It’s been quite a week

So the week, which I suggested would be interesting, is over and where do we stand on NAFTA?

Before mid-week, Minister Freeland made her way to Washington, amid reports that 3XTV6WXXRRE4BKOJMRSMRP3IFMPresident Donald Trump was infuriated by a major foreign policy speech delivered by Foreign Affairs Minister Chrystia Freeland in Washington D.C. in June of this year,” as Mercedes Stephenson of Global News told us,  which is on top earlier reports that US Trade Representative Robert Lighthizer, who is a hard-liner but not a fool, took serious offence to Canada’s so-called “charm offensive” which appeared to him, to be more of an attempted end run around the negotiating process. Then, the Globe and Mail, said, on Tuesday, that “Ottawa is ready to make concessions to the Trump administration on Canada’s protected dairy market in a bid to save a key NAFTA dispute-settlement system, preserve safeguards for cultural industries and avert tougher pharmaceutical patent protections … [and] … That compromise could end the year-old talks, but at a heavy cost. The federal government has committed more than $4-billion to the country’s dairy farmers to buy the lobby’s acquiescence on concessions in previous trade deals … [but] … the concession may be not enough. Canada tried to offer the United States more dairy market access in May as part of a North American free-trade deal, only to be rebuffed.

On Wednesday, we learned that Donald Trump had set a deadline  ~ Friday ~ and we also read, in an opinion piece by  Konrad Yakabuski in the Globe and Mail, that while, just “a year ago, Foreign Affairs Minister Chrystia Freeland was touting her relationship-building skills with her Mexican and U.S. counterparts on the NAFTA file as proof she was the right person to pilot the Trudeau government’s efforts to save the continental free-trade agreement … [but] … This week, Ms. Freeland’s so-called friends happily threw her under the bus as Mexican Foreign Minister Luis Videgaray and Economy Secretary Ildefonso Guajardo negotiated a bilateral U.S.-Mexico trade deal that gives ground on several key Canadian priorities. And despite all the diplomatic niceties about hoping Canada signs on, Mexico is quite prepared to bid us adios.

Kondrad Yakabuski opined, on Wednesday, that “While Mexican negotiators were breaking out the champagne, Canadian officials were insisting that our absence from the party had nothing to do with a clash of personalities. You would hope that g7-summit-20180608to be true; that any decision to exclude Canada from the talks did not stem from anything as petty as the personal dislike of top U.S. negotiator Robert Lighthizer and U.S. President Donald Trump for Ms. Freeland and her boss, Prime Minister Justin Trudeau … [which is something I mentioned above] … Yet, we know enough about Mr. Trump to realize that operating out of personal spite or enmity is what he does best. You only had to witness his graceless reaction to the death last week of Republican Senator John McCain – one of the President’s fiercest critics who voted against Mr. Trump’s failed attempt to overhaul Obamacare – to take the measure of his smallness …[and] … From Day 1, Ms. Freeland and Mr. Lighthizer were bound to clash. She is a proud proselytizer of the so-called Davos consensus that sees globalization as a good thing that allows high-minded elites to gather in exclusive enclaves to promote inclusive capitalism all while hobnobbing with their billionaire friends. He is an old-school negotiator who sees global trade as a zero-sum game and shares Mr. Trump’s belief that his country has been getting hosed … [but] … By June, Mr. Lighthizer had had enough lectures on Canada’s “progressive trade agenda” to exclude Ms. Freeland entirely from the talks. While Mr. Videgaray was courting Team Trump – the Wall Street Journal reported this week that the Mexican Foreign Minister has visited the White House about 45 times since Mr. Trump took office – Ms. Freeland was taking swipes at the very U.S. administration she was tasked with softening up … [thus] … The result is that Canada is now before a fait accompli – an extremely flawed U.S.-Mexico deal – that it must somehow try to both fix and join without blowing the whole thing up. And it must do all this by Friday or risk being sidelined on trade for the duration of the Trump presidency.

He concluded that “To say that Canada has been out-negotiated up to this point is an understatement.

On Thursday the Globe and Mail‘s Michael Badad was giving us the odds (courtesy of RBC Global Asset Management’s chief economist Eric Lascelles, as being “a 45-per-cent chance of compromise, which would see NAFTA “weakened but still functional,” and with a “modestly negative” economic impact, though the uncertainty surrounding talks would be put to rest … [and] … 15-per-cent odds to killing the deal outright, which could mean Canada and the U.S. operate under the World Trade Organization tariff regime. In turn, that would mean higher costs and supply-chain issues given the integration of businesses … [and, similarly] … a “U.S. wins” scenario gets 15 per cent, which would see NAFTA “defanged.” The impact would be negative and, Mr. Lascelles said, the result could be “possibly worse than killing NAFTA depending on how substantially [the pact] is undermined” … [and] … There’s a 25-per-cent chance of nothing changing. That would see the Trump administration getting nowhere, its “bluff called,” with Congress “disinclined” to alter the existing trade pact. That, Mr. Lascelles said, would mean uncertainty lingers, but with no protracted impact … [and, finally] … 1-per-cent odds to a more modern agreement, with a “mix of neutral and good changes,” with, really, little impact.”Mr. Lascelles says that means we have (as of Thursday) “a 60-per-cent chance of a new NAFTA deal (though split between a 15-per-cent chance of the U.S. ‘winning’ via additional embedded protectionism versus a 45-per-cent chance of a more mixed compromise deal), against a 15-per-cent chance of the trade zone being torn apart, and a 25-per-cent chance that the existing NAFTA ultimately survives.

But, also on Thursday, the CBC did manage to find a couple of  experts who actually praised Team Trudeau’s approach. Christopher Sands, for example, who is the director of the Centre for Canadian Studies at Johns Hopkins University in Baltimore, makes the quite reasonable point that “Trump has been unlike other U.S. presidents, who have typically respected the Canadian-U.S. relationship and tried to work things out because the two countries are neighbours, friends and have a long history together … [but] … “With Trump, it counts for nothing, What Trump focuses on is, ‘I’m big; you’re small. You need me more than I need you, so I’m going to lay out the terms, and you’re going to buy it.’ That’s unprecedented. But is that Trudeau’s fault?”

Late Thursday evening the Globe and Mail reported that “Canadian and U.S. negotiators are focusing on a key trade-dispute resolution mechanism and provisions for increased American dairy exports to Canada ahead of a Friday deadline imposed by U.S. President Donald Trump to reach a NAFTA deal, sources close to the talks say … [and] … Although Foreign Affairs Minister Chrystia Freeland said on Thursday a deal is possible, officials cautioned that Mr. Trump has not yet signed off on any of the measures agreed upon so far and he could reject any trade-dispute mechanism that Canada considers essential to a final outcome … [and, further] … Mr. Trump set a deadline of Friday for Canada to join a preliminary accord with the United States and Mexico and plans to leave for the presidential retreat at Camp David early in the afternoon, putting added press.” But the Washington Post cautioned us that while “President Trump is telling Canadian officials they have until Friday to sign on to his major new North American trade deal, threatening to leave them behind, rip up the continent’s existing trade pact and even, possibly, hit Canada with draconian auto tariffs … [but] … according to Congress, foreign officials and even members of Trump’s own administration, Friday isn’t the drop-dead deadline for Canada that the president is suggesting … [because] … On Friday, Trump plans to send a letter to Congress notifying it of an impending trade deal, which he’s terming a replacement for the North American trumpd-k2CF--621x414@LiveMintFree Trade Agreement (new name to be determined). He wants to send a letter because it starts the clock on the 90-day notice that U.S. trade law requires Trump to give Congress before he can sign any agreement … [and] … Getting that window started by Friday matters to Trump, because he wants to get a deal done by Dec. 1. That’s when Mexican President Enrique Peña Nieto will step down to make way for President-elect Andrés Manuel López Obrador. López Obrador has had representatives at the U.S.-Mexico trade talks, but Trump doesn’t want to risk the new Mexican administration balking at a deal his team brokered with the old one … [because] … Trump already has what he needs from Mexico to give notice to Congress: The two countries Monday announced a “preliminary agreement in principle.” That is, essentially, a deal to make a final deal later. It’s not the full NAFTA renegotiation he promised, but it’s probably enough to satisfy Republican leaders in Congress and get the 90-day clock started.” In other words, it appears that President Trump has Minister Freeland and her team dancing to his tune.

515099443-612x612One thing that has puzzled me is: where is Canada’s Simon Reisman? Remember when Canada was negotiating the original Canada-US Free Trade Agreement? Sure, Prime Minister Mulroney and President Reagan did some ceremonial photo ops, and yes, there was a critical, last minute phone call to cement the deal, and sure powerful Ministers like Michael Wilson and Pat Carney went to some meetings but Simon Reisman, a retired very senior civil servant was ‘Captain Canada:’ facing off, day after day, with the US trade team and, eventually, bringing a good deal to fruition. Canada has a chief negotiator now … can anyone name him? It’s Steve Verheul who is a seasoned negotiator who has plenty of experience hammering out major trade deals — he was the chief negotiator for CETA, Canada’s chief agriculture negotiator from 2003 to 2009 and even had a hand in NAFTA when he worked at Agriculture and Agri-Food Canada. And, in our embassy in Washington, serving as a special deputy ambassador, there’s Kirsten Hillman, another veteran trade negotiator who was Canada’s chief negotiator on the TPP and most recently served as an assistant deputy minister at Global Affairs, where she helped ratify CETA. So why is Minister Freeland front and centre? Why aren’t the professionals, men and women who Robert Lighthizer may not like but doubtless respects for their acumen, our front?

On Friday morning the Toronto Star revealed that “High-stakes trade negotiations between Canada and the U.S. were dramatically upended on Friday morning by inflammatory secret remarks from President Donald Trump, after the remarks were obtained by the Toronto Star … [and] … In remarks Trump wanted to be “off the record,” Trump told Bloomberg News reporters on Thursday, according to a source, that he is not making any compromises at all in the talks with Canada — but that he cannot say this publicly because “it’s going to be so insulting they’re not going to be able to make a deal.”” Further, the report by Daniel Dale, the Star’s Washington Bureau chief, states “In another remark he did not want published, Trump said, according to the source, that the possible deal with Canada would be “totally on our terms.” He suggested he was scaring the Canadians into submission by repeatedly threatening to impose tariffs … [and Trump added] … “Off the record, Canada’s working their ass off. And every time we have a problem with a point, I just put up a picture of a Chevrolet Impala,” Trump said, according to the source. The Impala is produced at the General Motors plant in Oshawa, Ontario.

Trump,” the report concludes “made the remarks in an Oval Office interview with Bloomberg. He deemed them off the record, and Bloomberg accepted his request not to reveal them.” But someone leaked that story … likely not someone from Bloomberg so, perhaps, someone from within the White House? By Friday afternoon President Trump appears to be ‘doubling down’ on his off the record comments …

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… which might be just the excuse Prime Minister Trudeau needs to walk away from the negotiations without being crucified in Canada for “losing” NAFTA. He can always say that President Trump was never negotiating in good faith and that Canada was being set up by a devious and dishonest Donald J Trump.

Also on Friday morning the Globe and Mail reported that “Talks between Canadian and U.S. trade negotiators turned sour last night and Trudeau government officials are now expressing concern that a final NAFTA deal will not be concluded on Friday, the deadline set by U.S. President Donald Trump.

Despite repeated efforts by Foreign Affairs Minister Chrystia Freeland to offer concessions to maintain an independent trade dispute mechanism in a revamped trade deal,” the Globe and Mail report says “U.S. Trade Relations Representative height.576.no_border.width.1024Robert Lighthizer has refused to budge, according to a source familiar with the situation … [and] … The source said Mr. Lighthizer and the U.S. are holding fast on eliminating Chapter 19 – which allows Ottawa to challenge punitive American tariffs on imports before binational panels – and refusing to keep current cultural protection provisions in a redrafted North America free-trade agreement … [it appears that] … Ms. Freeland, who said on Thursday a deal is possible, had offered the Americans concessions on increased U.S. dairy exports to Canada and on intellectual property, but Mr. Lighthizer was unwilling to offer any concessions of his own on the two key Canadian demands … [and, therefore] … There is now deep concern within the Canadian negotiating team that the talks which continue this morning will end in failure.

Then, on Friday afternoon, at about 4:00PM, we learned that “Canadian and U.S. officials have agreed to take a weekend break from NAFTA talks after a week of tense negotiations in Washington and comments from U.S. President Donald Trump suggesting he is unwilling to compromise on a deal … [and] … Foreign Affairs Minister Chrystia Freeland told reporters she’s optimistic a deal is still within reach, but “we’re not there yet.”

Jonathan Kay, writing in Foreign Policy, a prestigious US journal, summed it up: “The standalone trade deal negotiated by Mexico and the United States this month shows Canadians the truth of not one but two adages—Lord Palmerston’s observation that “nations have no permanent friends or allies, they only have permanent interests,” and the age-old proverb that “no good deed goes unpunished” … [because] … When Mexico-bashing and wall-building dominated U.S. President Donald Trump’s Twitter feed last year, Canadian Prime Minister Justin Trudeau and Foreign Minister Chrystia Freeland nobly insisted that they wouldn’t sell out Mexico by negotiating any bilateral replacement for the three-way North American Free Trade Agreement (NAFTA) that has been in place since 1994—a show of Canadian-Mexican solidarity that harkened back to the Three Amigos summit of 2016. At the time of this good deed, it was imagined (not unreasonably) that Mexico ultimately would bear the brunt of Trump’s protectionist ire, with Ottawa playing the role of honest broker, earnestly applying Canada’s negotiating clout to demand a fair deal for a poorer country.” Of course it all went south, as Mr Kay explains, because of President Trump’s mercurial temperament and his seemingly deep, personal animosity towards Justin Trudeau. Jonathan Kay says that “it was Mexico, not Canada, that took the opportunity to assert its interests by selling out a national amigo. “There are things that we don’t control, particularly the political relationship between Canada and the U.S., and we definitely don’t want to expose Mexico to the uncertainty of not having a deal,” is how Mexican Foreign Affairs Secretary Luis Videgaray Caso gingerly spun the decision. “Not having a trade agreement with the U.S., that’s a substantial risk to the Mexican economy. Literally millions of jobs in Mexico depend on access to the U.S. market” … [and] … As for Trump, he is now calling this deal “the United States-Mexico Trade Agreement.” He has also been threatening Ottawa with a 25 percent tariff on its auto exports if no Canadian deal is reached, a move that experts predict would cost 160,000 jobs, push the country into recession, and massively devalue the Canadian dollar.” But Mr Kay is cautiously optimistic because:

  • The US Congress might decide that a US-Mexico trade deal is insufficient and stall it;
  • The “new” NAFTA might actually work to Canada’s (at least to the auto sector’s) advantage; and
  • President Trump’s bullying has given Prime Minister Trudeau considerable political cover. people will forget that Trudeau’s virtue signalling got us into trouble and will, instead, see him as a brave “little guy” standing up to a big, bullying braggart.

Finally, on Saturday, President Trump said this …

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… so we do, indeed, know where he stands.

All in all, it’s been quite a week: NAFTA lives! Saved, for the moment, perhaps, by President Trump’s own deceit and bullying. And, somewhat paradoxically, President Trump may have rescued Prime Minister Justin Trudeau and Foreign Minister Chrystia Freeland from the public, political opprobrium they both so richly deserve for having played imagespartisan domestic politics with Canada’s most important and valuable trade deal. My guess is that Robert Lighthizer thought, until Friday morning, that he and his team had Canada over a barrel … I suspect that the Canadian trade professional, people like Steve Verheul and Kirsten Hillman agreed. Then came the leak and it seems that Canada was able to escape, at least until Wednesday, through the door that Donald Trump, himself, opened for us.

I have worried, almost since I began this blog, that Prime Minister Trudeau would be unwilling or unable to negotiate successfully because there was too much domestic political pandering and posturing and too little serious negotiating. I believe that Ms Freeland and Prime Minister Trudeau both misunderstood President Trump and Ambassador Lighthizer and, in fact, continue to misunderstand America, itself. There is still time to salvage this agreement, but I agree with Lawrence Martin who writes, in the Globe and Mail, that “If it’s not clear by now, it should be. The “win-win-win” that Foreign Affairs Minister Chrystia Freeland keeps talking about at NAFTA negotiations isn’t going to happen … [and] … The best Canada can hope for is to contain the losses. If our negotiators don’t set their sights lower than win-win-win, more fire from Donald Trump’s gunboat diplomacy is likely, possibly in the form of his threatened 25-per-cent auto tariffs.

On NAFTA,” Lawrence Martin says, and I agree, that “the Mexicans had to make concessions to get a deal and got one they can live with. They did so behind Canada’s back in separate negotiations. They gave up the existing dispute-settlement mechanism that, for Canada, is a key component of NAFTA. But since the Americans got rid of it with Mexico, why would they reinstate it for the other NAFTA member?” Canada needs to budget for some really, really skilled American trade lawyers to defend our positions in front of US courts.

I also agree, 100%, with Konrad Yakabuski who writes, also in the Globe and Mail, that “The time for paying lip service to Canadian dairy farmers has come to an end. Opening Canada’s milk-products sector to more U.S. imports would be a small price to pay for preserving an independent dispute-resolution mechanism. To be sure, the timing isn’t perfect, with a Quebec election campaign under way and party leaders of all stripes vowing to fight tooth and nail to protect the province’s 5,400 dairy farmers. But Ottawa should not be deterred by the political theatre going on in Quebec.

But Mr Yakabuski makes a more important point: “regardless of where they stand ideologically, all U.S. presidents are politicians. Mr. Reagan and Mr. Bush faced the MULRONEY/REAGAN  TRIPsame political exigencies as Mr. Trump does now in signing a deal that he can sell to both his base and members of Congress. If Mr. Reagan and Mr. Bush went 50469038-612x612out on a limb to meet Canada’s demands – particularly for a dispute – resolution mechanism independent of U.S. courts – it was in large part because both considered Mr. Mulroney a friend who would have their backs when needed.” As I said, back in November, 2016, Canada needed, then, to “do what it takes to get on and stay on the “right” side of the USA … [and I suggested that we should, inter alia] … scrap the carbon tax, tone down the green agenda, tighten immigration control, starting with visas for Mexicans, stop funding anti-American UN  agencies like the UNRWA, increase defence spending, and the list could go on and on and on.” In fact Justin Trudeau did the reverse and it seems, to me, quite clear that President Trump doesn’t consider Mr Trudeau to be a friend who can be trusted … now, it’s not clear that President Trump trusts anyone, at all, but, in my opinion, the Trudeau government has gone out of its way to alienate many friends and allies, especially the USA. That’s amateurish diplomacy and dangerous policy as Canadians may learn in the coming weeks.

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