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u.s.-canada trade

When trade talks are on, as with the current, pressure-cooker renegotiation of the North American free-trade agreement, cross-border companies like to turn the heat down to simmer. They talk of business as usual, of taking a wait-and-see approach, not of concerns about what could come.

Lush Handmade Cosmetics is one of them.

Known for its aromatic stores selling bath bombs and body cleansers, Lush depends on open borders. Its selling point to customers is its cosmetics’ fresh ingredients, from jojoba oil and cocoa butter, grown in warmer climes, such as Arizona. And given its ethical buying policy, that tries to work more closely with farmers and to minimize the environmental impact, its preference is to find suppliers closer to home, that is, within North America.

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The Shoot for the Stars bath bomb made at the Lush manufacturing plant in Etobicoke, a neighbourhood of Toronto. Each year, 150 truck loads of natural sodium bicarbonate for bath bombs are shipped from Colorado to Lush’s Canadian factories.JENNIFER ROBERTS/The Globe and Mail

Excluding the fragrances which it buys from mother company Lush Ltd. in Britain, the North American arm of Lush spends about 20 per cent of its ingredients budget in the United States. Each year, 150 truck loads of natural sodium bicarbonate for bath bombs are shipped from Colorado to Lush’s Canadian factories.

The company then trucks the finished goods to its stores across the country and back across the border to Lush stores in the United States, a continual flow every day (with its goods often having a shelf life as short as raw food, so shipping schedules are tight).

Will NAFTA talks impact this flow?

“I think all Canadian manufacturers are concerned about what will happen, but I think it is a wait-and-see. We don’t know how it will impact us. We’ll have to roll with whatever happens,” said Heather Deeth, ethical buying manager at Lush.

The issue, however, is that trade talks view the flow of business through a narrower lens, say trade specialists. Trade isn’t just about tariffs and subsidies, duties and dumping. For countless companies, trade (and, importantly, the cost of trade) also concerns labour standards and the environment. These affect every trade decision for companies, the argument goes.

“We’re entering an area where it’s no longer business as usual, as the director of the United Nations Framework Convention on Climate Change, which is the climate change organization of the U.N., has said,” noted Maria Panezi, research fellow at the Centre for International Governance Innovation in Waterloo, Ont., who has studied the impact of climate-change policy on trade.

“We’re entering an area where everyone is concerned with the environmental parameters of their economic activities,” she said.

In other words, trade talks should be following (or at least trying to follow in principle) the precedent set by countless companies that view labour issues and sustainability as part of their trade calculations, rather than blithely limiting the definition of trade.

Governing bodies are already doing this. The European Union trade commissioner Cecilia Malmstrom has said that the EU will not enter into a trade deal with a country that has not signed the Paris agreement to limit climate change. The United States has effectively not signed it. (The Trump administration announced last year its intention to withdraw from the agreement.) French President Emmanuel Macron repeated the call, reportedly saying last month that the EU would be “mad” to sign a deal with a country not abiding by the agreement.

The Trudeau government’s “progressive trade” agenda has sought to add environmental and social concerns to negotiations, although it has been criticized from some corners as being loaded with too many issues, bogging down negotiations. (China has also rejected “progressive trade,” saying that it is out of place in trade talks.)

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Bath bomb production at the Lush manufacturing plant in Toronto. Lush prefers to buy fresh, North American ingredients and it specifically adheres to a non-animal testing declaration.JENNIFER ROBERTS/The Globe and Mail

Yet, “Canada didn’t draw a line in the sand. It’s rather that they put a hat on, and they said, ‘We will have our environmental hat on every time we talk about these trade agreements,’ but they didn’t come out and explicitly say, ‘This will be a deal breaker for us,’ ” Dr. Panezi said.

Not drawing a line is inevitable, she said, given the Trump administration’s stance and the tightly intermeshed U.S.-Canadian economy. “One big consideration when you decide what your trade policy [will be] is to look at your own trade profile. What are my main countries of interest?”

This can make things difficult on the company level. If two countries have open trade, yet one country adheres to global environmental initiatives and the other doesn’t, it could potentially hurt companies in the more environmental country because of potential higher, less polluting production costs. Relocating to the cheaper, less regulated country can become more attractive.

And yet, there are, of course, myriad other factors. A company that is more conscious of its carbon footprint and carbon pricing is already ahead of the game in terms of mitigating risk, Dr. Panezi indicated. “If you are already conscious about your carbon footprint, you’re not confronted with a new reality.” The same can be said about countries already keeping pace with the world on climate-change agreements.

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Trucks wait in the queue for border customs control to cross into the United States at the World Trade Bridge in Nuevo Laredo, Mexico.DANIEL BECERRIL/Reuters

Dr. Panezi likens the issue to social dumping, the policy of deregulating work conditions and wages in order to attract foreign companies and trade with cheap labour. It’s a practice the United States has decried, pointing to other countries. Yet, environmental deregulation is the same, Dr. Panezi argued.

This, too, indicates the narrower lens in which trade talks perhaps view trade compared with businesses.

“We look at overall landed cost,” said Ms. Deeth at Lush. “When we make a decision about where we buy, it’s the whole cost: material cost, freight costs, duty costs. And then at Lush we’re specifically looking at our non-animal testing declaration. We’re looking at the ethics of how it’s grown, the environmental impact.

“How far away is it? What does the whole supply chain look like, and can it meet our requirements?” she said, mentioning again that the preference is to buy fresh and local.

Given the uncertainty at the moment over the United States’s trade position and demands, “I think other countries view it as an opportunity, especially if Canada is actively pursuing trade agreements all over the world right now. I think our [Canadian] vendors do see that as an opportunity,” Ms. Deeth said.

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