Defence First: The geopolitics of the USMCA

Defence wins games. Anyone who has ever watched the Stanley Cup Playoffs has heard that mantra to the point of exhaustion.  While it might ring true in select sports, the United States-Mexico-Canada Agreement (USMCA), which was announced on September 30, 2018 and replaces the North American Free Trade Agreement (NAFTA), has Canadians questioning the wisdom of defence first tactics.

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Make no mistake, Canada was on the defensive from the outset of these negotiations. When the President announced that NAFTA was the “worst trade agreement in history”, Canada was scrambling to demonstrate how the agreement was positive for all three countries’ economies. Canada seemed intent on maintaining the status quo (ever the Canadian characteristic) and keeping our beloved NAFTA intact. But then came the rhetoric and accusations that Canada was intentionally blocking progress. You can still play solid defence and let in a few goals.

This was unconventional defence. Canada wasn’t deploying the trap, we were doing our best to avoid offensive traps and being wrangled into untenable commitments (economically and politically). Our negotiating team did a remarkable job navigating this territory and what emerged was essentially a tweaked NAFTA. A new name does not change the content of the script. Some of the tweaks, however, are rare and intriguing, demonstrating how the new USMCA has more to do with the shift in geopolitics than it does with altering the North American trading landscape.

Many pundits have been writing and warning about the “China clause” found in section 32.10 of the new agreement. Though it is unprecedented in a trade agreement, the rhetoric that has surrounded this provision in recent days needs to be separated from the reality of what it does. Section 32.10 requires all signatories to give 90 days’ notice before starting free trade talks with a “non-market country” and to provide the text of a trade agreement with that country in advance of signature.

Essentially, if Canada wanted to sign a free trade deal with China, the United States and/or Mexico (though the provision came from the former) could invoke this provision and trigger withdrawal from the USMCA. That being said, they don’t have to trigger withdrawal and therefore this provision can be read more as providing transparency to our trading partners than Canada ceding a veto power to another nation over our trading future.  In practice, this is not all that dissimilar from NAFTA as it too contained a withdrawal provision upon notice to the other parties (the threat of which is why NAFTA was being re-negotiated in the first place).

In theory, and in a world where the United States has arguably been losing its influence in global commerce and diplomacy, the USMCA can be seen as a western trade deal that cements allies. It presents a united North America to the world where choosing free trade with non-like-minded countries could threaten this unity. While Canada has always preferred to trade directly with its neighbor to the south due to geography and shared history, this agreement ensures we continue to keep the Americans as not only a friend, but best friend. And while it remains true that trade diversification is required for Canada’s continued prosperity, much of our strength in negotiating has always been that Canada has preferential access to the U.S. market. It’s not a bad thing to have a best friend such as the U.S.

On the U.S. side, section 32.10 is their own deployment of trap defence. They are defending their status in the world, and especially in North America. With this agreement, they will continue to ensure they are the dominant force on the continent.

Changing the name of NAFTA to USMCA is more political than anything. Calling it the USMCA allows the President to declare victory and come through on his election promise. He can now say that he was able to “tear up” NAFTA and negotiate a fair deal for Americans. It’s really a branding exercise as most of the agreement remains very similar, if not identical, to NAFTA. And defending the status quo is exactly what Canada had hoped for. We gave up a bit (not much) on dairy to keep almost everything else we liked intact.

As Canadians, we shouldn’t be so weary of our defence first approach after all. It produced a win-win-win situation, something that seemed almost unthinkable at the outset of these negotiations. The mantra seems to ring true: defence continues to win games. So why get in the way of a good victory party.


NAFTA 2.0: Rhetoric vs. Reality – Part 4

The tone of negotiations has soured since the last instalment of this blog series. The NAFTA negotiations are now being dominated by talk of “poison pills” and a potential end to the agreement being nigh. The “poison pills” (positions so untenable there is no hope of negotiating them into the deal) were tabled by the U.S during the last round of negotiations in Washington, including: reductions in government procurement access; a sunset clause that would kill NAFTA based on U.S. trade deficit triggers; automotive rules of origin; and a dispute settlement system that allows participants to opt out at will. Since then, the United States has accused Canada and Mexico of not wanting a fair deal, and Canada and Mexico have accused them of deliberately trying to sabotage NAFTA. The rhetoric from all sides remains rampant, but the reality got a little foggier.Prozac_pills

Doom and Gloom

While the threat of NAFTA being doomed has become more real, the parties have also signaled their willingness to stay at the negotiating table by extending the timeline for talks into 2018. Although this extension may seem like a goodwill gesture, it is also meant to add some oxygen to the negotiations by spreading out the negotiating rounds and allowing each party additional time to develop their positions and responses.

Canada staying at the table

For its part, Canada has stated that they will remain at the negotiating table. At the same time, it is become clearer that Canada would rather the deal die than to take a bad deal. Staying at the table makes sense on numerous fronts for Canada. It puts the ball in the United States’ court to withdraw. If they don’t, negotiations continue. If they do trigger their withdrawal, it remains very unclear how exactly that would work under the U.S political system. There is a very real chance that Congress stalls a U.S withdrawal through a possible standoff with the President. Questions remain whether the President even has the ability to unilaterally withdraw or whether he requires the support of Congress. In either case, while withdrawal is debated in the U.S. political system, the current NAFTA would remain in force, something Canada is perfectly comfortable with. Therefore, staying at the table is a solid strategy for Canada.

The TPP Effect    

The revival of the Trans-Pacific Partnership (TPP) has also made headlines recently, albeit now with 11 members (TPP-11) since the withdrawal of the United States. However, the United States continues to push for matters that were in the original TPP to be included in a modernized NAFTA. Canada and Mexico have stated that if the United States had wanted the TPP, they could have stayed in. A tri-lateral NAFTA should consider the relationship of only its three partners. It will be interesting to see how the TPP-11 continues to influence Canada’s position vis-à-vis the NAFTA negotiations as we move forward.

The Path Forward

Baby steps. Those poison pills will remain on the backburner for now while the parties try and work out some less contentious issues. It remains to be seen whether the United States will continue to signal that the agreement cannot be salvaged, or if Round 5 will be able to right the ship.

NAFTA 2.0: Rhetoric vs. Reality – Part 3

By Noah Arshinoff and Samukele Ncube

If round 3 of the NAFTA re-negotiation was trying to emulate the undeserved sleepy reputation of its host city (Ottawa), it succeeded. Most contentious issues remain in the realm of political speaking points and have yet to hit the reality of the negotiating table. Politicians rather than negotiators continue to dominate the headlines on the topics of labour standards, dispute resolution and trade deficits. As round 4 kicks off in Washington, it seems the United States wants to be on home turf before tabling their proposals on these issues. In the meantime, we can still sift through the rhetoric in anticipation of the realities.


Canada is pushing for more progressive labour standards, particularly aimed at working conditions for labourers in Mexico and “right to work” jurisdictions in the United States. Canada has stated that Mexico should do away with particular unions that favour and focus on the interests of employers over employees. Canada and the U.S are also concerned about the exodus of investment and quality jobs attracted by low wages in Mexico. The U.S. held off on tabling a proposed text addressing labour standards, seemingly due to some internal squabbling about its content. Interestingly, the Democrats signaled support for Canada’s position vis-à-vis Mexico. However, Canada’s rhetoric around dismantling “right-to-work” may be just that: a ploy to ensure it can concede something and back off on its demands if the three partners agree to a balanced agreement.


Chapter 19 details a dispute-resolution mechanism that allows independent, binational panels to review anti-dumping and countervailing duty cases, rather than having judicial reviews done by domestic courts (it is separate and distinct from the Chapter 11 investor-state dispute settlement mechanism).

The U.S. has had long-standing issues with Chapter 19, partly due to its unfavourable rulings on softwood lumber. The U.S. has also previously stated that it violates national sovereignty.

Well…they say timing is everything. Just as this chapter inches closer to the reality stage of the negotiations, a U.S trade panel imposed hefty duties on Canadian jet manufacturer Bombardier. Their U.S competitor Boeing accused Canada of unfairly subsidizing Bombardier’s CSeries jets. The U.S trade panel’s decision sheds light on why this chapter is important to Canada and why they do not want to subject international disputes to domestic courts. While the U.S has been rather bombastic about their dislike for this chapter, we will have to wait to see what gets tabled to get a full picture of how this may play out in the negotiating room and whether Canada has any wiggle room.


“Trade deficits are bad.” This blatant rhetoric coming out of the U.S doesn’t tell the whole picture of trade (or even part of it), yet it has been the cornerstone to the President claiming that NAFTA is the “worst trade deal in history”. However, the reality behind this rhetoric is that NAFTA has, in fact, increased trade among all three countries – quadrupling trade between Canada, the U.S and Mexico since its inception in 1994.

Where rhetoric and reality differ on this front, however, is further being muddled. The U.S is looking to tie the trade deficit to a sunset clause, giving the U.S. the ability to decide – based on assessments of their trade deficits with Canada and Mexico – whether or not to withdraw from the deal after five years. Whether anything of this nature comes to fruition is doubtful, especially since it would undermine the intent of a trade agreement and mainly be supported by faulty and misplaced reasoning.


Expect text on dairy, rules of origin, and possibly labour standards to be tabled by the U.S in Round 4.  Although round 4 resumes in Washington D.C. on October 11th, the slow pace of the negotiations, together with rumblings that the U.S may be hoping the talks fail altogether, is not being met by much optimism that a deal can be signed soon.

NAFTA 2.0: Rhetoric vs. Reality – Part 2

“Sunset clauses”, “virtue signaling”, “warp speed” and “right-to-work”. Since Round 2 of NAFTA 2.0 negotiations wrapped up, these words have been bandied about in press briefings, news articles and interviews. Needless to say, there remains an incessant amount of speculation and rhetoric about what’s happening at the bargaining table. Although the outcome is still foggy, the good news is that the rhetoric is slowly easing, while the realities of a negotiation are beginning to set in. In anticipation for Round 3 which begins on September 23rd in Ottawa, let’s break down some of the areas that have received the bulk of the media’s attention.


A lot of rhetoric has been circulated domestically on the idea of including the environment in NAFTA. Some have disparaged it as “virtue signaling” and some have said that “social issues” should remain out of NAFTA – but the environment is a tricky little nugget.

The current NAFTA contains a side agreement on the environment, and is one of the reasons Brian Mulroney is often considered Canada’s greenest Prime Minister. Interestingly, both Canada and the U.S. want to bring the environment into the actual NAFTA text, perhaps as its own stand-alone chapter.

For Canada, the interest lies in preventing a “race to the bottom” – the progressive lowering of standards to attract investment, resulting in increased levels of pollution. While Canada is wary of the U.S., the U.S. is also wary of Mexico jumping onboard the race to the bottom. This indicates some of the U.S. interest in creating a more level playing field in NAFTA.

While the U.S. administration is not viewed as environmentally friendly, the fabric of the country is difficult to navigate on this issue. Many emissions and environmental standards are set at state level and some states such as California are more environmentally conscious than any Canadian jurisdiction. The President essentially has his hands tied to some extent, so it may be better to see something included in NAFTA on the environment, rather than leaving it to all the other unknowns.

For Canada, the environment presents an opportunity for the government to spin rhetoric and show their credentials as greens, but it’s also a somewhat realistic position and something that is being negotiated. For the U.S., on the other hand, you won’t hear the words “climate change” and they may not make a big fuss publicly about an environment chapter, but they will be negotiating one.

Rules of Origin (“They took our jobs!”)

A second theme that came out of Round 2 was the U.S. demand for “domestic content requirements” for the automotive sector. To put it plainly, the U.S. wants a certain quantity of a car’s parts to be made in America. The issue with this is it serves as a shift from the existing requirement that a quantity of car parts are to be made in NAFTA countries (i.e. Canada, the U.S. or Mexico). How will a new U.S. requirement affect the industries in Canada and Mexico?

The rhetoric around this one is clear: “They took our jobs!” However, the reality is much more uncertain. There is likely a middle ground that Canada and Mexico could agree to, but they must be vigilant not to undermine their respective domestic automotive sectors which largely rely on the benefits provided by the current NAFTA to stay afloat.

Sunset Clause (Expiry date)

A sunset clause is essentially an expiry date for a piece of legislation. It must either be renewed at such date or it is no longer in force. The U.S. frequently uses sunset clauses in domestic legislation. Canada and Mexico on the other hand do not.

This one seems to fit squarely in the U.S. rhetoric side of things. It is highly unlikely Canada or Mexico would accept it and it sounds more like pandering to sentiment by creating the possibility of getting out of a “bad deal”. The reality is NAFTA already contains a mechanism for any party to withdraw from the agreement. Why add uncertainty for the business community by potentially opening this up to debate every few years?

Going Forward

The rhetoric has been toned down since Round 1 and it looks as if the negotiators are slowly taking over ownership of this file. There is still a lot of noise out there, and that will likely continue as the negotiation deals with some of the more contentious issues down the road. For now, everyone seems content to get the easy stuff out of the way and make platitude statements about how all three sides are negotiating together.

Once Round 3 wraps up, we’ll turn our attention to some of the other difficult issues such as dairy and labour standards. We may even discuss the ramifications of Amazons HQ2 on the negotiations.  Until then, enjoy the headlines as they roll out.

NAFTA: Rhetoric vs. Reality – Part I

There’s a lot of noise surrounding the NAFTA re-negotiations (or as Mexico and Canada like to frame it, the “modernization”). Through all the media, analysis, lobbying and politics, it is easy to get lost in the hype of it all. But what is most crucial as we head into round 1 of talks on September 1st is separating the rhetoric (largely those in political roles making loud statements) and the reality (the pieces on the negotiating table, the legal elements, and the items of interest to the business community).


Let’s start with the overall agreement. The introductory round of negotiations held in Washington D.C. in mid-August started with a bang. United States Trade Representative (USTR) Robert Lighthizer was quick to go on the attack stating that this would not merely be a “tweaking” to improve NAFTA, but would be a full scale re-write. His statements contrasted with the USTR’s written objectives for NAFTA that were released in mid-July and indicated a more nuanced and conciliatory tone.

Shortly after the introductions wrapped up, President Trump took to the airwaves to state his doubt that NAFTA could be renegotiated because Canada and Mexico were being difficult. In his view, the negotiations would end in NAFTA being terminated. This fits squarely into the rhetoric side of things for so many reasons that it is more economical to list them:

  • It’s blatantly pandering to populist sentiment (seemingly among a small minority) and sticking to his guns.
  • It’s a well-known negotiating tactic of the President’s in his business dealings (do what I want or I’ll walk away). Unfortunately, the threat is a little more empty in negotiations between sovereign nations that don’t represent one particular business dealing, but rather with creating an environment for prosperity.
  • Business associations in Canada and the U.S. have both been lobbying to keep NAFTA. Terminating the agreement would alienate not just those outside the U.S. border, but a huge agglomeration of interests within it, including droves who voted for Trump.
  • Terminating NAFTA does not end “free trade”. The Canada-US Free Trade Agreement of 1988 would likely remain in force. Modernizing NAFTA would surely be better for both sides that reverting to pre-NAFTA trade times.
  • The President is not all powerful in the United States. It is being debated whether the U.S. Congress (made up of a House of Representatives and the Senate) would need to agree to terminate NAFTA. Trump is hardly in their favour, let alone within his own political party at the moment.

On the Canadian side, there is also a fair amount of rhetoric, but it is more to do with our position on certain elements of NAFTA rather than generally degrading the agreement in its entirety or deriding one of the other parties for being unfair. There’s a lot of talk about how we won’t negotiate on dairy and we are not budging from the chapter 19 dispute settlement mechanism. While there is an element of truth to this, the rhetoric is stronger than the reality. Canada will likely negotiate at least as favourable terms as are contained in both the TPP and CETA, meaning we will be somewhat flexible on both of those items. But rhetoric is ensuring we hold our cards close to the chest.


Now that the drum beating is dealt with, let’s move to reality. Overall, the political conditions in the United States are more favourable to the renegotiation of NAFTA. Most state level governors are keen on NAFTA and want to see a functional agreement emerge from the negotiations. Furthermore, the deeper you go into the heart of American politics, the more they seem to understand that the details of NAFTA should be worked out by the appropriate levels of government (i.e. the negotiators hired at the bureaucratic level to spend their lives doing trade agreements).


In reality’s corner we have the business community and their associations, state level governors, Canada and Mexico (in terms of their willingness to negotiate). In rhetoric’s corner we have Lighthizer, Trump, and some position statements by Canada that will likely be softened to reflect reality.

Round 2 is sure to produce some made-for-journalism drama. We will try and sort the rhetoric from the reality at its conclusion to give a sense of what is being negotiated.