Contributing Lawyers

Canada

Cyndee Todgham Cherniak

United States

Susan Kohn Ross

Australia

Andrew Hudson



Are Canada and the Unitd States "Going it Alone" to Enhance NAFTA?

On February 4, 2011, Prime Minister Harper and President Obama plan to make an announcement (so we are told by The Globe & Mail) concerning the creation of a high level working group on border security and regulatory convergence. The goals of the working group are to prepare an agreement for signature in few months (may take longer than that) to (1) enhance border security, (2) share intelligence; (3) harmonize regulations for everything from cereal to fighter jets, and (4) create a bilateral agency to oversee the building and upgrading of bridges, roads and other border infrastructure. The topics of discussion are SECURITY and TRADE.

The question is: which is more important?

President Obama stated in the January 25, 2011 State of the Union address that he plans to double U.S. exports by 2014. This means the United States must improve the environment in which trade occurs. This will require removing obstacles to trade. If the United States creates an environment in which it can sell more to export markets, U.S. manufacturers will receive more orders. If U.S. manufacturers receive more orders, they must hire people to work in the factories. This means employment in the factories manufacturing the goods to be exported and in the factories manufacturing the business inputs. Since jobs are what is needed to get the economy going - my answer is that trade is more important.

Why is trade more important than security? Canada is a good friend of the United States and acts to protect its border. The threat on the northern border is low. Can there be improvements so that the trade can occur in a more secure trading environment? - yes Has the emphasis on security negatively affected U.S. manufacturers? I believe that answer is yes. That does not mean that security is not important? - It is. However, the higher you build the security fence with regulations and impediments to trade, the goals for economic growth fueled by increased exports cannot occur.

A reasonable solution is for Prime Minister Harper and President Obama to build on the significant trading relationship under the Canada-United States Free Trade Agreement and North American Free Trade Agreement (NAFTA). The agreement-to-be-reached should be viewed as an attempt to enhance the NAFTA (on a bilateral basis). Many provisions of NAFTA set out plans for enhancements (the NAFTA was never intended to be the final words on North American trade). Canada, the United States and Mexico previously attempted to enhance NAFTA in the Security & Prosperity Partnership. The Security & Prosperity Partnership was abandoned last year and attempt #2 starts with only Canada and the United States working out an enhancement deal.

The agreement-to-be-reached is curious in its timing. Canada is negotiating a free trade agreement (a Comprehensive Economic and Trade Agreement (CETA)) with the European Union. The next round of negotiations of the Canada-EU CETA will be in April 2011 in Ottawa. Still to be resolved in those negotiations are various regulatory matters. Could it be that the United States is concerned that it will have to follow the Canada-EU structure or that the EU structure will lead to greater regulatory divergence in North America? Could it be that the United States realizes that it must address serious regulatory divergences in North America immediately or face the prospect of signing on to a series of regulatory rules that they would not have negotiated (not being at the CETA table)? Could it be that due to the Canada-EU CETA negotiations, Canada has leverage in the Canada-US negotiations and there will be give-and-take?

There is also the GAO report that says the Canada-U.S. border poses security risks. The new NAFTA enhancements will address the security issue. I am not ignoring the security element, but we have heard this all before.

If the negotiators of the NAFTA enhancements focus on the trade objectives, they should be able to come up with an agreement that should meet the implementation requirements in both countries. The U.S. negotiators should be mindful that legislative changes will have to be passed within Canada's minority parliamentary system. Not overstepping in areas of Canadian sovereignty will be critical at this time if the U.S. wants to meet its goals of (1) increasing exports and (2) avoiding trade diversion/regulatory diversion that may be caused by a Canada-EU CETA.

Leave a Reply

remember my information