NAFTA talks: Canada will likely have to OPEN UP DAIRY market
Trudeau left without much leverage
If the mood prevailing in the Canadian camp in Washington could be summed up in a sentence, it would be: if you’re not confused, you’re misinformed.
Many of the big hitters in the Prime Minister’s Office were in the U.S. capital to join Chrystia Freeland, the global affairs minister, and Steve Verheul, Canada’s chief negotiator, to try to finalize a modernized NAFTA agreement, after the U.S. and Mexico appeared to have reached a bilateral deal.
The sense was that a trilateral agreement was closer than it has ever been but that everything could yet unravel. Those closest to the action professed they couldn’t say they were optimistic or pessimistic. As Verheul met with his U.S. counterpart to read the U.S.-Mexico “preliminary agreement in principle,” and Freeland rushed from the airport to meet U.S. Trade Representative Robert Lighthizer, the feeling was that it was 50:50 odds on whether Canada could be added to the “United States-Mexico Trade Agreement,” or whether Donald Trump might follow through with his threat to impose punishing tariffs on Canadian cars.
My sense is that there is a collective realization on the Canadian side, as there apparently was with the Mexicans, that “carmaggedon” must be avoided at all costs — even if those costs include a deal in which Canada has to make major concessions.
Mexico has just signed on to a deal that stipulates 40 to 45 per cent of auto content must be made by workers earning more than US$16 an hour — US$13.50 more than the average wage for a Mexican auto parts worker.
That is a major win for Trump (and Canada, if a trilateral deal becomes a reality).
But it is indicative of the ground that is likely to be ceded in the coming days.
The feeling in the Canadian camp was that the U.S.-Mexico deal was positive news, in that it created new trade rules for cars and used what was called “encouraging” language when it came to reviewing the deal. The Trudeau government has been resolute in its opposition to a sunset clause that would rip up the trade agreement every five years. Instead, the Americans and Mexicans agreed to revisit the agreement after six years and, if everyone is happy, extend it for 16 years. Canadian officials have always said they were open to a review mechanism but that a hard sunset clause would discourage investment.
If a trilateral deal includes a similar provision, the Canadian side will argue that it is in no shape or form a sunset clause — one of the “red lines” Trudeau insisted would not be crossed. Yet by any other name ...
What is apparent is that Trump’s squeeze play has left Trudeau without much leverage.
In the absence of the text of the Mexican deal, there was a high degree of disorientation in Washington. But it was clear to all that the Canadians are policy-takers, not policy-makers.
There remains an insistence that the Chapter 19 dispute resolution panels in NAFTA remain sacrosanct, and that scrapping them would leave laws without any judges.
There is no doubt about Chapter 19’s importance at the heart of any trade agreement — failure to reach a deal on dispute resolution nearly derailed the original freetrade agreement when Brian Mulroney was prime minister.
But is Trudeau really going to risk auto tariffs that would reduce much of the Oshawa to Oakville corridor to an economic wasteland over a relatively obscure governance clause? We will soon see.
Officially, the U.S. position is that Canada’s supply managed sectors such as dairy have to be dismantled — something Trudeau said again Tuesday, will not happen. Unofficially, the U.S. agriculture secretary has called for more access for American milk products that are priced out of the market by Canadian protectionism. Trudeau has already indicated Canada is willing to be flexible, given it offered greater access to the protected market to its European and Trans-Pacific Partnership trading partners. A compromise would seem eminently possible.
But Trump tends to view a compromise as an agreement by two sides to do what both parties believe is wrong.
It would be out of character for the president not to attempt to kick a weakened opponent in the guts, which means Canada may have to make some uncomfortable sacrifices. Other tough issues include pharmaceutical patents, which the U.S. wants to extend from eight years to 10, and cultural exemptions that allow Canada to stipulate content requirements for television, radio and movies.
On a separate track, the steel and aluminum tariffs were not part of the MexicoU.S. deal, and may not be part of any trilateral agreement.
Andrew Scheer, the Conservative leader, has blamed Trudeau for leaving “Canada on the outside looking in,” with Canadian jobs hanging in the balance.
But would Scheer, or any other Canadian leader, have done any better? It’s doubtful.
Japanese Prime Minister Shinzo Abe has tried hard to woo Trump on trade and security issues but even that relationship has turned frosty, with The Washington Post reporting Tuesday that when Trump and Abe met in June, the president said: “I remember Pearl Harbor,” the attack on the U.S. naval base back in 1941.
Confusion and misinformation reigned in Washington, as Freeland headed off to meet Lighthizer late Tuesday. But this shabby drama is reaching its denouement and in the next day or so, Canada will discover the extent of the shaft.