The NAFTA Talks: Top Issues for Renegotiation

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August 21, 2017

On Wednesday, August 15, 2017 the United States initiated the talks to renegotiate the terms set in the North American Free Trade Agreement (NAFTA).

This over two-decade-old agreement regulates the free trade of goods and services, such as softwood lumber and wine, between Canada, the United States, and Mexico. It prefers the goods and services produced domestically in North America by eliminating tariffs and taxes on import and export between the three countries, making them cheaper compared to international products.

The NAFTA is a historical trade agreement that has had a considerable impact on the trade of goods and services between the three countries. The United States Trade Representative, Carla Hills, who signed the NAFTA in 1993, reported it as a positive move towards enhancing trade between the three countries. During his election campaign, President Trump stated his disapproval of the agreement and used its renegotiation as part of his platform.

The agreement has increased employment and improved the North American economy as a whole. In a speech, Chrystia Freeland, the Canadian Foreign Affairs Minister stated that $636 billion in goods and services was traded between Canada and the United States in 2016 and called it “the greatest economic partnership in the world.”

The NAFTA negotiations will continue until the end of next year with six more negotiation talks. Although the talks began recently in Washington, Canada prepared for them many months in advance after President Trump’s inauguration speech made it clear that NAFTA would be renegotiated by putting “American[s] first.”

The Office of the United States Trade Representative (USTR) summarized the United State’s objectives in a press release. Although extensive, the demands primarily focus on introducing and enforcing provisions that improve the equity and fairness of the trade agreement, thereby improving the U.S. trade balance and reducing their trade deficit with other NAFTA countries.

On the other hand, Canada seeks to preserve the majority of the original agreement while making provisions in some sections such as new chapters on gender rights and improving relationships with Indigenous peoples.

Common objectives between both countries include modernizing NAFTA, removing barriers to businesses, adding labour provisions, and adding environmental provisions.

Canada’s Core Objectives for NAFTA Renegotiations

  1. Modernize NAFTA:
    • Incorporate changes that suitably reflect the effects of technology on industry practices.
  2. Make NAFTA more progressive:
    • Put stronger labour safeguards to protect jobs in North America.
    • Put enhanced environmental protection so countries cannot sacrifice environmental protection for greater profits.
    • Add a new chapter on gender rights.
    • Add a new chapter on Indigenous peoples.
  3. Remove barriers to businesses:
    • Cut red tape for businesses by consolidating some regulations and removing unnecessary bureaucratic hoops for small businesses.
  4. Facilitate movement of professionals:
    • Update an old list of professionals who may obtain a work visa in the United States with greater ease. The current list consists of land surveyors but not computer programmers, for example.
  5. Seek a freer market for government procurement:
    • Ensure that Canadian suppliers of goods and services are treated in an open, transparent, and nondiscriminatory manner when they sell to governments outside of Canada.
  6. Preserve elements that help Canadian interests:
    • Maintain the exception in the agreement to preserve Canadian culture.
    • Maintain the Canadian system of supply management in dairy and poultry industries.

United States’ Core Objectives for NAFTA Renegotiations

  1. Address America’s persistent trade imbalances:
    • Break down barriers to American exports, including the elimination of unfair subsidies, market-distorting practices by state-owned enterprises, and restrictions on intellectual property.
    • Preserve the United State’s ability to enforce its trade laws, including antidumping, countervailing duty, and safeguard laws.
    • Eliminate the Chapter 19 dispute settlement mechanism.
    • Establish safeguards and bylaws to ensure that NAFTA countries do not manipulate currency exchange rates for an unfair competitive advantage over the import and export of goods and services.
  2. Modernize NAFTA:
    • Make changes to regulate trade in new 21st century industries such as telecommunications, financial services, digital trade, cross-border data flows, investments, and intellectual property.
    • Provide for automation of import, export, and transit processes and provide for electronic payment of duties, taxes, fees, and charges
    • Increase transparency by ensuring that all customs laws, regulations, and procedures are published on the Internet

Two Crucial Issues

Canada has a long history in conserving its system of supply management, consisting of the dairy and poultry industries. This system is protected from free trade, which allows Canadian dairy farmers to regulate tariffs, taxes, and the supply of goods.

President Trump talked about enhancing the American dairy industry during a speech in Wisconsin, the powerhouse for dairy production in the United States. This included a focus on entering the Canadian system of supply management through the NAFTA talks. Freeland has stated that changes to the system of supply management are off the table.

Some Canadian producers are concerned that the Canadian government might have to make concessions in other industries, such as allowing tariffs on grain exporters in Western Alberta, in order to preserve the supply managed dairy and poultry industries.

Another issue is the Chapter 19 Investor-State Dispute settlement process. This protocol allows market conflicts between Canadian and American companies to be settled by calling for an independent binational panel to determine a resolution.

Historically, the panel has often ruled in Canada’s favour, most notably on settlements concerning the sale and prices of softwood lumber. Of the 71 matters heard by the panel directed at the United States by Canada, 43 have been successful. The United States wants to eliminate the panel and use U.S. courts to conduct reviews of U.S. measures instead. However, Prime Minister Trudeau and other officials have asserted that this is a red line they are not willing to cross during the NAFTA talks.

The NAFTA talks will continue with six more four to five day long cycles over 28 negotiating tables and will end next year. Although the first round of talks ended on August 20, the three countries still have a lot to discuss.