Canada banks on Trump’s hatred for red tape to save NAFTA

by David J. Lynch (feat. Eric Miller)

The Washington Post
January 24, 2018

Canadian negotiators will appeal to President Trump’s hatred for red tape this week in a bid to revive stalled talks over modernizing the North American Free Trade Agreement, according to David MacNaughton, Canada’s ambassador to the United States.

In the sixth round of NAFTA renegotiations being held this week in Montreal, Canada will propose several ways to reduce the regulatory burden that the treaty places on the auto industry, MacNaughton said in an interview with The Washington Post.

The aim is to reduce required paperwork, making North American vehicle makers more competitive and indirectly addressing the president’s demand to create more U.S. manufacturing jobs, he added.

“We think this is something that would appeal to the president and his advisers,” MacNaughton said. “It will reduce the regulatory cost, which I think is really important. That’s an example of how we can create a win-win-win.”

The president has repeatedly boasted about achieving economic gains through deregulation, saying last month that his administration has eliminated 22 rules for every new order issued. Since taking office one year ago, “the never-ending growth of red tape in America has come to a sudden screeching and beautiful halt,” Trump said at a White House ceremony last month.

MacNaughton, a former government affairs and public relations executive who has represented Canada in Washington for two years, struck a note of cautious optimism about this week’s talks. He also said negotiators could meet the deadline they’ve set to conclude the formal negotiations.

“We’re not going to get every last ‘t’ crossed and ‘i’ dotted by the end of March,” he said. “But that doesn’t mean we can’t have a success by the end of March.”

Canada has been on the defensive for months in the NAFTA talks, following its dismissive response last year to U.S. demands to overhaul several parts of the 1994 trade accord. A major sticking point has been the Trump administration’s call to alter “the rules of origin” governing the vehicle trade among the three countries.

Today, a vehicle can be shipped duty-free from one NAFTA member to another so long as 62.5 percent of its components — such as seats, hoses and fenders — originated in North America.

Labeling the existing deal unfair to the U.S., the Trump administration has proposed increasing the required North American content to 85 percent and adding a new rule that 50 percent of the content originate in the U.S. for cars and trucks coming from Mexico and Canada.

The U.S. also wants vehicles covered by NAFTA to be manufactured from North American-made steel and aluminum.

With a typical vehicle model containing perhaps 5,000 major components, tracking and verifying the national origin of each one is a mammoth job. Some carmakers have called for scrapping the list completely.

“They have to document in minute detail where every sub-component of that component comes from. That’s the real cost driver,” said Eric Miller, president of Rideau Potomac Strategy Group, an industry consultant.

Miller said he was not privy to the new Canadian proposal, but said it likely centered on a document called the “tracing list,” which specifies the individual parts covered by the rules of origin. Reducing the number of parts covered and updating the list to reflect technological changes since the treaty went into effect in 1994 likely would be part of any deregulatory push, he said.

“One of the parts that's on the tracing list is cassette recorders. But you know, backup cameras aren’t,” MacNaughton said in his only elaboration of the new Canadian proposal.

Still, the new Canadian ideas fall short of a formal proposal, something that could irk American officials who have been impatient for an official response to the proposed U.S. rewrite of the treaty. A spokeswoman for the office of the U.S. Trade Representative declined to comment.

In Montreal, negotiators have begun trying close the gaps among the three nations.

“We don't see a lot of value in making a counter proposal, a formal counter proposal right now. We think we need to take a step back and talk about ideas, generate some traction with some ideas and move in that direction,” Steve Verheul, Canada’s chief negotiator, told reporters, according to a transcript distributed by the Canadian Embassy.