When Donald Trump declared during the U.S. election campaign that the North American Free Trade Agreement was “a disaster” and should be torn up, it understandably sparked concern among Canadian exporters and trade officials.
Now that the U.S. has put the wheels in motion to renegotiate NAFTA, it’s clear that Trump’s “America First” view will be a primary goal for U.S. negotiators. U.S. Trade Representative Robert Lighthizer released his document last week containing more than 100 negotiating objectives the U.S. is targeting, and one of those of major concern for Canada is the U.S. desire to eliminate NAFTA’s Chapter 19, which calls for a binational panel to deal with complaints about unfair trade practices. The dispute process has ruled in Canada’s favour over the softwood lumber issue in the past, so it’s not hard to see why the U.S. wants the system turfed.
However, a dispute resolution process has been a make-or-break issue for Canada ever since the original trade talks in the 1980s that led to NAFTA. Canadian negotiators even suspended talks over the issue at one point.
On Tuesday, Prime Minister Justin Trudeau stressed that whatever emerges from the NAFTA renegotiation, it must include a fair mechanism for resolving disputes. And he’s right. Canada is likely going to have to give ground on a number of issues during the NAFTA renegotiation process, but it’s crucial that the country stick to its guns on this point.
The U.S. has shown in the past it can be a bully when it comes to trade matters. Canada has a long history of having to resort to trade mechanisms such as the World Trade Organization. Less than two years ago, the WTO sided with Canada and Mexico in a dispute over U.S. country-of-origin labelling (COOL) rules for beef and pork imports. Last year, Canada went to the WTO over the issue of hefty U.S. duties on glossy paper imports from Canada.
Understandably the U.S. wants to support American business interests, but there has to be a fair give and take. In the world of team sports, general managers like to say that a trade they have just made helps both teams, but privately you can be sure they want to come out ahead in the deal if at all possible. Countries are no different when it comes to trade agreements, and there’s no question that’s the goal of the U.S. in this recrafting of NAFTA. For example, one of the U.S. aims is to create more opportunities for American suppliers to share in government procurement business outside their own borders, such as construction projects. But at the same time, they want to maintain “Buy American” guidelines that limit those opportunities for foreign companies.
Eric Miller, a Canadian consultant who advises Industry Canada, noted in a recent Canadian Press story, “It’s called the mercantilist dream — we want you to open to us, be we don’t want to open up to you.”
Canada needs to ensure its own business sector is protected from unfair trade practices on the part of the U.S., and that’s why keeping a dispute resolution process in NAFTA is an issue on which Canada will not budge. It will likely take a firm approach, as was required during the original NAFTA talks. As Miller noted, “… expect Canada to have to fight hard for issues it cares about.”
Keeping a dispute resolution mechanism in NAFTA is one of those issues.