Trade Gurus & Public Affairs Mavens

NAFTA 2.0: Buy American, Hire American

This column is about the pillars of President Donald Trump’s Trade Policy.

America First is not a new concept. U.S. negotiators always put America first. We can hope for the best, but prepare for the worst.

NAFTA 2.0: Buy American, Hire American

Canada not likely a first target in Trump’s war on NAFTA, but changes are coming – Opinions
By Peter Clark
January 23, 2017

Prime Minister Trudeau appears to have done as much as possible to avoid direct hits from the Trump trade howitzers.

Former Prime Minister Brian Mulroney and Canada’s Ambassador to Washington David McNaughton are savvy interlocutors who can help steer Canada through the inevitable rough patches. Still, even the most optimistic observers agree there are potential problems.

The Cabinet retreat in Calgary is being briefed by senior advisors to President Donald Trump, including Blackstone Group CEO Steve Schwarzman, an opportunity engineered by Mr. Mulroney who is on the Blackstone Board.

The Prime Minister’s Office and the Canadian Embassy explain that Canada is not in the crosshairs, at least for now. Clearly, Canada is an important customer for U.S. and this should matter. I hope that repetition of that fact does not wear thin.

There has been no Executive Order on NAFTA yet. U.S. stakeholders will target Canadian practices and interests – and the administration will have no choice – it will pursue the complaints. We must hope for the best and prepare for periodic turbulence.

While softwood lumber may not be fully a NAFTA issue, tends to dominate the trading relationship, and it drains resources badly needed to address other issues.

There will be battles between Congress and the White House over details of the trade program. Trade agreements are all about detail. And Congress will do its best to block what it opposes – like prohibitive taxes on trading partners and outsourcing American companies who fail to be persuaded by the President’s jawboning.

Trump Cabinet nominees Wilbur Ross (Commerce) and Steven Mnuchin (Treasury) have signalled that the President finds the border tax promoted by House Speaker Paul Ryan confusing and that he does not support it. But I have learned over the years to never say never about Congressional initiatives.

President Trump, the communicator, wants a clear signal to his base – a very visible one – which will likely be used to only deal with special evils and recalcitrants (read China). It will not simply fall from the sky overnight. Such action will likely flow from failed negotiations.

The GOP tax mavens could introduce a Value Added Tax (VAT) similar to Canada’s HST. But VAT is a four letter word to the GOP. Visible taxes are never popular.

The Trans-Pacific Partnership (TPP) is dead. I agree with those in Congress who think this is a mistake. Evidence of real benefits to the U.S. in TPP is demonstrated by its objective to include the best bits of TPP in NAFTA.2 or in agreements with other TPP participants.

More than five years of detailed negotiations have been thrown out with the bathwater. Why? For a sound bite? – or to deny President Obama an important part of his legacy? But perception in “Fly Over America” is reality – so TPP had to go.

In theory, the NAFTA re-negotiation will be comprehensive. Don’t expect the process to be a give and take negotiation. It will be much more “take” – a rebalancing in favour of the U.S. Washington wants to sell Canada and Mexico the same fish twice.

The new bilateral negotiating thrust will not benefit Canada. Washington has the market and leverage to dominate negotiations with individual trading partners, Canada does not. We need a broader rules-based trading system to protect and advance our trading interests.

Don’t expect to secure concessions which are contrary to America First, Buy American and Hire American. Improved access to Buy American procurement rules may be easier in a bilateral deal than in TPP, but far from a slam dunk or no brainer.

Without the TPP, Canada will need to reach a bilateral agreement with Japan. That is not likely to happen until Japan is finished with the U.S. This means that Japan’s market access cupboard could be bare – or not very attractive – for Canadian beef and pork exporters. Japan has rejected a possible TPP-lite agreement.

Allowing Japan and the U.S. to negotiate automotive trade and rules of origin on their own should be worrisome to Canada’s auto parts producers and assemblers. Looser origin rules, allowing Japanese assemblers more Chinese and Thai content were the basis for Japanese acceptance of TPP and its implementation bill. Is change possible?

Watch for more Japanese investment in U.S. automotive assembly to sweeten the pot. And U.S.-specific access for agriculture will increase support from U.S. farmers and ranchers. Canada does not need a repeat of its experience with Korea.

Another important, big give – more likely a take – will be the death of special NAFTA Chapter 19 dispute settlement for anti-dumping and countervailing duty investigations.

Canada-U.S. FTA bilateral dispute settlement which morphed into Chapter 19 in NAFTA, is a major part of P.M. Mulroney’s trade legacy. No other country has it. No doubt Mr. Mulroney has discussed maintaining it with his West Palm Beach neighbour – future Commerce Secretary Wilbur Ross.

The U.S. Lumber Coalition wants to get rid of Chapter 19. Judicial review by domestic courts is less intrusive than Chapter 19. It is much more petitioner-friendly. The Coalition has been tireless in its efforts – and now has a White House prepared to listen.

This issue is much more important to Canada than to the USA. U.S. trade remedy targets in Canada, like lumber, beef and pork, are high volume exports. U.S. dumpling is challenged less frequently. I don’t recall any Canadian trade remedy investigations where U.S. exports were measured in billions.

Be prepared for a shotgun approach from U.S. negotiators – it will not be focussed – it will be comprehensive. In the confirmation hearings, Mr. Ross highlighted reductions in the value of the Mexican peso and the loonie as being not by accident. This is bizarre when President Trump is trying to talk down the value of the U.S. dollar to increase exports.

Dealing with unrealistic, emotional demands and President Trump’s shock tactics will not be easy. While we may not be the worst actors in this global vaudeville show, we may have to cope with more than being hit with cream pies.

It will be very difficult to monitor developments on specific products from outside the U.S. During the CUSTA negotiations I was in Washington scoping out client interests twice a month. I expect to be stocking up on flight passes.

In my next column I will discuss key U.S. players – those who will be charged with delivering the better agreements and more jobs President Trump has promised.

This entry was posted in Trade Gurus & Public Affairs Mavens. Bookmark the permalink.