Canada believes that Trump may pull out of NAFTA and negotiations

(January 10)Chrystia Freeland, Canada's Foreign Minister told reporters today that the United States must be taken seriously when it warns that it might walk away from NAFTA.

Two Canadian government sources said on Wednesday that Canada is convinced Trump will soon announce that the U.S. intends to pull out of NAFTA. The comments may have resulted in lower values for Canadian and Mexican currencies as well as driving down stock prices.

Canadian complaints to WTO may be the last straw for Trump

Trump has often described NAFTA as a terrible deal for the U.S. even though it gives favorable access to Canada's natural resources and to cheap Mexican labor. However, Trump's populist America First policy would try to reformulate the agreement to meet what he thinks are the interests of the U.S. rather than of U.S.-based global corporations. Many of these policies are not acceptable to Mexico or Canada.

As a recent, Digital Journal article reports, Canada is filing a complaint with the World Trade Organization(WTO) against the U.S. claiming its imposition of duties and other penalties against exporting nations constitute violations of international trade law.

U.S. trade representative Robert Lighthizer said: “Canada’s claims are unfounded and could only lower U.S. confidence that Canada is committed to mutually beneficial trade.”

This move may make the next round of negotiations on NAFTA even more difficult assuming Trump does not announce he is pulling out before they happen.

Factfile on NAFTA. US President Donald Trump has denounced NAFTA as a "disaster" and the worst agreement ever signed by the United States, blaming it for a $64 billion trade gap with Mexico and loss of countless jobs

John SAEKI, AFP

Upcoming negotiations on NAFTA in Montreal

The sixth round of talks are to run from Jan. 23-28 in Montreal and there is only one more round to take place after that.

Freeland claims that Canada had come up with some creative ideas to deal with some of the challenges facing negotiators but did not say what these were. Freeland also said it was “absolutely possible to have a positive outcome” at the Montreal talks if all three sides showed good will. Translated that means if they all agree to meet the main demands of global corporations.

Even if Trump were to give the required six months notice to withdraw from NAFTA he is not required to act on the notice. He could very well face strong opposition in the US Congress where both Republicans and Democrats will be under pressure from U.S.-based global corporations who want a trade deal in their interests.

An announcement to withdraw could be both a negotiating tactic and a sop to Trump's populist base that could help boost his slumping popularity ratings.

The NAFTA proportionality clause

Reports about the negotiations in the press rarely mention this provision and the government has not shown that it has the least intention of changing it. However, it is unique among trade deals in that it prevents the Canadian government from considering the needs of Canadians before those of the other two partners. We cannot put the energy needs of Canadians to access our energy resources before those of the US or Mexico. In practice, this means mostly the U.S.

Proportional sharing requires NAFTA members to make available the current share of energy exports to other member countries even when facing energy shortages at home.

Richard Heinberg, a California energy expert said that proportionality is unique in all of the world's trade treaties. Heinberg said: "Canada has every reason to repudiate the proportionality clause, and to do so unilaterally and immediately."

This is just one of the reasons why Canada should be walking away from the talks. However the Liberal government represents the interests of global corporations at the talks and is not about to abandon them if it sees any way for a successful completion of negotiations.

Published previously in Digital Journal

Little progress after fifth round of NAFTA talks end in Mexico City

(November 22)The 5th round of NAFTA talks ended on Tuesday that had started on Friday in Mexico City. Even after three months of talks, the parties remain far apart on major issues.

Lack of progress even on minor sections of NAFTA agreement

The negotiations that started Friday ended with negotiators failing to finalize new agreements on even minor sections of the NAFTA pact.

Robert Lighthizer, U.S. Trade Representative, complained that Canada and Mexico are not seriously negotiating on key areas in NAFTA that need to be overhauled. He said that the U.S. will not accept a deal that does not shift trade flows in favor of the U.S.

Lighthizer said: “While we have made progress on some of our efforts to modernize NAFTA, I remain concerned about the lack of headway.”

The U.S. has advanced proposals that neither Canada nor Mexico are willing to accept.

Phil English, a senior adviser at the law firm of Arent Fox in Washington DC said: “They really need to be much further along than this, and I’m concerned that this negotiation is on the verge of stalling out. I’m very concerned that this growing inertia on the big issues is creating an environment that will lead to bad results.”

The three political leaders from each country leading the talks did not take part in this round of talks. They are not expected to attend smaller sessions held between now and the sixth round that is scheduled for Jan.23-28.

An anonymous U.S. government official said that it was still possible to reach a deal by March. In a joint statement the three countries said: “Chief negotiators reaffirmed their commitment to moving forward in all areas of the negotiations, in order to conclude negotiations as soon as possible."

Unresolved issues

The U.S. wants a full sunset clause that would terminate the pact unless all three countries agree on an extension. A revised U.S. list of objectives speaks only of a periodic review of the pact.

On the important issues of auto content there was no movement. Nor was there a solution to the problem of dairy products with Canada insisting that its supply management system be protected. The U.S. also wants to end dispute resolution panels — while Canada just recently submitted U.S. actions imposing duties on some Canadian softwood lumber to the panel arguing they were unfair and a violation of NAFTA.

U.S. demands are already generating tit-for-tat proposals. The U.S. wants to limit foreign access to U.S. government procurement projects resulting in Mexico making a similar proposal with respect to its own projects.

Mexico is planning to put forth a counter-offer to the U.S. content demands in the auto sector. Mexican Economy Minister Ildefenso Guajardo said that the current U.S. proposal was impractical and inefficient for the industry. He said that Mexico was willing to help the U.S. balance its trade with Mexico but only through expansion of exports not limitation on trade between the two countries.

Guajardo said: "It’s a negotiation with a high degree of complexity, but we’re working through it, and at some point we will find spaces for a landing that serves everyone."

Guajardo noted that there had been progress on issues of digital commerce, food safety and the environment. Much of the technical work was already finished he said and that some of those issues could be concluded even between negotiating rounds.

Mexico and Canada have issues with some U.S. proposals

The Canadian Foreign Minister Chrystia Freeland told reporters that there were significant differences in key areas. She said the U.S. position on the sunset clause and the auto proposal were extreme and could not be accepted. Freeland maintained the sunset clause was redundant since any party can withdraw after six months notice. Canadian officials have even warned that there will be no NAFTA deal if the U.S. doesn’t back down on some issues.

The U.S. is demanding that half of the content of all North American-built autos be produced in the U.S. The broader North American content should be increased from 85 percent from 62.5 percent. There is currently no rule in NAFTAgoverning U.S.-only production. The U.S. also wants all steel to originate in North America.

Asked if Canadians should prepare for life without NAFTA, Freeland said Canada's position is to "hope for the best and prepare for the worst and Canada is prepared for every eventuality."

The talks often pit the U.S. against both Mexico and Canada. Steve Verheul, the lead Canadian negotiator said: “Canada and Mexico are working very closely together. We have a lot of issues in common.”

Trump has repeatedly threatened to scrap the deal if the terms don't suit him.

Talks could extend even into 2019

Brett House, an economist at Scotiabank, said that Trump could give notice of withdrawal and not follow through. He could also try to withdraw and face huge resistance in Congress. House thought that there was only a 20 percent chance that there would be a deal by March but that it was much more likely that they would muddle through for the rest of the year and into 2019.

Previously published in Digital Journa

Canada will be better off if Trump dumps NAFTA

Many commentators appear worried that US President Trump will end up sabotaging any new NAFTA deal by insisting on new provisions that Mexico and Canada cannot accept.

 

An article by Thomas Walkom suggests what Canada can do if Trump kills NAFTA. If U.S. President Donald Trump rejects the North American Free Trade Agreement, there are essentially three things that Canada can do. One reaction would be to try and keep what remains of NAFTA with Mexico and hope that Trump's presidency wont last too long. Negotiations could resume with a new US president more amenable to a free trade deal that all three nations could accept. However, there may be a deep-seated negative attitude towards globalism in the US that could continue even if Trump's presidency ends. A second reaction would be to try to negotiate a bilateral deal with the US. That is not likely to be successful as Trump will insist on terms unacceptable to Canada. If NAFTA is ended then the 1989 US-Canada Free Trade Agreement would automatically come into force. Trump might very well demand it be renegotiated and end up rejecting it as well.

A final reaction would be to accept that the goal of continental economic integration is dead and pursue other economic aims. The US would still be a main trading partner of the US if it rejected NAFTA and as a recent study by the Canadian Centre for Policy Alternatives shows 41 percent of Canadian exports to the US would still face no tariffs without NAFTA. However, this may be because of the 1989 Canada-US Free Trade Agreement. US business reaction might be so negative at this point towards Trump that he might find it difficult to reject it as well as NAFTA.

Walkom suggests that the demise of NAFTA would force Canada to search for other markets for its goods and for other trading partners. This would lessen our dependence on the US which Walkom considers would not be such a terrible fate. While Walkom's view may be correct there are strong reasons why NAFTA should be rejected. Canada is not even attempting to remove some of the key provisions in NAFTA that are very much against the interests of Canadians.

Three provisions were set out in a recent Digital Journal article. In order to protect our crucial water supplies from becoming a commodity the provisions must make it clear that water is not a good, service, or investment. Otherwise Canada would be forced to export bulk water and increase privatization. The US no doubt could see Canadian water as a means of re-hydrating some US states that are very short of water.

Canada also needs to do away with the investor-state settlement provisions (SDS) in Chapter 11 of the treaty. This allows corporations to sue governments if they adopt policies restricting corporate profits. The sections have been used to challenge governments when they pass laws intended to protect people's health or protect the environment but have negative effects on corporate profits.

Finally there is the absolutely unfathomable proportionality clause. There is not a mention of this in Canada's list of priorities. The clause requires that if the government of any member of the agreement cuts energy available for export to another country it must cut the supply to the same extent domestically. Canada gave up its right to give priority to Canadians when it comes to access to scarce energy supplies. An expert on energy notes: ."Proportionality is "unique in all of the world's treaties," writes Richard Heinberg, a noted California energy expert... It's unclear how many other countries the U.S. has tried to impose an energy proportional sharing chapter on, but it is clear none has bitten. Heinberg concludes that "Canada has every reason to repudiate the proportionality clause, and to do so unilaterally and immediately."Mexico is not subject to the proportionality clause. Some of the new demands the US has made that may scuttle the negotiations are mentioned in the appended videos. One demand, the sunset clause seems quite reasonable to me, although both Mexico and Canada as well as many business leaders are strongly against it. The problem is that Trump's ideology of America First places US and not global corporations interest first, as well as attempting to get them to produce in the United States. Global business wants agreements favorable to them to last indefinitely without being subject to the threat of a sunset clause or any nationalist demands akin to those of Trump.