Predictions On NAFTA Negotiations

The outcome of the negotiations on NAFTA is a matter of considerable importance to Canada’s economic prospects.

The top negotiators probably already know how most of the remaining issues are going to be concluded. But the Liberals may feel a need to drag it out so that when the final concessions are revealed, they can say they fought hard for the outcome.

It must be said at the outset that Minister of Foreign Affairs Chrystia Freeland has conducted herself with dignity and restraint, and that Prime Minister Trudeau has stifled his tendency to make Sunny Days proclamations that are at odds with the facts on the ground.

They are negotiating on Canada’s behalf with a volatile president who has little understanding of economics, a tiny attention span, and an out-of-control ego.

An anonymous letter to the New York Times, attributed to a senior aide in the White House, tells us of an administration riven by scheming and fearful of calamity.

“The root of the problem is the president’s amorality. Anyone who works with him knows he is not moored to any discernible first principles that guide his decision-making.” “There is literally no telling whether he might change his mind from one minute to the next”.

Bob Woodward’s book “Fear” echoes the theme. He begins with a story about Trump having ordered a letter terminating a trade agreement with South Korea. Former Chief Economic Advisor Gary Cohn stole the letter from his desk before Trump had a chance to sign it.

Similar impulsive choices on NAFTA and even NATO were likewise prevented.

The current reports on the NAFTA negotiations suggest that they are down to a few issues. Given Trump’s impulsiveness, it is hard to know where or whether things will land.

Nevertheless, here is a fearless prediction. If against all odds it is correct, remember that you read it here first.

  1. Gender Equity and the Environment: It was completely knowable that Trump was never going to go along with any substantive wording on these topics. It may have been more about virtue signaling than anything else. Removing it won’t even be useful as a trade-off for something we want removed. Nothing of significance will be in the agreement.
  2. Chapter 11 grants investors the right to sue foreign governments without first pursuing legal action in the country’s court systems, in order to protect foreign investors from discrimination.

     
    Of 35 claims brought since 1995 against Canada, six have been lost or settled for a total of $170 million in damages, an average of less than $10 million per year.

    Some critics in Canada dislike this clause, but at a time when investors are nervous about putting money into Canada it provides some assurance that they will not be victimized by political whims.

    The clause will stay, more or less in its current form.

  3. Cultural Industries: Canadians are perennially concerned about the risk of our culture being subsumed by American culture. This has led to subsidy programs for Canadian artists and publishers, and prohibitions on American acquisitions of Canadian media outlets.

     
    These predated the internet, across which all sorts of foreign media can now be accessed.

    Unfortunately, many American news broadcasters have lost interest in objectively educating and informing their audiences. They prefer to reinforce biases. Canada will not benefit from having our broadcasters become like Fox or CNN.

    Trudeau is right to take a stand on this and it will survive with possible minor modifications.

  4. Supply Management: Canada’s supply management system applies to chicken, eggs, and dairy. The big one is dairy. Canadians pay much more than Americans for milk and cheese, in part because American dairy farmers are heavily subsidized. Canadians subsidize their farmers at the cash register, where prices are set for the benefit of producers.

     
    As a result, dairy quota is worth between $24,000 and $34,000 per cow, depending on the province. These quotas were originally given away for nothing.

    There was much angst when a small quota was given away (with compensation for farmers) in the TPP and European trade agreements.

    Further similar concessions will be good for everyone in Canada who is not a dairy farmer or Liberal MP.

    Trump has been especially noisy on this. There will be concessions.

  5. Chapter 19 is the dispute resolution system that deals with punitive tariffs, such as those recently imposed on steel and aluminum. Given Trump`s capricious nature, this provision is more important than ever to Canada. At the same time, it is one to which Trump is the most resistant since it restrains his worst impulses. A fudged version will survive the negotiations.

Trump remains a constant threat to the rules that have allowed trade to flourish around the world. If Canada can emerge from the current negotiations with NAFTA largely unchanged, Minister Freeland should be congratulated for her tenacity, restraint, and endurance.

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