Contributing Lawyers

Canada

Cyndee Todgham Cherniak

United States

Susan Kohn Ross

Australia

Andrew Hudson



Early Signals that Obama Win Bad for Canada

The rumours have started and so has the fear - rumour has it that President-elect Obama will tie any U.S. auto aid to a repatriation of jobs from Canada and Mexico to the United States.  In other words, the United States will bail out the Big Three automakers only if they bail out of Canada (and Mexico).

If this should occur, President-Elect Obama will ignore history - at the time of the Canada - United States Free Trade Agreement and NAFTA, both Canada and the United States were signatories to the Auto Pact, which was designed to build a North American auto industry.  The North American auto industry flourished under the Auto Pact.  The Auto Pact ended after the EC and Japan took Canada to the WTO Dispute Settlement Body.  After a long fought battle at the WTO, the WTO Appellate Body determined that the Auto Pact was inconsistent with Canada's WTO obligations.  As a result, the Auto Pact had to cease.  The reason the EC and Japan took Canada to the WTO was to gain market access for foreign cars into the North American market.  The foreign cars have gained access and the foreign auto manufacturers are at the fore-front of energy efficient cars.  Hence, the current dilemma for the auto industry (along with the credit crisis - a crisis that has resulted from Wall Street greed).

In addition, any such condition to a bailout would be a prohibited subsidy under the WTO SCM Agreement.  Unfortunately for Canada, the damage would have been done long before the WTO dispute settlement process is complete.

Not only would such a bailout be contrary to the United States' WTO obligations, it would be contrary to NAFTA.  President-Elect has already signaled that he plans to renegotiate NAFTA - the rumour mill suggest that the renegotiation may be unilateral and one way.  In other words, the rumour is that the United States will take its own unilateral action without concern for the effect that their actions will have on the Canadian economy.

Free trade is not about gaining access to the markets of others at the expense of the economy of the conquered market.  Free trade is about mutual benefit to two or more parties to the agreement.  It is about giving and taking.

The future involving President-Elect Obama does not look rosy for Canada.  It will involve unilateral action, trade disputes and breaches of contractual obligations.  If the 2008 election was about "Change" - this "Change" is unfortunate for Canada.

On the bright side, there may be many investors lining up to bring NAFTA Chapter Eleven cases against the United States.  The only problem is the Big Three no longer have deep litigation pockets and will have a vested interest in the bailout.

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