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Trump says NAFTA ‘a catastrophe’ for the U.S., but Canada has its grievances

President Donald Trump, centre, and Commerce Secretary-designate Wilbur Ross, left, talk to media before a lunch meeting in the Roosevelt Room of the White House in Washington, Thursday, Feb. 2, 2017.

Carolyn Kaster/THE ASSOCIATED PRESS

So Donald Trump wants to renovate the triplex that is the North American free-trade agreement.

Job No. 1 is to determine the scope of the project. As homeowners know, renovations can run the gamut from new floors and cabinets, to a full gut job.

The good news is that demolition appears to be off the table, for now. So perhaps NAFTA isn't headed for the landfill just yet.

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"I don't care if it's a renovation of NAFTA or a brand new NAFTA," Mr. Trump said this week. "I want to change it and maybe we do … a new NAFTA and we add an extra 'F' in NAFTA, for free and fair trade."

Even a renovation leaves a broad range of outcomes on the table, with potentially painful consequences for Canada.

The priority for Ottawa is to figure out what it wants from a NAFTA makeover. And fast.

Mr. Trump and his designated negotiator – billionaire businessman and commerce secretary-designate Wilbur Ross – will be coming at Canada and Mexico hard and fast, looking to repatriate jobs, particularly in manufacturing. The Trump administration reportedly wants stricter content rules to limit the range of products entering the United States duty-free and rein in the clout of the dispute-settlement panels that have been a feature of Canada-U.S. free trade since the 1980s.

Like renovations, trade negotiations are inherently unpredictable. But everything is potentially up for grabs.

Pressure will be intense for Canada to bend on traditional U.S. grievances. A handy reference guide for these is contained in the U.S. Trade Representative's annual National Trade Estimate report of foreign trade barriers. The chapter on Canada in the 2016 edition highlights such things as the restrictive supply management system for dairy and chicken products, provincial booze-marketing monopolies, high taxes on direct liquor imports and subsidies to Bombardier's C Series commercial jets. It also highlights foreign-ownership restrictions on telecom companies and a recent ruling by Canada's broadcast regulator to end the practice of substituting Canadian TV ads for U.S. ones during the Super Bowl game.

Canada would be wise to draft an equally bold list of its own demands.

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If the Trump administration pushes to neuter the state-to-state dispute-settlement regime (Chapter 19), Canada should insist on limiting the ability of investors to directly sue governments via Chapter 11. Canada has been sued more often and hit with more penalties than either of its NAFTA partners under the so-called investor-state rules.

Canada would also be wise to get assurances that Canadian energy exports will be spared from any new U.S. border taxes. And to avoid a repeat of the Keystone XL pipeline foot-dragging debacle, it should demand that exports of oil, natural gas and electricity be spared from needing special U.S. presidential permits.

Softwood-lumber trade is another cross-border irritant that is ripe for change. Serial U.S. trade cases over allegedly dumped and subsidized Canadian softwood lumber dating back to the 1980s are a stain on NAFTA and the earlier Canada-U.S. free-trade agreement. Domestic industries have routinely exploited the politicized trade-remedy regime to bog down foreign competitors in costly litigation, even with a weak legal case.

Ottawa should demand reciprocity on government procurement to protect itself from the proliferation of Buy America clauses in various U.S. spending bills. The bottom line should be that if Canadian suppliers are shut out of U.S. contracts, then U.S. suppliers should be barred from contracts here.

Finally, Canada should seek to protect the right of Canadians to work and travel in the United States. Mr. Trump's rhetoric about Muslims and putting America first suggests U.S. negotiators could try to roll back the labour-mobility rights enshrined in NAFTA. As many as 40,000 Canadians in designated professions now work in the United States under a fast-track non-immigrant visa, known as a TN.

Canada's opening argument should be that it's not a bad actor in this drama. The country has a freely floating currency, generally higher taxes, stringent labour and environmental protections, and high-cost labour. Outside of energy, the United States enjoys a large trade surplus with Canada. The broader current account, which includes services and investment income, is in near-perfect balance.

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Ottawa should fight for a better and fairer NAFTA, rather than settle for a gutted shell.

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