NAFTA talks nothing to fear

by Kelly Taylor (feat. Eric Miller)

Winnipeg Free Press
August 5, 2017

United States President Donald Trump’s demand to reopen the North American Free Trade Agreement isn’t sending shivers through Manitoba’s business community — it presents an opportunity to "modernize" a trade pact signed 23 years ago, business leaders say.

Loren Remillard, president of the Winnipeg Chamber of Commerce, said business lobbies on both sides of the border are confident pragmatism will win the day in any negotiations.

"You have to make the separation between politics and economics," Remillard said. "Certainly, some of the rhetoric during the election campaign was worrisome, but we’ve been speaking to our counterparts in the U.S., and our members have been speaking with their suppliers.

"At the business and economics level, the trade relationship and mutual benefits are not only well-understood, it’s something the business community on both sides of the border are trying to articulate clearly to all levels of government."

Remillard said it’s a message being carried to key American states, highlighting how those states’ economies are dependent not only on exports to Canada, but on investment by Canadian firms in those states.

"Of the 50 U.S. states, for 48 of them Canada is their No. 1 trading partner, and for the other two, Canada is No. 2," he said. "What we’re saying to those states is, ‘We’re investing in your state, we’re contributing to your state’s economic well-being, and a renegotiated NAFTA runs the risk of threatening not just the trading relationship, but the prosperity in your state.’"

Phil Cyrenne, who is an economics professor at the University of Winnipeg who studies trade, said despite some of his bluster, Trump’s messages usually signal areas he would like renegotiations to address. Cyrenne said chief among them is stemming the flow of American manufacturing jobs to Mexico.

Still, Cyrenne said some industries in Manitoba will want to pay close attention, particularly those engaged in supply-side management, such as dairy or egg co-operatives or marketing boards.

"Supply-side management is quite the thorn in the U.S. side," Cyrenne said.

The Canadian Wheat Board, had it remained the sole buyer of grain in the Prairie provinces, could have also been a target, he said. Its hold on the grain market — correctly described as a monopsony — was dissolved by the government of prime minister Stephen Harper in 2012.

"In a way, the government did that too soon," Cyrenne said. "It might have been a bargaining chip in these negotiations."

David Wiens, chairman of Dairy Farmers of Manitoba, vice-chairman of Dairy Farmers of Canada and a dairy farmer himself, said he hasn’t seen new evidence of a pending attack on supply management such as is practised in the dairy industry.

Wiens said Trump did complain about a lack of access to Canada by Wisconsin milk producers, but said such rhetoric isn’t supported by statistics.

"The way it is now, the U.S. has a positive trade balance with Canada of about five to one, so it’s really rather bizarre dairy should be an issue for them," Wiens said.

He said problems in the American dairy industry are because of overproduction, not lack of access.

"So if the U.S. has overproduced, looking to Canada to solve their overproduction problem isn’t really the answer. Our market is about one-tenth of the U.S. market," he said.

Manitoba has about four per cent of Canada’s 11,200 dairy farmers and $19 billion in production, which supports approximately 230,000 jobs nationwide.

The story is similar at Manitoba Egg Farmers, where general manager Cory Rybuck is taking a cautiously optimistic wait-and-see approach.

"The federal government has made it very clear they’re pledging to support supply management," Rybuck said.

The U.S. enjoys a nearly $40-million trade surplus on eggs and egg products with Canada, he said.

Manitoba has 170 egg farmers.

Tom Lindsey, labour critic for Manitoba’s NDP Opposition, said he laments how free trade has returned some sectors of the economy back to the days of "hewers of wood and carriers of water" Canada’s economy had fought so hard to change from about 1960 onward.

"We’re not opposed to trade," the Flin Flon MLA said of the political left.

"There’s nothing wrong with manufacturing in Canada and exporting the finished product. That’s not what we’re doing — we’re exporting the raw product and creating employment somewhere else."

Remillard said while some industries may have suffered, the overall gains to the economy outweigh any pain.

He said gains in knowledge-based industries are helping the province enjoy some of the lowest unemployment in the world, while boosting average take-home paycheques.

"We have seen some workers transition into new jobs or in some cases, into entirely new industries," he said.

"The fact we have low unemployment is testament to that.

"Canada is better served by having an economy based on knowledge than one based on the economy of 40 years ago," he said.

"I don’t think it serves Canadians well to try to freeze time and maintain that post-war picture. That’s never coming back."

In Manitoba, exports have grown from $9.2 billion in 2003 to $13.7 billion in 2015 — that year being the last with available statistics.

Of those, $9 billion, or 65.1 per cent of exports, are from manufacturing. The province’s largest manufacturing export sector is food and beverage, at just more than $2.1 billion.

Transportation equipment — New Flyer buses, fire trucks from Fort Garry Industries and motor homes from Winkler’s Triple E, among others — is the second-largest sector at $1.9 billion.

Eric Miller, a trade adviser and CEO of Rideau Potomac Strategic Group in Washington, D.C., mentioned New Flyer first when asked about Manitoba’s winners under NAFTA.

Miller, a Canadian who named his firm after the canal that flows past Parliament Hill and the river that flows past the Washington Monument, said New Flyer’s ownership of one-third of the transit and motor-coach bus industry in North America is testament to the power of free trade.

Another winner, according to Miller, is Winnipeg’s Bison Transport.

Damiano Coniglio, Bison’s chief financial officer, said the free-trade agreement has been a key driver of Bison’s growth. The bulk of Bison’s business is transporting merchandise from midwest states to western Canadian retailers.

From his vantage point, Coniglio sees several sectors where Manitoba manufacturers are shipping products south, however. In aerospace — Boeing, Magellan — in machinery — MacDon Industries, Versatile Farm Equipment — Coniglio sees several signs of a deep integration of business processes spanning the border.

"It’s not always that a product is fully assembled in one country or another," he said.

"Parts and components can go back and forth before a product is finished."

He and Cyrenne both said identifying losers is problematic. From Cyrenne’s standpoint, fluctuations in currency exchange rates makes such a calculation extraordinarily difficult. Miller said it’s possible to identify sectors that have suffered — such as apparel — but it may be impossible to single out NAFTA as the cause.

"We started to see the apparel industry shift offshore before free trade," he said.

"So was free trade the cause, or was it just a continuation of a trend that was already in place?"

Lindsey said a primary concern for the NDP is ensuring Canada retains sovereignty over Canadian policy, such as health care, job creation and resource management.

"The scary part is when private corporations can sue governments when they say they’ve lost profits because the government is trying to create employment opportunities or provide health care benefits to Canadians," Lindsey said.

Coniglio said a key aspect he’d like to see "modernized" is cross-border shipments, perhaps with pre-clearance for shipments much the way air travellers clear U.S. Customs in Canadian airports.

"If we could have a customs officer pre-clear shipments when a truck is loaded, it would take millions in added costs and delays out of the system," he said.