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It's time for Trudeau to fish or cut bait in the NAFTA talks

by Colin Robertson

The Globe and Mail
October 11, 2017

NAFTA negotiators are meeting again in Washington this week with their sights on the "elephants in the room": the U.S. demands around dispute settlement, rules of origin, "Buy American" on procurement and a sunset clause.

The Americans, who initiated the renegotiation of the North American free-trade agreement to reduce the U.S. trade deficit, are expected to lay out their positions on the various "elephants." There are also U.S. demands specific to Canada – supply management of our dairy markets – and specific to Mexico – wages, trucking and agricultural exports.

For Prime Minister Justin Trudeau, who is also meeting with President Donald Trump at the White House and then with President Enrique Pena Nieto in Mexico City, this week will be a test of his personal diplomacy. Can he convince his counterparts that a renewal of the North American idea of three sovereign nations, united in managing their common space to mutual advantage, requires taking a bigger view?

Mr. Trump promised to put "America First." He is delivering and not just in his tweets.

Trade-remedy action by the U.S. Commerce Department is at a 16-year peak. Canada's Bombardier joins Canada's softwood industry as the latest victim of punitive penalties. Commerce Secretary Wilbur Ross claimed "NAFTA rules are killing our jobs." In an unfortunate turn of phrase, U.S. Agriculture Secretary Sonny Perdue said agricultural trade is "like policy toward North Korea – all options are on the table."

Rescinding NAFTA would be disruptive and hurt all three economies.

In the absence of a free-trade deal with the United States, Most Favoured Nation tariff rates, as negotiated under the World Trade Organization, would apply. The Peterson Institute for International Economics estimates that tariffs on all products would rise to an average of 3.5 per cent for the United States, 4.2 per cent for Canada and 7.5 per cent for Mexico – a terrible deal for all.

This will also result in trade diversion – the markup on Heinz ketchup, for example, could have Canadians switching to Salisbury or Tesco, now that the Canada-Europe trade deal is in place. Continuing trade diversification – a resurrected Trans-Pacific Partnership, potential deals with India and China – need to be part of Mr. Trudeau's message to Mr. Trump.

A rescinded NAFTA would have an attitudinal effect on border administration. With the Canada-US FTA (1989), border agents took a "pass, friend, pass" attitude, further facilitating the passage of goods, people and services. After the attacks on Sept. 11, 2001, "security and enforcement" replaced "facilitation." The border thickened.

If NAFTA is to be renovated and not rescinded, Canada and Mexico must redouble their advocacy efforts in the United States. With a focus on the state and local level, the message is simple: Jobs and investment depend on preferred access to Canada and Mexican markets.

Normally, the U.S. president is our shield against congressional protectionism. This time, the protectionist push is coming from the Trump administration. We need to push back with help from allies in the American Farm Bureau Federation, U.S. Chamber of Commerce and auto manufacturers.

In his meetings on Capitol Hill, Mr. Trudeau will repeat to legislators our message about the jobs and investment in their state depending on Canadian trade and investment. The Canadian Business Council recently complemented this with a map that identified 7,705 Canadian-owned businesses across 434 of the 435 congressional districts.

The Trudeau government sees the NAFTA talks as an opportunity to advance its progressive trade agenda. In putting forward Canada's NAFTA objectives, Foreign Affairs Minister Chrystia Freeland said that "too many working people feel abandoned by the 21st Century global economy." Mr. Trump and his supporters understand this message. Trade is blamed, even if most change is created by technological innovation and automation.

Trade works – on this, the economic evidence is clear. But if the gains of trade are seen to advantage only the rich and business, then populism will curb and roll back trade liberalization.

What if we put a tiny levy on all North American commerce and then distributed it for training and income-support to sectors and regions adversely affected by trade? It would lift some of the burden from local and state governments. This should be part of Mr. Trudeau's discussion with Mr. Trump and Mr. Pena Nieto.

If the leaders buy in, then there is no reason that the NAFTA renegotiations cannot gain new life, meet their deadlines and set the model for future progressive trade agreements.


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