The Quintessential NAFTA negotiation guide

The Quintessential NAFTA negotiation guide

The US political extravaganza has provided substantial entertainment for the world and Canadians. We have been able to distance ourselves somewhat from the rhetoric. However Canada now finds itself within the Trump World ‘Splash Zone’. NAFTA ‘tweaking’ has surfaced and to paraphrase the President, we are renegotiating the North American ‘Stupid Trade’ Agreement.

NAFTA has provided great benefits to all three countries and created an economic juggernaut of more than $20 trillion GDP. But the US appears to be following a new policy that not only must they succeed, all others must fail. The recent US Trade Representative (USTR) NAFTA aspirational paper states that “since the deal came into force in 1994, trade deficits have exploded, thousands of factories have closed, and millions of Americans have found themselves stranded, no longer able to utilize the skills for which they had been trained.” This sounds similar to your spouse of 23 years getting up from bed, padding over to the bathroom and announcing that they want to renegotiate the prenuptial agreement so lawyer up. This does not bode well.

These US factories have shuttered and laid people off mainly due to automation and increased efficiencies. Unfortunately, Americans have not applied this business model to the US government which appears to be somewhat mired in their buggy whip approach to governing.

The USTR’s main contention appears to the unbiased and objective dispute resolution tribunal set up within the NAFTA agreement. The Canadian government wants to retain these tribunals. However, we should consider that the tribunals have found for Canada so often, to use Trump’s wording, perhaps Canadians are growing tired of winning. Mandating the use of the US court system does not appear to be a positive negotiating position. However, having Canadians use more US lawyers may resolve part of the service trade deficit.

The USTR argues that having a trade deficit is a terrible thing. Trump did attempt unsuccessfully to equate the trade deficit and the budget deficit. Saying something again and again does not make it true however, especially for economics where the truth does depend upon whether the President likes the numbers or not. At this time, Canada actually has a small trade deficit with the US, but no one appears to be saying that we are helping alleviate the US budgetary deficit.

The USTR proudly proclaims that Trump became the first American president to begin renegotiating a comprehensive free trade agreement like NAFTA. Mind you, in 1987 Canada and the United States agreed to the Free Trade Agreement (FTA) placing them at the forefront of trade liberalization. U.S. President Bush, Prime Minister Mulroney and Mexican President Salinas signed NATFA in 1993 coming into effect in 1994.These three individuals negotiated NAFTA and renegotiated the FTA. So truly, Trump became the first president to renegotiate NAFTA, and we have to grudgingly admire someone that can take a kernel of truth and manage to plant an acre out of it.

The USTR looks toward getting better access to the Canadian financial system. This is not surprising considering three former Goldman Sachs individuals sit at the President’s advisory table. Even more importantly, we must be aware of what sits on the President’s advisory table. Trump’s favorite foods include deep fried mac and cheese to go along with his cheese burger.  This shows a disposition towards dairy. These foods appear to be close to his heart, and must be close to clogging his heart. We should would anticipate further analysis on the impact on Canada’s diary supply management system to US trade. And perhaps a further updated medical report on the ‘healthiest individual ever elected to the presidency’.

The apparent timing, or lack thereof, can impact the negotiations. The time frame has been compressed to renegotiate the 17 pages of aspirational requests. Whenever someone arbitrarily imposes a tight timeframe after 23 years, you have to question their motivation. This approach can wear down an opponent to concede some items just to get things done. During his campaign, Trump promised NAFTA changes, but apparently they don’t want NAFTA change discussion to impact the 2018 campaigns. They realize that you really can’t continue fooling some of the people all of the time.

We should be thankful for what the USTR aspirational list does not include. The Trump Marketing machine had us galvanized for a blue whale breach sized agreement change such as a border tax on goods entering the US. Being in that splash zone, we are relieved that we are facing a smaller series of requests. More of an orca whale coming up to smile at the crowd series of requests. Less stressful, but you still want to stay wary.  

Negotiating 6 agreements in the past seven years has prepared the Canadian negotiating team. We all hope that the discussions are based on Harry Truman’s assessment that “Canadian-American relations…is compounded of one part proximity and nine parts good will and common sense”. The first part remains fixed, and the parties should aspire to include the other nine.