Elimination of dispute panels among U.S. NAFTA priorities that could put heat on Canada
United States Trade Representative Robert Lighthizer has released his negotiating objectives ahead of talks to revise the North American Free Trade Agreement next month, and several will pose problems for Canada at the bargaining table.
In an 18-page summary released Monday, the USTR outlines how the U.S. will seek to eliminate NAFTA’s Chapter 19 dispute resolution panels. Canada uses these to appeal duties on things like softwood lumber, and the elimination of the panels was perceived as a potential red line for Canadian negotiators heading into the talks, expected to begin Aug. 17.
American negotiators also want to exempt local and state governments from having to open up government contracts to Canadian and Mexican firms. That’s something Canada hoped to achieve in this negotiation, similar to how subnational procurement is opened up to foreign companies in Canada’s new trade deal with the European Union.
Softwood lumber is not mentioned by the USTR, but a single line on page 14 will draw the immediate attention of Canadian negotiators.
Canada is preparing to appeal punishing new anti-dumping and countervailing duties recently imposed by the U.S. Commerce Department on Canadian imports, unless an agreement can be reached to settle this latest flare-up in a long-running dispute between the two countries.
What the U.S. is now seeking would eliminate Canada’s ability to appeal this move to a NAFTA dispute panel. Canada could still appeal to the World Trade Organization, but winning in NAFTA arbitration is preferable to ensure duties are returned to Canadian producers, something a WTO win does not guarantee.
“My initial take is a sense of relief, because what I see is traditional trade policy language using the existing rules of the road in ways that Canadian negotiators can deal with,” Laura Dawson, the director for the Canada Institute at the Wilson Centre, told CBC News Network’s Power & Politics.
But eliminating Chapter 19 dispute panels “is a major red-line issue for Canada,” she said, pointing out it’s the same issue that almost brought down the Canada-U.S. free trade negotiations in the late ’80s.
“We’ve seen this before, but it’s particularly painful for Canada when we are in the middle of a softwood lumber dispute,” she said. “That’s how we resolve dumping disputes. Without that, Canada’s really got its hands tied.”
While the U.S. is seeking to expand its ability to sell U.S. products and services to Canadian and Mexican governments, its proposal for fair and non-discriminatory government procurement appears to be limited to certain federal contracting.
The objective is to exclude sub-federal governments from any commitments that are negotiated. Domestic purchasing preferences would continue to be allowed in U.S. states and cities, including preferences for small businesses, women, minorities, veterans and other “distressed areas.”
“Buy America” requirements are also meant to be exempt, as is procurement by the U.S. Defence Department.
Dairy language ‘nothing new’
Other language in the report was anticipated, if not altogether friendly to Canada.
The section on agricultural goods does not explicitly target Canada’s supply management system for dairy, poultry and eggs, but the Trump administration is seeking to eliminate non-tariff barriers to U.S. agricultural exports, including “restrictive administration of tariff-rate quotas, other unjustified measures that unfairly limit access to markets to U.S. goods, such as cross subsidization, price discrimination and price undercutting.”
In a statement issued swiftly following the release of Lighthizer’s objectives, Dairy Farmers of Canada spokesperson Ashlee Smith said that the American objectives remain “fairly broad, and there isn’t anything new.”
The dairy farmers believe that the U.S. is only looking for new access to Canada’s market because it has a problem with overproduction inside its own borders.
Dairy wasn’t part of the first NAFTA agreement, Smith’s statement pointed out, and the dairy group has told the Canadian government it sees “no valid new evidence to support that dairy be discussed in this round of discussions.” Canada’s trade balance on dairy products is in the Americans’ favour.
The American dairy industry’s lobbying has more recently focused on asking the Trump administration to challenge Canada’s dairy policies, particularly its new pricing strategy for dairy ingredients, at the World Trade Organization.
The USTR’s advisory council advised against pursuing the dismantling of supply management with Canada, fearing it could bog down the talks.
Call to raise duty-free limit
Online cross-border shoppers may be most excited to read the USTR’s objective to improve customs facilitation, including raising the de minimis shipment value — the amount that can be shipped into Canada or Mexico duty-free — to $800 US.
Canada currently triggers duties for goods valued over $20, one of the lowest de minimis levels in the developed world.
On the first page of Lighthizer’s summary, the USTR continues to say that the administration’s goal is to “improve the U.S. trade balance and reduce the trade deficit with NAFTA countries.”
Canada’s trade with the U.S. is not significantly out of balance, but the Americans had a trade deficit with Mexico of over $60 billion in 2016, according to USTR figures.
Trade balances are not typically the focus of modern trade negotiations. Usually, parties to a negotiation focus instead on reciprocity: equivalent gains and sacrifices across all sides, with the hope of mutual wins overall.
At a “Made in America” event at the White House Monday, U.S. President Donald Trump borrowed a phrase from former president Theodore Roosevelt, saying trade reciprocity is “the handmaiden of protection,” harkening back to a time in the previous century when preferential tariff treatment was used to promote political goals.
In a statement, Foreign Affairs Chrystia Freeland welcomed the opportunity to modernize NAFTA and invited all Canadians to share their ideas and priorities through the government’s consultation process, which ends Tuesday.
Meanwhile, Saskatchewan Premier Brad Wall told reporters at the premiers’ annual summer meetings in Edmonton that Canada’s trade negotiators should quietly prepare a list of ways to retaliate if the talks “go off the rail.”
“I think it would be wise to have that ready sooner rather than later,” he said. “I don’t think we’ll need it.”