NAFTA negotiations will include delicate ‘deal breaker’ issues

After months of speculation and political positioning, Canada, the United States and Mexico will sit down this week to start hashing out a “modernized” North American Free Trade Agreement.

What that actually means is still to be determined. Most of the specifics will likely be kept guarded — only for eyes within the trade negotiating room until if and when a deal is reached.

That doesn’t mean we don’t have some idea what the sticking points might be.

In their list of priorities presented to U.S Congress this summer, American trade officials said they want to eliminate Chapter 19, which focuses on dispute resolution.

Under NAFTA, countries can take trade disputes to a NAFTA panel, which is a third-party body that falls outside of domestic courts. Canada has used it repeatedly for issues such as softwood lumber disputes, which Canada has won every time.

Canadian bureaucrats have said they are mulling using the NAFTA dispute panels in the ongoing softwood lumber dispute with the U.S., where resolution remains elusive.

Eliminating Chapter 19 is a longstanding deal breaker for Canada. The original Canada-U.S. free trade agreement, which evolved into the current NAFTA deal, would not have happened without it.

Foreign Affairs Minister Chrystia Freeland and Prime Minister Justin Trudeau have said repeatedly the agreement must include a dispute resolution mechanism. Freeland is responsible for Canada-U.S. trade.

“It was during the initial FTA negotiations in 1987 that the late, great Simon Reisman walked out, pulled home by his PM over the Reagan administration’s initial refusal to agree to binding binational review of anti-dumping and countervailing duties,” Freeland said in an Aug. 14 speech at the University of Ottawa.

“Our government will be equally resolute. Just as good fences make good neighbours, strong dispute settlement systems make good trading partners.”

In other words, it was a deal breaker then and it’s a deal breaker now.

Dispute resolution isn’t the only file Canada is planning on digging its heels in on.

Ottawa is not backing down from its promise to defend Canada’s supply management system. Dairy in particular has found itself in American crosshairs with several high profile American trade officials, including U.S. Agriculture Secretary Sonny Perdue, singling out the file.

The U.S. has an “extensive web” of supports for its dairy industry, Freeland told the House of Commons trade committee Aug. 14. Dairy trade between the U.S. and Canada is currently five to one in favour of the Americans, she said.

“I would call that a pretty good deal.”

Freeland did not say how she plans to ensure Canada weathers what is expected to be a significant fight on the dairy front while guaranteeing ongoing access for export dependent agriculture.

Nor did she say whether Canada would walk away from the negotiating table if dairy concessions were demanded.

She did promise to keep working on regulatory harmonization to try and alleviate red tape, which is a key demand from Canadian and American farm groups.

Talks officially start Aug. 16 in Washington with seven rounds of negotiations planned, three weeks apart, in the U.S., Canada and Mexico. (The hope is to have the renegotiation wrapped up by early 2018, before the Mexican presidential election.)

It’s an ambitious timeline, one that could easily be threatened if negotiations sour.

Even Freeland has said the looming negotiations are a “delicate” file to handle.

“Modernizing an existing agreement — particular one such as NAFTA, which is so foundational for our economy — is more like renovating your house while you’re still living in it,” she told attendees at the University of Ottawa.

It’s safe to say those watching the file are hoping the house doesn’t fall down in the process.

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