If the Americans do trigger an exit, 'we would have a number of contingency plans in place to ensure the impact is as modest as it can possibly be'

Canada’s chief negotiator for an update to the North American Free Trade Agreement says some of the United States’ proposals are “completely unworkable.”

Steve Verheul told a House of Commons committee Monday that Canada will not accept the most “extreme” demands coming from President Donald Trump’s administration, implying that his Mexican counterparts are of the same mind.

In some of the strongest language yet from a Canadian official, Verheul described how he sees five U.S. proposals, in particular, as potentially detrimental to the North American free trade zone.

First, the Americans are pressing that, for automobiles to be eligible for tariff-free access within NAFTA, they would have to contain 50-per-cent U.S. content and 85-per-cent regional content. The current requirement is 62.5 per cent.

These “wholly unworkable” and “damaging” proposals appear to have been brought forward without much analysis, Verheul said, and Canada has been trying to explain why the policies could result in auto manufacturers moving their operations offshore, to the detriment of North American jobs.

“We do feel that some of the U.S. proposals go exactly in that direction of worsening our competitiveness,” he said.

A second sticky issue: Verheul is concerned that the U.S. government wants to strictly limit the amount of government procurement available to Canadians and Mexicans. “(That’s) completely unworkable and we will not engage on the basis of that kind of approach.”

A third pickle is an unconventional approach to dispute settlement. The Americans are trying to return to a pre-World Trade Organization era where bigger economies win out over smaller ones, Verheul said. Part of the U.S. proposal is to eliminate Chapter 19, which sets out binational panels to review countervailing and anti-dumping disputes. Canada and Mexico both vehemently oppose that idea.

A fourth problem is the U.S. desire for a sunset clause that would cause NAFTA to expire at five-year intervals unless the three countries’ political leaders decide otherwise. “If you have an agreement where it’s uncertain if that agreement will survive, and you have that every five years, that’s going to be a significant chill on investment, on planning and on the strength of the agreement. … This goes absolutely in the wrong direction,” said Verheul.

Finally, the U.S. has asked for the elimination of Canadian tariffs on poultry, dairy and egg — Canada’s supply-managed agricultural industries — without agreeing to any tariff reductions of its own, even with some products that are more restricted under U.S. policies than under Canadian ones.

“This proposal is also unacceptable,” the chief negotiator said.

Having taken MPs through those concerns, Verheul did not sound particularly optimistic, inserting caveats into his committee testimony such as: “if we manage to finalize it,” and “when we get to a final agreement, assuming we do.”

If negotiators face utter stalemate, talks could extend months or years into the future. In the meantime, there’s no consensus on whether an impatient Trumpwould be able to unilaterally leave the deal. With Congress, especially Republicans, ramping up criticisms of the U.S. government’s own proposals, some are predicting a legal battle between legislators and the White House.

If the Americans do trigger an exit from NAFTA, which Verheul described as a “worst-case outcome,” there would be a six-month waiting period before actual withdrawal — and an expected backlash from American business and industry.

“We would have a number of contingency plans in place to ensure the impact is as modest as it can possibly be, and we do have a number of ideas in that regard,” Verheul said, adding the Canadian government would take a sector-by-sector approach to identify where tariffs should be put back into place.

He clarified that the Canada-U.S. free trade agreement that was suspended when NAFTA took effect a quarter-century ago could come back into force. But this would likely require a presidential proclamation and regulatory changes in both countries. 

Officials will continue their work during meetings in Washington next week before the next formal negotiating round in Montreal in late January.

Source: National Post