Now that the dust has settled

Following on from Bruce McKinnon’s neat summary of the USMCA, just below, a few days ago I posited that the new USMCA was “not a catastrophic defeat” for Canada, but I did add some comments about §32.10, which comprises seven paragraphs on p. 32-11 of the US text of the agreement. It’s a bit legalistic but, as I read it, paraphrasing it slightly: “At least 3 months prior to commencing negotiations, Canada shall inform Mexico and the USA of its intention to commence free trade agreement negotiations with China … [and] … if Canada enters into a free trade agreement with China, it shall allow the USA or Mexico to terminate this Agreement on six-month notice and replace this Agreement with an agreement as between them (bilateral agreement) … [and] … The bilateral agreement shall be comprised of all the provisions of this Agreement, except those provisions Canada and the USA decide are not applicable as between them.” Theres more, of course, but it seems, to me, to say that if, for example, Canada and China decide to do a free(er) trade deal then the USA can terminate the USMCA and replace it with a new deal that will, for example, not allow goods traded into Canada from China to enter the USA, even as parts of Canadian made goods, without tariffs.

There are two articles in the Globe and Mail that touch on this in greater detail:

  • Wenran Jiang, who is a senior fellow at the Institute of Asian Research, School of Public Policy and Global Affairs at theUniversity of British Columbia says thatIf you are looking for a 21st-century version of the 19th-century colonial-era unequal treaty between nations, look no further than the recently announced United States-Mexico-Canada Agreement … [because] … Under the U.S.-imposed deadline and relentless public humiliation, Prime Minister Justin Trudeau and his cabinet caved in and signed away a vital part of Canadian sovereignty to the United States.” He takes that view because, as he says, “Contrary to Mr. Trudeau’s vague assurance that the article has very little effect, Canada is no longer free to pursue a free-trade agreement (FTA) with China under USMCA. Ottawa now must notify other USMCA partners if it just intends to pursue a trade deal with a “non-market economy” (code name: China.) And Canada has no independence to classify China as a free-market economy, as Australia or New Zealand did when they negotiated FTAs with China. That sovereign right has now been given to Washington: If the United States determines that China is a non-market economy, it is a non-market economy. International standards such as those of the World Trade Organization do not apply. Canada’s position does not matter … [and, then] … If Canada insists on negotiating a FTA with China, the United States will have the final say on whether it can proceed. Ottawa must supply Washington with all the details of the negotiation, and submit the potential agreement for review 30 days prior to signing. And if our southern neighbour does not like it, it can use the termination of USMCA as a threat with six-months notice. Given the stake of Canada’s reliance on the U.S. economy, our chance of completing a FTA with China under the U.S. objection is surely zero.” If Dr Jiang is correct then Canada has, indeed, signed away its sovereignty to Donald J Trump’s America and we have, as I have said before, gone from ‘Colony to Nation,’ as Arthur Lower put it, ‘And Back to Colony.’
  • In another article, Stephen Chase, Rover Fife and Laura Stone report that “The Chinese government is denouncing provisions in the proposed U.S.-Mexico-Canada trade deal that would place restrictions on Canada’s ability to negotiate a free-trade deal with China, calling it a “hegemonic action” that “blatantly interferes” with another country’s sovereignty … [and] … A spokesman for the Chinese embassy in Canada also said Beijing will not be deterred from striking trade deals where possible. “No matter how other countries adopt trade-restricting actions against China, China will consistently pursue opening-up at its own pace and continuously [carrying] out mutually beneficial and win-win economic and trade co-operation with countries worldwide,” Yang Yundong said … [and, further, when] … Asked for comment specifically on the provisions in the trade agreement, the Chinese embassy offered a carefully worded response. “We deplore the hegemonic actions taken by [one] country, which blatantly interferes with other countries’ sovereignty. We also feel sad for the harm of economic autonomy inflicted on the relevant country,” Mr. Yang said.

The second Globe and Mail article goes on to say that “University of Ottawa international affairs professor Roland Paris, who served briefly as Prime Minister Justin Trudeau’s foreign-policy adviser, expressed astonishment Canada would give the United States the ability to vet a bilateral free-trade deal with China … [saying] … “It is unusual to give another country a formal role in vetting a trade negotiation that they are not directly involved in,” he said in an interview. “There may be good reasons for us not to want to pursue a free-trade agreement with China, but that should be our decision entirely. It shouldn’t be based on a formal vetting of trade negotiations by a third country” … [but] … Mr. Paris said in practice he would expect any Canadian government to be consulting with Washington on the outlines of a trade agreement that could affect U.S. interests, but it is the “formalization of the role that I find unusual.”” That, to me, is the crux of: I agree with professor Paris that, in practice, Canada would always consult with the USA in order to discern that country’s interests in e.g. a Sino-Canadian trade deal, but §32.10 can be read as giving the USA more than just influence … some people see it as giving the USA a veto over Canada’s trade policies. And according to a report from Reuters, American Commerce Secretary Wilbur Ross “signaled on Friday that Washington may flex its muscle with additional trading partners in order to exert pressure on China to open its markets, saying that a “poison pill” provision in the recently completed pact with Canada and Mexico could be replicated.” So at least the what and wherefore is clear on one side of the border. Reuters says that “The provision in USMCA, which is expected to replace the North American Free Trade Agreement, effectively gives Washington a veto over Canada and Mexico’s other free trade partners to ensure that they are governed by market principles and lack the state dominance that is at the core of President Donald Trump’s tariff war against China … [and Wilbur Ross said] … ““It’s logical, it’s a kind of a poison pill.”

The same article says that “The Ontario government accused the Trudeau government of jeopardizing Canada’s sovereignty in the proposed USMCA … [but] … The Trudeau government played down the inclusion of Section 32.10. “Under the terms of the USMCA, any party may withdraw from the agreement for any reason, with six months’ notice. The provisions for non-market country FTA do not change this,” said Alex Lawrence, a spokesman for Foreign Affairs Minister Chrystia Freeland. “Nothing in this agreement would prevent Canada from deepening its trade ties with other countries.”” I wish I shared Minister Freeland’s confidence, but I don’t. However, “A senior Canadian official said the Liberal government believes the Section 32.10 clause – pushed by U.S. Trade Representative Robert Lighthizer – strengthens Canada in any trade negotiations with Beijing because it allows Canadian negotiators to reject proposals that would offend this country’s North American trading partners … [and] … The official said while Canada had not ceded any sovereignty to Washington, any free-trade negotiations with Beijing would have to be handled very carefully in the current circumstances, in which the United States has launched a trade war with China … [but] … the official stressed the agreement does not preclude Canada from doing a bilateral trade deal with China. Finance Minister Bill Morneau will hold preliminary trade and economic talks with senior Chinese officials in Beijing in November.” In other words, I think he’s saying that IF China wants a deal with Canada there is room to negotiate key elements quickly, in November, before the new USMCA comes into effect. That seems pretty thin gruel to me.

While the Trudeau regime says that nothing, really, has changed, a lot of people think that Canada has been snookered. The Economist notes thatFailure to join the deal struck on August 27th by Mr Trump and Mexico’s president, Enrique Peña Nieto, would have been a disaster for Canada. Two-thirds of its trade in goods, the equivalent of a third of GDP, is with its southern neighbour. Especially vulnerable to a rupture would have been 130,000 workers in Canada’s vehicles industry, almost all of them employed in Ontario. Without a regional deal, the auto-parts sector, which depends on cross-border supply chains, might have collapsed, says Kristin Dziczek of the Centre for Automotive Research in Michigan. That risk has now diminished. The Canadian dollar reached a four-month high of 78 cents on news of the deal … [but] … Mr Trudeau was expressing relief rather than enthusiasm. The agreement came after a breakdown in his relations with Mr Trump. It does not end the tariffs that the United States has slapped on steel and aluminium exports from Canada, Mexico and other countries. Nor does it end the threat that the United States will impose more tariffs on national-security grounds. Unlike NAFTA, the USMCA will be subject to review by its three signatories every six years, and can expire a decade after each review if any party wants it to. That puts the USMCA’s long-term survival at the mercy of politics. If free-trade agreements are a form of commercial disarmament, the USMCA introduces something like concealed carry … [and] … Such uncertainties will reinforce the determination of Canada and Mexico to diversify their trade relationships. But the USMCA makes that more difficult. It warns that if signatories make free-trade deals with “non-market” economies the agreement could be terminated. That is designed to discourage them from making agreements above all with China.” So others, outside of Canada, also see this as the USA asserting its power over Canada’s choices.

The Globe and Mail, again, in an editorial, says that “it is apparent that it [the USMCA agreement] came at a cost, perhaps temporary, to our sovereignty and independence. Prime Minister Justin Trudeau now needs to reassert that sovereignty and demonstrate to Canadians that Mr. Trump does not have a say in how we deal with China.” It is not clear to Good Grey Globe, and it is certainly not to me how he is going to do that but I agree with the Globe and Mail that it is a must do or Justin Trudeau will be known as the prime minister who surrendered our sovereignty to a loudmouth bully.

The dust is beginning to settle and this one aspect of the USMCA seems to be a whole lot more troubling than any others.


4 thoughts on “Now that the dust has settled

  1. Sorry Ted, but which is it again? Nothing changed? Or something changed? Something that will only last for 16 years before it needs to be renegotiated and is reviewed every 6 years.

    My own view is that Trump can be fairly characterized by his enemies as a braggart. If he were only that then he would be having no impact. For him to be a bully then he apparently is having an impact.

    As far as the deplorables are concerned, he may be a bully and a braggart but …. he is their bully and braggart.

    1. Good point, Chris: there is little substantial change from NAFTA in the USMCA … except on one ‘minor’ point: §32.10 which some people ~ not all ~ say is, in fact, a major threat to Canada’s sovereignty. John Ibbitson, in the Globe and Mail says that “The concessions Canada made in the proposed United States-Mexico-Canada Agreement to ward off those tariffs is treaty-by-extortion, pure and simple.”

      I think we are, now, seeing the outlines of the Robert Lighthizer/Wilbur Ross trade strategy: bully allies, friends and neutrals into siding with the USA against China.

  2. The loss of Sovereignty is unacceptable to me personally and I hope to the citizens of this country as well ah well maybe the politicians will reject it.

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