If there’s any glimmer of hope for NAFTA under the darkening days of the Trump presidency – and there’s not much − it’s that Canada and the United States, after a lull of several weeks, agreed to re-engage in negotiations this summer.
We don’t know when or how this will happen, but the fact that Foreign Affairs Minister Chrystia Freeland and U.S. Trade Representative Robert Lighthizer at least seem willing to resume talks is a somewhat positive sign after President Donald Trump’s appallingly bellicose tirades against the Prime Minister and against Canada following the G7 summit earlier this month.
Even if that re-engagement comes about, the yawning gaps on critical points and the possibility of a new Mexican government being elected on July 1, means it’s virtually impossible for any revised North American free-trade agreement to be concluded over the summer months.
As well, the “fast-track” requirements for congressional approval of any revised NAFTA deal can’t be met before the new U.S. Congress elected in midterm elections in November is sworn in at the beginning of 2019.
Assuming Mr. Trump doesn’t pull the Americans out of the negotiations in a pique of anger before then, with or without a threat to actually withdraw from NAFTA itself, we’re into 2019 for any retooled treaty to emerge from all of this.
Even that forecast seems rosy under the circumstances, given the gloomy skies on the trade horizon, notwithstanding the unrealistically upbeat comments by U.S. Ambassador to Canada Kelly Craft in The Globe and Mail this week. In a few days, Canadian tariff countermeasures will kick in – retaliatory duties on a slew of U.S. exports in response to the U.S. surcharges on Canadian steel and aluminum imposed by Mr. Trump on May 31.
Mr. Trump has been threatening China with additional tariffs (counter-retaliation) if the Chinese dare retaliate against U.S. tariffs imposed this month. If the same counter-retaliation move is applied to Canada or new measures imposed on Canadian vehicles and parts, bilateral trade relations, including the NAFTA exercise itself, will seriously start to unravel, with negatively unpredictable consequences across the board.
Even taking the most optimistic view that a new NAFTA can emerge sometime in 2019, with the difficult Canada-U.S. issues resolved, the question remains whether and to what extent any such deal will bring settled peace on the bilateral trade front as long as Mr. Trump is in the White House.
The answer is: not much.
Even with updates on automotive rules of origin, digital commence, customs facilitation, intellectual property and a host of other things under the NAFTA modernization agenda, nothing will reduce – let alone eliminate – the right of the United States to use trade remedies against Canadian exports if and when it wants to.
This right is embedded in NAFTA, undiminished as it was in the 1987 Canada-U.S. free-trade agreement, and is enshrined in the World Trade Organization agreement as well. No president, quite apart from Mr. Trump, will ever agree to have these rights watered down.
It was because of that unbridled right that NAFTA did nothing to curtail the softwood-lumber dispute re-merging twice since 1994, and that other major trade cases have been launched by American competitors against Canadian imports even with NAFTA in operation.
Some observers have said that NAFTA, like the FTA before it, reduced the spectre of such actions through the dampening effect of the binational panel system, curbing the protectionist appetites of aggressive U.S. petitioners. There may be some legitimacy to these arguments, although the statistics are less than compelling. Witness the ongoing softwood-lumber case, as well as the newsprint paper complaint and the Boeing aircraft dispute against Bombardier.
In these trade cases, the tone set by the administration is an important factor. If that tone is aggressive vis-à-vis trading partners and supportive of actions by U.S. companies, it encourages recourse to anti-dumping and countervailing duty petitions. The investigating agency in these petitions is the Commerce Department, an arm of the executive branch and, under Mr. Trump, the same agency that gave justification for tariff surcharges on steel and aluminum for national security reasons.
Speaking of national security, as in the WTO agreement, NAFTA allows unilateral measures such as tariff surcharges under carefully defined circumstances. NAFTA Article 2102 says, “nothing in this Agreement shall be construed … (b) to prevent any Party from taking any actions it considers necessary for the protection of its essential security interests …“
These national security exemptions are only available in time of war or “other emergency in international relations.” But these are the exemptions Mr. Trump has used to justify surcharges on Canadian steel and aluminum and, possibly, on Canadian vehicles and auto parts as well. There is no chance that these rights will reduced in the slightest in a retooled NAFTA.
So whatever may emerge in any revised treaty sometime in 2019, the unlimited right of the United States to deploy trade-remedy actions, as well as the availability of unilateral national security carve-outs, will continue under NAFTA 2.0 as before.
The result of all this is that a nicely updated NAFTA won’t do much to curb the trade war appetite of the aggressively protectionist Trump White House. Looking to a retooled NAFTA to insulate Canada and the increasingly unsettled markets from all this Trump-inspired chaos is a chimera.
Lawrence Herman is a former Canadian diplomat who practices international trade law at Herman & Associates. He is also a senior fellow of the C.D. Howe Institute