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Prime Minister Justin Trudeau gives a thumbs up as he arrives on Parliament Hill the morning after an agreement was reached on a new trade deal with Mexico and the U.S. THE CANADIAN PRESS/Justin Tang

NAFTA has been replaced, but at what cost to Canada?

The most remarkable thing in the immediate aftermath of the announcement that Canada and the United States had concluded their North American Free Trade Agreement (NAFTA) renegotiations is the general relief it seems to be eliciting.

Typical of the mood is the contention of the Globe and Mail’s Campbell Clark, who opines that the deal limits direct damage to the Canadian economy via “a series of concessions that the Liberal government accepted to buy peace.”

Unfortunately, the peace promised by the newly renamed United States-Mexico-Canada Agreement (USMCA) is likely to be temporary, its true price still unclear.

The USMCA may stop most U.S. harassment for now. (American steel and aluminium tariffs are still in place, after all).

But two key sections of the USMCA — the six-year mandatory review and a limitation on negotiating free-trade agreements with non-market economies (in other words, China) — suggest that this temporary armistice has been bought at a cost.

That cost is placing the U.S. in a position of unprecedented authority over its neighbours’ ability to craft their own domestic and international economic agendas.

Benefits of normal trade deals absent

One of the under-appreciated advantages of trade agreements for smaller countries like Canada is that the pacts actually provide those nations with more room to manoeuvre than they might have had otherwise.

Without trade deals, larger countries like the United States leverage the promise of access to their market, and the threat of restricted access, to convince other countries to adopt U.S.-friendly policies.

Normal trade agreements take that leverage off the table. In my 2014 book Copyfight: The Global Politics of Digital Copyright Reform, for example, I found that despite strong U.S. preferences for more protectionist digital-copyright reforms, Canada’s 2012 Copyright Modernization Act was able to implement policies that primarily reflected Canadian interests.

Canada, protected by NAFTA, implemented a much less censorious form of liability limitation for Internet Service Providers (ISPs) whose users upload allegedly copyright-infringing material than what the United States had hoped. Canada also kept its copyright term limit at what’s known as “life of the author” plus 50 years.

Read more: Everything he does, he does it for us. Why Bryan Adams is on to something important about copyright

That autonomy can disappear in trade negotiations: Everything is linked and everything is on the table. In the new USMCA, while Canada was able to keep its ISP liability framework (which Canadian copyright expert Michael Geist calls an “easy giveaway for U.S. negotiators”), Canada must now extend its copyright term to the life of the author plus 70 years. (Mexico also would have to adopt the U.S.-style ISP liability framework.)

And far from reducing American leverage, the USMCA would keep the negotiations going. Article 34.7 requires a “joint review” of the agreement after six years.

Moment of reckoning postponed

The countries must also “review any recommendations for action submitted by a Party (country), and decide on any appropriate actions.” If a country “does not confirm its wish to extend the term of the agreement,” the countries must hold joint yearly reviews until the end of the (16-year) agreement.

The spectre of this review would likely make Canadian policy-makers hesitant about implementing policies that may upset the United States and thus threaten the entire economic relationship.

Minister of Foreign Affairs Chrystia Freeland, Canada’s top NAFTA/USMCA negotiator, arrives on Parliament Hill on Monday, Oct. 1, 2018. THE CANADIAN PRESS/Sean Kilpatrick

This effect would be similar to the “regulatory chill” associated with NAFTA’s Chapter 11 investor-state dispute settlement mechanism — it fuelled governments’ reluctance to regulate in some areas due to the fear that a foreign company would sue them for doing so.

This dynamic is intentional. According to a senior U.S. official, the review process will “give the U.S. a ‘significant new form of leverage’ to make sure the arrangement is to its liking.” It will also almost inevitably invite abuse from companies seeking to change the rules to their advantage.

The relief that the United States didn’t make things even worse for Canada should be tempered by the realization that the moment of reckoning hasn’t passed; it’s only been postponed.

Locking Canada in the U.S. orbit

Normal trade agreements also usually just cover trade among its members, not their ability to negotiate with other countries. This makes Article 32.10 very odd.

Critical portions of the new trade deal are clearly aimed at preventing Canada and Mexico from doing business with China. Trudeau is seen here with China’s Xi Jinping in 2016. THE CANADIAN PRESS/Adrian Wyld

It would make it incredibly difficult for Canada or Mexico to negotiate a free-trade agreement with a “non-market country,” which pretty obviously means China. Should one of the USMCA countries do so, the other two could kick it out of the club with six months’ notice.

It’s hard to read this as anything but a way to further lock Canada and Mexico into the U.S. orbit, restricting their ability to counterbalance against overwhelming American economic influence. Its presence requires explanation.

The bottom line is this — the world has changed. The United States is willing to act coercively against Canada in ways that had been unthinkable since the end of the Second World War.

Canadian economic well-being depends on the United States (although the reverse is also true). Maybe these drastic concessions were necessary to preserve the Canadian economy. Then again, sometimes the solution is worse than the problem.

No matter. In judging the USMCA, we should not shy away from acknowledging that the price Canada and Mexico have paid for temporary economic peace with the United States is steep, transformative and likely to be long-lasting.

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