The summary of the speech of the Québec’s Chief Negotiator Raymond Bachand on the complex renegotiation of NAFTA, at the opening of the International Summer School "Law and Bilateral Trade: North America-Europe" at the Université de Montréal.

 

*Francesco Maria Froldi

Raymond Bachand, Chief Negotiator of Québec as part of the renegotiation of NAFTA / ALENA, opened last May, the third edition of the International Summer School “Law and Bilateral Trade: North America-Europe” at the Université de Montréal, organized in collaboration with the University of Milan on trade policy issues international and the relations between the European Union and North America.  

The renegotiation of NAFTA/ALENA is one of the most sensitive dossiers of global international politics: the free trade agreement concluded between the United States, Mexico and Canada, and entered into force on 1st January 1994, is currently undergoing a difficult and uncertain renegotiation, strongly supported by the American President Donald Trump.  

Bachand's intervention focused on the main problems of renegotiation that see him at the forefront as a representative of Québec in provincial and federal bodies, in order to defend the interests of the Canadian Province during the renegotiation talks to be launched in mid-August. Former member of the National Assembly of Québec (MNA) for the leadership of Outremont and leader of the Québec Liberal Party Caucus, Raymond Bachand was Minister of finance and Government revenue of Prime Minister Jean Charest.  He also served as Minister of Tourism between April 2007 and December 2008, and Minister of Economic Development, Innovation and International Trade until June 2009. 

Since last February 2018 he had been called as Special Advisor to the provincial Government regarding the North American free trade agreement. 

 

"THE MAIN PROBLEMS OF THE RENEGOTIATION OF THE NAFTA / ALENA TREATY"

Summary of speech by Raymond Bachard at the opening of the International Summer School “Law And Bilateral Trade: North America – Europe” at the Université de Montréal

 

NAFTA: THE ANCESTOR OF FTAs

The North American Free Trade Agreement (NAFTA), the free trade agreement concluded between the United States, Canada and Mexico, facilitates the free movement of goods, commodities and services between the three signatory countries with the progressive elimination of customs tariffs and duties, also creating a zone of facilitated mobility for workers.

After repeatedly placed at the center of his campaign the alleged damage created by Nafta to the United States, Trump is elected President of the United States and, with faith to campaign promises, sends a letter to Congress and request renegotiation and giving away to the round of negotiations. 

And charging the responsibility of the trade deficit between Mexico and USA and the loss of 800 jobs in USA for the benefit of Mexican labor force, Trump has called repeatedly Nafta as   "the worst trade agreement in the country's history". Nevertheless, the most recent studies indicate that about nine and a half million Americans today have a job thanks to the exchange of goods and services with Canada, whose value amounts to 635 thousand $ US.  

 

THE RENEGOTIATION

The renegotiation of the Treaty involves about thirty chapters, each relating to a specific subject area¹. In May 2018, seven negotiating tables were opened, the last scheduled in Washington following the ministerial discussions in April. 

Some chapters (anti-corruption, competition, regulatory cooperation, sanitary and phytosanitary measures, publication and administration, small and medium-sized enterprises) are consolidated and others have been achieved substantial progress (IT, telecommunications, technical barriers to trade). However, about ten chapters still pose problems and prevent the closure of negotiations. 

In particular, the negotiation of three elements makes uncertain the outcome of discussions:

1. The exaggeration of the number of claims for compensatory rights. These are the additional anti-dumping duties imposed by an importing country to offset government subsidies in the exporting country, in cases where the subsidized imports are causing material injury to the domestic industry of the importing country. 
2. Global investigations on steel and aluminum have led the US to request the introduction of new duties of 25% and 10%. The governments of Ottawa and Mexico City immediately promised trade retaliation against the United States by defining these duties as "totally unacceptable" and an "affront" to the North American alliance.
3. The important regulatory reforms introduced by the Trump administration, including that relating to federal taxation.   

 

U.S. REQUESTS

There are many proposals brought (and somehow imposed) by the American administration to the negotiating tables, including:

• the introduction of a "sunset clause", in other words the agreement would remain valid indefinitely, but would expire after five years, leaving open the possibility for its members to renegotiate or get out; 
• the increase in the de minimis threshold -  the threshold under which there is a complete exemption from customs duties - on technological and electronic products from $ 20 to $ 800 which would make it more difficult for Canada and Mexico as for all other countries 'WTO (being lower in the WTO expected) access to the US market;
• the elimination of the quota system that protects the tariffs of dairy products, poultrymeat and eggs by the Canadian administration, whose objective is to prevent market fluctuations, while not based on a system of public subsidies (contrary to the system present in the EU and regulated by the CAP);
• the non-introduction of the chapter on the settlement of disputes between investor and state, which would leave the US sovereignty in matters of litigation. According to the experts, the introduction of this chapter would entail greater security in the event of a dispute and therefore an increase in investments (avoiding political influences and / or corruption sometimes possible in the course of international arbitrations).

The real balance seems to be also the penalization of car imports in the USA, through the introduction of a duty that could rise up to 25% of the value of the product. Achieving this goal, to the detriment of allies such as Europe, Canada and Mexico, would allow the United States to win a dangerous political tug of war. Until the question of duties on cars is resolved, according to Bachand, NAFTA will remain in the limbo of political and legal uncertainty.

 

THE POSITION OF THE THREE COUNTRIES IN RENEGOTIATIONS

Canada, Mexico and the United States are the three international legal entities signing NAFTA.

Canada is a federal state composed of 13 between Provinces and Territories. The competence to negotiate, sign and ratify an international agreement lies with the federal executive alone, while the internal application of the Treaties is sometimes the responsibility of the federal government, sometimes the provincial government, depending on the division of jurisdiction under the 1867 constitutional law (Art. 91- ninety two). In the international negotiation of NAFTA, and in its current renegotiation, Canada decided to conduct negotiations only after having summoned the representatives of the Provinces to Ottawa, being thus certain of being the spokesperson before the USA and Mexico of a shared Canadian position².

Mexico is certainly a big beneficiary of NAFTA, considered among the main catalysts of the development, growth and economic stabilization of the country. As "Low Cost Producer", Mexico has the advantage of attracting investment and exporting cheap labor. In the current phase of renegotiation, it strongly calls for the introduction of a new chapter that regulates anti-corruption policies.

With Canada, Mexico would be ready today to finalize the negotiations. Nevertheless, the US is blocking the negotiations. The confusion and contradictions that characterize the Trump administration in this area are primarily due to the divisions within it, between the supporters of protectionist policies and those who remain on more moderate positions, as well as the presidential desire to obtain changes to the free trade treaties in force and to rebalance the American trade balance thanks to Washington's economic and military “persuasion”. 

Some voices argue that even the US negotiator in chief knows the limits of his mandate, so he is not able to take clear positions towards the two political partners. It is therefore not difficult to believe in the hypothesis of a possible withdrawal of the US from the agreement repeatedly threatened by President Trump himself.

 

THE HYPOTHESIS OF A WITHDRAWAL

The hypothesis of a US withdrawal from Nafta has led to a dramatic collapse of investments in the North American territory. But would such a hypothesis be true? Nothing prevents a State from withdrawing from an international agreement such as NAFTA. However, even if US law allows an American president to act on tariffs without going through Congress - for the sole purpose of preventing a risk to American national security (it is the case of the increase in duties that Trump would impose on cars, steel and aluminum) - An American president cannot decide to withdraw from an international agreement without giving six months' written notice to Congress. It remains uncertain the ability of the President to withdraw from NAFTA without Congress and, if necessary, in the absence of authorization.

Equally uncertain are the developments of a possible withdrawal, regarding the legislative measures that could be taken (or not) to modify or restore the internal equilibrium of NAFTA. Parliament and Congress would be obliged to adopt the necessary laws to fill the gaps left by the withdrawal, while tariffs and customs duties would return to the rates set by the WTO (with the exception of Canada-US relations that would return to be regulated under international law of the oldest bilateral ALE agreement). However, with the exception of the American President, it seems that no Senator is so hostile to NAFTA as to deny its renegotiation and its continuation. The imminent renewal of the Congress and about a third of the Senate in any case removes the possibility of an immediate withdrawal of the US from the NAFTA.

What seems to be certain is that the NAFTA would remain in force until any official measures taken by the United States, which in any case would no way affect the validity of the agreement between Mexico and Canada. NAFTA is an agreement that “exists and will continue to exist”.

 

THE RISK OF WEAKENING OF NAFTA

Despite Trump's position expressed during his election campaign, the real danger looming on the economies of Canada and the US is not the slow development of Mexico, but rather the rapid growth of economic competition (more or less loyal) of certain international markets, first of all the Chinese market. 

Trump's attempt to reverse the decline of the US international position, through the subversion of the consolidated economic and commercial frameworks, is in fact likely to be counterproductive, isolating the US itself and threatening its economy. In an historical moment in which Asia appears to have no rivals in terms of technological competitiveness and cheap labor, the alliance of industrialized countries is even more necessary and guarantees a single access to the entire North American region by investors.

Canada has recently taken a highly open commercial strategy to other markets. One example is the negotiation of the CETA / AECG between Canada and the European Union, a treaty applied provisionally today, waiting for all EU member states to ratify it according to national procedures, concerning the access of goods, services and goods to a market of 500 million people that reaches 20% of world GDP. Canada is today the only country where investors will have easy access to the European and North American markets thanks to the free trade agreements (NAFTA and CETA), having the opportunity to interact in an area that includes one billion people and represents almost 50% of world GDP.

*Researcher in Comparative Law

Université de Montréal

 

1 Agriculture, goods, rules of origin, customs procedures, energy, anti-corruption, sanitary and phytosanitary measures, public markets, investments, technical barriers to trade, regulatory cooperation, services, telecommunications, IT, temporary entry, competition, financial services, monopolies and companies of state, intellectual property, labor, environment, chapter 19 (which includes commercial appeals), regulation of disputes, institutional provisions (which include culture), gender equality, commerce and indigenous peoples.

2 The same cannot be said of the negotiations between Canada and the EU concerning the CETA / AECG, which have now been concluded, which have seen on the one hand the negotiator at the head of the European Union and on the other the various representatives of the Canadian Provinces and Territories. This decision, proposed by the European Commission, aimed to guarantee access to the markets of the individual Canadian regions, without the risk of a possible non-application of the Agreement at the local level.