Is NAFTA going to change?

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Index

In 1994, the governments of North America, Canada, and Mexico negotiated the North American Free Trade Agreement (popularly known as NAFTA). At the time of its implementation, NAFTA bipartisan support in the United States and proved to be economically beneficial for all three countries involved. Since the election of President Donald Trump, however, there is talk about renegotiation of NAFTA by the U.S. What would this renegotiation mean for Canada? There are eight pages in the trade negotiation input from U.S. companies that outline just that.

The Basics of NAFTA

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Implementation

Negotiated by George W. Bush and implemented under President Clinton, NAFTA was gradually unfurled from 1994 to 2008. The trade agreement combined the power of the developed U.S. and Canadian economies with the growing underdeveloped economy of Mexico. Through the elimination of tariffs on manufacturing, agricultural, and service industries, the agreement was designed to promote the success of all three economies. NAFTA also provided for the removal of restrictions on investing and the protection of intellectual property rights.

Effects of NAFTA

What kind of effects has the North American Free Trade Agreement had?

  • Tariffs on engineering, construction, advertising, accounting, architecture, consulting, management, health-care management, tourism, and commercial education were eliminated.
  • Certification and export-product inspection times were sped up to facilitate a smoother trade process.
  • Toughening of safety, health, and industrial standards occurred to hold all three countries to the same higher standards.
  • Commissions were put in place to monitor any labour and environmental concerns arising from inconsistent enforcement of NAFTA laws by any of the three countries.
  • Barriers to apparel and textiles were lessened.
  • More rights were granted for American companies to bid on Canadian and Mexican procurement contracts.
  • Agricultural trade was freed up.
  • Delays due to paperwork requirements on exporting goods to Mexico were either eliminated or significantly reduced.
  • Insurance markets were opened up.
  • Border processing and licensing requirements for entry into Mexico were streamlined.
  • The Mexico-US border was opened to US trucking companies.
  • Auto parts and vehicles tariff were reduced.
  • Intellectual copyright protected was better standardized.
  • US telecommunications expanded, partially, into Canada and the US
  • Finally, NAFTA implemented rules that allowed citizens of all three countries to work in the other two countries with fewer restrictions (no LMIA in Canada), and provided for intra-company transfers between countries.

Why Trump Wants to Renegotiate

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A major focus of President Trump’s presidential campaign was his goal to “make America great again.” This campaign, although likely well intentioned, comes at the risk of isolating allies and provoking enemies. The renegotiation of NAFTA is just one example of this in action.

According to President Trump, the NAFTA agreement was poorly negotiated and it has caused an increasing number of jobs and more manufacturing production to be shifted to Mexico. This indicates a failing by the commissions built in to NAFTA designed to prevent this type of imbalance. Those who argued against the trade liberalization implicated by NAFTA in 1992 predicted such a shift. Supporters of NAFTA, however, claimed that NAFTA would help to bring the Mexican economy up to standard and create new jobs. So, were those against NAFTA right? Not necessarily. According to CFR the first 20 years of NAFTA resulted in a 0.5% increase in the U.S. gross domestic product. So, is President Trump wrong? Not necessarily! While NAFTA has resulted in a modest increase in the U.S. GDP, it has also shown a shift in the U.S. - Mexico trade balance from a U.S. surplus of $1.7 billion to a deficit of $54 billion.

So, what does this have to do with Canada? The huge shift in the trade balance is no longer beneficial to the U.S. according to Trump and he demands renegotiation. If renegotiation cannot be made, he intends on withdrawing from NAFTA completely. Such renegotiation or complete withdrawal will obviously have an effect on Canada’s economy. This could mean a decrease in the $236 billion increase in Canadian exports to the U.S. that NAFTA caused, and a decrease in the 300% increase in Canada’s agricultural trade with the U.S that was again caused by NAFTA.

 

Has Trump Addressed Canada in Renegotiation Talks?

As Trump and his team of senior administrators begin to focus on renegotiations, they reference the National Trade Estimate Report on Foreign Trade Barriers which outlines transgressions in numerous American trade agreements. They are also drawing on input from American companies on issues that need to be addressed in the trade practices of other countries. Obviously, Canada is not the main target of the renegotiation, but it doesn’t go unnoticed as transgressions are addressed.

So, what exactly do Trump and his team intend to target when it comes to renegotiating NAFTA and Canadian relations?

  • Canada should no longer be able to limit U.S. access to the Canadian market for dry milk proteins.
  • Canada should no longer be able to limit the import of chicken, dairy, turkey, and eggs and charge excessive tariffs on import amounts over quotas.
  • Canada should not tax Canadians returning from U.S. trips who bring U.S. alcohol with them.
  • Canada should be less strict on limitations over what can be considered duty-free items brought home from vacation.
  • Canada should also be more lenient on online purchases and increase the import limit at which customs fees are charged.
  • Canadian aerospace companies should be monitored.
  • Increased enforcement of intellectual property rights needs to be made in Canada, particularly on pharmaceuticals.
  • More Canadian Crown corporations should be opened to U.S. product suppliers.
  • Canada should increase the 46.7% ownership limit of foreign ownership of major telecommunications companies.
  • Canada should no longer prohibit the sale, import, or advertising of seeds for sale to Canadians from the U.S.
  • Canada should have more lenient regulations when classifying barley and wheat for milling purposes for U.S. importers.
  • Canada should not be permitted to block U.S. cloud-computing services from competing for federal contracts.

 

Renegotiation Won’t Be a One-Way Street

Although Trump may the one initiating the renegotiation of NAFTA, that doesn’t mean that Canada won’t have any requests. In fact, the Canadian government has already noted a few points that they wish to address in renegotiation discussions.

  • Canada will likely be requesting more certainty on the softwood lumber trade.
  • Canada will also want to address their limited access to U.S. public construction projects.
  • Lastly, Canada has also noted that they want better worker-mobility rights within the US.

What if the U.S. Withdraws From NAFTA?

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If negotiations don’t go as planned for the U.S. and they withdraw from NAFTA what happens next? It remains to be seen what will become of NAFTA without the U.S.; however, in all likelihood the agreement will be disbanded completely. The balance of power in NAFTA was designed so that two larger economies could assist with the growth of a third, weaker economy. Should the U.S. withdraw from this agreement, the balance would shift and the burden of supporting the Mexican economy would fall solely on Canada, and Canada and Mexico don’t share a border. Additionally, the majority of benefits Canada reaped from NAFTA came from trade with the U.S., without these benefits, there is little incentive for Canada to continue in a trade agreement with Mexico.

If the US withdraws from NAFTA, it is likely the end of all current NAFTA work permit programs in the US and Canada, regardless of whether or not Canada attempts to keep the deal with Mexico.

Is Renegotiation Against Canada’s Best Interests?

Is it really in Canada’s best interests to renegotiate? U.S. trade lawyer, Alan Wolff, seems to think so. Although many of the points to be renegotiated seem to lean more in the favor of the U.S., Wolff says that he believes that these renegotiations will result in more than one sided benefits. Whether they will or not remains to be seen, but at this point, with the unpredictability and inexperience of President Trump, even expert predictions could be wrong.

What about work permits?

As long as the US doesn't withdraw from NAFTA completely, it's possible that a renegotiation of NAFTA could benefit at least some of the people currently working in one of the three countries on work permits. American complaints about the NAFTA deal with Canada have more to do with Canada's protectionism than Canada stealing jobs. It's possible work permits will be further liberalized. But since nobody knows what President Trump will actually do, you'll have to wait and see.


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