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5 Minutes for Business: Fighting for NAFTA—Better to Have No Deal than a Bad Deal

 

Never in the history of trade negotiations have we seen a country’s largest, most important business  association openly call its government’s trade proposals “dangerous” and say they should be withdrawn. That is exactly what the U.S. Chamber of  Commerce did yesterday.

 

Canada’s negotiators have done their very best in a challenging environment. They have reached out to Canadian people and business, they have extended a warm hand of friendship to their U.S. and Mexican counterparts and they have tabled sensible, generous proposals to improve NAFTA. But, we all have to prepare for the possibility that the U.S. will withdraw from NAFTA, based on the poisonous proposals U.S. negotiators have presented.

The craziest is a sunset clause that would terminate NAFTA after five years unless all three parties agree it should continue. Imagine the uncertainty of having all three countries debate the merits of trade every five years. How could anyone plan to build a factory with a useful life of 30 years? NAFTA would cease to exist for the purposes of long-term business investment.

 

The second troubling proposal concerns the rules of origin. Currently, 62.5% of a car or a truck must be produced in the U.S., Mexico or Canada for it to qualify for duty-free treatment under NAFTA. The U.S.’s proposal would require that 50% of the vehicle be produced in the U.S. This would be immensely harmful to the North American auto industry. It’s impossible to replace long-established multi-billion- dollar supply chains so most companies would simply pay the generally low U.S. tariffs. Manufacturers would then source more inputs from Asia.

 

The third concern is the administration’s proposal to eliminate Chapter 19, the process for dispute  settlement for anti-dumping and countervailing duties.
 
This comes at a time where the U.S. wants to impose a ludicrous 300% tariff on Bombardier jets, which is above even what Boeing had asked for. Chapter 19 is a critical safety net because it enables an independent, binational panel of five arbiters, agreed by both parties, to determine whether or not the duties have merit based on U.S. domestic laws. This is a must-have for Canada.

 

The final jaw-dropping proposal would drastically reshape NAFTA’s procurement rules. U.S. negotiators are proposing a “dollar for dollar” approach to North American procurement markets. That would mean “the total value of contracts the Canadians and Mexicans could access, together, couldn’t exceed the total value that U.S. firms could win in those two countries.” This is quite simply the worst offer ever featured in a trade agreement and is worse than basic access to government procurement offered under the WTO. Canada would be better off with no agreement at all than signing on to this nutty nonsense.

 

At the Canadian Chamber of Commerce, we salute the government’s efforts on NAFTA. The government has done everything possible: our negotiators have been outstanding, Minister Freeland and the entire Cabinet have invested enormous time in building relationships in the U.S., and the PM has invested his political capital and considerable charm to go to bat for NAFTA.

 

ut, if the U.S. administration is not serious about negotiating a mutually beneficial agreement, then we believe no deal is preferable to a bad deal. This is because a trade agreement will last many years. The Trump administration, we’re not so sure…

 

 

For more information, please contact:

Hendrik Brakel

Senior Director, Economic, Financial & Tax Policy

613.238.4000 (284) 

hbrakel@chamber.ca

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5 Minutes for Business: Modernizing NAFTA – Come Join Our Campaign!

We remain optimistic that NAFTA 2.0 could be a huge boost to the economies of North America because there is so much to be gained. But we’re also starting to worry: anti-trade rhetoric and posturing could veer the talks towards trouble. There are a lot of contentious issues to resolve in an unreasonably short deadline. Trade, in general, and NAFTA, in particular, are massively unpopular with Trump supporters.

 

And the decision-making in Washington D.C. around trade issues has become increasingly chaotic, with U.S. business groups pushing back aggressively against nationalists in the administration. We’ve already seen an executive order to withdraw from NAFTA, where President Trump told the Washington Post, “I looked forward to terminating. I was going to do it.” It was the uproar from U.S. business that forced the Trump Administration to reverse its position.

 

And again this week, the U.S. government appeared poised to make a dangerous decision on steel tariffs. The Commerce department was supposed to brief Congress on the tariffs last Friday, but the meeting was cancelled. Officials are now scrambling to alter the decision after ferocious blowback from U.S. business.

 

The lesson is clear: the most important group advocating trade is not politicians or (god help us) economists. It’s the business community because businesses understand the real world consequences, the jobs that depend on trade. These folks have a very powerful message that resonates with the general public as well as local members of Congress and Senators. And they are the most credible on the benefits of trade.

 

It’s exciting to see business at the forefront of this campaign, and we need your help. The Canadian Chamber is organizing visits to key U.S. states, including Tennessee, Texas and Georgia. (We’ve already been to Virginia and South Carolina.) We’ll be meeting local businesses and U.S. political leaders to raise awareness of the benefits of the Canada-U.S. relationship and to point out the risks of damaging it.

 

Our CEO, Perrin Beatty, recently pointed out, “When you go to Washington and meet politicians on Capitol Hill, you’re just another foreign lobbyist. But when you go out to their congressional district in Memphis, with Canadian business leaders who are investing in the local economy, importing their goods and hiring their workers, then you are priority number one.”

 

Participants are needed to make this strategy effective. Businesses, large and small, in all sectors are invited. We would also appreciate if you could provide us with information about your relationships in those states— the key suppliers, major investments, etc. Canadian firms with local offices in these states can help by alerting the local branches of our visits and asking them to participate in events or perhaps host site tours, etc. If you’d like to participate or join any of our delegations, please email us.

 

We’re also playing a direct role in Canada’s NAFTA negotiations. Our CEO met last week with the Cabinet Committee and our Vice President is on the Chief Negotiator’s consultative committee. Our framework NAFTA brief has been submitted to the Global Affairs department. We’ll be providing additional information to our trade negotiators in the coming weeks and months. If you have trade issues that you want us to bring to Canada’s NAFTA negotiators, please email us.

 

Let’s put the power of the network behind NAFTA. Our economies and our jobs depend on it.

 

For more information, please contact :

Hendrik Brakel

Senior Director, Economic, Financial & Tax Policy

613.238.4000 (284) | hbrakel@chamber.ca

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5 Minutes for Business: Fast and Furious—Negotiating NAFTA

Tick-tock! The U.S. Trade Representative just sent the official notification to Congress that NAFTA negotiations will begin in 90 days. The Canadian government must now negotiate and resolve all the hot button issues with our American and Mexican friends—in the midst of a highly charged political environment. How will it play out?

 

For the next 90 days, every special interest and aggrieved Wisconsin dairy producer will have a chance to provide input during the consultation period under Trade Promotion Authority. Then, whatever new agreement is negotiated must pass the House and the Senate. All three governments want NAFTA 2.0 wrapped up ASAP. Canada wants to end the uncertainty that is hurting investment, and for our partners, it is even more urgent.

 

Mexico’s presidential election is set for July 2018 and will be in full election season by the early spring. Polls show the current leader is Andres Manuel Lopez Obrador, a fiery left-wing nationalist who filed a human rights complaint against Mr. Trump and his plans for the border wall. He calls it embarrassing to see the current Mexican government prostrate before Trump. Mexico’s government would dearly love to conclude the NAFTA well before the election.

 

Similarly, U.S. mid-term elections will be held on November 6, 2018, and Republicans need to show progress on trade. The likelihood of NAFTA passing Congress drops off significantly after the mid-terms.

 

Gallup points out that when the U.S. President has an approval rating below 50%, his party loses an average of 36 seats during mid-term elections. President Trump’s approval rating is well south of 50%, in the high-30s. If the administration remains mired in scandals, special counsels and the Russian Connection, the Republican house is likely to lose its 31-seat majority. Would a newly-elected Democratic house be eager to pass Mr. Trump’s NAFTA?

 

No way. Is it even possible to renegotiate NAFTA before the deadlines? The original Canada-U.S. FTA took 18 months (May 1986 to Oct 4 1987), and our governments at the time were the closest of friends.

 

So it’s possible but very unlikely because of the politics. We often hear from Americans that Canada is not the main target of U.S. trade ire. Canada just needs to give the Trump administration a PR win, which it defines as a big give on supply management and softwood lumber, then it can have whatever it wants— regulatory cooperation, movement of people, maybe even an exemption from Buy American.

 

But the politics are awful because Mr. Trump’s bullying, blustering threats have made it impossible for Mr. Trudeau or Mr. Pena Nieto to agree to concessions without appearing weak. Their supporters despise Mr. Trump and would be furious. And even if it wasn’t politically poisonous, why should we make concessions for another country’s domestic politics?

 

There may be another way. The USTR referred to NAFTA modernization as opposed to renegotiation. In the past, NAFTA has been amended extensively without going back to Congress. We could add a chapter on ecommerce, fix the rules of origin and sign a bunch of side letters that could give the Americans the win they need. Let’s hope they take what they can get. Otherwise, NAFTA 2.0 is doomed.

 

Hendrik Brakel

The Canadian Chamber of Commerce

Senior Director, Economic, Financial & Tax Policy

613.238.4000 (284)

hbrakel@chamber.ca

 

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Exiting Europe and Terminating NAFTA – Have our Trading Partners Lost it??

From Europe to the U.S.A., our largest trading partners are burning up with anti-trade fever. Is it a short-term flu of harmless populism or the most destructive strains of anti-globalization since the 1930’s?

 

Last week the Trump Administration leaked a draft executive order to withdraw the U.S. from NAFTA. “I was all set to terminate,” Trump told the Washington Post “I looked forward to terminating. I was going to do it.” What changed his mind?

 

He backed down after an uproar from U.S. business groups, ferocious blowback from Congress (Senator John McCain said it would be a “disaster”), and calls from the leaders of Canada and Mexico. Apparently the decisive factor was a map of the United States showing the areas that would be hardest hit from cancelling NAFTA and highlighting that many of those counties, particularly in agriculture and manufacturing had voted Trump last November. The blustery threat and same-day retraction inflamed public opinion in Canada and Mexico, so that it will be even harder for those governments to make concessions to the U.S. What could be nuttier?

 

Frexit. If France elects a President dedicated to exiting the European Union and abandoning the Euro, it would be much worse than Brexit, perhaps leading to a break-up of the EU. Should we be worried?

 

We will find out on May 7th when the people of France vote in the second round of the Presidential election. The parallels with the U.S. are striking – Marine Le Pen presents herself as a champion of the oppressed working class, les oubliés (“the forgotten”) and she promises to stop immigration, withdraw from the EU, and impose tariffs to protect French business. Her opponent, Mr. Macron is in the centrist Hillary position with somewhat vague promises that are proEU and include investments in training, along with more flexibility and lower taxes for French business. Mr. Macron has a massive lead in the polls, but analysts point to severe trauma in the French political system. From the Euro crisis and bank bailouts, to an influx of migrants, economic stagnation, and terrorist attacks, the French have never been more disenchanted with their elites. In fact, both of the major parties (the equivalents of the Liberals and Conservatives) were eliminated in the first round.

 

There’s been much talk about a world-wide trend of government elites losing to anti-trade populists, but don’t count on a big win for Madame Trump. Extremist candidates were defeated in the Netherlands and Austria, because of concern about the economic consequences and also because messages of openness do resonate. Polls show that significant numbers of Trump voters and Brexiteers are experiencing regret.

 

Personally, I think Ms. Le Pen has pushed her luck too far with a promise to exit the Euro. This means that all financial assets, debts and pensions would have to be converted from Euros to some new currency to be introduced by Ms. Le Pen. Hear that, French seniors? Your life savings could be devalued and switched into new Francs from the Front National. Good luck.

 

That’s the point of Brexit, Frexit, threats to withdraw from the EU/NAFTA and trade wars generally. It’s lots of fun to bluster and bash trade, but there are real consequences and real job losses. Sometimes we only see the benefits of free trade when someone threatens to take it away. So let’s hope the French come to the same conclusion as so many Dutch, Austrians, remorseful Brits and American businesses to embrace openness. Because despite all the uncertainty, faster growth in global trade is just around the corner.

 

For more information, please contact:

Hendrik Brakel,

Senior Director, Economic, Financial & Tax Policy

613.238.4000 (284)

hbrakel@chamber.ca

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