Prime Minister Justin Trudeau and Foreign Minister Chrystia Freeland keep saying it, over and over again: A bad NAFTA deal would be worse than no deal at all, and they will never agree to one.
“It would be worse not to have a deal at all,” according to Peter Glossop, who specializes in competition and foreign investment law at Osler, Hoskin & Harcourt, a Toronto-based law firm. “The price of no deal could be losing the existing NAFTA.”
Marko Papic agrees. “Even a bad NAFTA deal would be better than no deal,” says the chief geopolitical strategist at BCA Research, which provides businesses with investment advice.
Why would a lousy, rotten, crappy deal be better than no deal at all? Because Canadian businesses simply must have duty-free access to the U.S. market. “An astounding 28 per cent of Canada’s GDP is sourced through exports to the U.S.,” Mr. Papic points out.
Saskatchewan Premier Scott Moe best summed up the paradox facing Canadian negotiators. “We cannot move forward with a bad deal," he said last week. "I’m not certain we can move forward with no deal either.”
The Mexicans clearly decided that an imperfect North American free-trade agreement was better than no NAFTA at all. Luz Maria de la Mora, the incoming undersecretary of state for trade, said her country “did what was possible and not what was desirable,” describing the bilateral Mexico-U.S. agreement as “NAFTA 0.8” – not as good as the original NAFTA, but the best that was available.
Daniel Schwanen, who is vice-president of research at the C.D. Howe Institute, a think tank, would not welcome a new trade agreement in which Canada surrendered the existing dispute resolution mechanism and was subject to new rules restricting Canadian exports, while receiving little or nothing in return.
But “a no-deal scenario is bad, very bad," he adds, because the Canadian economy is so dependent on access to the U.S. market.
For Mr. Schwanen, the goal must be “restoring some kind of certainty to that access,” by limiting U.S. President Donald Trump’s ability to levy capricious tariffs, such as the ones he slapped on steel and aluminum imports.
There’s an argument to be made that dismantling Canada’s supply management protection for the dairy industry and lifting protections on cultural industries might, in the long run, make these sectors more competitive.
And the Chapter 19 dispute resolution mechanism is so flawed that Canadians might have better luck taking their case to U.S. courts, where recent decisions have tended to favour our side – although the political consequences of surrendering on dispute resolution may be more than the Liberals could tolerate.
In any event, unless the Canadians and Americans can reach an agreement, the future could be grim. Mr. Glossop offered this worst-case scenario if no deal is reached: The final text of the U.S.-Mexico agreement would be published at the end of September; Mr. Trump would give six months’ notice that he is terminating NAFTA; the United States and Mexico would sign their bilateral agreement at the end of November; in 2019, Congress would implement the U.S.-Mexico accord, while repealing NAFTA’s implementing legislation, leaving Canada with no trade agreement of any kind with the United States.
In the meantime, the U.S. President would be free to slap more tariffs on Canada, including one on autos.
Brett House, deputy chief economist at Bank of Nova Scotia, cautions that this disaster scenario is probably the least likely of all possible outcomes, that incentives are aligned for a deal, deadlines are more flexible than the Americans claim and that some kind of trilateral agreement remains the most probable result of the talks.
”Talks have been winnowed down to less than a handful of issues, on which the remaining distance between the negotiators is shrinking," he believes. "We expect to see a trilateral deal, but it might take longer than the artificial end-of-September deadline being pressed by the U.S. and Mexico.”
But “let’s be clear about the choices on offer and recognize that the status quo is not one of them,” he adds. "The White House is not interested in maintaining NAFTA as it is.”
Ms. Freeland and her team continue to press for the best possible agreement. But as the days get shorter and the nights cooler, the question becomes not what the best outcome might be, but which would be the least worst.
Maybe it’s Canada that should be demanding a sunset clause on this deal.