MEXICO CITY – Round Five of the NAFTA re-balancing negotiations has launched in Mexico City. Don’t hold your breath waiting for significant breakthroughs. The talks are bogged down in poison pills and inflexibility.
The battleground moved last week to Da Nang, Vietnam, a venue which has been conflict free for more than 40 years from what the Vietnamese refer to as the American War.
President Trump talked a good game about the success of his Asian Tour. It is not amazing that he was treated with respect – at least publicly. That is the Asian way. There is little point in tweaking the Eagle’s tail feathers. It is better to listen, smile and avoid confrontation.
Chinese President Xi Jinping read POTUS very well and certainly knew how to play him. In baseball speak – he had POTUS’s number.
President Trump had no takers for individual free trade negotiations on his Asian tour. No doubt they are monitoring NAFTA re-negotiations very closely.
There was no rush to open bilateral negotiations with Ambassador Robert Lighthizer. Shocked and appalled with Lighthizer’s tactics in the NAFTA 2.0 renegotiations, potential targets of the U.S. deficit slashing crusade are trying to find silver bullets to keep Lighthizer at bay. Silver bullets are very scarce and expensive.
President Trump did not return empty handed – if you take account of his Merchant of Death campaign extracting promises of purchases of aircraft and military equipment.
How many jobs will Boeing add when its order backlog is already seven years or more – for nearly 6,000 commercial aircraft and $75 billion in military aircraft?
Perhaps Trump can be bought off temporarily with these modern day Danegeld offerings, but do they resolve perceived problems or simply buy time?
Back in Mexico City, Canada and Mexico are working hard on issues where progress is possible. They are unlikely to go anywhere near Ambassador Lighthizer’s poison pills. There is no middle ground on the impossible. There is no point in Canada and Mexico negotiating with themselves against the U.S. demands. That would be like sleeping in poison ivy.
It is unlikely there will be enough for Washington to cheer about until February 2018 at the earliest. Nor does it seem useful for Ambassador Lighthizer to resume, in the interim, his public chastising of his colleagues for failing to swallow his poison pills.
It is painful to listen to Trump, Ross and Lighthizer about how badly the international trading system has treated the U.S. Whatever they say, don’t expect it to be based on in-depth analysis. Sound bites are far more important than substance – or truth.
TPP-11 vs. NAFTA 2.0
Canada held its ground in the TPP-11 negotiations at Da Nang. Prime Minister Trudeau’s rejection of Prime Minister Abe’s attempts to railroad his counterparts to a quick TPP-lite deal showed that Canadians too have cojones. Most important is that he stuck to his principles.
Those who are focused on other agendas were critical of the last minute “NON” to a quick and dirty deal.
Prime Minister Trudeau rocked a boat badly in need of rocking. The flack directed at the P.M. for standing on principle – and insisting better deal a better deal for Canada – was perplexing. This may be a preview for his December visit to China. But, bottom line, the criticism did not reflect a deep understanding of the issues.
Those who were at the closing TPP session at Maui know how Canada was forced to compromise in favour of the U.S. to help to reach closure.
Canada and Mexico had to fight back against the surprise “Maui Madness” of the automotive rules of origin “agreement” between Japan and the U.S.
Even after full court resistance these rules remained problematic. Japan would be subject to more relaxed ROO on automotive exports to Canada, than Canada would be into the U.S.
Canada was forced to accept reduced protection of its cultural industries to close TPP of Twelve. The demandeur was the U.S. Canadian cultural concerns were not an issue for the other ten.
The U.S. insisted on the generous market access for agricultural products granted by Japan and Canada. While the situation is unbalanced, neither Canada nor Japan has suggested a rebalancing in order to avoid re-adjustment should the U.S. decide to join the TPP.
Canada was not alone in supporting low level obligations on intellectual property in TPP of Eleven. The protection of data relating to biological pharmaceuticals was the last issue to be settled at Atlanta. Settled by capitulation to help Obama’s legacy aspirations – at the political expense of Senator Orrin Hatch (R-Utah).
The TPP Intellectual Property Chapter was heavily loaded in the U.S.’s favour. Ratification would require legislative changes with universal application. Support for suspension of such provisions was universal. There was little appetite for rewarding the U.S. for scuttling the TPP.
New Zealand, at Da Nang and meetings leading up to it, made major gains by avoiding extension of copyright protection from 50 years to 70. Suspended obligations have also benefited the N.Z. Pharmacare budget. These benefits were covered by the agreed list of suspensions – so they do not stand out in the same way as the Canada’s demands on culture and automotive rules of origin.
The U.S. dictated the terms of the TPP to a great extent and was a part of it until they threw it away as Trump discovered the benefits of one-on-one negotiations. The give and take of a negotiation among 12 parties does not easily or automatically translate into the TPP.
NAFTA negotiators will need to address issues expected to be suspended from TPP of Eleven. Incorporating TPP provisions into NAFTA, without question, payment or re-balancing makes no sense.
Important U.S. stakeholders have urged Lighthizer,
“While we recognize the Administration’s decision to withdraw from the Trans-Pacific Partnership earlier this year, we believe that the copyright provisions negotiated with Canada, Mexico, and other countries in that agreement provides the best framework for addressing copyright in NAFTA.”
Leaving these TPP provisions, drafted by the U.S. and modeled on U.S. law, alive and operational in TPP of Eleven would simply give the U.S. a freebee.
Canada was not alone in seeking changes to the TPP to reflect the absence of the U.S. Prime Minister Trudeau did not “screw” any of the other participants. N.Z. Prime Minister Jacinda Ardern noted that New Zealand supported Canada on changes related to culture. Vietnam and Malaysia wanted more time to meet TPP labour standards. Canada objected.
There are energy regulatory issues which require further consideration. Brunei and Malaysia are behind these initiatives.
Who was upset with Mr. Trudeau’s last minute stonewalling or as PMO would explain it – the Prime Minister’s refusal to be rolled so a deal could be signed to coincide with an APEC photo-op? Year after year President Obama targeted the APEC summit to announce closure of the TPP. Little has changed other than the number of participants.
Japan has already ratified the TPP based on the original text. There is absolutely no appetite in the Abe Cabinet to re-open the ratification legislation.
Early ratification of the TPP insulated Japan from anticipated U.S. demands for change – which could only work in Trump’s favour and cause Prime Minister Abe to lose face.
The latest push to the finish line by Japan suggests the need to move quickly because of uncertainties related to impending elections in Malaysia and Mexico. Japan needs to maintain a critical mass in TPP to enable it to avoid bilateral negotiations with the U.S. – a fate worse than sleeping in poison ivy.
Australia has been a strong supporter of TPP of Eleven. The prize for OZ would be increased access to Japan’s agricultural markets and Canada’s market for dairy products which would never have been possible if the U.S. had not been leading the charge for very generous market access concessions.
Impending opening of the Japanese market to the E.U. has increased the incentive for early closure of the TPP-11 in OZ and their inclination to blame Canada for wanting to take time to conclude a balanced agreement, which would not prejudice the much more important NAFTA 2.0 negotiations.
Peter Clark, president of Grey, Clark, Shih and Associates, is one of Canada’s leading international trade strategists. His clients in Canada and around the world include governments, corporations and trade associations. He is a frequent media commentator and columnist. Follow him on Twitter at @jpclark14