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Canadian Businesses Outline NAFTA 2.0 Priorities and Deal Breakers

Posted August 11, 2017

While the Trudeau government has been somewhat lacking in terms of openness about its negotiating objectives and says that it would be “illogical” to reveal Canada’s strategic goals in the upcoming discussions to modernize the North American Free Trade Agreement at this time, industries and business sectors have been more definitive about the changes they want to see in a revised deal. And for that matter, those which they don’t want to see.

In a recent op-ed for The Globe and Mail, Dennis Darby, the president and chief executive officer of Canadian Manufacturers & Exporters, said in no uncertain terms that the Trump administration’s declared goal of eliminating NAFTA’s Chapter 19 (which outlines a special appeals process related to the imposition of antidumping and countervailing duties) would be a “deal breaker” for Canada’s manufacturing sector. “This issue must be cleared up,” Darby stated but without indicating how, “so that the long-overdue conversation with our most important trading partners can get under way.”

Noting that CME’s network of businesses that account for 70% of the country’s $355 billion worth of exports are essentially free traders, Darby said his group’s members “believe NAFTA can and should be modernized to not only incorporate change that has occurred over the past 25 years, but also to lay a foundation for growth and innovation over the next several decades, to the benefit of Canada, the United States and Mexico.”

In this regard, Darby set out “four overarching pillars” of the CME’s recommendations to the government at the upcoming NAFTA renegotiation:

  • Do no harm to the current business environment that would lessen the trade between its members.
  • Eliminate barriers to trade within the NAFTA region.
  • Modernize and expand the agreement to include more sectors and new technologies.
  • Leverage NAFTA to implement common approaches to trade with outside countries.

Acknowledging that the negotiations will build on advances made in the Comprehensive Economic and Trade Agreement with Europe and the Trans-Pacific Partnership as a framework for modernizing NAFTA, Darby pointed out that owing to the uniquely integrated trade relationship with the U.S. and Mexico that has evolved over the past quarter-century, “we must move aggressively beyond those agreements as we write this next chapter of trade and innovation across borders.”

Another business group weighing in on the talks is the Business Council of Canada, comprising chief executive officers from 150 major corporations across the country, that recently met with the federal government’s chief NAFTA negotiator, Steve Verheul and his trade team, as well as Commerce Secretary Wilbur Ross and officials from the U.S. Trade Representative to discuss various issues it believes are crucial to the deal.  

In its July 18 submission to the Canadian government, the council stated that “at a minimum” the objective “must be to protect the framework of rights, benefits and privileges that our companies and citizens currently enjoy under NAFTA.”  Among the concerns the group sees as potentially threatening to this “do no harm” principle would be the inclusion of stronger regional rules of origin, in particular in areas like autos, steel and aluminum, as proposed by both the United Steelworkers of Canada and the American Iron and Steel Institute. “While it is still not clear what the Administration will propose in this regard, the unintended consequences of any such change could be dire,” the group warned.

On dispute settlement mechanisms, the council says its member companies are adamant about preserving such provisions, including Chapters 11 and 19. “This was a deal breaker for Canada in the original NAFTA negotiations and it should remain so,” the council’s submission states. Although the Trump administration did not mention changes to Chapter 11 in its published NAFTA objectives, organized labour groups have called for it to be stripped from the deal entirely “as it forces the Canadian government into a private arbitration system dominated by international-trade lawyers and economists.”

Finally, the council says that is “concerned that the United States may seek to revive or develop new trade enforcement tools that would authorize the unilateral imposition of duties or other trade remedies without resorting to dispute settlement under NAFTA or through the World Trade Organization.” One example of such an enforcement action is the safeguard relief measure now being contemplated by the U.S. International Trade Commission in regards to imported crystalline silicon photovoltaic cells and modules.  The council’s position is that “any new trade enforcement measures being contemplated by a NAFTA country should be discussed during the negotiations and a mechanism established that ensures coordination, consultation, and resolution prior to the imposition of unilateral remedies.”

In terms of updating NAFTA, the council noted several areas where opportunities exist to make changes that both reflect current business practices and anticipate future needs of an increasingly digital economy. In particular, the group zeroed in on labour mobility and the “paper-based nature” of customs procedures as two “clearly outdated” areas where significant improvements could be made to bolster the competitive position of North American industry.