Canada and the United States: Negotiations for NAFTA Renewal Risky for the Political Survival of Justin Trudeau and Donald Trump.

The three North American countries (Canada, the United States and Mexico) are bound by trilateral trade agreements known as NAFTA. As the name implies, the latter is the North American Free Trade Agreement. It was implemented in 1994 between the governments of these three countries. This trade union has significantly reduced tariff barriers, facilitating trade in goods, services and capital. This agreement has created one of the largest free trade areas in the world.

The background of NAFTA or NAFTA in English or TLCAN in Spanish.

The treaty came into force in 1994. It is divided into 22 chapters, but basically it says: what is manufactured in your home can be sold without a tariff. This agreement is in danger of disappearing because the United States no longer finds it to their liking. According to the first of the Americans, NAFTA is the “worst agreement ever signed” by his country. He believes that because of this deal, too many companies in the United States have closed factories to open in Mexico. Several groups in the United States think like him, for example, workers who have lost their jobs. Also, for example, the United States wants to sell more cheese in Canada. But Canada wants to protect the country’s dairy farms, which are smaller and receive fewer government subsidies. But free trade also has many supporters in the United States. For example, many jobs have been created in companies that sell their products in Canada. In Mexico, NAFTA accelerated farmers’ abandonment of the countryside: corn imports from the United States competed with them. Some have been able to find work in factories that were built in Mexico in the automotive or electronics sector … thanks to NAFTA. But the poverty rate in Mexico is higher today than in 1994. In Canada 25 years ago, many groups were against free trade. Several workers’ unions opposed it. The Liberal Party of Canada, the current Prime Minister, Justin Trudeau, promised to change or withdraw. Today, the debate has calmed down. Economists say Canada’s population and economy are too small and the country needs access to markets like the United States to thrive. Almost no one opposes free trade in Canada and most groups and politicians support it. And all want the continuation of NAFTA. The overall result would be the following. 9 million people in the United States who would not have a job if their company stopped exporting to Canada.

5 million Mexican peasants who left their land between 1994 and 1999 because their corn crop did not yield enough money. 7 million jobs that have disappeared in US factories for 30 years … But experts say that it is not because of NAFTA: it would rather be robots. 78% of Canadian exports to the United States and Mexico. 290 billion US would be the value of trade between the three NAFTA countries in 1993 against 1100 billion US for the same three NAFTA countries in 2016.

Since his surprise arrival in power in 2016, the US president has been missing no opportunity to criticize NAFTA. He claims that his allies are benefiting from his country and that this agreement is unfavorable and unfair. According to him, America first and it must be modified accordingly.

Mexico has already renewed its trade agreements with the United States

The US government has preferred to isolate Canada and has held talks with Mexico. Thus, the two parties have chosen to conclude a 16-year agreement with a review of the problematic issues every 6 years. Even if there is disagreement on one point at the end of 6 years, the agreement will still remain in force. The agreement provides for cars that cross the border between Mexico and the United States to have at least 75% American or Mexican content, and that 40% to 45% of the value of the work must have been entrusted to workers earning at least $ 16 an hour. It seems that Mexico and the United States have dropped Chapter 19, which would be a victory for the Americans. This chapter of NAFTA provides for the creation of an independent panel of five arbitrators in the event of a dispute over a countervailing or anti-dumping duty. The United States asserts that it is the US courts that must arbitrate disputes when it happens on their territory.

The main points of contention with Canada

The main sticking points with Canada are the issue of its dairy market and its commitment to a dispute settlement process between treaty partners. In Canada, the dairy industry generates nearly $ 20 billion, which employs more than 220,000 people. Supply management is considered sacred in Quebec and Ontario, Canada’s two most populous provinces, which make and break governments in Ottawa. What is supply management? In order to protect the Canadian agricultural community from the foreign milk, egg and poultry industries, the Canadian government introduced a supply management system starting in 1972 that not only stabilized domestic prices, but also to limit imports. This ensures consistent production for Canadian farmers, while reducing the risk of large price fluctuations. To achieve this, the volume of production is strictly regulated by means of quotas. At home, five types of production are subject to supply management: milk and milk products, chicken, turkey, table eggs and hatching eggs. While these quotas effectively guarantee a certain income floor for agricultural producers, consumers rarely have access to discounts on these products. Quebec and Ontario account for almost 80% of national milk production, and nearly three-quarters of the quotas in these two provinces are on dairy farms. In 2014, there were nearly 6900 Quebec producers who had to respect various quotas. In the Maritimes, milk represents almost all agricultural production subject to quotas. In the Prairies and British Columbia, poultry and eggs are a larger share of quota production.

Recently it was a fulminant Donald Trump who stood up for dairy farmers in Wisconsin who learned that they will no longer be able to sell their surplus milk to Canada, which is unfair competition. Note that the state of Wisconsin is a major dairy producer. There are more dairy cows than anywhere in Canada. The milk of these animals brings him 43 billion US dollars annually. It exports 150 million to Canada.

However, this system is not universally accepted in Canada. The supply management program, managed in Quebec by the Régie des marchés agricoles et alimentaires, is regularly being criticized. These attacks come from Conservative politicians, like Beauce MP Maxime Bernier, and negotiators from other countries. According to critics, supply management represents undue government interference in a major economic sector. They argue that the maintenance of agricultural industries within a “virtual monopoly” represents a form of state subsidy incompatible with the concept of free trade.

The auto industry is also an issue in these negotiations. Unsatisfied with the current automobile clauses, the US administration threatens to impose up to 25% of customs duties on car imports for the sake of the security of Uncle Sam’s country. Canadian auto industry reacted with shock and disbelief to the new US offensive. According to the Canadian Vehicle Manufacturers’ Association, the Canadian automotive sector accounts for approximately 500,000 direct and indirect jobs. About 95% of vehicles built in Canada are exported to the United States. Professor Sui Sui, from the Ryerson University Ted Rogers School of Management, argues that these rates could be devastating for Canada, but she doubts the United States is applying them.

The elections of November 2018 and 2019

In Canada, Justin Trudeau faces the pressure of the political calendar. Elections to be held in a year, he must avoid appearing as capitulating to the US President. Since Quebec and New Brunswick are already in the election campaign, an agreement could be beneficial.

On May 29, Justin Trudeau’s government announced the nationalization of the Trans Mountain pipeline from Edmonton to Vancouver, committing $ 4.5 billion to Texas-based Kinder Morgan. But the bill will climb later, to reach an amount that is still not known. The first estimate was $ 7.4 billion, including the new pipeline. But documents filed by Kinder Morgan and made public at the beginning of the month show an invoice of at least 9.3 billion. Also, in Judge Eleanor Dawson’s ruling on Thursday, the Court concluded that the National Energy Board’s (NEB) assessment of the project was so imperfect that Justin Trudeau’s firm should not have been rely on it when it gave its final approval in November 2016. The court also ruled that the government did not adequately consult with the Aboriginal population before approving the $ 7.4 billion project.

The Federal Court thus quashed the order and certificate that allowed Kinder Morgan to begin the construction of the 1150-kilometer pipeline and therefore indefinitely suspended the project. In addition to having to pay Canadian taxpayers’ money, he has just suffered a significant legal setback. He may not be able to do anything for several years because he is stuck with his bad decisions.

Recall Mr. Trudeau has already been struck by Mr. Trump’s lightning that has taxed Canadian lumber by 27%, steel by 25% and aluminum by 10%. Which caused a grunt of the population, From the economic point of Canada, the country is bad. In fact, Canada would be sinking into a $ 22.1 billion shortfall in 2018-2019 and $ 21.4 billion the following year, according to Parliamentary Budget Officer (PBO) Jean-Denis Fréchette , an official agent independent of the deputies. In its February 27 budget, the Trudeau government anticipated a deficit of $ 18.1 billion and $ 17.5 billion for these periods. In addition, Canada’s two largest provinces (Ontario and Quebec) do not want to compromise on milk and auto issues, which are vital sectors of the Canadian economy.

In the United States, it is in November that will have the mid-term elections to renew part of the US Senate. But the economic signals are green. The unemployment rate is low. It has slowed the job loss due to the relocation elsewhere of American companies. It has modified its bilateral agreements with Mexico to its advantage. However, it is not sure to win these elections because of his escapades and problems of all kinds. He is likely to face destitution if the Democrats resume legislative power in the United States. It’s a safe bet that he will lose feathers. But in what proportion? Will this loss be significant enough to sway power on the opposition side? The answer will be known in November 2018.

What will be the outcome of these negotiations between Canada and the United States and who will lose?

The dice will be thrown this week from Wednesday, September 5th when the negotiations will resume in Washington to renew the NAFTA. These will take place in a tense climate. The conflict or even bad relationship between Donald Trump and Justin Trudeau after the G7 summit in 2018 is a significant factor for the outcome of these negotiations. Let’s not forget that he has already accused Mr. Trudeau of being “dishonest and weak”. These negotiations would be easier if the chemistry was quite positive between the leaders. But the latter is difficult to quantify and would be more in the field of probabilities. On both sides the messages are clear and the negotiators are asked to make no compromises. The status quo seems to benefit Canada, but it would hurt the United States, which is seeing its growers grow with a possible negative impact on future elections. Whoever loses feathers to these economic goods risks being punished heavily by his constituents and dying politically forever. (To be followed in another article)

Gondiel Ka
Montreal, Canada
Expertise Africa Canada Relationship.

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