NAFTA: Not the Disaster It Was Portrayed to Be

This Saturday many of us will be sitting in front of our televisions if we are not planting corn and soybeans and watching the Royal wedding. I know that this is difficult for some of you, myself included but it is a pretty big event especially in Canada with the Queen’s grandson getting married. She is our head of state, a holdover from the colonial era, which makes us very different from our American friends to the south.

Needless to say, many in the American media have been busy preparing their coverage of the Royal wedding this Saturday. It is a bit odd the Royal fascination among our American friends. I can just imagine (what we called) that rebel George Washington turning in his grave on Americans celebrated with the descendants of the people he led a revolution over. Thankfully, 250 years later, for the most part Americans and Canadians get along really well.

Let’s hope that extends to what is getting close to the end of the NAFTA negotiations. It is an uncomfortable truth in Canada that NAFTA is being so ridiculed in the first place. We have had free trade with our American friends since 1989. Since the last American election, NAFTA’s been called a disaster by the President. None of that north of the border really passed the eye test. Needless to say, our Prime Minister and foreign affairs minister have tried hard to keep that political bombast at bay. Were getting close now, an agreement is almost in the offing.

One of the roadblocks to the deal is the sunset clause being proposed by the American negotiating team led by US trade representative Robert Lighthizer. NAFTA with the sunset clause would mean that the deal would have to be negotiated every five years, something that both Canada and Mexico would be reluctant to agree to because of all the uncertainty that it would create. I can see that. If you are an investor with a NAFTA agreement renegotiated every 5 years, where do you invest your money?

The answer of course is that any investment money would have an incentive to be placed in the United States and not Mexico and Canada. Why would you risk investing in the smaller countries if the bigger country wants to change the rules every five years? It’s just so much simpler to invest in the United States. As our Prime Minister Justin Trudeau said today, “We don’t feel a deal with a sunset clause is much of a deal at all.”

That makes sense to me and I hope we stick to it. The NAFTA agreement has particular optics in the United States that makes it controversial and most of that has to do with Mexico. I don’t think we heard in the last presidential election how evil Canada was, so NAFTA had to be changed. In many ways to Canadians, this is so maddening and so unnecessary.

Canadians and Americans have so much in common. For instance, some Americans think the Canadian way can be such a good thing. I read an AP report this morning on DTN about Vermont passing legislation to create a program to import more affordable prescription drugs from Canada. Prescription drugs in the United States are 30% higher in cost than they are in Canada and Vermont has created a program, the first such program in the United States to get their drugs from us. Needless to say, this needs American federal approval and it is unlikely. However, in the home of Sen. Bernie Sanders, it makes great sense. It would be my hope that some of this admission of the Canadian way be found at the American negotiating table at NAFTA.

As I’ve said many times on this, there are implications for Canadian agriculture. We don’t want supply management touched because it is such a superior milk marketing system versus what they have in United States and it is an economic pillar of Eastern Canada. On the other hand, many in Western Canada want unrestricted trade to the United States even though that is entirely up to the Americans to decide. In other words, Canada has much to lose here and we don’t want a bad deal. Signing one is off the table.

These trade negotiations and trade agreements are very complex issues. They take time. Generally speaking, they do not fit the time frame within political agendas. In this case, we’ve got American midterm elections in November and we have a Mexican presidential election on July 1st. So the negotiation process is rife with political pressure. The hard part is the biggest player; our Americans friends continue to have all the power.

I tend to think that we will get there. We will have a successful NAFTA. However, the American President has shown a willingness to walk away from trade agreements with no plan after. Case in point was the TPP, which now they regret, wanting back in. Let’s hope that’s a lesson learned for NAFTA. It’s not the disaster it was so portrayed to be.

 

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