On NAFTA, Canada agrees to discuss the unthinkable
Canada seems to be quietly backing down on the North American Free Trade Agreement. It is now willing to bargain U.S. demands that the Liberal government had formerly dismissed as deal-breakers.
That seems to be the gist of several days of confusing messages on the NAFTA negotiations coming out of Ottawa.
Foreign Affairs Minister Chrystia Freeland set the table last week when she told reporters that Ottawa has come up with “creative” ideas for dealing with the impasse in the three-way talks between Canada, Mexico and the U.S.
The talks, which are due to resume this month in Montreal, have been stalled on U.S. demands that Canada and Mexico have called so outrageous as to be not worth discussing.
One would gut portions of the agreement that allow independent panels to rule on disputed trade and economic policies. Another would require autos imported to the U.S. from Canada and Mexico to contain at least 50 per cent American content.
Yet others would bias government procurement rules in America’s favour and add a sunset clause stipulating that the treaty automatically expire after five years unless explicitly renewed.
Canada called these ideas deal-breakers and, to the irritation of the Americans, refused to provide counterproposals.
At the time, the Liberal government was excoriated by former Conservative prime minister Stephen Harper as unduly stubborn. In effect, he said that if Canada wants any kind of trade treaty with the U.S., it may have to accept one that is significantly worse than the current NAFTA.
The Liberals pooh-poohed Harper then. But now they appear more receptive to his advice.
The Globe and Mail reports that Canada will propose technical changes to auto content rules in order to mollify the Americans. The newspaper also reports that Canada is mulling over proposals to change three dispute settlement chapters in order to make them more acceptable to Washington.
One, Chapter 19, allows signatories to challenge trade practices before independent panels.
These panels can rule only whether the alleged offender is following its own trade laws. They do not have the power to change those laws.
But the Americans hate Chapter 19 anyway. Conversely, the Canadians love it, arguing that a trade deal without something like Chapter 19 would be pointless.
Another, Chapter 11, allows foreign investors to challenge and ultimately overturn host country laws that interfere with their profitability. It has been used successfully several times against Canada, but all attempts to use it against the U.S. have failed.
Yet for some inexplicable reason, the Canadians want to keep Chapter 11 while the Americans, quite sensibly, want to give governments the right to opt out of it.
Chapter 20, which gives governments the right to challenge other signatories that have failed to adhere to their NAFTA commitments, is rarely used. The Americans want it killed nonetheless.
One indication that the Liberal government may be preparing to cave on NAFTA is its decision to take a harder rhetorical line against the U.S. in the separate softwood lumber dispute.
How much Canada is willing to compromise on its so-called red line demands in order to accommodate U.S. President Donald Trump remains unclear. Perversely, one indication that the Liberal government may be preparing to cave on NAFTA is its decision to take a harder rhetorical line against the U.S. in the separate softwood lumber dispute.
Ottawa is challenging the U.S. decision to impose punitive duties on Canadian softwood lumber at the World Trade Organization. That in itself is not unusual. What is unusual is the tough-guy rhetoric accompanying it.
“When you stand strong in sending a message that says . . . we’ll stand up for Canadian workers, you get respect,” Trade Minister Francois-Philippe Champagne said last week about the WTO challenge. “When people see that you’re firm, you get respect.”
Sometimes governments talk tough when they are tough. But sometimes they do it to distract attention when they are preparing to cede ground.
We shall see which holds here.