For five weeks, Canada has watched from the sidelines as the U.S. and Mexico hammered together a revised free-trade deal.
Now this country may have less than five days to become part of that new agreement, one that is likely to shape the Canadian economy for years.
President Donald Trump announced a new trade pact with Mexico on Monday, said it would be sent to Congress for review this Friday, and suggested Canada has until then to negotiate its way into the accord – or face stiff tariffs on auto exports.
Many experts say Trump can’t actually proceed without Canada’s participation, but political pressure seemed to be mounting for an agreement by the end of the week.
“We’re starting negotiations with Canada, pretty much immediately,” the president said from the Oval Office. “If they’d like to negotiate fairly, we’ll do that.”
If not, he said, “the easiest thing we can do is to tariff their cars coming in … It could end in one day and we take in a lot of money the following day.”
Foreign Affairs Minister Chrystia Freeland was planning to fly to Washington Tuesday, a spokesman said. A senior White House official said talks were actually starting with other Canadian negotiators Monday afternoon.
Meanwhile, the new U.S.-Mexico deal calls into question the notion promoted by Canadian officials that the other two countries were discussing solely “bilateral” issues, like the content of automobiles exported duty-free into the U.S.
In fact, the agreement also includes extensive provisions for boosting protection of intellectual property, some of which would force Canada to change its current laws if it signed on. An increasingly important class of drugs, for instance, would require an extra two years of protection from generic competition.
“This would require a significant overhaul of Canadian intellectual property law,” said Michael Geist, a leading intellectual-property expert at the University of Ottawa. “These provisions … are at odds with the Canadian government’s commitment to modern intellectual property laws that adequately balance the interests of all stakeholders.”
The tight timeline stems from a push to get a deal finalized before Andrés Manuel López Obrador, Mexico’s newly-elected president, assumes office on Dec. 1. The thinking is that current president Enrique Pena Nieto would like the legacy of a new agreement, and Lopez Obrador the ability to blame any unpopular aspects on his predecessor.
But U.S. law requires 90 days of review by Congress before the administration can formally sign a trade accord, which makes Friday, the last day of August, the unofficial deadline.
And if a trilateral deal is not reached by then, the issue could linger unresolved for months, while U.S. tariffs on steel and aluminum – and Canada’s retaliatory duties – continue to drag on the economy, said Scotty Greenwood, CEO of the Canadian U.S. Business Council.
“Canada will have to give an early signal that it’s willing to rock and roll,” she said. “Once we miss the window, the U.S. is easily distracted with every other thing in the world. It’s not like there are going to be endless, good-faith negotiations.”
Dan Ujczo, an Ohio-based trade lawyer who has been closely monitoring the talks, said he doesn’t buy the argument that Trump cannot sign a bilateral deal just with Mexico because Congress gave him authority only to renegotiate a new, trilateral NAFTA.
If push came to shove, there is nothing legally preventing Congress — which has jurisdiction over trade — from passing a two-country deal, especially if it proves popular, he said.
But there are a “myriad political and practical reasons” to strike a trilateral agreement, and to do it this week, said Ujczo.
“It’s now or never,” he said. “If we get past Friday (with no deal), it’s really going to be hard to put the train back in the station.”
Still, the push by Mexicans and Americans to finalize an agreement quickly — with their other partner on board — could also play into Canadian hands.
“If Canada continues to play chess the way it has, (the pressure is) on the other two to get its signature,” said Flavio Volpe, CEO of Canada’s Automotive Parts Manufacturers Association, who has followed the negotiations closely. “Everybody’s best option … is to convince Canada to sign something.”
The NAFTA talks began last year at the request of the U.S., but formal negotiations involving all three countries have not taken place since May.
Mexico and the U.S., though, have been meeting in Washington, D.C. for over a month, with Canada’s request to join in rebuffed at one point.
Much of their discussion has revolved around the content of automobiles exported from Mexico to the U.S., an issue central to Trump’s complaint that thousands of U.S. car-making jobs have been lost to low-wage nations like the southern neighbour.
In fact, his frequent critiques of NAFTA seem largely motivated by the U.S.’s $70-billion trade deficit with Mexico, much of it in vehicles.
As expected, the deal they shook hands on requires that 75 per cent of autos traded duty-free under NAFTA be made in North America, and that 40-45 per cent be built by workers paid at least $16 an hour – far more than the average pay in Mexico now.
Those and other aspects of the auto agreement should be welcomed by Canada, which had actually proposed some of the elements earlier.
It has not been officially revealed, but the U.S. has also agreed to lift the 25-per-cent tariffs it imposed on Mexico, in exchange for imposing quotas on how much of the metals it can export to the States – a trade-off Canada can now expect to face, said Ujczo.
And the two countries have chiseled out a compromise on the U.S. demand for a sunset clause, which would have required the deal to be re-approved every five years. Canada said that would kill long-term investment. Instead, NAFTA would be reviewed every six years and, if all countries agreed, extended by another 16 years, a senior administration official said Monday.
Mexico and the U.S. also agreed to measures for protecting intellectual property, a key issue for the United States.
If applied to Canada as well, they would mean extending the copyright on creative material like books and songs to 75 years after the author’s death from the current 50; extending the “data protection” of biologic medicines — preventing cheaper copies — from eight to 10 years; and requiring internet companies to take down material when a copyright breach is alleged. The law currently says only that the internet service providers must give notice to alleged offenders of a possible breach.
The American proposal “has a negative effect on people who are using the material lawfully … or where the allegation is wrong,” said Richard Gold, a law professor and IP expert at McGill University.