CANADA COULD PAY A STEEP PRICE FOR ‘PROGRESS’ IN NAFTA TALKS
The headline from the Montreal round of the NAFTA talks will be that the troubled negotiations again have a pulse.
Some will call that a victory. I’m unsure that’s true.
Before Christmas, the Canadian and Mexican ministers in charge, Chrystia Freeland and Ildefonso Guajardo, were barely able to share a stage with their American counterpart, so it’s your guess how they got on when the doors were closed.
So plans for a new round in Mexico City at the end of February or early March, and then another one in Washington after that, suggest progress from where we were at the end of 2017.
Ministers talked of completing a chapter on how to approach corruption, and indicated good progress on others. Given that, one assumes United States Trade Representative Robert Lighthizer will advise his boss that they should lay off the threats to quit the North American Free Trade Agreement, at least for a few more weeks, just in case this thing actually leads somewhere.
“This round was a step forward, but we are progressing very slowly,” Lighthizer said at a joint press event with his Canadian and Mexican counterparts. Lighthizer doesn’t do contentment well, so it’s probably best to focus on his concession that things are moving.
Later, he said: “We will engage with both Mexico and Canada urgently, and we will go where these negotiations take us.”
The Financial Times and other well-connected news outfits are saying there is a chance negotiations could last all year, and maybe even drag into 2019.
That’s new. There was a feeling when this process began six months ago that talks would need to end well ahead of Mexico’s presidential vote in July and U.S. midterm elections in November.
The original goal was to conclude by the end of 2017.
That deadline probably would have required Canada and Mexico to cave at the outset. They didn’t, so the safer political play now could be to leave things ambiguous until the votes are over. Such an outcome would be a win for Trump, and a loss for Canada.
Freeland, the foreign affairs minister, has said from the start that Prime Minister Justin Trudeau won’t accept a bad deal. But neither she nor Trudeau have been especially clear on what would constitute a “bad deal,” outside of suggesting that an independent dispute-settlement process must remain.
You have to wonder whether Trudeau’s red lines are fading as the economic backdrop changes? Hopefully they are. The costbenefit analysis of holding out for something that looks like a clear win is different now than it was a year ago. We have arrived at a moment. For the first time in a decade, the clouds hanging over the global economy have parted. All the world’s major economies are growing, and the world’s corporations are sitting on piles of cash.
Chief executives have been using that money to repurchase their companies’ shares — a profitable strategy, but probably not the reason many of them went to business school. With global economic growth surging, they finally may be able to convince their boards of directors to let them use those profits to expand and gain market share. The United States, of course, will be high on the list.
With NAFTA in place, Canada is an option when globally oriented firms considered their North American strategies; without it, Canada is a smallish market that probably can be served from the United States or elsewhere.
The Bank of Canada observed earlier this month that foreign investment from Europe is lower than you’d expect for an economy that led the Group of Seven in economic growth in 2017.
Canada’s central bankers reckon the uncertainty over the future of NAFTA already is affecting investment decisions; companies either are holding off on deploying their cash, or deciding to go straight to the U.S in order to hedge the risk that Trump will upend the business case for investing in Canada or Mexico. Consider Bombardier Inc. The company scored a great win last week when the U.S. International Trade Commission ruled the company hadn’t harmed Boeing Co. by selling CSeries planes to Delta Air Lines Inc. at a discount. Bombardier shares surged, and they were popping champagne bottles in Montreal.
But in some ways, the damage to Canada already had been done.
The prospect of having to add duties of nearly 300 per cent to the cost of Bombardier’s new planes caused prospective clients to retreat. That forced the Canadian company to seek a white knight, which became Airbus SE. Airbus and Bombardier decided they would try to avoid Trump’s harassment by assembling the CSeries in Alabama. The Globe and Mail reported on the weekend that the new owners of the CSeries intended to follow through on that plan, no matter what happens with U.S. trade policy.
So if you are keeping score, the big loser is Boeing, which ended up driving Bombardier into the arms of its biggest rival. Trump got what he wants most: more jobs and investment. He secured that by backing Boeing’s original complaint.
Oddly, it was Lighthizer who said Monday that, “we owe it to our citizens, who are operating in a state of uncertainty, to move much faster.”
To be sure, that’s easier for him to say, since he controls the game. That doesn’t mean he’s wrong.
At some point, the metaphorical skies above the global economy will cloud over again and business confidence will retreat. Canada’s leaders need to do something to counter the uncertainty around NAFTA before that happens.