Canadians are now thinking actively about life after NAFTA. Better to activate plans B, C and D before these negotiations continue to slide down an irretrievable slope.
Round 4 of the NAFTA negotiations ended in exceptional bitterness on Tuesday, with the United States presenting a series of deeply disturbing and unacceptable proposals. While the negotiating deadline was extended into early 2018, the talks are heading downhill and will likely hit the wall before then.
It's interesting that commentators are now talking about the need for a Plan B (or C or D) for Canada, when it should have been clear that these talks were on a perilous slope from the outset.
While policy wonks were once full of naive optimism about modernizing the North American free-trade agreement, a cold shower of realism would have doused that rosy glow. The problem is these negotiations were never born of common objectives among like-minded governments. We're in these talks because of a diktat from one source – U.S. President Donald Trump.
After repeatedly condemning NAFTA as a "disaster" and the "worst trade agreement ever," Mr. Trump wasn't going to go gentle into that good night. He was obviously going to follow through with aggressively one-sided demands to Canada and Mexico – and that's what they are – or else.
U.S. presidents set the tone for their administrations in inaugural addresses to the country and the world at large. Remember Franklin Roosevelt and "We've nothing to fear but fear itself," or John F. Kennedy's "Ask not what your country can do for you …"
In the case of Mr. Trump, it was a bombastic and inward-looking declaration that it would be "America first and only America first" during his term of office.
The U.S. approach to these negotiations is unprecedented, the opposite of countries sitting at the table to reach a balanced and mutually agreeable outcome. Mr. Trump will have none of that; to the contrary, it's all about a zero-sum, take-no-hostages game used by him in putting together real estate deals.
Faced with this reality, comments about the need for alternative plans for Canada are part of a deeper concern over an uncertain trade and political relationship with the United States.
To be fair, the negotiations haven't totally collapsed. Not yet. That will probably come in the next while, as the Trump team realizes that Canada and Mexico won't cave and a new deal (even if it were remotely in the cards) won't be done by the agreed deadline.
Even the extended deadline into 2018 is totally unrealistic, the result of expedient political calculations that a new NAFTA needed to be concluded before the Mexican presidential elections next July and before the U.S. midterm election period gets into full swing in the summer. Prying these complex negotiations into an unsuitable time period alone probably condemned the talks to failure.
Following the acrimonious meetings this past week, the political atmosphere will darken. Whether and when the talks can resume in earnest after tempers cool is uncertain given the take-it-or-leave it approach of the Trump team.
Mr. Trump could soon take the next step and present the U.S. six-month notice of intent to withdraw under NAFTA Article 2205. That notice in itself doesn't abrogate the treaty but paves the way for formal withdrawal after the six-month period ends.
Whether Mr. Trump can actually pull the United States out of NAFTA without congressional approval, however, is the burning question. It's never happened before. Many experts say that Congress's constitutional authority over international trade means he'll need that approval. This will be the subject of much argument and inevitable court challenges. It will take months to get this resolved, probably going all the way to the U.S. Supreme Court.
In the meantime, without any clear answer on the constitutional front, NAFTA will remain in force but things will be uncertain and messy as far as the trilateral trading relationship in concerned. No one will know what rules will apply going forward.
Some have pointed out that if NAFTA is terminated, the 1988 Canada-U.S. free-trade agreement (FTA) will then be reactivated and with it all the preferential elements for Canada, such as zero duties. That seems legally correct but is an incomplete analysis. The fact is, the FTA is equally at risk under the Trump administration.
The FTA contains the same six-month withdrawal notice as NAFTA. It seems hardly plausible that Mr. Trump would threaten to withdraw from NAFTA without pulling the plug on the FTA as well. It contains things that the Trump team would find as unpalatable as in NAFTA, such as the automotive-content rules, supply-management guarantees, procurement obligations and the binational panel review system.
Any renegotiation of the FTA would be as contentious and nasty as what we've witnessed these past days in the NAFTA talks.
This ride into the valley of uncertainty is not unexpected. But if there's anything positive coming out of all of this, it's that Canadians are now thinking actively about life after NAFTA. Better to activate plans B, C and D before these negotiations continue to slide down an irretrievable slope.
Lawrence Herman of Herman & Associates is a former Canadian diplomat who practises international trade law, and is a senior fellow of the C.D. Howe Institute in Toronto.
Published in the Globe and Mail.