Last week, the United States, Canada and Mexico began the first round of negotiations to update (or abandon?) the North American Free Trade Agreement (NAFTA). Though President Trump’s obsession with trade deficits dominated discussions throughout initial proceedings, representatives from all three governments are still optimistic for a mutually beneficial renegotiation of the agreement.
Weeks before the talks, the Trump administration announced its priorities for the process, and the media tried to read into their hidden meaning and potential signs of moderation in the White House’s stated principles. With the justifiable fuss about how an often-volatile president may affect the negotiations over a trade deal he continues to promise to kill, it’s easy to forget that NAFTA is a three-party agreement. A comparative look at the stated goals of the Trump and Trudeau governments reveals two things: on one hand, seemingly irreconcilable differences; on the other, an indication that both governments are missing real chances for improvement because of their political agendas.
Despite NAFTA’s unpopularity in the U.S., our neighbors in the north, led by Prime Minister Justin Trudeau’s liberal government, remain enthusiastic about the agreement and its potential for improvement. The agreement’s popularity has increased in Canada since it came under attack by President Trump. Since NAFTA came into force in 1994, U.S. and Mexican investments in Canada have tripled. The value of Canadian exports to the United States has increased by more than five times. And according to Canada’s Minister of Foreign Affairs, Canada’s GDP is 2.5 percent larger every year than it would be without the agreement.
It makes sense, then, that the Trudeau government continues to endorse the agreement, pushing ahead with negotiations to strengthen it and enthusiastically promoting its benefits, both domestically and, more aggressively, in the United States. On August 14, in Ottawa, Canadian Foreign Affairs Minister Chrystia Freeland detailed her government’s five concrete priorities in the negotiations:
- Modernize the agreement to reflect developments in the technology sector;
- Make NAFTA more progressive—using the recently negotiated EU-Canada Trade Agreement (CETA) as a model—by incorporating stronger labor safeguards, enhancing environmental protections, adding chapters on indigenous and gender rights, and reforming the Investor-State Dispute Settlement Process to allow for increased government regulation intervention;
- Eliminate needless regulations and aligning regulations across the three governments;
- Create a freer market for awarding major government contracts; and
- Update and expand Chapter 16 to make it easier for businesspeople to travel temporarily between NAFTA countries.
In some areas, the United States and Canada seem to agree. Both governments’ negotiation goals include modernizing the agreement to reflect developments in technology, enhancing environmental standards in the agreement (surprising given President Trump’s environmental record so far), and aligning regulations across NAFTA governments.
Elsewhere, however, the stage appears to be set for conflict. The Trump administration’s “Buy American, Hire American” agenda directly contradicts the Canadian government’s goal of creating a freer market for government contracts. The U.S. will also likely balk at chapters on indigenous and gender rights. And, most important, the Canadian government wants to update Chapter 19, which concerns investor-state disputes, to allow for increased government intervention, which the Trump administration wants to eliminate entirely.
So who’s to blame for the inevitable conflict? More often than not, the experts side with Canada, especially on hot-button topics such as the Investor-State Dispute Settlement Process and protections for migrant labor. In fact, the Peterson Institute for International Economics directly criticized the Trump administration’s attempts to “level the playing field”—through explicitly attempting to reduce trade deficits, changing tax rules, revising rules of origin, or promoting “Buy American, Hire American” policy.
But there is plenty of blame to go around. For example, the same economic experts who have criticized much of the Trump administration’s agenda have called for specific policy on e-commerce, on which the Trudeau government has been vague. (Freeland’s speech simply called for reform to reflect technological advances.) It wouldn’t be difficult for Canadian trade representatives to follow the lead of their U.S. counterparts and release comprehensive proposed e-commerce reforms for an Agreement that came into effect before wide use of the internet.
Let’s be honest. Neither government’s priorities for NAFTA renegotiation are completely flawed, but they’re also both far from perfect. If Canada, Mexico and the U.S. can look past their clear political differences and focus on areas of potentially mutually beneficial reform—enhanced labor standards, reform to reflect technological developments, collaboration on energy infrastructure, and new environmental safeguards—an already important agreement (yes, important for all three countries and their citizens) can be improved… that is if President Trump doesn’t decide to kill the agreement with a speech or a Tweet before then.