U.S. President Donald Trump thinks the North American Free Trade Agreement is a “catastrophe” and wants to begin renegotiating it quickly – that much is clear.
We know Trump also wants to impose a 35 per cent tariff on Mexican imports of companies that have outsourced production from the U.S., the other details remain shrouded in rhetoric and bluster.
In order to get a better sense of what a renegotiated NAFTA may look like, we’ve asked a number of experts this question about a potential new deal: What changes (if any) would you want to see included in a renegotiated NAFTA and what would you absolutely not want to see?
And here’s how they answered:
Craig Alexander, senior vice-president and chief economist of the Conference Board of Canada.
“This poses risks and opportunities for Canada.
Trade deals are always about trade-offs – one side gives ground in one area in order to gain ground in another area. The risk is that America may approach the negotiation with an eye to improving the fortunes for U.S. workers but without the traditional give and take. And, there is the worry that if the Trump administration doesn’t get what it wants it could threaten to impose trade barriers. So, Canada is right to be concerned.
However, it should be noted that there are some opportunities from reopening NAFTA. The trade deal is 22 years old, so there is scope for improvement. There would be an opportunity to put in place stronger labour and environmental standards. New provisions governing e-commerce and cross-border data flows to encourage digital trade while protecting intellectual property could also be incorporated. Labour mobility could be enhanced by making visas more easily accessible for highly skilled occupations that were not in demand more than two decades ago, such as digital workers. Greater regulatory alignment would be beneficial to Canadian businesses, particularly in services. Canada might also strive to have greater access to U.S. procurement, such as that currently restricted under “Buy America” policies. In return, Canada might have to give more access to American firms to Canadian procurement – but the U.S. market is far larger than the Canadian market. Allowing greater U.S. competition in some protected Canadian sectors could help to foster efforts to improve Canadian productivity.”
Andrew Jackson, senior policy advisor at the Broadbent Institute.
“I would like to see the end of the investor-state-dispute mechanism, which gives foreign investors legal rights above and beyond those of domestic businesses and has been used to block needed public interest regulations.
I fear that the U.S. will push for an end to current restrictions on foreign ownership in Canada and to supply management in agriculture, as well as restrictions on Canadian exports to the US in industries like lumber, steel and auto.
If the U.S. pushes for excessive and costly changes, Canada should refuse to participate and default to the World Trade Organization. We are best protected through multilateral rules rather than negotiating from a position of weakness.”
Isaac Holloway, assistant professor of business, economics and public policy at Western University’s Ivey Business School.
“There are opportunities to improve NAFTA in renegotiation talks. The low-hanging fruit includes: updating to include provisions for digital products that didn’t exist when NAFTA was signed more than 20 years ago and, similarly, updating the list of occupations eligible for temporary professional (TN) visas to include new “knowledge economy” jobs. Many of our top graduates seek employment in the U.S. early in their careers and subsequently bring that experience back to Canada. The TN visa facilitates cross-border careers, but the decision to grant the visa depends on interpretations of job descriptions by border agents.
Other potential improvements could include opening up Canada’s dairy industry (possibly in exchange for softwood lumber peace) and revisiting the investor-state dispute resolution system (Chapter 11), which has probably caused more damage to the agreement’s reputation than it’s worth.
The worst-case outcome would be a failure to reach agreement and dissolution. This would be devastating to Mexico. While the Canada-U.S. Free Trade Agreement would likely act as a backstop of sorts, Mexican exclusion would throw a wrench into existing supply chains, leading to production disruptions and price increases. Perhaps the safest way to avoid this fate is to give Trump a “win” by replacing NAFTA with a variant of itself—under a different name.”
Will Mitchell, professor of strategic management at the University of Toronto.
“There are lots of details about NAFTA and trade that may come up in the discussion. But it is important to remember why we benefit from trade agreements (and all three of Canada, the U.S., and Mexico benefit): cross-border trade creates larger markets that allow firms to gain economies of scale and specialization (hence lower prices to consumers and more money for investment in new products and services that will provide new customer value and new jobs), as well as access to a wider range of ideas for innovation.
The changes inevitably mean adjustments in existing industries — job growth in some areas, job reduction in others and people who need to gain new skills whether for their existing jobs or for a new job. But if we lose sight of this goal and this reality, then we will fall into the trap of trying to protect jobs rather than creating new opportunities for people. And simply protecting existing jobs is a fast track to obsolescence, uncompetitiveness and poverty. Imagine if we had tried to block the auto industry in the early 20th century in order to protect blacksmiths or, at best, allow a bunch of highly protected domestic auto companies develop without the gains of economies of scale and innovation that come from cross-border motor vehicle trade. This need is equally important in emerging high-value sectors such as environmental science and life sciences.
It is important that we shift the debate about trade from “protection” to “opportunity”. While there are risks to cross-border trade, there are even bigger risks to trying to hunker down within one set of borders. Even the U.S. is not big enough to ride only on its own bottom. Indeed, depending on the measure of GNP that one uses, it is now the No. 2 economy in the world, behind China on a purchasing power parity basis.”
Gus Van Harten, law professor at York University’s Osgoode Hall Law School.
“I would like to see the foreign-investor-rights provisions in Chapter 11 of NAFTA removed. These provisions give multinational companies and very wealthy individuals overly generous rights to compensation from the public for laws and policies that apply to everyone. No one else has anything like these rights in trade agreements or in other areas of international law, and they go well beyond property rights protections in domestic law.
This favouring of foreign investors distorts markets by giving rights and privileges to foreign investors that are not available to domestic businesses. It also undermines the role of courts and the rule of law by taking disputes about public money and sovereignty outside of the courts and putting them into a for-profit arbitration process that lacks judicial independence and procedural fairness.
I would likewise prefer to see similar provisions incorporated into the NAFTA financial services chapter favouring big banks removed. The short name for all of these provisions is the “foreign investor rights” or “investor-state arbitration” provisions of NAFTA.”
Daniel Schwanen, vice-president of research for the C.D. Howe Institute.
“Canada needs to first get recognition by the United States that it is a fair and trusted trade partner. We need rules of origin – the rules that determine which goods can cross borders duty-free – that treat Canadian content on the same footing as American content. It would also be important to see a reaffirmation of existing Canada-U.S. bilateral initiatives, including regulatory co-operation initiatives that aim at easing passage of secure goods and people at the Canada-U.S. border. We also would like to see greater mutually beneficial access by Canadian and U.S. contractors and workers to each other’s publicly funded or publicly approved projects; a new framework for the resolution of the Canada-U.S. lumber disputes; and the expansion of existing NAFTA provisions regarding trade in services and those governing the temporary entry of business people, professionals and skilled personnel. We would also hope to see a more modern and transparent investor-state dispute settlement process.
Topping the list of things we would not want to see would be reduced access for Canadian goods, services and business travelers to the United States or more impediments at the Canada-U.S. border, and any diminishment by the United States of its existing commitments to treat Canadian goods and services suppliers at least as well as it does suppliers from other countries (a “most-favoured nation treatment”).”
Sui Sui, professor of global management studies at Ryerson University.
“I would like to see Canada get better, or at least the same, trade terms with the U.S. as in NAFTA. I would like to see Canada renegotiate a trade agreement with Mexico. It’s critically important for Canada to keep good terms with the U.S., but also not hurt our relationship with Mexico. The U.S. is Canada’s largest trading partner so maintaining accessibility and a strong relationship is important. Although Mexico is a smaller trading partner, it is still important for Canada. A stable economy in Mexico benefits Canada in many ways. A good trading relationship between all three countries is important for the overall strength of the region.
I do not want to see Canada get the same treatment as has been suggested for Mexico, and left with a worse agreement or no agreement with the U.S. I also do not want to see Canada compromise our immigration or refugees policy in order to renegotiate the trade agreement with the U.S. Generally, I hope this new look at the trade relationship does not impact Canada’s relationship with the U.S. or Mexico. However, this sort of negotiation isn’t in isolation, so it will be important that Canada navigate the other aspects of its relationship with the U.S. and Mexico carefully.”