National Column: What to expect as crucial NAFTA talks begin

by Tonda MacCharles and Bruce Campion-Smith

Each country brings ‘musts’ to table, aware negotiations could last several months

Tonda MacCharles and Bruce Campion-Smith Toronto Star

No one can predict if Canada will end up a winner, a loser or a mere bystander in the Trump administration’s drive to rewrite cross-border trade rules to benefit American workers and industries.

But Larry Rosen, head of one of Canada’s most successful retailers, will be watching warily as negotiators from Canada, Mexico and the United States launch formal talks Wednesday in Washington to rewrite the North American Free Trade Agreement.

The CEO of Harry Rosen high-end men’s clothing isn’t afraid of the new e-commerce world. The Toronto retailer has 18 stores, 1,000 employees and a flourishing in-store and online Canadian clientele.

But Rosen does fear what he calls “unfair” competition and warns of what lies ahead for many of Canada’s 45,000 store owners if Ottawa caves to U.S. demands to allow up to $800 tax-free and duty-free online shopping – the cap now is set at $20 before customs rates apply.

Rosen says what might sound appealing to consumers is “unjust” for Canadian store owners who invest and hire in Canada and have to include duties and sales taxes in the prices charged here.

“For sure it’s going to be way cheaper, so all that Canadian stores will become are try-on centres for people to go home and buy from U.S. retailers,” Rosen says.

It’s a “key ask” for the U.S. in the coming trade talks, one American corporate giants, such as eBay, Amazon and others, have long lobbied for.

A Canadian official, speaking on a background-only basis, said it underscores “how big this negotiation is going to be and how much of Canada is going to be pulled in, in one way or the other, into NAFTA because pretty much everything is on the table – or the Americans are trying to put everything on the table.”

The Trump administration says it wants to reduce trade deficits with its North American partners. In other words, the Americans want to sell more to Mexico and Canada than they buy from them.

U.S. President Donald Trump wants tougher rules on imports – everything from autos to textiles to machinery – and freer access for American exports to bring back lost U.S. jobs.

In Ottawa, the official line is Canada welcomes a chance to “modernize” the 23-year-old deal and seeks to advance “progressive trade.” But at the highest levels of the Trudeau government, the NAFTA talks are at the heart of a lot of brainstorming, strategizing and concern.

America buys $63 billion (U.S.) more in goods and services from Mexico than it sells to that country. With Canada, on the other hand, the United States holds a $12.5-billion (U.S.) trade surplus, when goods and services are combined. When the Americans talk about an $11-billion trade deficit with Canada, that’s for goods alone, mostly due to energy exports. Trade with Canada supported 1.6 million U.S. jobs in 2015, according to U.S. figures. The Canadians argue nine million American jobs depend on trade and investment with Canada.

So even though the Liberals believe the bigger target of the Trump administration is Mexico, Ottawa is going in “eyes wide open,” said a senior Canadian government official. “There is a lot in there (the U.S. trade negotiating document) that if taken as written, would be quite bad for us.”

The federal Liberal strategy so far has been to mount a full-court wooing of allies in the U.S. and Mexico.

Here’s what lies ahead:

Timeline

It’s expected there will be seven to nine rounds of talks, each happening roughly three weeks apart, alternating between the three countries.

Mexico would like negotiations completed early next year, before its presidential elections. The U.S. has its own timeline pressures – midterm congressional elections in 2018.

Canada expects talks to last months. Even if a deal is reached by the middle of next year, it could take up to 12 months to ratify and that could see the trade debate carry into the run-up to the 2019 federal election.

What’s it all about?

The original Free Trade Agreement, between Canada and the United States, was a hot-button issue in the 1988 Canadian election won by Brian Mulroney’s Progressive Conservatives.

The 1989 agreement became the basis for the broader NAFTA deal between Canada, the U.S. and Mexico that came into force five years later. It set ground rules for tariff-free trade in goods and services and included rules about the origins of tariff-free goods, customs procedures, agriculture and sanitary measures, government procurement, investment, trade in services, the protection of intellectual property rights and dispute settlement procedures.

Canada’s priorities

Ottawa has not set out a public list of formal objectives and sources say it doesn’t intend to do so, although Foreign Affairs Minister Chrystia Freeland will lay out the principles that will guide Canadian negotiators in a speech and a committee appearance Monday.

Canada wants to, among others:

Keep the state-to-state dispute resolution mechanism under Chapter 19 of the deal that allows binational panels to decide trade disputes instead of domestic courts. Canada has repeatedly won when the U.S. has complained of unfair subsidies for Canadian softwood lumber.

Protect key agricultural industries, such as dairy, poultry and egg farming, where production and supplies are managed under quota systems; Ensure Canada is exempt from “Buy American” policies in federal and state procurement and infrastructure programs;

Protect the free movement of goods that allows integrated industries, such as the automotive and manufacturing sectors, to ship parts back and forth across borders;

Enhance labour and environmental protections in the NAFTA zone.

U.S. priorities

Stronger protection for U.S. intellectual property, including patents, copyrights and trademarks, a perennial demand of big pharmaceutical companies;

Tighter rules of origin that ensure goods and materials are sourced only from the United States and North America; Equivalent labour and environmental standards, a move that would raise the cost of doing business in Mexico and remove the incentive for manufacturers to move there;

Greater access for U.S. companies bidding on government procurement contracts in Canada and Mexico while protecting its ability to restrict procurement and infrastructure projects to American suppliers;

The removal of exemptions for NAFTA partners when the U.S. applies “safeguard” measures to protect American industries against dumping or unfair subsidies.

Mexico’s priorities

Greater access for agricultural products with clearer rules, expeditious procedures and the elimination of barriers to trade;

More labour mobility;

“Improved” border infrastructure to facilitate the flow of cross-border goods. (Mexico insists it will not pay for construction of a border wall.);

Greater access to U.S. and Canadian markets for Mexican financial service providers and investors;

More effective protection of intellectual property and updated provisions to account for the digital economy and e-commerce.

What stakeholders are saying

Unifor says NAFTA has driven the flight of manufacturing jobs out of Canada to Mexico and overseas. The Canadian Centre for Policy Alternatives says Canada should look for common ground with the U.S. on reclaiming manufacturing jobs. The Business Council of Canada urges negotiators to modernize Canada’s trade ties with the two countries in intellectual property, labour mobility, procurement, the environment and regulatory co-operation. The Conservative party, which is pro-free trade, says the NAFTA deal could be modernized to include digital commerce and to upgrade rules around new technologies. The NDP supports the retention of the state-to-state dispute settlement mechanism in the current deal’s Chapter 19, key to protecting Canadian softwood lumber and diafiltered milk against U.S. complaints.

Copyright 2017 and distributed by Torstar Syndication Services

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