US, Canada face tough issues as they resume Nafta talks

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  • Thursday, 06 Sep 2018

If ratification is delayed much longer, it could become hostage to electoral politics.

THE U.S. and Canada will resume efforts on Wednesday to resolve issues holding up a renegotiation of the North American Free Trade Agreement.

Canadian Foreign Minister Chrystia Freeland is set to meet U.S. Trade Representative Robert Lighthizer in Washington after the U.S. and Mexico last week agreed to terms on their portion of the trilateral accord. The focus this week will be on Ottawa and Washington bridging differences to keep all three countries signatories to an update of the quarter-century-old treaty.

President Trump, who has long derided the Nafta treaty as a “disaster,” reiterated over the Labor Day Weekend that if U.S. and Canada fail to reach a deal his administration could move forward on a deal that excludes Canada. He also warned Congress not to interfere.

Canadian Prime Minister Justin Trudeau said Monday his negotiating team is ready to work on a deal that benefits all parties. “There are a number of things that we absolutely must see in a renegotiated Nafta,” he said at a media event in a suburb of Vancouver, British Columbia. “No Nafta is better than a bad Nafta deal for Canadians, and that’s what we are going to stay with.”The White House has formally notified Congress of an intent to sign a new version of Nafta this autumn with Mexico—saying Canada was free to join, “if willing.” The U.S. administration is widely expected to start the process of withdrawing from the old treaty while preparing for congressional ratification of the new one.

It is unclear what the new timetable is for reaching an accord allowing Canada to join. After the two sides failed to reach an agreement last week, people familiar with the process said that new deadline could extend to Sept. 30. That is when, according to U.S. law, the Trump administration would need to make public final text for a trade pact that he could sign by Nov. 30, when Mexico’s leader leaves office.

“We agreed to something we think the Canadians should sign up with, and so we’re very very confident that the talks are going to go well this week and that we’re going to have Canada on board relatively soon,” said Kevin Hassett, chairman of the White House Council of Economic Advisers, on Fox Business Network.

Many U.S. lawmakers, business groups and labor leaders have insisted that Canada remain part of a three-way deal, which allows for duty-free trade that fuels the North American auto industry and other sectors. Mexico has also expressed a preference for Canada to remain, but has signaled willingness to move forward without it.

The stakes are high, as the Trump administration has sought to bring maximum pressure to bear on its closest neighbors, even imposing steel and aluminum tariffs on Canada and Mexico on national security grounds.

As talks with Canada resume, the biggest sticking point is Canada’s insistence on retaining a dispute-resolution system that allows member states to challenge trade penalties imposed by the others. Mr. Lighthizer has proposed eliminating the system, contained in Nafta’s Chapter 19, and Mexico has agreed to that. But Canada remains unwilling to scrap the mechanism.

“Ensuring everyone plays fair within the Nafta accord is something we can all understand is important,” Mr. Trudeau said. “We need a dispute-resolution mechanism like Chapter 19, and we will hold firm on that.”

Trump administration officials have complained the dispute process erodes U.S. sovereignty, saying the independent panels charged with adjudicating the cases have primarily been used to overturn tariffs imposed by the U.S. Commerce Department on Canadian and Mexican products. 

The U.S. and Canada remain far apart on other contentious issues.

Canada has told artistic groups it will fight attempts by U.S. officials to dilute a cultural exemption now in Nafta aimed at protecting the domestic music, television and film sectors. The exemption is meant to ensure Canadian-made productions are broadcast. It is viewed as crucial to the French-speaking province of Quebec—a vote-rich region and a minority in mostly Anglophone North America—and in cities in media centers such as Toronto and Vancouver, which the governing Liberals rely on for support.

“The cultural exemption must stand,” Mr. Trudeau said. “It would be giving up of our sovereignty and our identity.”

Other issues where the U.S. and Canada are at odds include greater U.S. access to the Canadian dairy market; intellectual property; and duty-free treatment of small amounts of goods purchased in the U.S. On top of that, the U.S. and Canada must still address the fate of American tariffs on Canadian steel and aluminum, which prompted retaliatory tariffs from Ottawa.

“The Canadians don’t compromise easily—these are big political issues in Canada, particularly in dairy,” said William Reinsch, a former U.S. official at the Center for Strategic and International Studies, a Washington think tank. “It’s got to be tempting to give [Mr. Trump] a giant middle finger and just walk away.”

The two countries notched some progress in talks last week, with Nafta chapters dealing with the environment and labor close to completion, said two people familiar with the talks.

Business and labor groups are anxiously following what happens next. The Dairy Farmers of Canada, an industry lobby group, said its members were unwilling to eliminate production quotas and tariffs that aim to thwart foreign competition. The group says the industry is already on course to lose roughly C$250 million in sales due to concessions Canada made on dairy to secure trade deals with the European Union and Pacific-Rim countries.

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