New NAFTA Talks: Don’t Be Surprised if Canada Walks Away

If Canadians have a fixation on anybody it is our American friends.    We love all things Canadian, but with the world’s largest and richest economy on our border, we often find ourselves staring South.  There is something about the United States that is compelling.  When our leaders get together we talk about being a family.  Maybe that’s it, I don’t know.  However, from time to time our American friends like to remind us that even family relations can be strained.

We were reminded of this the other day when US trade representative Robert Lighthizer released his negotiating objectives ahead of revised talks on the North American Free Trade Agreement.  For Canadians, this all came as a bit of surprise after the election of President Trump.   Most Canadians believed the polls and Hillary Clinton was going to be President.   She had no intention of renegotiating NAFTA even though Sen. Bernie Sanders pushed her that way in the Democratic primaries.  Needless to say, President Trump has been talking about NAFTA as a disaster for two years now.  I think his focus was mainly on Mexico, but it just so happens that Canada is the biggest part of that.

Trade negotiations are inherently complicated and I don’t want to come across as some type of expert.  However, our American friends are focusing on eliminating the NAFTA chapter 19 dispute resolution panels, which has been instrumental over the years with helping with the softwood lumber problems.  Those panels were also instrumental in Prime Minister Brian Mulroney originally agreeing to the Canada US trade agreement.  The Americans also want to eliminate some nontariff barriers to trade.  You can bet that some of that has to do with our Canadian supply management sector.

Interestingly enough, the Canadian dairy sector was never part of the original 1994 NAFTA agreement.  Before Mr. Trump was elected that seemed to be a minor irritant to American presidents.  From time to time you would hear about Canada defending their supply-managed sector at WTO, but it never became a flashpoint in trade talks.  However, President Trump is looking at it a little bit differently, partly based on his Electoral College win in the state of Wisconsin.  You can bet that will be among the demands to Canadian negotiators handling this NAFTA negotiations.

Of course, there is always a bit of a fly in the ointment.   Many Wisconsin dairy producers had complained about the Canadian pricing policy of selling to our own domestic processors.  This had been done at a discount, partly to protect against cheaper US milk ingredients.  There is much more to the story than that especially when you consider the expansion of the dairy industry in Wisconsin.  In these future negotiations, you can bet our American friends will be focusing on this, partly because it’s important to the President.

I cannot emphasize enough how important this NAFTA negotiation will be.  I can remember this country before any free-trade arrangement and it was a different place.  The free trade arrangements between United States and Canada completely changed large industries in Eastern Canada.  If something could be sourced cheaper in the United States versus Canada and vice versa that became normal economic thinking.  It has remained that way until President Trump came to office.  Now, in the United States it’s all about America first and made in the USA.  It would seem that is the case, even if it costs American consumers a lot more money.  We shall see.

At the time of the first signing of the Canada US free trade arrangement there was much drama about whether the agreement would be signed or not.  Initially, I remember that I did not think free trade between the United States and Canada would ever come to fruition.  When Prime Minister Mulroney hammered out an agreement with President Reagan I was surprised. In fact, it almost didn’t happen.  There were some real dramatic moments we learned about much later.  Will we see that this time?  Will Prime Minister Justin Trudeau walk away from a bad NAFTA agreement with United States?

For some of you, that might be hard to imagine.  However, I do not think in this present political environment it is too far-fetched.  Prime Minister Trudeau is a pragmatist.   Signing a bad deal with the United States makes no sense.  You must remember, that free trade is not necessarily free.  In North America, free trade is whatever our American friends deem it to be.  It is up to our political leaders to protect us against an American administration that in this case might be going too far to protect its domestic political constituency.

The revised NAFTA talks between Canada, the US and Mexico will start up next month.  It will surely provide some clues into the Trump administration thinking toward Canada and by extent Canadian agriculture.  This negotiation will also be instrumental to the future of our Canadian supply managed sector.  There is a lot at stake here.  It is something not to be taken lightly.  I expect our political leaders know that.  Don’t be surprised if Canada walks away.