On Monday, Donald Trump announced that the U.S. and Mexico had come to a trade agreement, and the U.S. would scrap the NAFTA name in favour of the “U.S.-Mexico Free Trade Agreement.”
Since Monday, the U.S. has given Canada a deadline of Friday to accept the U.S. and Mexico’s “notice of agreement,” which includes trilateral agreements that were previously negotiated with Canada at the table before the summer, according to international trade and customs attorney Dan Ujczo.
“Canada has the opportunity to join the notice on Friday and can do it in two ways,” said Ujczo. “One, they can say they have a full deal with the U.S. and proceed to draft the text. The other way is, Canada can say they agree with the core terms of the current agreement in principle but they need additional time to work out their issues.”
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Ujczo explains that if Canada chooses the second option, there is a 30-day period for revision before the full text of the agreement has to be published at the end of September, in which Canada can “work out the details.”
Canada can also choose to not join the agreement on Friday, but, Ujczo warns, “That opens up a whole Pandora’s box of issues,” and there is speculation that it may not be legal to pursue a deal that doesn’t include Canada.
Trump has threatened that if Canada does not accept the deal by Friday then he will slap auto tariffs on Canada.
The contentious issues
There are a number of issues within the agreement that Canada and the U.S. have to work out, which include dairy, the auto industry, intellectual property, Chapter 19 — the dispute resolution mechanism — and the sunset clause.
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Concerning dairy, Canada has in place supply-management policies that give preference to Canadian farmers. The U.S. has pushed for Canada to reduce tariffs on dairy products, but Carleton University political science professor Laura Macdonald says that doing so would have political repercussions for Justin Trudeau, due to the dairy industry’s importance in Quebec.
Chapter 19 is a guideline for dispute resolutions that has been a contentious issue between the U.S. and Canada in the past, and which Canada has previously said is “a line in the sand” for them, says Macdonald.
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The sunset clause, which would force renegotiation of the deal every five years, has been an issue in NAFTA negotiations in the past due to it taking away stability from the agreement.
However, the U.S. and Mexico have agreed to a new softer clause that will have the deal come up for review every six years, with the deal not expiring until after 16 years, as revealed by public documents released by the U.S. Trade Representative.
Including Canada is in Trump’s favour
A Friday deadline leaves very little time to sort out these issues, causing both Macdonald and Ujczo to admit that it is unlikely that a comprehensive deal will be reached by Friday.
“I think the most likely scenario is Canada will agree to join the notice Friday, with the caveat that there still are a number of issues that need to be dealt with in that 30-day period,” Ujczo predicted.
Macdonald pointed out that these “artificial timelines” have been set before in the NAFTA negotiations, and are used as a negotiating technique to place pressure.
“I think it is all theatrics on part of Trump administration,” she said. “I think they won’t be able to reach a deal by Friday, but they can say they are close to a deal and keep on talking.”
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If “Pandora’s box” is opened and a deal cannot be reached with Canada, it would spell trouble for Trump. Both Congress and Mexico have said they want a trilateral deal, according to Macdonald, and a bilateral deal would likely face opposition in Congress.
With midterm elections on the horizon in the U.S., the pressure is on Trump to make a deal before then.
“It is easier to get a deal with Canada than without,” said Macdonald.