LexSage

What Will Trudeau Talk To Trump
About?

February 12, 2017

On February 13, 2017, Prime Minister Trudeau will travel to the United States to visit with President Trump. The most important topic for discussion is the Canada-United States relationship. The most important goal is to ensure that trading relationshiop remains strong.

This is a fun post, which is based on trade issues between Canada and the United States at the present time.  It is not intended to pick sides or criticize any leader or country. To lighten the mood, I will set out the trade issues in an ABCs format.

A = Autos – Auto jobs must be protected on both sides of the border.  There in an integrated automobile industry involving Canada, the United States and Mexico. There are integrated supply chains that have been developed over many years.

B = Buy North America – Any Buy America provision envisioned by President Trump should treat Canadian manufacturers the same as U.S. manufacturers.  Many manufacturers and distributors have bi-national operations which compliment and supplement each other.

C = Canada – Prime Minister Trudeau will discuss how Canada and the United States cooperate with each other, compliment each other and co-exist.

D = Defence – Defence of the North American perimeter is a military issue, a foreign policy issue and a trade issue.  Prime Minister Harper and President Obama worked hard to establish the North American perimeter so that trade could flow securely and efficiently across the Canada-United States border.  It is critically important for Prime Minister Trudeau and President Trump to find common ground on joint defence – otherwise, cross border trade will be negatively affected. It many be necessary to develop another security program (beyond FAST, NEXUS, C-TPAT, PIP, pre-clearance, IBETs, ghost rider, etc.) – not because safety is an issue, but President Trump may have his own ideas.

E = Exemption – Any border adjustment tax should contain exemptions for Canada.  For example, there should be an energy exemption.  Energy should not be subject to a border adjustment tax as that would increase the costs of U.S.-made goods (manufacturers are significant users of energy) and the costs for U.S. consumers.

F = Farmers – Both countries want to protect the livelihoods of their farmers.  The three large trade issues are (1) supply management (the United States wants it gone), (2) country of origin labeling (the United States wants it reinstated), (3) the Farm Bill (the United States wants to subsidize its farmers).

G = Government Procurement – Both Prime Minister Trudeau and President Trump have announced infrastructure projects.  NAFTA Chapter 10 (Government Procurement) could be advanced to include state/provincial and local procurements.  This would allow Canadian companies to bid on US infrastructure projects and American companies to bid on Canadian infrastructure projects.  It also would allow companies to operate cross-border (many of the big infrastructure firms and steel companies have operations in Canada and the United States).

H = Harmonization of regulations – Canada and the United States have been talking about regulatory cooperation for years.  President Trump has announced that he would like to reduce regulations that impede business.  This can be beneficial for Canadian businesses.  Deregulation and harmonization of regulations can benefit companies in both countries and improve two-way trade flows.

I = Import Taxes – The border adjustment tax and import tax proposals being discussed in the United States would be particularly detrimental to integrated Canada-United States trade and businesses/jobs/the economy.  Import taxes would affect businesses across the country/across the board.  For that reason, the border adjustment tax/import taxes are the single most important trade issue facing Canada.

J = Jobs – This is easy – both Canada and the United States would like new jobs to be created.  The question is whether there can be mutually beneficial job-creating trade policies for both countries. The answer to this question is “YES”.

K = Keystone XL – Prime Minister Trudeau should discuss with President Trump Keystone XL, which was recently given the green light by President Trump.  An application has been submitted by TransCanada Pipeline.

L = Labour Mobility – The Labour Mobility chapter of NAFTA allows a limited number of categories of Canadians and Americans to work in the other country without a visa. The categories can be expanded.  For example, actors are not a category that can enter without a valid visa.

M = Mexico – Mexico is a party to NAFTA.  What Canada needs is for trade to continue even if the U.S.-Mexico trade relationship hits major bumps in the road.  It is possible for Canada and the United States to remain NAFTA partners if the United States and Mexico separate and head towards a contested divorce.

N = NAFTA – President Trump would like to renegotiate NAFTA.  There are many areas where NAFTA can be improved, such as rules of origin, e-commerce, intellectual property, energy, services, labour mobility, investment dispute settlement, etc.

O = Oil – The United States needs Canadian oil so that it becomes less dependent on Venezuela and Saudi Arabia (more unstable supply sources).  Prime Minister Trudeau has approved two pipeline projects.  President Trump has signaled he will approve two stalled oil pipeline projects.  These projects will result in jobs in both countries.

P = Protectionism – President Trump’s “America First” platform is a protectionist platform.  Protectionist policies have short-term gains and long-term problems.  The key topic for discussion will be how to maximize short-term gains for both countries (and improve re-election opportunities) while minimizing long-term problems for Canada and the United States.

Q = Quotas – As a result of NAFTA, quantitative restrictions (quotas) on most trade between Canada and the United States has ceased.  That being said, the supply management regime involves quotas on dairy, cheese, eggs, and poultry.  In TPP, Canada offered greater access for supply managed products.  The United Stated negotiated for higher quota limits. The United States will want those concessions even though President Trump has announced that the United States will not ratify TPP.  The position of the United States will be that either supply management must end or greater access must be granted to U.S. products.

R = Rules of Origin – The rules of origin in NAFTA can be revisited.  There are many cases where U.S.-made goods do not enter Canada duty-free and the rules can be revisited to improve market access for goods.  There are categories of sensitive goods (such as autos) where the rules may become more restrictive to the benefit of both countries. The rules of origin in the Canada-EU CETA and TPP moved from the 62.5% regional value content in NAFTA.  It is possible to improve the NAFTA rules of origin on autos without upsetting the existing North American supply chains.

S = Softwood Lumber – The next round of the softwood lumber dispute is underway.  Can a permanent solution to the softwood lumber dispute be part of a renegotiated NAFTA?

T = TPP – The United States has officially notified the TPP countries that it will not ratify the Trans-Pacific Partnership Agreement.  TPP is still important to the NAFTA renegotiation.  Some of the hard work on improving NAFTA has already been undertaken in the TPP negotiations and text.

U = Unions – President Trump has met with union leaders.  Prime Minister Trudeau is friendly with unions and wants the union vote.  The issue of the Labour Side Agreement to NAFTA will be important in the NAFTA renegotiation.  Free trade agreements (in both Canada and the United States) after NAFTA include labour protections as a chapter in the main agreement.  Labour and jobs go hand in hand.

V = Vetting Process – The immigration vetting process presents a trade issue. If President Trump is at all concerned about Canada’s vetting process, there can be thickening of the border.  Prime Minister Trudeau has indicated a willingness to increase immigration from the 7 countries at the centre of President Trump’s Executive Order.  President Trump is going to be clear that trade will be affected should Canada’s refugee and immigration plans proceed without extreme vetting. This is going to be a difficult subject and President Trump will be clear – “Security Trumps Trade” (no pun intended – well maybe).

W = Wine – The United States has filed a case recently with the World Trade Organization involving British Columbia legislation giving B.C. wine an unfair advantage in designated grocery stores.  Ontario may be next.

X = X-border trade – The core discussion will be about cross-border trade.

Y = Yes – “Getting to Yes” will not just be a famous book, it will be the slogan for Canada-US trade discussions. Both Prime Minister Trudeau and President Trump will want mutually beneficial solutions to show that they are the leaders who take action to create jobs.  The most progress will be made where both leaders can find common ground quickly.

Z = ZZZZZZ – Does President Trump sleep?

For more information about Canada-U.S. trade, please contact Cyndee Todgham Cherniak at 416-307-4168 or cyndee@lexsage.com.  Cyndee has a LL.B. degree from Canada, a J.D. Degree from the United States and a LL.M. Degree in international trade law in Canada.  Cyndee has taught a course about NAFTA at Case Western Reserve University School of Law and a course in Trade Regulation at the University of Windsor, School of Law.  Cyndee is on the Advisory Committee on the Joint J.D./J.D. law degrees of the University of Windsor and University of Detroit Mercy.