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Canadian beef exports to the United States were disputed under NAFTA, as the U.S. invoked health-based exceptions to the rules. Even if the U.S. killed NAFTA, rules under previous agreements would come into play, experts say. (TROY FLEECE/THE CANADIAN PRESS)
Canadian beef exports to the United States were disputed under NAFTA, as the U.S. invoked health-based exceptions to the rules. Even if the U.S. killed NAFTA, rules under previous agreements would come into play, experts say. (TROY FLEECE/THE CANADIAN PRESS)

Trade Talk

What trade rules can Canada turn to if Trump rips up NAFTA? Add to ...

Many Canadian businesses are bracing for the next ball to drop on @realDonaldTrump.

The U.S. president-elect has yet to control his destabilizing missives on Twitter, with one recent series of trade-related tweets declaiming, for instance, any movement of jobs into another country as “WRONG!” (The exclamatory all-caps are his.)

This could easily pertain not only to jobs and trade with Mexico. It could mean Canadian trade and jobs – say, a U.S. technology company contracting a Canadian office of coders, or a production line in a U.S.-owned Canadian manufacturing plant, or a film shoot.

Related: Canada’s trade alternatives post-Trump and Brexit

Also read: How a Canadian company caught the attention of U.S. retail behemoth Wal-Mart

Watch: What I learned doing business in China

The belief among trade specialists is that trade between Canada and the United States is far too robust to be undermined by rhetoric. The North American free-trade agreement, they say, is only one layer of trade rules, built upon the earlier Canada-U.S. free-trade agreement. Canada is also a member of the World Trade Organization, which grew out of the postwar General Agreement on Tariffs and Trade.

Still, the echo of Mr. Trump’s campaign rallies reverberates: “If we don’t get the deal we want, we will withdraw from NAFTA and start all over, and get a much, much better deal than we ever had before,” he has said.

“I think Trump and the people he’s putting out there are going to be very aggressive, and they are going to try to scare people here [in Canada] as much as possible to cave in to a really concessionary revision,” said Gus Van Harten, a trade expert and professor at the Osgoode Hall Law School at Toronto’s York University.

For example, Dr. Van Harten noted the ability under Chapter 11 of NAFTA for foreign investors and businesses to make claims directly against countries. This is a controversial dispute settlement process, in which NAFTA allows a company to seek compensation if it runs up against state rules, if those are thought to violate international law.

One fear is that the United States, in exploiting its heft to renegotiate the treaty, could seek to prevent Canadian and Mexican companies from bringing claims against the United States, but not prevent U.S. companies bringing claims against Canada and Mexico, “which would be almost like a quasi-colonial agreement legally,” or so the fear goes, Dr. Van Harten said.

Under normal political conditions, undoing NAFTA wouldn’t be easy.

NAFTA has been in effect for more than 22 years, and the Canada-U.S. free-trade agreement for 28 years. “What that means is that the terms and provisions of the agreements are now deeply embedded in the industrial structure of the two countries,” said Michael Hart, professor emeritus at the Norman Paterson School of International Affairs at Carleton University in Ottawa.

“So, just as a thought experiment, let’s say we go to the most extreme, that the United States says, ‘We’re going to give you a year’s notice then we’re pulling out of the agreement.’ I doubt that would happen, because there would be a lot of U.S. industries that would be very upset about that, for the very reason our industries would be upset,” Dr. Hart said. “The agreement is embedded in the way business is done.”

Another aspect of free-trade agreements involving the United States is that Canada relies more heavily on the rules either in NAFTA, or, if the United States were to pull out of NAFTA, in the underlying previous treaties that would remain in force.

“Hard rules are usually beneficial to the weaker party,” Dr. Van Harten said. “The strong prefer to have the discretion and flexibility to use their power.

“Of course, no system is a purely rules-based system. There are many examples in the life of NAFTA where the U.S. has just flexed its muscles, and the rules kind of disintegrate in the face of that assertion of power.”

He points to the dispute over Canadian beef exports to the United States getting enmeshed with U.S. politics and Canadian policies under Prime Minister Jean Chrétien. Though the U.S. had a public health-based rationale for blocking Canadian beef imports, “It was just in time for the controversy about the Iraq war. It was speculated that it was linked to Chrétien’s decision not to join the Iraq war,” said Dr. Van Harten.

“But there are exceptions in the agreement for public health-related measures, and so the U.S. exploited that,” he said, the point being that beyond rules, disputes get wrapped in politics.

“We saw a similar experience with softwood lumber, where the Liberals were fighting on softwood lumber for years. They were slowly, painfully winning at the WTO and under NAFTA,” Dr. Van Harten said. “And when the Harper government was elected, they did the softwood lumber agreement, which in certain ways was quite concessionary. But it was a political deal to almost concede that rules only mean so much when you’re dealing with a superpower.”

Currently, there are signs Mr. Trump’s transition team may be backing away from altogether ripping up the agreement. “Right-size it and make it fairer,” the Washington newsletter The Hill recently reported Trump senior adviser Anthony Scaramucci saying. What that actually means in terms of intentions toward NAFTA is anybody’s guess.

“Whomever Trump appoints to be his U.S. trade representative [USTR] and the staff at the USTR, the challenge that they face is, how do we respond to the rhetoric of the campaign in a constructive and realistic way?” said Dr. Hart.

“But it’s not an unknown challenge,” he added. “For U.S. presidential candidates, it’s almost a requirement of campaigns to say that trade policy is stacked up against the United States.”

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Follow on Twitter: @Guy_Dixon

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