by Thomas Walkom
Canada has ceded ground in the ongoing North American Free Trade Agreement talks. It has not ceded enough to satisfy U.S. President Donald Trump.
If the federal Liberal government wants to keep a free-trade relationship with Washington, it will have to accept one that – in most cases – is markedly worse than the current NAFTA.
That’s the message from the latest round of bargaining in Montreal this week.
Specifically, Washington is standing firm on demands that more autos and auto parts be manufactured in the U.S., that the pact be subject to a five-year sunset clause and that NAFTA’s Chapter 19, which allows signatories to challenge one another’s trade practices, be scrapped.
Ottawa has tried various ploys to circumvent Trump’s intransigence. First, Prime Minister Justin Trudeau launched a charm offensive to convince the prickly president that Canada is America’s best friend.
Trudeau squired Trump’s daughter Ivanka to the theatre and gave the president a photo that showed him with the prime minister’s late father, Pierre.
Trump was equally charming in return. But he didn’t change his mind on NAFTA.
Then the Canadians tried to circumvent Trump by lobbying state and federal politicians on the virtues of NAFTA. That didn’t work either.
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Then Foreign Affairs Minister Chrystia Freeland tried logic, using America’s own trade figures to prove that the U.S. has done well from NAFTA.
Trump and his officials responded by using different trade figures – including Canadian ones – to prove the opposite.
Freeland politely pointed out to the U.S. side the seeming absurdity of some of their positions – such as demanding specific American content rules in a three-way free-trade deal that includes Canada and Mexico.
That didn’t work either.
Nor did Canada’s decision to use the World Trade Organization’s dispute resolution system to challenge America’s panoply of trade rules.
While justifiable (U.S. trade law is unusually self-serving) that decision just irritated the Americans.
On Monday, U.S. Trade Representative Robert Lighthizer slammed Canada for its WTO challenge. He said it only underscored the danger to U.S. national sovereignty posed by dispute resolution systems, such as the ones Canada wants to keep in NAFTA.
In this just-completed round of bargaining, Freeland tried a new tack – proposing what she called creative compromises.
The U.S. had demanded, for instance, that member states have the right to opt out of NAFTA’s Chapter 11, which lets foreign companies challenge national laws before nonjudicial trade panels.
The Canadian compromise, in effect, accepts the American proposal with the proviso that even if the U.S. opts out, Canada and Mexico would be able to determine their own Chapter 11 relationship.
An American opt-out from Chapter 11 would be good for Canada, which far too often is on the losing side of these claims, and bad for U.S. firms which have tended to be the winners.
Ironically, Canada is acting in its own interests by effectively agreeing to this particular U.S. demand. But as an added bonus, it may also have made some mischief between Trump and his business supporters.
On the auto front, Canada’s creative comprise went nowhere. In essence, Canada had suggested that more elements, including marketing, be included as North American content under NAFTA. If this were done, the percentage of U.S.-made content would automatically rise – thereby (the theory went) satisfying Trump.
If Trump were the narcissistic buffoon he is often made out to be, if he were easily satisfied by paper victories, this sleight of hand might have worked. But Lighthizer at least seems to take the president seriously when he demands that trade deals benefit American workers.
On Monday, the U.S. trade representative dismissed this auto compromise out of hand.
Freeland has said she takes Trump at his word. She should. On NAFTA at least he has been unusually consistent.
He has called it the worst trade deal ever. He has said Canada and Mexico get too much from it and the U.S. too little. He has said that if NAFTA is to continue, the U.S. must get more while Canada and Mexico get less.
He may be entertaining mercantilist fallacies when he says this. He may be running afoul of accepted economic theory. But that is what he says and that is what he wants.
Freeland has also said that no deal is better than a bad deal. If the talks so far are any indication, the Liberals will eventually face that choice.
Thomas Walkom’s column appears Monday, Wednesday and Friday.
Copyright 2018-Torstar Syndication Services