By choosing politics over fundamental trade economics Justin and Chrystia from Canada have painted themselves into an isolated position on the renegotiated North American Trade deal. Here’s the basic Canadian conundrum.
The U.S. and Mexico have agreed to manufacturing origination terms; wage and labor improvements; elimination of AG subsidies and non tariff barriers; and removal of all protectionist tariffs – so long as the structural terms of commerce are upheld.
In order for Canada to join the U.S. Mexico deal they would need to:
- (1) eliminate soft-wood subsidies in the lumber sector;
- (2) eliminate protectionist tariffs in the AG (Dairy) sector;
- (3) accept the 75% rules of origin, eliminating the NAFTA loophole;
- (4) agree to the enforcement mechanisms for all the above;
- (5) allow U.S. banks to operate in Canada (financial sector).
Each of these five issues, now locked-in and agreed by the U.S. and Mexico are “take-it-or-leave-it” terms for Canada to join. There’s almost no-way, given the politicization of the Canadian plan, for Justin and Chrystia to agree to those terms and keep their fragmented political support base appeased.
Therefore, absent total acquiescence, it is likely Canada will keep their soft-wood lumber subsidies, keep their protectionist Dairy tariffs, keep their banking rules blocking U.S. access, and face a 25% duty on U.S. auto imports – effectively destroying their auto manufacturing sector. Car companies (ex. Toyota) will simply leave Canada and return to building/assembling in the U.S.
Here’s the content from a conference call filling in more details:
Thank you. Good afternoon, everyone. We are here today to do a call on the U.S.-Mexico Trade Agreement. I am joined by United States Trade Representative, Ambassador Lighthizer; Deputy Trade Representative, Ambassador Mahoney; and Assistant to the President, Jared Kushner.
We will be having opening remarks that will be on the record, attributable to the individual speaker. They will state their name prior to speaking. Question-and-answer will be attributable to a senior White House official/senior administration official.
Again, the opening remarks will be on the record, attributable to the individual speaker, and question-and-answer will be attributable to a senior administration official.
With that, I’m going to turn the call over to Ambassador Lighthizer.
AMBASSADOR LIGHTHIZER: Yeah. Hi, everyone. This is Bob Lighthizer. I’ll just make a few remarks and then I think Jared will, and then we’ll take questions.
I would say I think this is an extremely historic time. I think that we had a NAFTA agreement that had gotten seriously out of whack, that had led to large trade deficits, and that needed updating; it needed modernizing consistent with the way the economy works now.
I think we had an enormous amount of hurdles to overcome to renegotiate an agreement that had about $1.1 [trillion] or $1.2 trillion worth of total trade, by far the biggest agreement of its kind in the world.
We had a number of — I’m just trying to give you a little context. We had a number of rounds — seven rounds — over a period of almost exactly one year. Some of these rounds had as many as a 1,000 people in it because you’re negotiating — from the three countries — because you’re negotiating so many complicated provisions.
We’ve now come out the other side of that process with Mexico. We hope that Canada can join in now, and expect them to begin that process very soon.
With respect to the United States and Mexico, we have an agreement that is absolutely terrific. I think it is fair to say we’ll do a rebalancing. I think it’s going to lead to more jobs for American workers and farmers, but also more jobs for workers and farmers from Mexico.
I think it’s going to modernize the way we do automobile trade, and I think it’s going to set the rules for the future at the highest standards in any agreement yet negotiated by any two nations for things like intellectual property, and digital trade, and financial services trade, and all of the things that we think of as the modernizing, cutting-edge places that our economy is going.
So this is great for business. It’s great for labor. It has terrific labor provisions in it. Stronger and more enforceable labor provisions that have ever been in an agreement by a mile. Not even close. And these modernizing provisions are also the greatest that anyone has ever had.
So we’re very, very excited about it. We’re very, very happy to be partnering with Mexico on this difficult process of negotiations. And we look forward to having this — either be joined by Canada or not — but go through to a very successful conclusion of the Congress, hopefully with overwhelming Republican and Democratic support, and have it lead to real, tangible benefits for our workers and our farmers.
Now, with that, I’ll let — I think Jared wants to make a comment, and then we’ll take questions.
MR. KUSHNER: Thank you, Ambassador. And I also want to point out that this was a deal that was done, really, in almost record time. We did it very quickly for one of these trade deals. And a big part of why we were able to do that is because of the great cooperation we had with the Mexican government. We had a very constructive relationship. It was very focused on the future. We were not — we were willing to address the problems that each side had. And it was by having a very constructive and frank dialogue over the course of many months that we were able to reach a very quick agreement by the standards of these trade agreements. So I do give a lot of credit to the Mexican negotiating team, obviously to Ambassador Lighthizer and his team, and also to President Pena Nieto and President-elect Lopez Obrador.
We believe, very strongly, that Mexico is our neighbor. Our countries share a lot in common. And solving the problems that we had in our trading relationship will hopefully be a springboard off of which we can address a lot of other issues that we share together. But the spirit of cooperation and trust that’s been built between our countries, as we’ve worked very closely over the past year and a half together, hopefully will just continue to get better and lead to an even better, more prosperous, and safer relationship between the two countries.
So we came in with a joint objective. The same objective we both had was for us to make America better off and to make Mexico better off. And I think what we were able to accomplish with this deal is really to create a win-win transaction. And there, hopefully, will be a lot more to come.
I’ll just say, finally, that the President — obviously, he’s fighting for America. He’s fighting for our workers. He’s fighting for our companies. And he will be tough, but at the end of the day, he’ll be fair. And we presented a deal, ultimately with his leadership, that he thought was fair deal that would make our country better. And so he was — so he was happy to do it.
And with that, I’ll pass it maybe to Ambassador Mahoney, or we could open up for questions.
AMBASSADOR MAHONEY: You guys have said it all. Let’s start with questions.
♦Q Hey, good afternoon. How do you expect Canada is going to respond to the news of this deal? And how much of this big announcement today was designed to put pressure on Trudeau? There seems to be a real suggestion here that the train is leaving the station; you’re either on it, or you’re going to get left behind.
SENIOR ADMINISTRATION OFFICIAL: I don’t — you know, this wasn’t designed to put pressure on anyone or anything like that. We’re in a position where we had a negotiation that went on for close to a year. The last few months — several weeks, I guess I’d say, more accurately — we decided we were better off to try to get a deal with one party and then hopefully the other.
It tends to be the way these things work in any event, right? It’s hard to have three people all just have the lightbulb go on at the same time. So this is not part of the negotiating strategy or anything. We did it in what I think to be the sensible way. We worked with one party. We got through. We worked it out. And now we’re bringing the other party in. The other thing — or the other party is coming in for the talks.
The other thing I would say is, let’s remember that we had seven rounds, as I said, and literally tens of thousands of hours of negotiating that were either bilateral between the United States and Canada, or trilateral.
So it isn’t like Canada is coming in at the last minute. They know the issues; we’ve talked about all these issues. And I think this is a normal, orderly way to arrive at an agreement with three people.
♦Q Thank you. Where do things stand on the U.S. demands for a sunset provision and changes to investor-state dispute resolutions?
SENIOR ADMINISTRATION OFFICIAL: So we have an alternative to sunset, which we think works. It accomplishes what we need to accomplish, and it also protects the interests of investors, may they be in Mexico or the United States.
So the way our agreement would work is we have a 16-year period — and we would have a review after 6 years, where we would hope to work out problems. And then, at the end of that review, we would expect that the agreement would be extended for another 16 years, and that you would think of it as more or less a rolling forward of the agreement timeframe, but with real opportunity for a review in a way that will keep both modernizing on track and keep disputes from festering. So that’s number one, the first question.
The second on the ISDS: We have a process wherein there will be an ISDS provision for everyone in both countries, who — which ISDS will be limited in the following ways, essentially –and that is, they’ll be for expropriation for a national — failure to give national treatment or failure to give MFN.
With respect to companies that have contracts with the government and either government: In certain sectors, they get the old-fashioned ISDS, and those sectors are oil and gas, infrastructure, energy generation, and telecommunications. So that’s the answer to that question.
♦Q Thanks so much for doing this call. I wanted to find out, are the number of TN visas changing in this new agreement? Is it a part of it?
SENIOR ADMINISTRATION OFFICIAL: No.
♦Q Great. Thanks very much. Can you just outline the specifics of how this agreement is different from NAFTA? The President obviously said it was better. Can you sort of specifically lay out how that is the case? And regarding Canada, will the tension between President Trump and Prime Minister Trudeau affect the ability to get a deal?
SENIOR ADMINISTRATION OFFICIAL: Well, I’m not going to comment on the latter. I don’t know that there is any tension. The reality is that leaders of nations tend to do what’s in the interest of their nation, and that’s what I expect to happen in most cases, or almost all cases.
So in terms of the way this is better than NAFTA 1.0, that’s a very, very, very long answer. It’s better in all respects. But having said that, I’ll just mention some of the high, high — you know, the top lines.
One, the rules of origin for automobiles — remember automobiles are hundreds of billions of dollars in trade — are much more detailed, and would be much better for the region and for the United States.
The labor requirements are totally different. They weren’t even in the agreement in the last one. And they’re completely enforceable.
In areas like digital trade, financial services, IP, all of the kinds of things you think of as a new economy, we are setting newest high-level standards that are not only better than NAFTA 1.0 but are also better than TPP or, I would suggest, any other agreement that’s been negotiated.
So to me, it’s innovative. I think this alternative method of review is innovative, that it will give both people the focus of a strong, viable agreement that goes on for years, and years, and years.
And with respect to every sector — environment — every sector, this is an improvement not only over NAFTA — the original NAFTA — or I should say, the agreement formally known as NAFTA, but also far better than TPP.
So there literally is not an area where we didn’t plus up what we had done before. And this with the cooperation of both; this is not just the United States. The Mexicans also wanted this result.
♦Q Thank you for doing this call. In the Oval Office, you said that you expected to notify Congress by Friday of the new deal, which would be signed by the end of November. What type of deal do you envision notifying Congress about? And what type of deal will Congress — or should Congress be prepared to sign at the end of November with many GOP leaders now weighing in and saying that any deal has to be a trilateral one?
SENIOR ADMINISTRATION OFFICIAL: Well, first, so the way this will work is, we send up a letter and then 90 days later it is signed by the heads of government. Right? So that’s basically the process.
And what we will do is, ideally, Canada will be in and we’ll be able to notify that. If Canada is not in, then we’ll notify that we have an agreement with Mexico and that we’re open to Canada joining it.
So it clearly is something that we believe is consistent with the statute. And in terms of — I don’t know, you know, and of the views of whoever the GOP leaders you’re talking about, but I think there are a lot of people who think we’re better off with all three countries involved. And I hope we will get to that result.
♦Q Hi, and thanks for doing the call. To follow up on that question, when you notify Congress of the renegotiation, that notification indicated that they’d be trilateral discussions. How can you notify — if Canada doesn’t join on — how could you notify a bilateral agreement if that initial notification was for a trilateral discussion?
SENIOR ADMINISTRATION OFFICIAL: Well, I’ll just repeat it one more time. We’re going to — if it comes to that, ideally we’ll have the Canadians involved. If we don’t have the Canadians involved, then we will notify that we have a bilateral agreement that Canada is welcome to join. And we think that satisfies our requirements — the requirements of the statute.
♦Q Hi there. Can you tell us if you think that you’re confident that those labor provisions you’re speaking about will suffice for Democrats to support this deal?
SENIOR ADMINISTRATION OFFICIAL: So I guess I missed — the question is, do I think the labor provisions will —
♦Q Yes, sir. You were talking about those labor provisions. Do you think that that will be enough for the Democrats to support the deal?
SENIOR ADMINISTRATION OFFICIAL: Yeah, thank you. Yes. I — it certainly is my hope. I can’t, obviously, speak for members; they make their own decisions. But I believe there has never been a trade agreement remotely as good on labor from the point of view of organized labor and Democrats, for whom that’s a high priority, than this one.
So it is in detail. It lays out the obligations, which are all obligations which the United States has and which Mexico is having. Mexico is in the process of reforming their labor laws.
And it is — they are across the board; they require secret ballots — all the kinds of things that we would expect. And they are enforceable. They’re enforceable. Mexico can enforce these obligations against us and we can enforce the baseline obligations against them.
So I do believe when this is studied and looked at by the people, be they Republicans or Democrats, for whom this is a major issue, they’re going to say this is the most forward-leaning labor provisions ever agreed to, and they can be completely enforceable. So I’m optimistic that we’re going to get a lot of bipartisan support.
♦Q Yes, sir. Thanks for holding this call. President Trump talked about terminating NAFTA. Just to clarify, he meant that in the context of getting a separate — getting, in addition to the deal announced today, a separate bilateral deal with Canada, since two bilateral deals would therefore represent — make NAFTA moot. Is that the case? And what hopes do you have that Canada is available or willing to do a separate bilateral deal?
SENIOR ADMINISTRATION OFFICIAL: Thank you. First of all, I should add that, on the labor provisions, these were endorsed by the President-elect, who’s very forward-leaning — of Mexico, very forward-leaning on labor issues also. Because they were part of the negotiations and were engaged on some provisions, but particularly this provision.
What was the other question?
SENIOR ADMINISTRATION OFFICIAL: It’s on whether —
SENIOR ADMINISTRATION OFFICIAL: Oh, yeah, the issue of termination. So, I’m sorry — the issue of termination. It’s impossible to have two agreements at the same time. Whenever you have an agreement that supplants another agreement, you have to pause or get rid of the prior agreement. How you do that is something that we’re still in the process of looking at. At a minimum, the new agreement will supplant the old agreement. Right? Just as a technical matter.
We did that when we went to NAFTA from the 1988 Canadian deal. So I think we have to — every strategy, every tactic is not laid out at this point, but notionally, what the President is saying is you can’t have two agreements like this. And when you get a new agreement, you’re not going to have NAFTA anymore.
♦Q Hi. Yes, you mentioned oil and the ISDS. Can you explain exactly what the changes are regarding the oil industry and how — oil investments — and how that will be handled at the request of the new government? And also just going back, just for clarification, on the sort of sunset replacement, you said it’s extended for 16 years but revised or reviewed every 6 years? Did I understand you correctly?
SENIOR ADMINISTRATION OFFICIAL: Let me answer the first question first, which is, regarding oil and gas investments in Mexico, given the way that the Mexican energy sector is set up, those companies — or American companies operating down there — have contracts with the Mexican government. For those companies, there’s no change in ISDS. They continue to have the full suite of ISDS protections that they enjoy under NAFTA 1.0.
And with regard to the review and term extension provision, the way it works is that there’s a 6 — there’s a period of a 16-year term on the deal, but every 6 years you have a review. At each 6-year review, the parties can decide to extend the term another 16 years.
♦Q For a fresh 16 years.
SENIOR ADMINISTRATION OFFICIAL: For a fresh 16 years. Right.
So you would go — you know, the first instance, if you get to your 6, and the parties decided that they wanted to push it out another 16 years, you’d then be — you’d be 16 years from your 6. So you’d be at — I guess at year 22.
So we — but if the parties decide at year 6 that they do not wish to bump it out another 16 years, then what they will do is they will meet and have a review every year in the hopes that they can solve whatever issues have arisen between them, and agree upon another 16-year extension.
So the idea here is that these reviews have consequences. They’re incentives for the parties to deal with any issues, to continue to modernize the agreement. But at the same time, you’re always far enough away from the end to where it, ideally, will not affect investment.
♦Q Hi there. Thanks for doing this call. If Canada were to enter back into the agreement, what would it be called if not NAFTA?
SENIOR ADMINISTRATION OFFICIAL: We’ll figure something out, but right now we have a United States-Mexico Trade Agreement that we’re working on. We’ll work with Canada when they — I guess we’re going to start this afternoon with them. And we’re focused more on the substantive issues, and hopefully we’ll get those resolved, and then we’ll pick what the name should be.
♦Q Yes, thank you for doing this call. I just wanted to make sure, specifically: Has Mexico agreed to a bilateral deal if Canada can’t be brought onboard?
SENIOR ADMINISTRATION OFFICIAL: I think we’re at a position where we’re going to have discussions with Mexico over the — sorry, we’ll have discussions with Canada this week; see where we get to. But I think, at the end of the day, Mexico is in a position where they want to protect their markets, and they’ll hopefully do what’s right for Mexico.
Mexico does have an agreement with Canada through TPP, so it wouldn’t hurt their trading relationship. But again, I think we all have a preference to see it come together. But if we’re not able to do that, then we’ll move on bilaterally.
But for more clarity, maybe ask the Mexicans. So that’s just my speculation.
I am reminded how badly Chrystia Freeland screwed up the negotiations in January of 2018 when she demanded that Canada be allowed to arbitrarily set their own trade import standards with China… This was right after idiot Justin signed Canada on to the TPP trade agreement.
Any canucklehead could see that signing on to TPP and simultaneously demanding to set your own standards for manufacturing origination was a poison pill. It would make the NAFTA fatal flaw infinitely worse for the U.S….. any idiot could see that problem. That was the moment when Lighthizer gave up on Canada.
FLASHBACK to the End of Round Six:
Ambassador Lighthizer: It is a pleasure to be here in Quebec. Montreal is one of the great cities of the world, and I have not been back in many years, and I’ve missed it. I used to come here in the 70s and 80s with my wife and children to go to Mont-Tremblant and learn how to ski. We loved the French culture, we loved the excellent food, the wonderful skiing and as I recall, it was cold all the time. That hasn’t changed at least.
[…] Now let me turn to the Sixth Negotiating Round and the status of our talks. We believe that some progress was made. We closed one chapter, as Ildefonso [Guajardo] said it was the chapter on corruption, which is a very important chapter, and we made some progress on a few others. More importantly though, we finally began to discuss some of the core issues. So this round was a step forward, but we are progressing very slowly.
We owe it to our citizens, who are operating in a state of uncertainty, to move much faster. Of course, negotiating as a group of three is more difficult than bilateral talks. Often, issues become more complicated and contentious when there are three parties.
I would like to comment on two proposals by the Canadians, one of which has been in the press quite a bit, and that is a presumed compromise on rules of origin.
We find that the automobile rules of origin idea that was presented, when analyzed, may actually lead to less regional content than we have now and fewer jobs in the United States, Canada, and likely Mexico. So this is the opposite of what we are trying to do.
In another proposal, Canada reserved the right to treat the United States and Mexico even worse than other countries if they enter into future agreements. Those other countries may, in fact, even include China, if there is an agreement between China and [Canada]. This proposal, I think if the United States had made it, would be dubbed a “poison pill.” We did not make it, though. Obviously, this is unacceptable to us, and my guess is it is to the Mexican side also.
Finally, I would like to refer, because I think it fits into this context to an unprecedented trade action that Canada brought against the United States very recently. It constitutes a massive attack on all of our trade laws. If it were successful, it would lead to more Chinese imports into the United States and likely fewer Canadian goods being sold in our market.
Now we understand that countries often challenge specific actions taken by another country in the context of trade laws. This is normal and what we expect. But this litigation essentially claims that 24 years ago, the United States effectively gave away its entire trade regime in the Uruguay Round. Of course, we view this case as frivolous, but it does make one wonder if all parties are truly committed to mutually beneficial trade. It also underscores why so many of us are concerned about binding dispute arbitration. What sovereign nation would trust to arbitrators or the flip of a coin their entire defense against unfair trade? (more)
Right friggin’ there, January 30th 2018, is when Canada lost.
I’m a hobbyist for granular details in U.S. trade history. That moment can be marked as the exact day when the Canadian government made a fatal flaw in their negotiating strategy. That day in January created the place where they are today in August. Isolated.