive Agreement for TransPacific Partnership, which Donald Trump rejected as a “bad deal” for the U.S. last year.

It’s a significant step in diversifying Canada’s trade amid uncertainty about renegotiating the North American Free Trade Agreement that Mr. Trump also calls a bad deal. Yet U.S. Commerce Secretary Wilbur Mills dismissed Mr. Trudeau’s revised TPP tilt as just an effort “to put a little pressure on the U.S. in the NAFTA talks.”

In Montreal, the fifth round of those talks produced little visible sign of progress, though news agencies report some U.S. openness to three Canadian proposals. One is a new approach to defining the higher percentage of North American content that the U.S. wants in duty-free autos. The others would make Chapter 11 arbitration panels for investor-government disputes optional and require periodic reviews of NAFTA rather than renegotiating the deal every five years, as Washington proposes.

Even Mr. Trump moved into positive skepticism on a NAFTA deal, saying, “I think we have a good chance, but we’ll see what happens.” His Davos speech was a fairly conventional pitch to invest in a booming U.S. economy and his trade remarks emphasized fair and mutually beneficial rules. But he still seems stuck on bilateral rather than multinational agreements.

What to make of all this? First, the U.S. commerce secretary needs to hear that, Wilbur, it’s not always about you. Yes, in joining the revamped TPP, Canada is showing the U.S. it has other options. But the Trump administration’s NAFTA-bashing has made it smart to pursue those options regardless of NAFTA talks. If the U.S. is becoming a less reliable partner and more uncertain market, Canada’s government has an obligation to hedge that risk and diversify. It’s a necessity, not a tactic.

That said, Canada is suggesting mutually beneficial changes in NAFTA. In setting content rules for autos, it makes sense to look the value of a broad range of modern inputs — such as research and engineering related to software, sensors and machine learning — rather just policing a giant, dated list of car parts. Cassette recorders are still on the NAFTA content list, for gosh sakes.

On Chapter 11, all parties would benefit from overhauling a flawed arbitration regimen. It defines expropriation too broadly and makes it too easy for foreign investors to sue governments for general policy decisions, like environmental regulations, that impact their business. Domestic firms have no such right to sue governments for merely governing.

The value of the U.S. market remains huge. But it is devalued by uncertainty. So Canada has to diversify.

An editorial from the Halifax Chronicle Herald (distributed by The Canadian Press)