Terence Corcoran: The race to complete NAFTA talks risks rushing a bad deal
Now that U.S. President Donald Trump has decided to skip the Summit of the Americas in Peru, the prospect of an imminent conclusion to the NAFTA negotiations has faded to zero. That could be a good thing. The longer the talks drag on, it seems, the less chance there is that North America will be saddled with a Bad NAFTA substitute for the Old NAFTA.
A rush of news stories in recent days suggested that the U.S., Canada and Mexico could perhaps reach an “agreement in principle” that could be announced at the April 13-14 Peru summit. But Trump has bigger and realer problems on his agenda, from Syria to Mueller. Flitting off to Peru to muddle through a speech that produced no NAFTA conclusion would be a waste of time.
There is continuing optimism voiced in some circles that some kind of a preliminary agreement could still be reached by May 1, seen as necessary to clear a path through the political jungles of Mexico’s national elections, the U.S. midterms in November and the looming U.S.-China trade war. But as time passes and the news cycle produces new intelligence and speculation on the latest NAFTA negotiation trends, there is growing reason to believe that no new NAFTA is the best option, at least for now.
The latest reports, conjectures and leaks suggest that the key issues remaining on the table are either far from reaching agreement or they involve inserting clauses and conditions that run contrary to the principles embedded in the official name of the North American Free Trade Agreement. But they also suggest that, as time passes and rhetoric cools, some of the toughest negotiating positions may be weakening. The longer the talks run on, perhaps the better the trade outcome.
The auto-trade issue: The Trump administration’s opening position called for 85 per cent North American content and 50 per cent U.S. content in auto production. The U.S. is said be willing to trim the 50 per cent target, providing the content calculations somehow adjust the values of Mexican production by adding in a $15-an-hour wage assumption for Mexican labour, which in reality is $3 an hour.
The effect of such a calculation would amount to a form of tariff on Mexican workers aimed at driving them out of the auto-production business. Canada’s labour leaders, whose workers would be thereby protected, hailed the idea. “It’s a step forward,” said Jerry Dias, head of the union representing Canada’s autoworkers. “At least people are starting to understand that we have to fix the main problem — which is wages in Mexico.” On the other hand, might the problem be wages in Canada?
Robert Lighthizer, Trump’s trade representative, said recently “the objective is to try to get wages up in Mexico.” That sounds like a nice pro-worker idea, but if the attempt is made through restrictive trade practices, the impact on Mexican workers can only be negative if production shifts away from Mexico.
The dispute-settlement issue: Trump has called for the elimination of NAFTA’s existing Chapter 11 section, which protects foreign investors in the three countries against arbitrary and discriminatory government action. Known as the Investor-State Dispute Settlement (ISDS) mechanism, it has served as a meaningful legal regime through which corporations can seek compensation from government discrimination.
Canada has also sought to weaken the existing ISDS clauses, claiming the government should have the “unassailable right to regulate in the public interest.” Presumably Ottawa wants to make it more difficult for U.S. corporations to sue over outrages committed by provinces, such as when Ontario broke a contract with a U.S. wind farm developer and placed a moratorium on wind farm development, which ended with Canada having to pay $28 million in restitution. Ottawa also had to pay $130 million to AbitibiBowater after Newfoundland expropriated its property.
Over time, however, pressure to retain the clauses has intensified. A Wall Street Journal editorial Tuesday, under the headline “A NAFTA Poison Pill,” warns that the ISDS clause is essential to any future trade deal. “A NAFTA rewrite without ISDS would be a major defeat for U.S. companies and the rule of law — and could be defeated in Congress,” it said. Keeping Chapter 11 is also a priority for major U.S. business groups, including the Business Roundtable, the National Association of Manufacturers and the U.S. Chamber of Commerce.
Canadian industry also has reason to support Chapter 11. Similar investor-state arbitration clauses exist in dozens of free-trade agreements and have been used by Canadian companies to protect their rights in other countries.
A score of other issues remain unresolved in the NAFTA negotiations, including labour rules, government procurement, and U.S. demands for a sunset clause after five years. Most of these ideas, if they were to survive, would produce a Bad NAFTA.
Also on the table is agriculture and Canada’s supply-management system. Foreign Affair Minister Chrystia Freeland has said Ottawa is “fully committed” to defending supply management. New reports, however, suggest that commitment will be somewhat partial. Canada, we’re told, is prepared to allow U.S. farm products into Canada in limited quantities, following similar clauses negotiated under the Trans-Pacific Partnership.
The longer the NAFTA talks go on, it’s possible the better the chances are that North America will end up with a Better NAFTA rather than a Bad NAFTA.