Lawrence L. Herman, Herman & Associates, a former Canadian diplomatic, practises international trade law and is a Senior Fellow of the C.D. Howe Institute in Toronto.
Foreign Affairs Minister Chrystia Freeland’s House of Commons speech last week signalled a new direction in Canadian foreign policy. In doing so, the Canadian government has to be sharply focused on dealing with Washington, navigating Donald Trump’s protectionist view of the world and the impending NAFTA negotiations.
Those negotiations will be challenging, once the U.S. Congress clears the administration’s fast-track approval and the Trump team presents Canada and Mexico with its demands, likely in August.
Unlike the 1980s and 1990s when the United States had strategic interests in showing the world that it could reach accommodation with its North American partners, this time we have an “America First” president with no outward vision and no interest in cementing trade and commercial alliances, unless and only unless the United States is the clear winner.
Although navigating NAFTA has to be the Trudeau government’s trade priority, there are other things that need to figure into Canada’s sea chart. One is clearly getting the Canada-EU trade agreement up and running.
The other is the World Trade Organization in Geneva, not so much in its negotiating agenda, which is bogged down, but in making sure that its dispute settlement regime doesn’t collapse under its own weight. This is vitally important because Canada has turned to the WTO adjudication system in the past and will likely do so again in challenging U.S. trade actions in the long-running softwood lumber dispute and in the investigation of alleged subsidies for Bombardier’s C series aircraft.
There are major problems with that system that need immediate attention, according to the head of the WTO appellate body (which hears appeals from panels). In a recent speech, Ujal Singh Bhatia said the system is reaching the breaking point, with cases becoming increasingly complex and with more and more appeals from WTO panel decisions, leading to longer delays in achieving final outcomes.
Even after all this, getting member states to abide by these decisions is putting additional strains on the system, calling into question the integrity of the entire WTO dispute settlement process.
Most worrying – and for Canada especially – is that WTO members may cynically adopt protectionist measures in direct contravention of treaty obligations, knowing full well that it will be years before a final WTO ruling and before they face potential retaliation by the winning side.
In the meantime, the offending measure stays on the books and imports are thwarted.
Think of Mr. Trump and his threat of surcharges as border tax adjustments or unilateral import restrictions under the guise of national security. Think of U.S. duties on Canadian softwood lumber or Bombardier aircraft, where a WTO fight brought by Canada could get bogged down in years of litigation while Canadian exports suffer.
It will take prodigious political will among like-minded governments to reform the WTO system to resolve trade disputes faster and more effectively, weeding out inefficiencies and delays. Canada and the United States have a direct interest in that exercise. As with NAFTA, this should be at the top of Canada’s trade policy agenda.
Now let’s look west, across the other ocean to the Trans-Pacific Trade Agreement. All participants in the TPP exercise were lured to the table and convinced to sign on because of preferential access to the U.S. market.
With Mr. Trump abandoning the TPP agreement, many, myself included, thought that resurrecting the deal among the remaining 11 countries was a dream.
However, the Canada West Foundation, which is becoming more active on international trade matters, just issued a report making the economic case for a TPP agreement without the United States.
Admitting that the overall GDP gains for Canada in the absence of U.S. participation could be modest, the report nonetheless points out that certain sectors of the Canadian economy – agrifood for example – will benefit under an 11-country TPP deal, mainly from enhanced access to the Japanese market.
There are imponderables in trying to quantify the benefits of a trans-Pacific agreement without the United States, as the Canada West report admits. It is impossible to calculate the effect on services and intellectual property, for example. The critical player without the Americans, of course, will be Japan.
But the interesting point is that, even without the United States, and assuming Japan stays, economic benefits could accrue to most of the remaining TPP countries. These arguments, in league with inveterate TPP boosters like Mexico, New Zealand and Chile, provide an impetus for Canada keeping the flame alive.
These broader strategic elements on the multilateral and regional level fit into Ms. Freeland’s statement about Canada and the world. While every Canadian government faces the singularly important task of managing relations with the United States, given the inward-looking America First turn the Trump administration is taking, there are solid reasons for Canadian trade policy to remain actively engaged across both the Atlantic and the Pacific.
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