The Summer Just Got a Little Hotter

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July 21, 2017

The Summer Just Got a Little Hotter

We have a date and a location. The first round of NAFTA negotiations will be held in Washington, D.C. from August 16-20.

Also confirmed this week is the U.S. choice for lead negotiator. As rumoured, John Melle, a career bureaucrat, is the Trump Administration’s choice. Melle, a well-respected career public servant, is considered by U.S. sources to be solid, thoughtful, and not the least bit partisan. Not expected qualities in the deeply partisan Trump administration but a wise choice and good news for Canada. This is the sign of a professionalized negotiating team, not an ideological or dogmatic one. Melle has apparently been working closely with Commerce Secretary Wilbur Ross and U.S. Trade Representative Robert Lighthizer and is respected and trusted by both.

Opening Salvo from the U.S.

After more than 1400 submissions to the Federal Register site on U.S. NAFTA consultations, the USTR released its NAFTA renegotiation objectives this week. While the format resembled the leaked draft letter from the then acting USTR back in March, in substance, it is more careful and provides more space for the negotiating team. These objectives appear to have been crafted more strategically, with evidence that they have studied the messages received during three days of hearings, as well as those thousands of submissions.

The 17-page document is loaded with the language of cautious bureaucrats, a screen to obscure the deceptively aggressive goals of an administration not yet sold on the benefits of free trade. Of concern to Canada:

  • Language directed at specifically reducing the U.S. trade deficit.
  • Expand market opportunity for U.S. agricultural goods while working to eliminate non-tariff trade barriers – language many Canadians believe reflects the U.S. desire for greater access into protected markets in Canada.
  • Language that suggests Rules of Origin may be strengthened in ways that favour components made in the United States.
  • Bring the telecommunications sector into the agreement. Mexico removed longstanding market access barriers beginning in 2013, but from an American perspective, there is a continued need to work to open the market. Canada has a protected sector as well, which the U.S. has listed before in their annual Foreign Trade Barriers report.
  • Expand U.S. access into the financial services sectors in all NAFTA countries.
  • Eliminate barriers to U.S. investment in all sectors in the NAFTA countries.
  • Eliminate the Chapter 19 dispute settlement mechanism,
  • Maintain some procurement limitations, including sub-national procurement, preference programs, and other protections.

Of note is the Trump Administration’s commitment to regulatory coherence and the desire to make border processes more efficient. Clearly, stakeholders got their point across that the existing burdens inhibit the benefits of trade.

The USTR is obligated under the Trade Promotion Authority to release these objectives and the language is targeted for an American audience. Much like Mexico’s release in January, this outlines the U.S. opening aspirational negotiating objectives, not final guidelines for the negotiation team.

The Canadian government is now under pressure to release a similar document. However, it is unlikely they will, as there is little to gain. Mexico’s President had political pressure to push back against the angry rhetoric of newly inaugurated President Trump and the USTR has a legislated responsibility, but Prime Minister Trudeau has neither a political nor an administrative need to show all his cards this early in the process. Canada’s trade negotiators have always been reticent to reveal priorities and red lines, and so far, it has served them well. While they might offer glimpses in the form of committee hearings and answers to questions from the press gallery, it will be surprising if they change their time-tested negotiating techniques.

Canadians Turning Up the Volume

With approximately 1200 submissions from around 450 organizations provided to the Canadian government by their July 18th consultation deadline, domestic companies, unions and interests have stepped up to shape the country’s positions.

Parliament is also getting in on the act with the Parliamentary Committee for International Trade pushing to hold urgent summer meetings, prior to August 15th and the negotiation start.

At the Washington International Trade panel this week, Canada’s ambassador to the U.S., David McNaughton, stressed the need to frame benefits to Canada and Mexico as victories for the U.S. This strategy will allow President Trump to effectively sell the new NAFTA to his base, which was a key promise of his campaign platform last year.

“We have to find ways where he can declare victory without it being seen in either Mexico or Canada as being a loss,” McNaughton remarked on Thursday.

A Step Closer to the First Woman as U.S. Ambassador

Ambassador-nominee Kelly Knight Craft appeared in front of the Senate Committee on Foreign Relations Thursday morning. Her opening statement was short and gracious. She positioned herself as eager to take on the role of a public servant, representing U.S. interests in Canada. Kentucky’s basketball rivalry with Indiana was on brief display, as the Senator from Indiana pointed out that the coach of the Kentucky Wildcats, Craft family friend John Calipari, was in the audience. Ms. Craft took two questions, one on NAFTA and one on trade and answered both with similar language on working to support the work of the USTR and the Secretary of Commerce. Her demeanor was quiet and poised, and throughout, she was ambassadorial. Once approved by the committee, the nominee will be subject to a vote on the floor of the Senate. Overall this is anticipated to be an easy confirmation and we should see the first female ambassador from the United States in Ottawa before patio season ends.

Building Allies State by State

Last week, Prime Minister Trudeau led a group of federal and provincial officials to Providence, Rhode Island for the annual Governors’ Conference. Canada’s sustained push to engage U.S. lawmakers at all levels has not gone unnoticed and his message was by all accounts well-received – all part of building necessary allies for the heavy lifting to come in the negotiations.

Opposing Force

As the Prime Minister was in Rhode Island, seeking alignment with American lawmakers, members of Her Majesty’s Official Opposition made their way to the United States as well. Up until now, the Conservatives have been shoulder to shoulder with the Liberals on all aspects of the bilateral relationship. The settlement with Omar Khadr has created a public rift with Andrew Scheer, the newly elected Leader of the Official Opposition, taking an aggressive approach. The question remains, to what extent will the Americans attempt to, at least in rhetoric and via twitter, exploit this increasing willingness to vocally oppose the Prime Minister.