Hey there, time traveller!
This article was published 18/10/2018 (366 days ago), so information in it may no longer be current.
Thirty years ago, I was a harsh critic of Brian Mulroney’s poorly negotiated Canada-U.S. Free Trade Agreement. But we were able to regain some ground in the subsequent North American Free Trade Agreement in 1994. So, what should we make of the newly minted United States-Mexico-Canada Agreement (USMCA) of 2018?
First off, I don’t want to downplay the harm that will be inflicted on Canada’s farmers from opening up our agricultural markets to U.S. producers. When the 3.6 per cent of market share under the USMCA is combined with similar carve-outs from the Canada-European CETA deal and the Trans-Pacific Partnership trade pact, it will amount to over 10 per cent of Canada’s dairy market.
There is no getting around it: the agricultural opening will be painful for our farmers and farming communities in some parts of the country. The governing federal Liberals will undoubtedly seek to soften the blow by offering billions in financial compensation to them. It remains to be seen, though, whether it will do the trick.
Moreover, there is a great deal of uncertainty around the awkwardly conceived 16-year sunset clause, the reference to "non-market country FTA" (e.g., China) termination language and something called "macroeconomic policies and exchange rate matters." Much of this will need to be clarified in the coming weeks, so as to determine whether it is actually good or bad news for Canada overall.
As is typically the case in trade agreements, there will be clear winners and losers. One is tempted to argue that Trump’s America is the real winner here, but I’m not so sure.
Oh, he got the access to our dairy market that he so desperately wanted — and desperately needed, for domestic political purposes. But Trump was unable to secure his administration’s larger goal of dismantling Canada’s agricultural supply management system altogether.
In terms of intellectual property rights, U.S. negotiators were also able to increase patent protection on pharmaceuticals (particularly biologic drugs) from eight to 10 years. In addition, they were able to secure a cap on Canadian automobile (and auto parts) exports and an increase in Canada’s deminimis threshold (where custom duties would kick in) for online purchases.
There are potential gains for Canada, too: a side deal that nixes any auto-tariff threat; the removal of the costly Chapter 11 investor-state clauses; the rescinding of the energy "proportionality" provision that required us to continue oil shipments to the U.S. even in times of shortages in Canada; the retention of the cultural exemption and improvements to trade flows in light of changes in the customs and trade facilitation chapter.
While there were notable improvements in labour, environmental, gender and Indigenous rights, the real coup was Canada’s salvaging of the Chapter 19 dispute-settlement mechanism. Without this means of adjudicating difficult trade disputes, Canada would have been extremely vulnerable to any U.S. trade action going forward.
For the most part, Canada was largely playing defence in terms of its overarching trade objectives. Since we didn’t want to open up the NAFTA can of worms in the first place, that was always going to be the case. Yes, we had a list of things that we wanted as well (such as Washington doing away with its "Buy America" provisions and enhancing professional labour mobility), but those would require significant U.S. concessions — which were never really in the cards.
And, by the way, it is dreaming in Technicolor to think the Trump White House — or the powerful U.S. lumber lobby — was going to settle the long-standing softwood lumber dispute to our satisfaction. That was never going to happen, no matter what Conservative Leader Andrew Scheer thinks.
The reality from the outset was that Canada had precious little leverage when it came to negotiating with the United States. What were we supposed to do when the U.S. said no to our particular demands? Were we going to threaten them with halting all trade with the U.S.?
That’s the other key reality check here: Canada needs access to the U.S. economy (where more than 75 per cent of our total exports go) more than the U.S. needs access to ours. The simple fact is that Canada is more dependent on the U.S. economy than vice versa. And, more importantly, Trump and the American trade negotiators understood this only too well and took advantage.
I wish I could say that there was a better trade deal out there, but I’m not convinced of that. And it was becoming economically reckless to tempt the trade gods by extending the economic uncertainty. With the U.S.’s clock ticking, we needed an agreement in principle by Oct. 1.
I’m not suggesting for one minute that the USMCA is a perfect trade arrangement, or that it satisfies all of our commercial demands (including an exemption from the punishing steel and aluminum tariffs, or a pledge by Washington to never again invoke a Section 232 investigation). It doesn’t.
But as someone much wiser than me once said, we can’t make perfect the enemy of the good. Put another way, we probably got the best deal that we were going to get — or that was out there, given the circumstances.
Peter McKenna is professor and chairman of political science at the University of Prince Edward Island in Charlottetown.