By Alexander Panetta, The Canadian Press, February 3, 2017
Experts expect US to seek increases in North American content requirement for auto parts
Wondering what the Americans might want from Canada in a renegotiation of the North American Free Trade Agreement?Multiple clues might be embedded in a document published by the US government.
The US publishes an annual list of complaints about trade practices in other countries. This list was cited in a policy paper written for the Trump campaign by Wilbur Ross and Peter Navarro – both of whom now have senior administration roles.
Ross is the incoming commerce secretary and Navarro is President Donald Trump’s top trade adviser. When Trump announced this week that negotiations will start soon, Ross was seated next to him.
In their paper, Ross and Navarro complained about trade deals like NAFTA and China’s entry into the World Trade Organization being poorly negotiated. They cited, as evidence, the findings of the annual report.
“One need look no further than the lengthy list of transgressions detailed in the National Trade Estimate for examples,” said the September paper.
Several trade experts interviewed by The Canadian Press agreed that the list will form the backbone of the US negotiating position: “That’s the starting point right there,” said Gary Hufbauer of Washington’s Peterson Institute for International Economics.
“That’s the laundry list.”
The Canadian government has been clear about some of what it wants in upcoming trade negotiations: greater certainty on softwood lumber, more access to US public construction projects, and upgraded worker-mobility rights.
The Trump team, however, has said little about Canada.
One likely American priority involves car parts, several NAFTA experts predict. They expect the US to seek increases in North American content requirements, which could attract some production here from Asia.
Yet the devil is in the details, said a former Canadian government official who worked on negotiations for the 2009 auto bailout. Will the US hit its neighbours with a specific quota for American content? Will the changes drive up car prices?
“It’s all in the way you write the rules,” said Eric Miller, who now runs a consulting firm, Rideau Potomac Strategy Group.
One thing that he, Hufbauer, and Dentons trade lawyer Alan Wolff, who worked on numerous steel cases with incoming US Trade Representative Robert Lighthizer, all agree on is that the National Trade Estimate’s annual report on foreign barriers is a valuable guide post.
The US begins its trade negotiations by consulting American companies, seeking their input. And that’s what this document is – input from US companies on unwelcome trade practices from other countries. Its 2016 edition has eight pages on Canada.
Here’s what it says:
- Cheese and dairy: Canada’s regulations on compositional standards restrict access to the Canadian market for US dry milk proteins. The report says Canada limits imports by providing milk components at discounted prices to domestic processors.
- Supply management: Canada limits imports of dairy, chicken, turkey, and eggs. The report says US imports above quota levels face big tariffs – 245 percent for cheese, 298 percent for butter. “(This) inflates the prices Canadians pay for dairy and poultry.”
- Wine and liquor: Canadians get taxed on imports of US alcohol upon returning from US trips, the report says. “This inhibits Canadians from purchasing US alcoholic beverages while (travelling).” To boot, most provinces restrict sales of wine, beer, and spirits to provincial liquor boards, which have a monopoly. BC and Ontario also have grocery-store restrictions.
- Retail: Canadians have stricter rules on what they can bring home from a vacation duty-free. They also are allowed to buy far less online duty-free from abroad. Canadians pay a customs fee when importing anything over $20 from online purchases – for Americans, the limit is $800.
- Aerospace: The report mentions several Canadian initiatives helping the industry, and specifically refers to Bombardier Inc. as a company worth monitoring carefully.
- Intellectual property: The report calls enforcement of intellectual property rights a continuing priority in relations with Canada. It doesn’t get specific, but pharmaceuticals are one recurring irritant.
- Procurement: Not all Canadian Crown corporations are open to US product suppliers. “Hydro-Quebec…can pose hurdles for US companies in the renewable energy sector.”
- Telecommunications: Canada maintains a 46.7 percent limit on foreign ownership of major telecommunications suppliers. The report says: “This is one of the most restrictive regimes among developed countries.”
- Seeds and grain: Canada’s Seeds Act generally prohibits the sale or advertising for sale or import into Canada of various seeds. Also, US wheat and barley exporters struggle to receive a premium grade that indicates use for milling purposes.
- Cloud computing: The Canadian government wouldn’t allow American cloudcomputing services to compete for a contract to store federal data, like emails. The cited reason was national security. The report says that, under such logic, US companies could be frozen out of all public-sector work – one-third of Canada’s market.
Wolff predicts many issues will wind up on the negotiating table.
While Canada has suggested its preference would be a small, targeted renegotiation of NAFTA, Wolff, a onetime senior US trade negotiator, said that the rule of thumb in important negotiations is that topics get added over time.
Some may not even involve Canada.
Some US requests might be aimed at enshrining principles for future trade deals. Wolff cited currency manipulation as one example, as well as the rules on state-owned enterprises in the ill-fated Trans-Pacific Partnership, which were aimed at Vietnam in the short term, with a longer-term eye on future deals with China.
“Once you get into negotiations it tends to broaden, not narrow,” Wolff said.
He made one more prediction – that Canadians would like many of the changes: “The net result is likely to be far more positive for Canada-US relations than it is currently. Because it’s a chance to improve things.”
Our Comment
First of all, he wants “to speed it up if possible” (Canada, “US to Forge Ahead on NAFTA Talks Without Mexico,” The Globe and Mail, February 16, 2017.). What’s the hurry? Secondly, he wants to deal with Canada first, “leaving Mexico essentially to fend for itself.”
“According to one of the principal players… then, the Americans can say to the Mexicans, ‘we have this negotiated with the Canadians, are you okay with this?”’ (One has to wish them luck should they say “no”!)
The Mexicans, on the other hand, believe that “Canadians and Mexicans must maintain a united front in confronting US President Donald Trump…because, as Mexico’s Economy Minister says, [they] stand to gain more together than [they] might, negotiating alone.”
He points out that “NAFTA is trilateral and should be handled as a trilateral discussion (“Mexico Asks Canada to Stand Firm on NAFTA,” The Globe and Mail, February 18, 2017).
“Several senior advisors to the administration of Mexican President Enrique Pena Nieto…are anxious to see Canada back Mexico in standing up to Mr. Trump’s threat to ‘tear up’ the North American Free- Trade Agreement.”
The Canadian government, has been “avoiding any commitment to a purely trilateral discussion of NAFTA,” promising, though, that “we’ll always be there for a friend to look at what we can achieve together, following their own process with the US” (our italics).
Whatever became of the much celebrated image of “the three amigos”? No wonder Trump wants to deal with Canada first!
“Our first responsibility is to look after our country’s interest…but…in doing that you do not need to run over other nations with your bus.” Ildefonso Guarjardo, Mexican Economy Minister.
It would seem that the Americans have written their list and are ‘checking it twice.’ Eight pages on Canada’s “unwelcome trade practices,” would suggest some considerable tweaking, and certain comments like, “topics get added over time,” and, “some US requests might be aimed at enshrining principles for future trade deals” should give us pause – especially Wolff ’s examples of “currency manipulation, and the rules on state-owned enterprises” – not to mention the observation that “once you get into negotiations it tends to broaden not narrow”!
The “clues” in this document raise all sorts of questions. What are we willing to trade? Who decides on the bottom line? What will it take to “improve Canada – US relations”?
Doesn’t really sound like a “small, targeted renegotiation”?
What does Trump want? I’m guessing, in light of his threatening approach, he wants as much as he can get, for as little as he must give. In view of weeping and wailing of the Canadian government and corporations over the threat of cancellation of NAFTA, I’m also guessing that US negotiators will approach the exercise armed with considerable confidence.
Élan
