So we now know what the U.S. objectives are in the forthcoming North American free-trade agreement renegotiations.
So we now know what the U.S. objectives are in the forthcoming North American free-trade agreement renegotiations.
Some of what was sent by the U.S. Trade Representative (USTR) to the Congress on Monday isn’t a big surprise, having been signalled before and in its initial fast-track notice tabled in Congress last May.
There’s a lot about modernizing NAFTA, improving the agreement to add provisions on trade in services, digital commerce, intellectual property and even reference to establishing “strong and enforceable environmental obligations” and other things that, subject to careful reading, could be acceptable as a basis for negotiations.
However, there are at least four major bombshells, signalling an extremely aggressive stance by the Americans, making it difficult for Canada to accept the document as a basis for negotiations.
The first – not unexpected – is the U.S. objective to eliminate the binational panel system in Chapter 19 of the NAFTA, the system that was first painfully negotiated in the bilateral Canada-U.S. free-trade agreement in the 1980s and later replicated in the NAFTA. Canada made many compromises as part of the FTA talks to get the binational panel system accepted by the U.S. side.
For the Americans to now seek its removal is a major assault on a fundamental Canadian interest and could effectively scuttle the talks.
The second attack – also part of the negotiated deal under the FTA/NAFTA – is the U.S. objective to remove all restrictions on “Buy America” preferences at the state and municipal level, including on all federally funded programs for a huge array of local projects.
What the U.S. is seeking here effectively is a wholesale carve-out of preferential programs that run up against some of the key principles of open trade and GATT-based non-discrimination. Talk about trade distortion, these Buy America preferences will allow it in spades.
The third salvo is the U.S. objective of removing the right of Canada (and Mexico) to be excluded from U.S. safeguard actions against imported goods. Safeguards are global import restrictions that apply when U.S. industries are being injured by an unexpected flood of imports that are neither dumped nor subsidized. Under the NAFTA, Canada and Mexico are exempted from such actions unless their exports “contribute importantly” to the injury caused to U.S. producers. The U.S. wants that out.
The fourth bombshell is the objective to reduce or eliminate barriers to U.S. investments “in all sectors” in the NAFTA countries. This is an aggressive demand and suggests the U.S. wants an end to Canada’s restrictions on American investments in such things as telecommunications, health care, education and cultural industries.
These four areas together comprise an extremely tough set of U.S. objectives that go to the heart of the trading relationship and represent an assault of existing NAFTA rules as far as Canada is concerned, putting the very underpinning of the deal in play.
There are other parts of the USTR notice that could be contentious but possibly less so in comparison to these four items. These stated U.S. objectives alone will make it difficult for these talks to get off to a smooth and friendly start.
I appreciate that some of this may be an overdramatic reaction. Assessing all of this in a less hurried and more deliberate manner will be important. After all, the July 17 document is a statement of ideal objectives on the part of the U.S. government. These don’t have to be taken as diktat or an end game by either Canada or Mexico. We have to get to the table with the Americans and start some horse trading as the dynamics unfold over the next several months.
The U.S. Congress will also be weighing in on the process. As pointed out in a recent C.D. Howe report, the U.S. Congress over the last several decades has reasserted its jurisdiction in trade matters and will have an important voice in the NAFTA negotiations, and possibly a moderating one.
Perhaps some of the more egregious parts of the USTR’s position will be toned down once congressional committees have a look. Canada has been solidifying contacts and enlisting supporters on Capitol Hill that could help to curb some of the most aggressive positions the USTR has tabled.
What also must not be lost in all of this, of course, is that we are talking about negotiations. Canada and Mexico don’t have to accept the U.S. position as the basis for the negotiating agenda. The federal government will have the opportunity to set out its own set of objectives for the talks and Canada can be equally aggressive in making clear to the Americans where its fundamental NAFTA interests lie.
What unfolds over the next weeks and months for Canada-U.S. relations in the long haul will be critical.
Lawrence L. Herman, Herman & Associates, is a former Canadian diplomat who practises international trade law and is a senior fellow of the C.D. Howe Institute.
Published in the Globe and Mail
