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Trudeau should be prepared to walk away from NAFTA

Jerry Dias, Scott Sinclair, Thomas Walkom, Maude Barlow

The Trudeau government should be publicly affirming that it has an exit strategy and is prepared to walk away from the North American Free Trade Agreement (NAFTA) now being renegotiated.

1- Labour rights

Yesterday, Reuters reported, “Canada’s biggest private-sector union [the 310,000 member Unifor] said NAFTA should be scrapped if Mexico cannot agree to better labor standards… Jerry Dias, national president of Canadian union Unifor, said NAFTA had been a ‘lousy trade agreement for working-class people’ and that the union was pushing his government to walk away from the talks if it could not secure them a better deal. ‘If labor standards aren’t a part of a trade deal, then there shouldn’t be a trade deal’, Dias told reporters in Mexico City on the sidelines of a second round of negotiations to update the 1994 trade agreement among the three countries.”

That article  highlights, “Labor union leaders in the two wealthier nations say laxer labor standards and lower pay in Mexico have swelled corporate profits at the expense of Canadian and U.S. workers, making resolution of the issue a major battleground of the NAFTA talks. …Given Mexico’s higher inflation rates, wages in that country are lower now in real terms than when NAFTA took effect, according to a report published last month by credit rating agency Moody‘s. …Most formally employed workers earn significantly more, but the statutory minimum wage is a mere 80 pesos a day ($4.49).”

2- Chapter 19

Chapter 19 is the state-to-state dispute settlement mechanism in NAFTA (different from Chapter 11 the investor-state dispute settlement provision). The Globe and Mail reports, “The Trump administration says it wants to eliminate from NAFTA the Chapter 19 dispute settlement system, which grants Canadian companies a means of directly appealing decisions by the U.S. government where Washington has slapped duties on their products.” Prime Minister Justin Trudeau has only commented, “A fair dispute resolution system is essential for any trade deal that Canada signs on to and we expect that that will continue to be the case in any renegotiated NAFTA.”

The Globe and Mail editorial board asserts, “Without an independent mechanism for assessing NAFTA trade disputes, the Americans would be free to act as judge, jury and executioner of their own trade complaints. NAFTA wouldn’t be a binding contract; it would an aspirational wish list, to be violated at will. An independent dispute settlement mechanism is Issue No. 1 for Canada.” And Canadian Centre for Policy Alternatives senior research fellow Scott Sinclair says, “With U.S. industries teeing up a long list of trade remedy challenges against Canadian industries (lumber, aircraft, steel and aluminum), Canada can hardly give in to U.S. demands to eliminate or weaken NAFTA’s Chapter 19 binational review process. If anything, it needs to be strengthened.”

3- Pharmaceutical drug patents

The Canadian Press has reported, “On pharmaceuticals, the U.S. has also proposed a 12-year patent-style protection for cutting-edge biologics medicines, sources say. This is significantly higher than the protections in Canada and Mexico, would drive up prices, and could be an irritant if the U.S. sticks to it.” On this point, Sinclair argues, “It would be exorbitantly expensive for Canadian consumers and our health care system if we gave in to pressure to align our system with excessive patent protection in the U.S.” The Council of Canadians, the Canadian Health Coalition, Unifor and the Canadian Labour Congress all call for universal pharmacare, a national program that would be undermined by Trump’s demand.

4- Supply management

The Globe and Mail has reported, “The U.S. dairy industry – and Mr. Trump himself – has singled out supply management as unfair to U.S. producers.” The newspaper’s editorial board has argued, “As for agricultural supply management, if the Americans push the issue, Ottawa should be happy to lower the trade barriers – and the high prices paid by Canadian consumers for dairy and other foods.” But Sinclair counters, “Canada [should not] tolerate Trump’s scapegoating of Canadian dairy farmers. Ditching supply management would simply put our dairy farmers 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.”

5- Chapter 11, water, energy proportionality

The Council of Canadians has also argued that Chapter 11 (the investor-state dispute settlement provision that allows corporations to challenge public interest legislation, most commonly environmental protection laws, through secretive tribunals), water (which is included in NAFTA as a good, service and investment) and energy proportionality (which locks in oil and gas exports from Canada and makes the transition to a 100 per cent clean energy economy by 2050 a near impossibility) should all be considered “red lines” by the Trudeau government (it currently does not see these as no-go issues).

An exit strategy

The Toronto Star’s national affairs columnist Thomas Walkom has warned, “Is the Liberal government willing to walk away from free trade with the U.S. if Trump’s demands prove too much to bear? It had better be. Otherwise, Trudeau enters these talks not as a partner but as a supplicant.”

Sinclair also notes, “If an ‘America First’ NAFTA would be worse for Canada than the multilateral alternative, we can and should walk away from the table. …[If the Canadian government were to do that], World Trade Organization-bound tariff rates would then apply. This would be disruptive, but not catastrophic. Under that scenario, Canadian exporters could face an additional US$3.5-5 billion in customs duties, equivalent to the value of 1.25 to 1.8 per cent of current exports. That’s a speed bump, for sure, but would not bring trade to a screeching halt.”

And even Lawrence Herman, a senior fellow at the right-wing C.D. Howe Institute, has argued, “No deal, as has been oft said, is better than a bad one. …Canada should be considering a world without the NAFTA or, possibly, without even the Canada-U.S. free-trade agreement. Contingency planning is what trade-policy formulation is all about.”