NAFTA Renegotiation

The NAFTA renegotiation starts today. Hopefully there will be something interesting to discuss. Personally, I’m very interested in how things will turn out. I read an analysis last night that for the Canadian side, especially Trudeau, it is important not to speak out too much in public and antagonize Trump because if Trump gets involved it will spoil the possibility of a good deal. Sounds about right to me.

I think Canada will do well. Trump wants to be seen to punish Mexico so I think much of the focus will be there. If Canada can concede something that Trump can brandish as a political win then I think Canada can get a very good deal.

The biggest bone of contention between the USA/Canada is the independent dispute settlement mechanism. If anything will make a deal impossible it is if the USA insists that this has to go. Canada has stated that this is not really negotiable and will be cause to simply walk away. I think ultimately the dispute mechanism will remain. NAFTA is good for all three partners and even if Trump doesn’t really get it, the trade negotiators do.

Anybody care to make any predictions on likely outcomes?

Well, honestly, how could you have any such agreement between sovereign nations without some sort of dispute resolution system? It’s clear that disputes will arise, as there have already been many such disputes. How else should they be resolved? You can’t let the national courts do the job, because that’s just begging for people to say “We’ve sold the rule of law to a foreign country!!”

It is rather unlikely that, through negotiation, the conditions of NAFTA between the United States and Canada will really change very much. There will be some technical changes and a few quid pro quo concessions to appease interest groups but the basic agreement will remain in force.

The threat to both sides is Trump getting pissed off at something and prevailing upon Congress to cancel it entirely, which would be a disaster.

I’m beginning to doubt he has that kind of clout at the moment. Now what he could do in terms of monetary policies and through executive orders, I really don’t know. Maybe someone with more of international trade and policy background could explain.

I agree, without a dispute resolution mechanism each side could violate the agreement as they wanted, but none-the-less the US has been very unhappy with the dispute resolution panel.

I would say that’s true if the Canada team continues to do what they’ve been doing, keeping their mouths shut in public. The only real danger to an agreement is Trump starting to make unreasonable demands if the negotiations become public.

Yeah, but that won’t happen as long as Republicans control Congress. They aren’t going to abandon their free trade ideology just because he’s not on board with it.

One of the comments I heard from Chrystia Freeland is that this is an opportunity to modernize the agreement by incorporating terms for new digital technologies and the new digital economy. I’d love to see something that provides for more unified licensing agreements so that streaming services have access to more US content, which sounds like a win-win to me: Canadian audiences get more goodies, the US gets a bigger market.

Even more important, I totally agree with the US side that Canada’s import allowances are ridiculously stingy compared to Americans’ ability to buy Canadian goods free of duty. Unfortunately I don’t think the Canadian government is very keen to give up those protective tariffs.

Just a small update. Trump has once again mused about terminating the agreement. I don’t think much will come of it, but I renew my fear that Trump could end up ruining a deal that is good for all concerned. Negotiations start back up on Sept 1st.

Repeatedly threatening to undo the agreement may also have adverse effects, such as forcing Canadian and Mexican business communities reassess their commitment to American markets. Obviously, the American market is and always will be an important one for our neighbors but people in business generally like to know that they’re dealing with reliable people, and increasingly, reliable is not an adjective you can use to describe policies of this administration. And let’s not also forget that Canadians and Mexicans as citizens may start to have nationalistic, and hence anti-American, sentiments of their own.

And the worst thing about that is it hurts all three of us. I understand that NAFTA wasn’t good for every sector of the economy, but the net benefit has been very positive. And I can understand how somebody who was personally injured by NAFTA won’t see it that way. It is a bitter pill to swallow when you’re told that “Sure, you lost your job but the country overall is better off.”* I see also in the news that Canada, USA and Mexico have agreed to non-disclosure agreements during the negotiation. I’m not so sure I like that. I’d very much like to know what is going on with the critical part of the Canadian, and North American, economy. How can I express my approval or disapproval to the PM and my MP if I don’t know what’s happening?**

    • I think this is one area where the Democrats do a bad job because sometimes some of their messaging doesn’t address this well enough but that’s another story.

** - Not that they give two figs what I think.

A number of people I know in industry are already reporting that they, or businesses they work with, are starting to cut down on their orders from American suppliers, because they are concerned about the USA in general and NAFTA specifically. It’s anecdotal, but I have a lot of contacts in industry and I have never in my life heard people say this before.

I don’t see how the negotiations could proceed at all if they were public. Every thought that was even proposed would be blitzed by special interest groups freaking out. It would, in a sense, actually be HARDER for the public to understand the deal in that format than it would as a whole, since people would be screaming over matters that weren’t agreed to before the deal had been properly constructed.

The nature of the deal becomes public once it’s put to the legislative body.

I don’t mean to sound like an elitist jackass, but the truth is that most people now don’t understand NAFTA at all, and don’t understand the underlying economic theory. The reactions to the original FTA in 1988 were, to an appalling degree, juvenile, fatalistic and xenophobic. People quite seriously said it would result in Canada ceasing to exist as a nation-state. Since then most of those people have quietly chosen to hope you forget they said that, but I have read dozens of people online complain about the dispute resolution process and investor protection clauses, and so far not a single one of those people understood them at all. There’s not necessarily anything wrong with that; it’s something quite common to all aspects of law. Environmental protection law is vastly beyond my understanding, and there is no chance I will ever have the time to learn how to understand it; I must trust my ability to glean the opinion of experts and the general thrust of government policy to determine my approval or disapproval of it as a voter. It would be dumb of me to think I could pick it apart line by line and offer an opinion that was worth anyone paying attention to me.

Whatever they finally come up with, Trump is certain to denounce it and will not sign on. So he either has to tear up NAFTA or learn to live with it. His idea of the art of the deal is INTIMIDATE and then that fails (as it will with Trudeau) he hasn’t any idea what to do next.

Pena Nieto isn’t exactly shaking in his boots, either. I have no doubt that Donald has tried to get “Mexico pays for the wall” as one of the changes to NAFTA (although buy-in from the actual US negotiators will have been unenthusiastic, naturally).

Uh, he’s not supposed to be able to do that, right? Will the republican Congressmen stand up to this, finally, or will they sit back while he mows them over because of fear of the base?

There seems to be some disagreement about whether he can or cannot.

My guess is that NAFTA might have some parallels to Obamacare: He may not be able to undo the legislation himself, but he probably has the executive tools at his disposal to be disruptive enough to have some sort of de facto cancellation, particularly if there is enough frustration coming from Mexico and Canada that they decide to reconsider NAFTA.

The real long term damage is being done, which is that foreign trading partners all over the world are looking at an erratic administration that has significant political support, unilaterally remaking the economic order of things. Other countries, their central banking and economic institutions, and the private sector companies from these countries, can’t just remain static. They have to make decisions taking into consideration what these changes mean, which means that even if Congress refuses to go along with Trump, doing nothing to stop him essentially destabilizes the global economic system, which by the way makes doing international business increasingly difficult, potentially exposing public and private sector entities which have structured themselves based on what they believed was a set of existing rules. In short, we’re drifting into international economic chaos, which is dangerous.

But what else would we expect? “Break stuff” has been Trump’s motto since day one. He’s running through the Louvre with a baseball bat.

Well, I have to say, you called that one.

The truly bizarre thing is that trade deals are a constitutional power of Congress. The idea that they can “interfere” is bonkers.

It’s almost like Trump doesn’t understand the Constitution, which is just crazy, because he’s like, a very smart person (point finger to temple) who has one of the best memories in like history.

If we made windows into their souls, we’d probably find that there’s a veto-proof majority for protecting NAFTA from Trump. But it won’t happen.