Thank you for the opportunity to be part of your study on North American trade relations.
The Canadian Centre for Policy Alternatives is an independent, non-partisan research institute with over three decades of experience analyzing Canadian trade and investment treaties.
The Trump administration is demanding a new framework for North American trade. Despite an imminent NAFTA renegotiation, the specific goals the U.S. will pursue are still unclear. One belief that seems to unite the nationalist and globalist factions in the new administration is that by throwing its weight around, the U.S. can force big concessions from Canada and Mexico. While this is a difficult situation, Canada is not defenceless.
The Canada-U.S. trading relationship is balanced and mutually beneficial, which many Americans recognize. It is helpful to reinforce that message, as our governments have been doing. Yet the anxiety about trade and globalization that Donald Trump exploited to win the White House runs deep and goes beyond his core supporters. Canada's negotiating positions need to reflect that reality. When President Trump talks about favouring trade deals that support American workers, he provides such an opening.
There are many ways to provide a better deal for workers in all three countries. Canada could call President Trump's bluff by championing a fairer distribution of the benefits of trade. An obvious first step is to include strong, fully enforceable labour standards in any deal. Mexican workers, whose real wages have languished under NAFTA and are rarely free to join independent unions, would be the primary beneficiaries, but rising wages and improved working conditions in Mexico and many southern U.S. states would also benefit workers in the rest of North America.
The Trump administration also wants to strengthen NAFTA's rules of origin. Although there is plenty of scope for abuse, higher North American content rules could benefit North American manufacturing workers by discouraging the use of high levels of offshore content.
Canada has had a negative experience under NAFTA's investor-state dispute settlement system and should not hesitate to push to eliminate it. We are the most sued party, and this trend is getting worse. Bad rulings such as in the recent Bilcon case have a chilling effect on legitimate public policy, such as rigorous environmental assessments. Meanwhile, the U.S. has never lost a case.
The Trump administration intends to bolster Buy American purchasing policies that could side-swipe Canadian suppliers. Canada's standard response, to seek an exemption or waiver, has fallen short before and will likely fare worse today. It's time to consider a new approach.
Canada could instead offer reciprocal buy North American policies for new public infrastructure spending. If this is rebuffed, Canada should maximize national economic spinoffs on its own planned public investments through buy Canadian policies.
There are lines that Canada should not cross. With U.S. industries teeing up a long list of trade remedy challenges against Canadian products, Canada can hardly give in to U.S. demands to eliminate or weaken NAFTA's chapter 19 binational review process. If anything, from a Canadian perspective it needs to be strengthened. Nor can Canada afford to give in to President Trump's scapegoating of Canadian dairy farmers. Without supply management, our dairy farmers would be put in the same predicament as their U.S. counterparts, who suffer from the effects of overproduction and farm gate prices that fall below production costs.
Commerce Secretary Wilbur Ross recently said that Canada has adopted an anti-patent position, particularly in pharmaceuticals. This is both false and worrisome. Fully aligning our system of patent protection for medicines with the U.S. model would be very expensive for Canadian consumers and harmful to our health care system.
To close, in general, Canada's immediate priority should be maintaining its tariff-free access to the U.S. market, but it is not too early to be thinking about the end game and potential exit strategies. Reverting to WTO-bound tariff rates would be disruptive, but not catastrophic.
If the Trump administration were to make good on its threat to terminate NAFTA, Canadian exporters could face an additional $3.5 billion to $5 billion U.S. in duties. If an “America first” NAFTA is worse than the multilateral alternative, Canada should naturally choose the latter.
NAFTA renegotiation will be difficult and unpredictable. Canada needs to be prepared to stand up to any bullying, and to consider its options if U.S. negotiating demands become too unreasonable, costly, or harmful to Canadian interests.
Thank you.