NAFTA is doomed and it’s all ‘notoriously unpleasant’ Canada’s fault
Two dramas greatly affecting the future of Canada are playing out badly. Most worrisome is the British Columbia pipeline fiasco where a lawless NDP government has gotten away with impeding a legally approved pipeline and by doing so damaged Alberta, Canada’s engine of growth.
Similarly, NAFTA talks are faltering because Canada has failed to play the “special relationship” card and side with Trump against Mexico’s unfairly low wages of US$3-6 an hour compared with the average of US$30 an hour for Canadian autoworkers.
Another problem, according to trade expert Jeff Schott who spoke April 13 at the annual conference held by the Canada-US Law Institute, is that “there is a bias against Canadians. The opinion is that they are notoriously unpleasant. I don’t agree but that’s the attitude in the USTR (U.S. Trade Representative’s office).”
All of which means that the consensus at the conference was that the Americans hold all the cards and imminent elections in the U.S. and Mexico this year mean nothing substantive will happen unless Mexico and Canada cave to all tough American demands.
“The game plan is that Canada and Mexico will walk away, then the U.S. can say the President tried to make it work for Americans,” commented Dick Cunningham, international trade partner at Steptoe & Johnson in Washington D.C.
Underlying the talks is the reality that Trump’s economic agenda is to change or leave NAFTA, and to retain tariffs against China and against steel and aluminum from many countries, including Canada and Mexico (exempted until May 1).
The likeliest scenario appears to be that the three will ink an Agreement in Principle and punt talks until 2019.
“By May 1, if there is no Agreement in Principle, the U.S. will reinstate steel and aluminum tariffs on Canada and Mexico, talks will break down and that will allow Trump to walk away,” said Cunningham.
U.S. anger against NAFTA is strictly against Mexico with its low wages which is why, I have argued, Canada should have sided with the U.S. toward Mexico.
“We opposed NAFTA in 1994,” former Canadian Autoworkers Union leader Buzz Hargrove told the conference. “Where was Donald Trump when we needed him?”
He recited the degree of hollowing out that NAFTA has wreaked in Canada.
“We lost 100,000 jobs in Canada, our deficit with Mexico has gone up four-fold to $18 billion a year, there has been zero investment in the past five years in the auto sector in Canada and Mexico now produces 80 per cent of the cars in North America,” he said.
The only solution, he added, is that NAFTA must require Mexicans to allow unions to organize their workers and dramatically increase wages to level the playing field.
By contrast, the American strategy is to make doing business in Mexico impossible by demanding wage hikes, by capping production, and by scrapping the dispute resolution mechanism. American negotiator Robert Lighthizer describes the dispute clause (that Canada supports) as a job-robber that provides “government risk insurance for foreign outsourcing.”
Canada should agree to drop the clause and also agree to shut the backdoor entry by trade cheaters into the steel, aluminum and auto parts sectors.
If this is done, compromises on the other issues – dairy and lumber – will be easier.
The reality is that NAFTA is doomed. Without massive wage concessions in Mexico, NAFTA will never pass Congress even if a Democratic majority is elected this fall. And if wage concessions by Mexico are dramatic, it will never pass Mexico’s Senate either.
The best option is simply to reboot the Canada-U.S. Free Trade Agreement and rekindle the special relationship.