Canada should accept increased competition under new NAFTA

The US administration tipped its hand ahead of NAFTA negotiations in Washington, DC.
A report released by the Office of the US Trade Representative last month set out, in broad strokes, the administration’s negotiating strategy.

Not surprisingly, the overriding objective is to improve market access for US exports in the agriculture, manufacturing and services sectors. It also seeks to do away with what the administration sees as trade and investment barriers maintained by its North American Free Trade Agreement partners.

From Canada’s perspective, US demands will likely include scrapping restrictive dairy industry protections and, perhaps, other agricultural supply management programs. They will also include better access for US companies to Canada’s telecommunications, culture and financial sectors, and non-discriminatory treatment of digital products transmitted electronically across borders, along with unrestricted cross-border data flows.

In making these demands, the US administration is actually acting as a champion of the Canadian consumer, whether it knows it or not. For example, it’s estimated that the elimination of restrictive dairy industry protections could lower dairy costs for Canadians by as much as 40%. More competition in other sectors, from finance to data storage, can also be expected to lower prices and improve the quality of services for Canadians.

But while there are gains to be made for Canadians, there are also potential threats in what the US is likely to ask for. Canadian negotiators will need to be firm in some places – like dispute resolution – to protect the investment environment in Canada.

Politically, opening up key Canadian industries to more competition is no easy task. Those industries affected will, or course, argue that meeting the US terms would do great damage to the Canadian economy. One can also anticipate any number of appeals to Canadian nationalism as the basis for rejecting the US demands.

Industry participants in free-trade debates are usually successful in positioning the public discussion around the issue of improving access to foreign markets. Economists would certainly agree that multilateral trade liberalization is more advantageous for the economies involved than trade liberalization by only one country. But this preference for multilateral trade liberalization doesn’t negate the fact that increasing competition by lowering domestic trade barriers directly increases the real incomes of domestic consumers and promotes improved efficiency by domestic producers.

The pronouncements of President Donald Trump’s administration suggest that it sees gains to the US only from increased exports with no benefits to Americans deriving from increased imports. One hopes that the government of Prime Minister Justin Trudeau doesn’t share this view as a basis for Canada’s negotiating position.

Indeed, Canadian negotiators should seize on opportunities to reduce border barriers wherever possible. In this regard, the US objective of reducing the harmful effects on trade flows of regulatory inconsistencies is an opening Canadian negotiators should seize, as is the US objective of streamlining customs procedures. Canada should also push for easier cross-border movement of workers by, for example, expanding the categories of workers eligible for the TN visa program for professionals.

Perhaps the most problematic issue facing Canadian negotiators is the ostensible US demand to get rid of the NAFTA dispute resolution process and have US-initiated complaints about trade law violations adjudicated in US courts. This was a red line for Canada in earlier Canada-US free trade negotiations and the demand should be strongly opposed by Canada in current NAFTA renegotiations.

In taking the competition high road, Canada should push for circumscribing the application of trade rules (most often by the US) that are primarily invoked to protect inefficient domestic producers. Eliminating anti-dumping provisions is an example, as predatory pricing – domestic and international – is rarely a profitable strategy for the alleged predator, in the view of most economists.

Canadian negotiators shouldn’t object to measures that increase domestic competition. If red lines are drawn, they should be to expand and enhance competition North American-wide.

© Distributed by Troy Media 2017.