If Donald Trump kills NAFTA, Canada could benefit
We’d still have free trade. But U.S. corporations would no longer have the right to override Canadian law.
Donald Trump says he’ll tear up the North American Free Trade Agreement if he can’t renegotiate a better deal. That has spooked Canadians.
We should relax. We should take a deep breath. Depending on how it’s done, getting rid of NAFTA could work for us.
Even without NAFTA, goods could continue to flow tariff-free back and forth across the Canada-U. S. border. That’s because the original Canada-U.S. Free Agreement of 1989, which eliminated most of these tariffs, has never been repealed.
It was superseded by NAFTA in 1994. But it continues to exist. And should NAFTA be axed, it will automatically come into play again.
That’s the view of trade experts, such as Osgoode Hall’s Gus Van Harten. It is also the view of the government of Canada, as expressed through its ambassador to Washington, David MacNaughton.
So what are the differences between the FTA and NAFTA? One is that the earlier deal doesn’t include Mexico — which means that, so far at least, it is not on the U.S. president-elect’s hit list.
The second is that, unlike NAFTA, the original Canada-U. S. pact doesn’t allow foreign corporations to challenge Canadian laws.
This so-called investor-state dispute settlement mechanism has turned out to be the most controversial part of the three-nation trade and investment pact. American corporations have used it to override Canadian environmental and regulatory laws that they said interfered with profitability.
A 2015 study found that of the completed NAFTA disputes involving Canada, roughly half were decided in favour of the corporations.
Others never made it to the dispute-resolution stage because Canadian governments caved in.
By contrast, no Canadian corporate attempt to challenge U.S. laws under NAFTA has ever succeeded.
In short, a U.S. decision to pull out of NAFTA could benefit this country. Technically, Canada and Mexico could continue on with the pact. But it was designed around the giant U.S. market and makes little sense without it.
The Canadian government has boldly announced it is willing to renegotiate NAFTA if that’s what Trump wants. MacNaughton told reporters this week that Ottawa would particularly like to address America’s persistent bias against importing Canadian softwood lumber.
Good luck on that one. The original FTA was supposed to clean up the softwood lumber mess. It didn’t. Neither did NAFTA. America’s politically connected lumber producers have successfully scuppered free trade in this commodity. They are not likely to give up.
More to the point, a renegotiated NAFTA is likely to go badly for Canada. Trump has campaigned and won on a promise to deliver trade deals that better protect American workers. If he pays any attention at all to Canada (and with luck he won’t) he will want visible gains from this country in any renegotiated deal.
Trade is not supposed to be a zero-sum game but in some instances — particularly when one of the players wants to demonstrate dominance — it is.
What can we do?
First, take Trump seriously. He promised to renegotiate or scrap NAFTA. We should assume he means it. He is not likely to give the back of his hand to the working people of America’s rust belt who assured his victory.
And he can do so unilaterally — even if free-traders in the new, Republican-dominated Congress object.
As the New York Times reported earlier this year, U.S. presidents may have to win Congressional approval to pass new trade deals. But thanks to a series of laws passed over the 20th century, they need no such approval to scrap or override existing trade deals.
If Trump wants to slap a punitive tariff on imported goods, he can legally do so.
If he wants the U.S. out of NAFTA, he need only give six months notice.
There is no guarantee that the president-elect won’t turn his rage against Canada. He may decide to scrap the original FTA as well as NAFTA. If so, Canada will have little choice but to resurrect some version of John A. Macdonald’s national policy of tariff-protected industrialization.
But if Trump kills just NAFTA, that won’t be so bad. It hasn’t been a good deal for us either.
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