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NAFTA checklist: Key issues to watch as formal process set to start

The US administration will soon serve notice that it will enter discussions with Canada and Mexico.


May 16, 2017
by ASSOCIATED PRESS

WASHINGTON — The formal process in renegotiating the 1993 North American Free Trade Agreement could begin any day. The US administration says it will soon serve notice that it will enter discussions with Canada and Mexico, following a 90-day consultation period.

It’s now poised to happen, with the long-awaited swearing-in of Robert Lighthizer, Donald Trump’s trade czar.

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In the meantime, here’s a preview of key issues at stake:

Dairy: A prime sensitive spot when Canada negotiates trade deals. In Canada’s sheltered dairy industry, imports get slapped with a 270% duty beyond a fixed quota. Canada faced intense pressure to pry open the system in recent negotiations. Canada accepted more European dairy on its grocery shelves, in a deal with the EU. It would have allowed another 3.25% under the ill-fated Trans-Pacific Partnership. Dairy farmers were upset. The Harper government softened the blow with a multbillion-dollar compensation package. This time, with TPP dead, the US could seek a more dramatic opening. US policy-makers have two concerns: First, with Canada’s supply management controls, in general; and more specifically with rules related to milk-protein products.

Auto parts: Among the top US priorities. It involves rules of origin – and how much local content is required to avoid tariffs. It’s clear the White House wants more car parts sourced at home, and fewer from Asia. What’s not clear is the details: will it insist on a specific quota for American parts, or be content with more production in North America, generally? How will it tinker with the rules – by simply raising the threshold for avoiding a tariff, currently 62.5%, or by also insisting on a stricter formula for calculating that percentage? Will the policy lead to higher car prices? Will changes really shift production from Asia, or will companies simply pay more in duties and add it to the sticker price? The details matter here.

Consumer rights: The US government wants to help Canadian shoppers – specifically, to help them buy more things from the US, through lower duties. It’s a standard priority of American administrations, and could wind up on the negotiating table. Canada has one of the most punitive duty systems in the world, taxing imported online purchases above $20, a pittance compared to the $800 limit Americans enjoy. But Canadian retailers say a change in this system would be of one-sided benefit to American retailers, resulting in shuttered bricks-and-mortar stores in Canada.

Buy American: Canada wants freer trade in public projects, specifically infrastructure. Some American lawmakers want to go the other way: they want more barriers to foreign bids, and would do away with the exemptions currently enjoyed by Canada and Mexico in NAFTA. Trump is a big booster of Buy American rules, generally, but hasn’t revealed his intended direction here. The US has its own complaints about Canada. The US bemoans the fact that some provincial entities have regulations that undermine US suppliers, like Hydro-Quebec with wind energy. It also complains that US software companies get shut out of public contracts, because of concerns about Canadians’ privacy.

Labour mobility: Canada wants changes here. So does industry. Businesses hate the current professional visa section in NAFTA. It allows easy visas for a list of jobs – but that list reflects the economy of 1993. It barely references digital jobs. Companies complain about unnecessary paperwork and hassles in sending employees to a branch across the border. Another problem involves spouses – one spouse gets a visa but the other can’t work across the border. One potential challenge in addressing this issue: it could quickly get dragged into the broader, heated and very political US debate on immigration.

Softwood: Will there be peace in our time on softwood lumber? Perhaps. This was the first thing mentioned the day after Trump’s election, when the ambassador to the US was asked what he’d like to see in a new NAFTA. Lumber has been the source of recurring spats: Once a decade, the US imposes tariffs over what it views as illegal product-dumping from wood off public land; it winds up in tribunals; Canada tends to win most cases, and that leads to a temporary deal, with restrictions on Canadian wood, before the deal expires and the skirmishes resume. Canada isn’t the only party that wants a softwood deal in NAFTA; Trump’s point man on the negotiation, Commerce Secretary Wilbur Ross, has also alluded to it as an ideal addition to the agreement.

Liquor: Canada’s liquor boards are a repeated source of complaint in the US government’s annual report on trade barriers. It laments the high taxes and tight controls on what gets sold in Canadian stores. The US is especially miffed at BC and Ontario for keeping imported wines off grocery shelves. It’s even launched a trade action over the issue.

Digital services: TPP allowed freer movement of data between countries. It would have restricted the right of any country to insist upon local storage facilities for digital information. Critics called this worrisome, for reasons of protecting personal information. Supporters called the change liberating – meaning it would become easier for someone to start a business from anywhere in the world.

Pharmaceuticals: The US has tougher patent rules on drugs – which can delay the introduction of generics, increasing prices. One US drug company, Eli Lilly, recently sued Canada at a NAFTA panel over court decisions that struck down patents. It lost. But many US lawmakers, funded by big pharma, want changes in Canada. Another potential issue involves cutting-edge biologics drugs. It was a heated issue in TPP. Canada wasn’t involved in that tussle, but would be this time if the US pushes a harder line: the US allows 12 years of patent-like protections for data on these products, while Canada is closer to the international norm at eight years.

Telecommunications and broadcasting: Canada fought for cultural industries to be exempted from its US trade deals – meaning books, recordings, broadcasts are not subject to free trade. Culture was a significant irritant in original negotiations; it hasn’t come up in recent complaints from the US administration. One thing the US could seek is greater access to telecommunications, like cell-phone services, according to a draft list of priorities recently sent to Congress.

Snapbacks: A controversial item on the draft document sent to US Congress, a tariff snapback means a country could reinstate duties on a certain product if increased imports hurt its producers. Other countries will resist fiercely if US negotiators seek this addition.

Dispute settlement mechanism: This was a make-or-break issue for Canada in the original Canada-US trade deal. Rather than allowing American judges to preside over cases involving trade actions by American companies, Canada insisted upon a third-party mechanism. That demand almost sank the original trade agreement in 1987. The Mulroney government threatened to cut off negotiations over this issue. In the end, the mechanism was created. It was later incorporated into NAFTA. Many Americans still resent it. A key reason: Softwood lumber, and US losses in Chapter 19 cases. The commerce secretary, Ross, says it’s unfair that an international panel, which might include one American and two Canadians, should interpret America’s domestic trade-remedy laws. Numerous members of Congress agree. Eliminating Chapter 19 is listed as a priority in the administration’s draft notice to Congress.

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