Gordon Ritchie is a former Canadian ambassador for trade negotiations and deputy chief negotiator of the Canada-U.S. free-trade agreement.
As the NAFTA drama unfolds in Washington in the era of a reality-TV presidency, the situation is both better and much worse than it appears.
The negotiations between Canada and the U.S. could well produce agreement in principle on changes to the North American free-trade agreement as soon as this week. But regardless of progress in NAFTA talks, the much larger issue is the fallout from U.S. President Donald Trump’s wanton disregard for the established rules of international trade.
I would not be too concerned about the “deadlines” that American negotiators like to impose – and then adjust to suit themselves. Nor should the threat of auto tariffs be cause for panic. Mr. Trump is, after all, threatening to punish U.S. car buyers and producers in a bid to intimidate the Canadians and any tariffs face the firm opposition of American business, labour and many members of the U.S. Congress. Anything is possible with this administration, but Canada should not make fundamental policy based on bluster and threats.
It should be possible, albeit challenging, to conclude a three-way agreement in principle on the reform of the existing NAFTA. Mexico has apparently made significant concessions on the crucial issue of automotive trade and settled on a number of other points. Now the Canadians are in the crosshairs.
The crunch will come around two politically charged issues: Dairy and dispute settlement. I have never been a fan of Canada’s supply management regime but it is a minor sticking point in our $2-billion a day trade relationship with the U.S. Unfortunately, having found a good audience reaction to his punchlines, Mr. Trump has made a huge political issue of Canada’s “unfairness” in levying tariffs rising to nearly 300 per cent on dairy products.
Facts matter: the U.S. runs a surplus in its trade with Canada, over all and even (three to one) in the dairy sector, which represents a fraction of 1 per cent of our total trade. These tariffs, while prohibitive, are the negotiated counterparts to even higher tariffs on sensitive American agricultural industries such as tobacco and sugar. But so long as these tariffs give Mr. Trump an easy target, they will represent a serious political problem.
Fortunately, the demands of American producers can be reasonably accommodated. As in the Trans-Pacific Partnership negotiations, the amount of milk entering duty free could be increased and more allowance made for what the Americans call “diafiltered” milk. There will no doubt be some self-serving political rhetoric attacking such arrangements from some in Canada but it should be surmountable.
Dealing with the American assault on the Chapter 19 dispute settlement provisions could also be manageable. Something is obviously needed to keep the Americans from turning around and slapping tariffs on imports from Canada under the pretext that our goods are subsidized or dumped. Chapter 19 has generally served Canada well, finding time and again that the American authorities were indeed cheating under their own laws and requiring them to cease and desist. Even in the case of softwood lumber, which has proved simply too politically charged to be contained by any agreement, these provisions did give Canada valuable leverage in the early cases.
It is true that this was Canada’s absolute requirement in the initial negotiations, which once broke down over this issue, but it is worth recalling that it was needed because the General Agreement on Tariffs and Trade was powerless and the World Trade Organization did not yet exist. Subsequently, the WTO largely incorporated these provisions and made the decisions binding. Regrettably, the U.S. has recently worked to sabotage these WTO dispute settlement provisions, blocking the appointment of the essential arbiters and appeals judges without whom the system cannot properly function. An undertaking by the United States to work together with Canada and Mexico to strengthen and revitalize this system might be just enough for Canada to accept it as a backstop to a weakened Chapter 19.
Agreements in principle along these lines may be sufficient to move the negotiations to the next stage, a detailed text to be reviewed by the legislatures in the U.S., Canada and Mexico this fall.
There remains a much more serious problem, however, which has been largely ignored in the hullaballoo surrounding NAFTA. To a degree we are only now coming to appreciate, the hugely successful enterprise of building the liberal world economic order over the past 70 years has depended on America’s willingness to exercise self-restraint. Instead of just throwing its weight around in pursuit of narrow self-interest, as the undisputed economic and military superpower, it has provided global leadership in its commitment to democratic values and the rule of law, including the international trading system. None of this can now be taken for granted.
Mr. Trump has ridden rough shod over America’s closest allies, imposing outlandish tariffs on steel and aluminium, hitting hardest at Canada, under the bizarre pretext of “national security.” He now threatens to attack the very heart of the integrated North American economy with 25 per cent tariffs on automobiles, possibly in retaliation from some imagined slight from Prime Minister Justin Trudeau, who had the temerity after the first round of tariffs to say he would stand up for Canada’s interests.
This is the real danger we face, not cows or clauses, but a President gleefully dismantling the system his great predecessors built.