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Lawrence Herman (C.D. Howe Institute)

Lawrence Herman

(C.D. Howe Institute)

LAWRENCE HERMAN

When ‘tweaking’ NAFTA, bilateral talks are best Add to ...

Lawrence L. Herman, Herman & Associates, a former Canadian diplomatic, practices international trade law and is a Senior Fellow of the C.D. Howe Institute in Toronto.

There’s been a wringing of hands among members of Canada’s trade-policy community over the suggestion that the Trudeau government might do a revised trade deal with the U.S. on a bilateral basis instead of linking hands with Mexico and keeping the negotiations within the trilateral NAFTA framework.

There was pushback over a column of mine last month proposing just that – that Canada should pursue talks with the Americans bilaterally instead of within confines of the North American free-trade agreement. This wasn’t because of disregard for Mexico, but because trade issues between Canada and the U.S. are fundamentally different than the problems the Trump administration has on its southern border.

Given this asymmetry, trying to solve issues within a three-way negotiating structure is technically difficult if not impossible. In any case, the negotiating framework isn’t going to be Canada’s decision – or Mexico’s. As the overwhelmingly dominant player in the NAFTA, it’s the Americans that call the shots in setting the negotiating conditions.

The Globe reported on Thursday that both Ottawa and Washington are now pursuing the bilateral route and that the U.S. will be dealing on a separate track with Mexico. That was made clear in the meeting last week between Donald Trump and Justin Trudeau, with the President referring to problems with Mexico being of a different order than any issues with Canada. For Canada, he suggested, this amounted to “tweaking” the NAFTA here and there.

As matters unfold over the next weeks, there are some points to bear in mind:

– The Trump administration is deeply mired in controversy over national security issues. There is disarray in the White House. The Congress is focused on the Russian factor. It was good that Mr. Trump spent time with the Prime Minister, but Canada-U.S. trade relations are pretty distant in the American focus right now.

– The U.S. trade policy team isn’t even in place. Neither Wilbur Ross, the nominated Commerce Secretary, nor Robert Lighthizer, the proposed U.S. Trade Representative, have been confirmed by the Senate. There won’t be a coherent U.S. trade policy until at least these two are in office.

– Even then, senior trade officials in Commerce and USTR have to be chosen and get their briefs in order. Until these jobs are fully staffed, we won’t have any real sense of U.S. trade policy or clearly-articulated U.S. objectives and proposals for “tweaking” the NAFTA.

So we’re in a kind of “phony war” period, with each side taking preliminary jabs and poking around here and there, without the U.S. position being fully developed as clear policy. This gives Canada important advantages. Unlike the situation in Washington, the Canadian trade team is fully harnessed and well-coordinated, being run from the Prime Minister’s Office with a major role played by Foreign Minister Chrystia Freeland and U.S. Ambassador David MacNaughton.

An illustration of how well Canada’s policy team is functioning was the ability of senior cabinet members to cover the landscape in Washington before Mr. Trudeau’s visit, linking with their U.S. counterparts and spreading the Canadian message before the finely-scripted visit itself.

Returning to the issue of bilateral versus the trilateral NAFTA negotiations, this is to some degree a process matter, the framework and structure less important than the substantive positions that Canada puts on the table. With the disarray and delays in Washington, Canada has time to develop fully-fleshed out positions on critical issues to be presented as an offensive strategic package when the Canada-U.S. negotiations start in earnest.

Whether those are pursued formally within the NAFTA framework or outside it, it’s the substantive positions that count. They really come down to two separate packages.

First, there are proposals to improve existing NAFTA rules, such as adjusting and simplifying border measures and rules of origin, facilitating customs clearance procedures, improving dispute settlement mechanisms and a whole slate of issues that can make day-to-day trade work more efficiently. Included in this silo is the long-stalled Beyond the Border initiative started under the Obama administration, but where progress has been incremental at best.

Second, there is a package of 21st century items, some of which have been incorporated in the TPP agreement (forget that Mr. Trump has trashed the deal) and the CETA, such as new rules on e-commerce, trans-border data exchange, information technology, expanded services trade and environmental protection.

We can’t forget the defensive positions Canada will have to take in parrying U.S. demands on such things as Canada’s supply management system, intellectual property protection, aid to the aerospace sector and, probably of greatest challenge, ownership restrictions in the broadcasting and telecom sectors.

The sum of all this is for the Canadian team to be focused on the critical substantive areas for improving the bilateral relationship, looking beyond the NAFTA where that makes sense but with a clear and steady eye on what counts for Canada.

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Also on The Globe and Mail

While Trudeau and Trump praise Canada-U.S. trade agreements, the president adds ‘we’ll be tweaking it’ (The Globe and Mail)

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