TORONTO — When Canadian Prime Minister Justin Trudeau and U.S. President Donald Trump shook hands on the steps of the White House in February, Trudeau placed his left hand on Trump’s shoulder. By doing this, Trudeau avoided falling victim to Trump’s signature handshake, in which he yanks people toward him in an apparent display of dominance.
No sooner had the White House door closed behind the men, than media outlets worldwide began analyzing the greeting. “This handshake was more than just a greeting,” concluded one Canadian journalist. “It was a statement, and its message was heard around the world. That message? We’re equals.”
That brief exchange could be viewed as a foreshadow of Canada’s approach to upcoming trade talks with its neighbor to the south. Canadian officials support the section of the North American Free Trade Agreement, or NAFTA, that allows a multinational panel rather than any domestic court to rule on duty disputes — and the Trudeau government has indicated it won’t bow to American demands to scrap the provision.
Trade between Canada and the U.S. is important to both countries; the U.S. is Canada’s largest trading partner and Canada is America’s second-largest, trailing only China. Trade in goods and services between the two nations totaled $627 billion in 2016, according to the Office of the U.S. Trade Representative.
The close ties in trade underscore how a failure to reach an agreement in the NAFTA renegotiations, which start in Washington on August 16, could not only affect the two countries’ trade relations, but their economies.
In July, Trudeau said “a fair dispute resolution system is essential for any trade deal that Canada signs on to.” A senior official in his government went a step further, telling The Globe and Mail that the government views the provision, outlined in Chapter 19 of the trade agreement, as a red line that it won’t cross.
The composition of the recently formed advisory council on NAFTA is an indication of the Liberal government’s stance on Chapter 19. Several of the council’s 13 members are affiliated with the Conservative Party — the current incarnation of the party that, while in power in 1987, walked away from bilateral free-trade talks with the U.S. when American negotiators balked at a dispute settlement chapter. Brian Mulroney was the prime minister at the time and Derek Burney was his chief of staff. Both men are now helping the Trudeau government prepare for the upcoming NAFTA talks.
The Trudeau government also recently named one trade expert, Kirsten Hillman, as deputy ambassador to the U.S. and appointed three others to consul general posts in Atlanta, Seattle and San Francisco respectively. “With the expansion of our consular presence in the U.S. and the creation of the NAFTA council, we are furthering Canada’s determination to promote Canadian interests and values in our bilateral relations with our main economic partner,” Global Affairs Minister Chrystia Freeland said in a written statement.
Some trade experts say Ottawa should be more flexible on Chapter 19. Robert Wolfe, professor emeritus at Queen’s University’s School of Policy Studies, says Canada has initiated just three cases under the provision in the past 10 years. He says it might be advantageous for Canadian negotiators to capitulate on Chapter 19 in exchange for concessions. Given a choice between curbing the “Buy American” provisions, which restrict the ability of Canadian companies to bid on U.S. government contracts, and keeping Chapter 19, he says would give up the latter. “A lot more Canadian jobs might benefit from stopping discriminatory government procurement in the U.S.,” he told The Financial Post.
But many trade experts support a hard-line stance on the dispute-settlement mechanism.
“I think Canada should insist that Chapter 19 stays in NAFTA,” says Ted Cohn, professor emeritus at Simon Fraser University’s Department of Political Science. He acknowledges that the mechanism has been used infrequently in recent years because industries and their supply chains have become integrated across borders, but he says Chapter 19 is still essential to Canada. Without it, Canada would have to go through the U.S. court system to register its trade complaints, he says, and “binational dispute settlement has been much more balanced and fair to Canada than the U.S. courts in trade disputes between the two countries.”
The few cases that have gone to Chapter 19 in recent years have been important because they relate to the softwood lumber industry — a vital component of the Canadian economy — and Canada has won many of them. The decades-long dispute has heated up recently because the U.S. has imposed high countervailing and anti-dumping duties on Canadian lumber, says Cohn, so Chapter 19 must be available to Canada as a last resort.
He says “improvements could be made in the dispute settlement process” and notes that more of an effort could be made to ensure individuals on binational dispute settlement panels are seasoned trade specialists. But, he says, “We should not be willing to negotiate the removal of Chapter 19.”
Susan Yurkovich, president of the B.C. Lumber Trade Council, the organization that represents the interests of lumber producers in British Columbia, shares that view. “We believe it is essential to have this provision to ensure there is balance in trade. Without it, we would be subject to U.S. domestic law which, quite frankly, benefits the U.S. You need to have somewhere to go to ensure fairness.” Yurkovich uses the family unit as an analogy. “When two siblings squabble, the dispute often has to be settled by a parent,” she says.
If Canada or Mexico walk away from negotiations, NAFTA would stay as it is, and Trump may follow through on his threat to pull the U.S. out of the 23-year-old deal. That would have a big impact on the Canadian economy — though there is some debate about how much damage it would do — but the Trudeau government seems prepared to walk if the Trump administration insists on removing the existing dispute settlement mechanism.
“Keep in mind that no deal is preferable to a bad deal. That was the basic principle guiding us in the first free-trade negotiation,” Burney said in statement released on Aug. 9. “Canada needs to know when and how to say, ‘No’.”
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Canada Seeks Fairness on NAFTA Trade Deals originally appeared on usnews.com
