The Power of Perspectives

The Canadian Bar Association

Justin Ling

Renegotiating NAFTA: Opportunities for Canada

November 29 2016 29 November 2016

 

If you deal in trade law in Canada — or are one of many, many lawyers who have clients integrated into the North American market — you might be looking at the current continental state of affairs in one of two ways.

The bright side: more work for lawyers.

The downside: the world’s most ambitious trade deal could be in jeopardy.

But despite the uncertainty thrust into the global financial markets following the election of trade-skeptic President-Elect Donald Trump, some legal experts observers are allowing themselves some degree of optimism.

“I think we need to walk away from the notion that the negotiations are a sky-is-falling scenario,” Clifford Sosnow, a partner in Fasken Martineau’s Toronto and Ottawa offices told CBA National. “The truth of the matter is, we really don’t know. When we look at NAFTA, it really does allow for parties to modify or make additions.”

Allowing for some changes, he says, might be perfectly healthy. At the very least, the worst-case scenario isn’t likely that bad.

Much has been made of Trump’s anti-NAFTA rhetoric, set to the drumbeat of protectionist rhetoric, and many in the legal and finance worlds have fretted about the sudden end to the consistent stability that NAFTA has offered over the last two decades.

Trump has called the agreement “the worst trade deal maybe ever signed anywhere, but certainly ever signed in this country,” during a live debate. He’s blamed it for job losses in Michigan and Ohio, two states he won in a shocking upset over Hillary Clinton — his NAFTA rhetoric was undoubtedly key to that come-from-behind shocker.

He has promised to get a “better deal,” one that keeps manufacturing jobs in America possibly with help from import tariffs, and failing that he’ll have the U.S. pull out of the deal entirely.

Trump’s rhetoric neglects the fact that the deal has unquestionably added trillions to GDP of each signatory nation, and that the unemployment rate in the U.S. is actually lower today, 12 years after the deal came into force. That inconvenient fact also undercuts his assertion that illegal immigration from Mexico is destroying the American economy.

“I think that we need to take a deep breath,” he says. “I think we need to walk back from what he says.”

On tariffs? “I don’t see how he can do that.”

On launching renegotiations? “It happens in the WTO, it happens in the European Union … it would be silly, for any kind of discussion about negotiation, to gnash our teeth and bite our nails.”

On the Trudeau government’s decision to preemptively agree to negotiations? “The truth is that the uncertainty it creates for Canadian business also creates uncertainty for American business.”

Sosnow isn’t naive to the potential dangers that could come from a Trump-led wholesale redrawing of the North American trade borders. But he does see opportunity where others see peril.

“Trump has some concerns about country-of-origin labelling and about softwood lumber,” he says. “These are things that are not new. These are things we’re familiar with. If that’s all you’ve got a problem with, I think we’re doing pretty good.”

At that point, he asks: “Is this really a renegotiation?”

It could very well be that Mexico, not Canada, is Trump’s intended target in these negotiations.

But there are opportunities for Ottawa to advance its own interests at the table, he notes. With Trump vowing to pull America out of the Trans-Pacific Partnership, a spate of new cross-border initiatives that were once a done-deal are suddenly lost. TPP was set to drop taxes on a spate of different commercial transactions that spanned borders and to clarify certain natural resource rules.

There’s no reason why both countries wouldn’t want to pursue those same issues under a hypothetical re-crafting of NAFTA, Sosnow notes.

Then there’s the Sword of Damocles that has been hanging over administration-after-administration on both sides of the border: softwood lumber.

A pledge to try and resolve the issue before President Barack Obama leaves office has rung hollow. That failure has led to a complaint filed to the U.S. Chamber of Commerce last week asking to investigate Canada’s lumber industry, with the possibility of slapping new fines on the Canada imports.

“Does it become a part of a negotiation for NAFTA? It could,” he says. “Why wouldn’t it?”

“If you have an actual meaningful agreement with provisions that can be enforced under the NAFTA rules that provide some clarity that Canadian industry can live with, why not?”

U.S. industry has also long been frustrated with Canada’s tendency to slap national security exemptions on procurement projects — limiting bidders to a choice list of Canadian companies — and to invoke exemptions in the Canada Investment Act to kill foreign investment and take-overs.

Letting U.S. industry have some say about the Investment Act provisions “would be a desirable outcome,” he says — potentially for Americans and Canadians alike.

At the end of the day, Sosnow says, NAFTA became a “whipping boy” during the election, but that doesn’t mean it’s all doom and gloom.

“I do think we need to wait and see — but I don’t think that means we do nothing about it.”

 

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