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The ONW Salon: How To Save NAFTA–Or Should Canada Let It Go?

The renegotiation of NAFTA resumes this week in Mexico City. Reports say Canada will give no ground when it comes to the Americans' protectionist demands, preferring no deal at all to a bad deal. What does Canada have to do to save NAFTA–or should it bother? We asked Richard Mahoney, Will Stewart and Tom Parkin.


Tom Parkin:

I have been saying for months that it is critical that the government publicly say that a bad deal can be worse that no deal. I am glad they have given up believing the Justin Trudeau's charm factor is somehow going to be the critical factor to a good deal. The U.S. negotiators are not that shallow. They do spreadsheets, not selfies.

They also respond to domestic business pressures. And their trade associations have a different kind of spreadsheet––the type that shows how much money they give to politicians. They give big and they expect a return on their investment. No signed selfie of Justin will ever be that popular.

The essential problem for Canada remains our relative size. Canada is big and resource-based and we need access to markets to sell what we make and do. A 36 million-person market isn't enough. U.S. businesses come with a built-in 330-million person market. Adding another 36 is nice to have, but a niche, not a need.

This is borne out in our trade statistics. In Ontario, for example, 49% of GDP is U.S.-Canada trade. In many, many U.S. states, U.S.-Canada trade is only 1 or 2% of GDP. Along their northern boundary we might be their largest trade market, but we are still very small. There are only two states with more than 10% of GDP based on Canada-U.S. trade: Michigan and Vermont.

That's a long way around to the point that the Liberals were blowing a lot of smoke at Canadians when they kept talking about how they were going to get U.S. state politicians on side with Justin and offside with Trump. Wouldn't happen, didn't happen, now here we are.

There are two things the Liberals need to do for us now. First, educate Canadians on the specific issues in play––and rally them to the need. Second, be clear about the economic impact of the end of NAFTA.

I still see a lot of "end of the world" headlines about the dreadful end of NAFTA. It would be far better to fix NAFTA than end it. But ending it would not be a disaster. Remember, if we don't have NAFTA we still get WTO rules. The CCPA and the IMF did an estimate of economic impact––it is a couple points off GDP. But its not like Canadians are going to be eating grass and living in huts––I exaggerate, but there is an outlandish perception out there.

Until Trudeau drops the secrecy and lets us know what's at stake and what exit costs, it is hard to assess our position. And it is hard to get Canadians onside in case popular support is needed.


Will Stewart:

Tom sets the stage well in terms of what is at stake with these negotiations. I am sure that even Tom knows that the Liberals are not about to lift a veil of secrecy on negotiating tactics, nor should they. These are complex talks and at some point we have to trust that our seasoned negotiators know what they are doing despite the fumbles by the party in power.

I am sure that Richard will be pleased with some of my commentary here today. The truth is that any negotiation, on any level, is an exercise in brinksmanship and capitulation. Anyone who has bought a new car understands this on some level.

At the end of the day, a successful negotiation is dependent on your willingness to walk away, or at least the appearance of walking away. President Trump knows this from his lifetime of deal making, successful or not. And we hope that Canadian negotiators know this as well.

And I agree that we need, as a country, to say that we would prefer no deal to a bad deal. Any smart negotiator would agree. The last thing we need is to be drawn into a spat on NAFTA that sees a bad outcome for our country.

The difficulty on NAFTA is that the U.S. knows that NAFTA is far more important to Canada than is it to the U.S. Not that it is unimportant to the U.S.––14 million American jobs depend on NAFTA, and trade has increased 370% since NAFTA was signed. The debate is over; free trade is good for all economies.

NAFTA, however, is far more important to Canada than the U.S.  Some estimates peg almost half of Ontario's GDP tied to NAFTA, as Tom points out. If it were to go away, in a province with the population the size of Ontario, which is also hopelessly in debt and with no plan to get out, the former economic engine of Confederation may be permanently derailed.

When that type of economic threat faced Alberta in the oil industry, the province had personnel actively lobbying Washington. Where is Premier Kathleen Wynne on this? Perhaps she has a lack of faith in her federal cousins to keep NAFTA alive and does not want to be anywhere near it.

Despite all that, it is better to walk away than agree to the U.S.' insistence on Buy America or a removal of the dispute resolution mechanism.


Richard Mahoney:

One thing does not change–Prime Minister Trudeau’s popularity at home and abroad kind of grates on Tom. That said, I am relieved to learn from Tom that Prime Minister Trudeau, Foreign Affairs Minister Chrystia Freeland and the entire Canadian NAFTA negotiating team have finally started to take advice from Tom. Things should start go smoothly now!

From the outset, the Trudeau government has taken a shrewd approach to the NAFTA negotiations. Tom does not like to admit it, but the Prime Minister has clearly used his charm and, more importantly, his standing in American public opinion (he has a higher approval rating than almost all American politicians there, including Trump himself!) to Canada’s benefit. Trump’s early declaration that Canada was not the problem and that only “tweaks” were needed was one small public example of that.

Secondly, and more shrewdly, Canada embarked upon an unprecedented lobbying campaign to convince Governors, Members of Congress and large American employers and trade unions to urge the U.S. government not to walk away from NAFTA because of the impact on American jobs in communities and states across the country. Most observers now think that Congress would strongly resist any attempt from Trump to abrogate the deal.

Finally, Canada put its own demands for improvement on the table. We have our own issues that need addressing if changes are going to be made. These demands can help protect jobs and the environment here. So if changes are going to be made, we can fix NAFTA and I agree that a fix to NAFTA is better than walking away from it.

But I still think that Congress will give Trump a very difficult time if he wants to walk away from NAFTA. As my friends have both pointed out, there are a lot of jobs at stake. So we may not have to walk away, just continue to negotiate from as shrewd and strong a position as a country in Canada’s position can do.


Tom Parkin:

Yes, Richard, I am very glad Justin et al have gotten over a narcissistic belief that their personalities will solve our trade problems. Though they haven't fully adopted my position yet!

As stated, my position is the Liberals need to end the secrecy and tell Canadians the issues on the table and the costs of exit. At that point we can assess our situation better and get people onside for when the going might get tough.

But there is another key point to these and all trade negotiations—who are the negotiators bargaining for?  I have been both a union negotiator and chief negotiator with my current workplace, where I am general manager. I know there are sometimes a lot of things that get thrown on the table—sometimes everyone knows they're going to disappear as soon as things get serious because they were just some sop to someone. That is, a someone without any real power.

The point is who is at the table and whom they represent. After the New Zealand Labour Party won we saw demands for a change to TPP's Investor/State Dispute Settlement system, which had been a sore point with New Zealand workers. The Liberals have included some people who represent workers on the NAFTA trade council, but more needs to be done to include those voices. We saw in last week's TPP talks that Unifor, which represents autoworkers, very aggressively condemned the Liberals for agreeing to TPP.

These voices–and more voices–need to be involved. Negotiations need to represent more than the CEO crowd and the billionaire class.

I disagree with my friends who condemn all trade deals as "neo-liberalism." Canadian workers need trade. But trade deals can absolutely become neo-liberal if corporate voices are the only ones heard. Broaden the negotiating council more, please.


Will Stewart:

As the reader can tell, there is quite a bit of legitimate concern for the future of NAFTA from all three of us this week. I think this illustrates how significant this is to Canada. It goes beyond our typical partisan rants.

Canada can remain hopeful that an unpredictable President of the United States (to put it charitably) will heed the advice of others when it comes to the importance of NAFTA to his own voters. It's always good to have optimism.

If we look at Trump's communication strategy (again, being charitable that Twitter rants are part of a grand plan) it is possible for Trump to claim victory on a new NAFTA even in the event of little to no changes. This is not a man that particularly concerned with a full, robust exchange of facts.

Given his bluster so far, given his on-going rants on NAFTA, and given his lack of an affiliation for the truth, he can simply claim victory and his supporters will cheer him along. So there may be hope that all of this is just part of the negotiating strategy of a reality TV star.

Canada, however, is not beholden to the U.S. like we were when NAFTA was first signed. It will be a major blow to our economy, but thanks to the Conservative government we do have many, many more free trade agreements than we did just one short decade ago. When Harper took office, Canada had free trade agreements with just five countries, with the U.S. and Mexico under NAFTA being one. Now we have agreements with over 40 countries around the world.

Harper also set up the groundwork for the Trans Pacific Partnership, which, along with the EU Free Trade Agreement, would open up some of the world largest economies and economic regions to Canada.

These agreements would not save us from failed NAFTA talks, but they will help counter a protectionist U.S.A. That is, of course, assuming that Trudeau can read his schedule correctly and show up for the meetings as required. While the Liberals have tried to spin his agenda mishap on a negotiating tactic, Trudeau's own Minister dispelled that.

Nor can Liberals point to what they disagreed with, nor what they got from this supposed negotiating tactic. I will believe Trudeau's own Minister that it was an embarrassing mistake.

Like any good partnership, Canada and the U.S. have had their problems with trade in the past. Softwood lumber, steel and dairy immediately come to mind. A strong dispute resolution process is key to ensuring that these issues do not cause escalating actions. It is core to the agreement and Canada simply cannot negotiate that away.

This is doubly true when we are dealing with a somewhat erratic Commander in Chief south of the boarder. Canada cannot be afraid to flex its political muscle in the U.S. as we have been doing.

If in the end it is not possible to come to a deal, then that is regrettable and potentially catastrophic for Canadian provinces like Ontario. Those job losses, rightly or wrongly, will be at the feet of the Liberal government, and that is precisely what worries me. Trudeau has consistently put political self-interest above sound policy-making, and Canadians should be concerned that they will sign a bad deal rather than face the prospect of immediate job losses in the second half of their mandate.

This is the big concern for me as an observer of public affairs. That, and it would be nice to pay American prices for cars, books, and magazines.


Richard Mahoney:

I agree with Tom that it is important for the government to keep in mind for whom it is at the negotiating table. Every government would be wise to remember that advice. I think we saw an example of that this week in the Asia Pacific talks on TPP and other matters.

First, the risks to Canada from an end to NAFTA that have been discussed above make it all the more important that the Trudeau government succeed in its strategy to diversify Canada’s trade play.

With a burgeoning middle class in ASEAN countries such as Vietnam, Malaysia and the Philippines, new and growing markets for Canadian goods and services beckon. That will be part of Canada’s plan in any event, but will be crucially important if NAFTA ends up being abrogated by the U.S.

Secondly, we saw evidence of the benefits of Trudeau’s homework with Mexico on NAFTA––Mexico helped Canada push back on the aggressive stance taken by the Japanese and the Australians trying to force Canada to sign a TPP trade deal that did not protect Canadian workers and companies sufficiently. So aggressively defending Canada's interests, aided by Prime Minister Trudeau's impressive international standing, is the best strategy for this country.

Another example of this: Canada has this week triggered a NAFTA challenge on softwood lumber––a long running trade dispute with the U.S. where aggressive U.S. action has hurt Canadian jobs in every region of the country.

So what happens with NAFTA is still anyone's educated guess. But I think most observers agree that the Trudeau government is smartly using its position to defend and advance Canadian interests, faced with an unpredictable and often unreliable partner in the current U.S. administration.

There are a lot of moving parts to this, as this discussion shows. In the end, we will need to be ready for NAFTA as is, NAFTA improved, or NAFTA no more. It appears to me that the Trudeau government is nimbly moving to ready the situation for whatever scenario emerges.  


Richard Mahoney is a lawyer with deep experience in politics and governance.  He is a former senior advisor to the Rt. Hon Paul Martin, a former Campaign Chair and President of the Ontario Liberal Party. Will Stewart is Managing Principal at Navigator, served as Chief of Staff to several Ontario Ministers and often appears as a national affairs commentator.  Tom Parkin is a veteran NDP strategist, columnist and a frequent commentator on national issues. 














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