August 3, 2017
The Canadians with the most to lose in Nafta negotiations have a message for Justin Trudeau: Don’t let Donald Trump blow the thing apart.
Key industry groups, companies and stakeholders are urging the prime minister to “do no harm” to the North American Free Trade Agreement while seeking updates on labor mobility, rules of origin and e-commerce. With Trudeau’s team remaining tight-lipped on its own priorities, the submissions to his government offer the best glimpse of the northern partner’s perspective. On Wednesday, he announced a Nafta advisory council that includes Bank of Montreal Chief Executive Officer William Downe.
Canadian businesses don’t want the crackdown on Mexico the U.S. president seems to be seeking. “What I hear from the business community is for Nafta to be trilateral,” said Perrin Beatty, president and chief executive officer of the Canadian Chamber of Commerce. “There are very few businesses who’d want to see stranded assets as a result of changes.”
The chamber’s submission called for Canada to push back against Buy American policies and “vigorously defend” Chapter 19 dispute resolution panels, without which “the entire purpose of this negotiation will be in doubt.” It urged Canada to push the U.S. to end the practice of requiring a presidential permit for pipelines such as TransCanada Corp.’s Keystone XL project and to, as a possible concession, offer to hike foreign ownership limits on Canadian industries during talks.
The following summarizes other submissions:
Autos & Parts
Few industries exemplify the complex supply chains spurred by Nafta like the auto sector — and few auto companies more than Magna International Inc. The Aurora, Ontario-based firm employs 74,000 workers in Canada, the U.S. and Mexico, roughly equally in all three countries. While expressing support for modernizing the accord, it warned against sudden changes — particularly around rules of origin, which regulate how much of a product must be domestically produced in order to receive preferential treatment under Nafta.
“A change to one element of the rule could have a cascading effect on other rules that may result in unintended consequences,” Chief Executive Officer Don Walker wrote in Magna’s submission. The company also urged Nafta negotiators to echo the Trans-Pacific Partnership deal, from which Trump has already withdrawn, on intellectual property protections and draw from Canada’s free-trade deal with the European Union on customs fees and regulations.
The Automotive Parts Manufacturers’ Association, meanwhile, said the success of its members is “increasingly dependent on our ability to reach U.S. and Mexican customer bases,” President Flavio Volpe wrote. “Protectionist positions taken by any of the three countries will hurt them all,” he added.
Canada exported C$355 billion ($283 billion) in manufactured goods in 2016, with more than 80 percent heading to Nafta countries, according to the Canadian Manufacturers and Exporters. The industry group lauds Nafta but sees opportunities to improve it, calling on negotiators to ensure “at least the same degree of access” into the U.S. and Mexico, cut administrative burdens, improve labor mobility, preserve Chapter 19, and bar state and local governments from Buy American-style restrictions.
The U.S. wishlist was less radical than once feared, CME President Dennis Darby said in an interview. “We might not agree with all of it, but at least it’s rational,” he said. Any kind of “comprehensive” renegotiation, as described in Trump’s priorities, will take time. “Unless there’s a lot of brinkmanship, this could take a while,” Darby said.
Few issues will be under the spotlight like Canadian dairy. Trump has already singled out the country’s protectionist system of dairy quotas, while the Canadians argue that U.S. agriculture subsidies are just as disruptive to the free market.
The sector “must continue to be excluded from negotiations on the so-called modernization of Nafta,” the Dairy Farmers of Canada wrote in their submission, which repeatedly criticized the U.S. system. The U.S. had a C$400 million dairy surplus with Canada in 2016 and provides “massive support to farmers,” the group said, arguing the U.S. dairy industry has repeatedly “proven that they are not willing to play by the rules.”
Energy & Oil
With the world’s third-largest proven reserve, Canada’s oil production has more than quadrupled since the Canada-U.S. Free Trade Agreement, a Nafta precursor. “We should do no harm to the deep trade relations that have developed,” the Canadian Association of Petroleum Producers wrote in its submission.
The country’s foremost energy lobby group is seeking changes that make it easier for oil and gas to flow across borders by relaxing documentation requirements. It argues oil or gas loaded into any pipeline, ship, train or truck within North America should automatically be considered as Nafta origin. “There simply is no back door for crude oil or natural gas into North America,” the group said.
Financial services are one target of Trump in new talks, seeking “fairer and more open conditions.” Canada’s banking sector, in turn, largely likes the Nafta it has.
The Canadian Bankers Association wants to deepen the pact to allow freer movement of staff and “greater legal certainty” around e-commerce, pointing to the TPP’s e-commerce agreement as a starting point, according to itssubmission. The group, which represents 64 domestic and foreign banks operating in Canada, “strongly recommends that Nafta’s existing trilateral framework of rules and commitments be preserved and maintained.”
The Business Council of Canada, representing top executives, in part focused its message on what Canada should seek from the U.S. It recommended the creation of a bilateral infrastructure pact to align major projects and ensure equal access by Canadian and American suppliers, and the establishment of a regulatory cooperation council. The group wants updated rules of origin regulations to avoid country-specific rules that “would be devastating to industry” in all three countries and warned U.S. efforts to scuttle the dispute resolution panels are a deal-breaker for Canadian companies.
Nafta, largely uncontroversial in Canada, still has its detractors. One is organized labor, whose complaints of job losses and low Mexican wages echo those made by Trump. “Nafta has failed workers in all three countries,” Unifor, a labor group representing auto workers, wrote in its joint submission with the United Auto Workers.
Labor rights are under attack in the U.S., essentially non-existent in Mexico and are threatened in Canada, they argue. “Nafta renegotiations will only be successful if they lead to higher wages in all three countries, reverse crippling trade deficits with Mexico and create new manufacturing jobs in the U.S. and Canada,” the unions wrote.