How Canada can benefit from Trump’s mad rush to wrap up NAFTA talks

by Naomi Powell (feat. Eric Miller)

Financial Post
April 5, 2018

With pressure mounting on the United States and Mexico to land a quick NAFTA deal, Canada is well positioned to benefit from the rising urgency surrounding the talks, trade experts say.

The U.S. – which had initially hoped for a new agreement by the end of 2017 — is now reportedly pushing for a deal in time for the Summit of the Americas on April 13 and 14.

Bloomberg reports that sources say the Trump administration now has softened a key NAFTA demand for more North American content in car manufacturing, which has been one of the talks’ biggest sticking points.

Canada never committed to the 2017 deadline or to any other “artificial calendar” for the negotiations, said Eric Miller, head of Rideau Potomac Strategy Group, a Washington-based trade- consulting firm.

“Canada is now strategically benefitting from that,” said Miller, who has advised the government on certain issues related to the talks. “It’s clear now that the U.S. is not interested in discussing NAFTA for the next two years because it’s got other battles to fight. The question is what are they willing to pay to close these negotiations?”

A confluence of factors is behind the U.S.’s rocket-like drive to get a deal in place. Mexico’s presidential elections are set to begin in July and with leftist candidate Andrés Manuel López Obrador leading in polls, the U.S. could find itself seated across from a far more rigid opponent at the bargaining table.

On the U.S. home front, negotiators are hurrying to get a deal ready for approval by the current U.S. Congress rather than face a possible Democrat-controlled U.S. House or Senate following the upcoming midterm elections. Mexico economy minister Ildefonso Guajardo said last month that talks would need to be concluded before the end of April in order for a pact to go before the current Mexican Senate and U.S. Congress.

And now the U.S. finds itself engaged in a rapidly escalating trade conflict with China. Within hours of the U.S. announcement Tuesday that it would impose tariffs on US$50 billion in Chinese imports, China retaliated with plans to tax a matching US$50 billion of U.S. products, including soybeans, planes, tobacco and whiskey.

“Without question they’re going to need the resources currently devoted to NAFTA to be shifted to China,” said Miller. “They want to close negotiations with the neighbours so that they can focus strategically on that front. It’s critically important to prioritize. There are a lot of things pressing in on them.”

Though Canada isn’t without political pressures of its own, including an upcoming election in Ontario and the May 1 expiry of its exemption from U.S. tariffs on imports of aluminum and steel, “I think there’s more urgency for the United States than there is for Canada,” said international trade consultant Peter Clark, who is advising clients affected by the negotiations.

“It’s the Americans who really want to push this. The Mexicans are under some pressure if they can get a good deal, because of their election,” he said. “We don’t know what other pressures Canada is under in the talks, but we’re certainly not in the weakest position at the table.”

Though there are still “differences of opinion” among the three countries Canada is working hard to narrow the gaps, David MacNaughton, Canada’s ambassador to the United States said following an event in Toronto Wednesday.

“There is a good chance, with the three leaders getting together in Peru, it provides a focus for us to work really hard to try and get as far as we can,” he said. “I’m not going to predict where this is all going to end up except for the fact that we’ve done our homework, we’re going to try and work as hard as we can to get as far as we can.”

U.S. urging notwithstanding, the likelihood of any substantive agreement being hashed out in time for an announcement next week is slim, he added.

Though six to seven smaller issues in the talks – including items related to anti-corruption, the treatment of small and medium sized businesses, and sanitary regulations – are finished or close to being finished, many issues still remain, among them some the most difficult points, he said. They include rules surrounding government procurement and how to handle disputes on anti-dumping and countervailing duties under Chapter 19 of the deal.

“If the Americans want to put a lot of water in their wine and dilute their demands, it’s possible we could get an agreement in principle,” he said.

That agreement could include a framework for the contentious issue of automotive content, which the three countries are believed to have made progress on in recent weeks.

It could also be along the lines of the recent revamp of the U.S.-Korea Free Trade Agreement (KORUS), which was hailed as a victory by the Trump administration when it was announced last month. Though South Korea agreed to reduce its steel exports to avoid tariffs, the deal “didn’t really take much away from Korea,” Clark said.

Mickey Kantor, the former U.S. trade representative brought in 1993 by President Bill Clinton to finalize the original NAFTA deal, also pointed to the South Korea agreement as a little changed deal that was nevertheless celebrated.

“I think the Trump administration is looking for victories wherever they can find them,” he said.

Kantor added that he was concerned about “false deadlines” being applied to the process.

“These agreements are incredibly difficult to work out. It’s mind-numbing at times, but that work needs to be done.”

Much will come down to how badly the United States truly wants an agreement in principal, something that will likely become clear toward the end of the week, Miller said.

Foreign Minister Chrystia Freeland said Wednesday she would be flying to Washington for a meeting on Thursday with U.S. Trade Representative Robert Lighthizer. Guajardo was holding talks with Lighthizer in Washington on Wednesday ahead of a planned trilateral meeting including Freeland, the Mexican government said in a statement.

“It is a period of danger for Canada and also a period of opportunity,” Miller said.

“If you’re Canada and you’re clear-eyed about what you want you are in a reasonably good position to get some concessions here.”