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Liberal MP Eyking says government likely preparing for ‘fallout’ if NAFTA talks fail

By Derek Abma      

Others say the U.S. is unlikely to back out of free trade with Canada, due to self-interest.

Prime Minister Justin Trudeau and U.S. President Donald Trump pictured at the White House on Feb. 13, 2017. Photograph courtesy of Donald Trump's Twitter
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With the Donald Trump administration finally triggering the process for renegotiating the North American Free Trade Agreement (NAFTA), one high-ranking Liberal MP says Prime Minister Justin Trudeau is likely considering contingency plans should talks fail and Canada ends up without a free trade agreement with the United States, or an arrangement that’s far less favourable.

Liberal MP Mark Eyking (Sydney-Victoria, N.S.), who chairs the House International Trade Committee, said it would only make sense that officials in the Prime Minister’s Office (PMO) and other departments would be thinking about how to protect the economy should upcoming NAFTA talks fall apart and the Trump administration follows through on its promise to get out the agreement if it can’t extract satisfactory concessions from Canada and Mexico.

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“We have to do the best we can out there, fight the fight. … But what I see from the PMO, they’re also preparing for repercussions, fallout,” he said. “We’re very optimistic. We’re working very hard, especially with the United States. But there’s other departments saying, ‘How are we going to help communities adjust if the worst-case scenarios happen?’ ”

He added: “If this goes where we think it might go, there might be winners and losers.”

Liberal MP Mark Eyking, who chairs the House International Trade Committee, says the PMO is likely considering ‘worst-case scenarios’ for the upcoming NAFTA talks. The Hill Times photograph by Jake Wright

Mr. Eyking said he can’t say with certainty what is being talked about or planned by the prime minister. However, he thinks senior officials would be taking a similar approach to this as they have with the risks facing communities most affected by the recent decision by the U.S. to slap tariffs on softwood lumber from Canada.

“I can’t speak to exactly what’s happening in the PMO, but my sense is that [it’s similar to] what we’re doing with the softwood lumber industry,” he said. “We have to put on the best negotiations that we could ever do, but we also have to prepare for communities to adjust if things happen with NAFTA.

“I can’t say, ‘Well the PMO’s doing this or that.’ All I could say is that I’ve seen what they’ve been doing with the softwood lumber issue. They’re engaging, helping communities, helping industries adapt. So I can only assume that we’d be doing the same if anything else transpires within NAFTA.”

A CBC report last week indicated that cabinet was preparing an aid package worth almost $1-billion in response to softwood-lumber problems, which would include things like more employment insurance money for those losing their jobs and funds to help the lumber industry transition to more value-added products instead of just shipping raw lumber.

Mr. Eyking added that federal and provincial governments in Canada have a history of pitching in to help communities hit by economic crises, as happened in his area of Cape Breton, which in recent decades struggled as a result of its coal and steel industries collapsing. Keys to stemming the negative impact of this, he said, were government efforts to retrain workers and provide incentives for companies to locate there.

“Are we in Cape Breton in perfect shape now? No,” Mr. Eyking said. “But we went through a major transition, and without government intervention and help we would be a hell of a lot worse off.”

Mr. Eyking said he’s optimistic that a revised trade agreement with the U.S. can be reached, but added that it’s prudent to consider the alternatives.

“Our sleeves have to be rolled up with these negotiations, but we also have to be ready for what happens and have Canadians prepared,” he said. “We’ve got to be optimistic but you have to be realistic, too.”

Talks on NAFTA got closer last week after Robert Lighthizer was sworn in as the U.S. Trade Representative and the Trump administration sent a letter to Congress, triggering a 90-day consultation period that must occur before negotiations start. This sets the stage for talks to begin in late summer or early fall.

Foreign Affairs Minister Chrystia Freeland (University-Rosedale, Ont.) told reporters after news that the letter was sent that Canada is “ready to roll up our sleeves” and would take a “very thoughtful and very strategic approach” to the talks.

The PMO deferred questions about whether contingency plans were being considered in the event of failed NAFTA talks to Ms. Freeland’s office.

Alex Lawrence, a spokesman for Ms. Freeland, said an emailed response to this question: “Canada is ready to come to the table. Our trade with the United States is balanced, fair, and mutually beneficial. Any increase of trade barriers between our countries would significantly impact jobs in the United States, as well as in Canada.‎”

Former Foreign Affairs minister Lloyd Axworthy, pictured in this file photo. The Hill Times photograph by Jake Wright

Lloyd Axworthy, who was Foreign Affairs minister in the former Liberal government of Jean Chrétien, when asked about the possibility of the U.S. turning its back on free trade with Canada, said: “I think we’re so far from that. I think before that happens, there would be such a pushback in the United States itself—with U.S. industry, whether it be the auto industry, packaging industry, as so on, and even on wood and lumber. We have such an integrated economy right now.”

Warren Everson, senior vice-president of policy for the Canadian Chamber of Commerce, downplayed how much consideration needs to be given to the scenario of Canada losing its free trade relationship with the U.S.

“It’s a long way from where you are today to that. … It’s really out-there speculation,” he said in an interview last week.

U.S. Congress, he said, would have be involved in a U.S. withdrawal from NAFTA or to get out the previously agreed-to Canada-U.S. Free-Trade Agreement, which would take effect in the absence of NAFTA.

Mr. Everson acknowledged that free trade between Canada and the U.S. is not a given, considering the unusual political environment that has emerged south of the border. But he added that due to U.S. self-interest, policy-makers there would be unlikely to throw away their country’s trading arrangement with Canada.

“Canada would be economically very affected,” he said. “But let’s not kid ourselves; the United States is our biggest trading partner. We are the largest purchaser of U.S. goods and services in the world. … A sudden interruption in that liberal marketplace would be very, very severe for the United States economy as well.”

According to the federal government, Canada bought $426-billion worth of goods and services from the United States in 2016, and total bilateral trade between the two countries was $841.1-billion. It also says almost nine million U.S. jobs depend on trade and investment with Canada.

Adam Taylor, a trade consultant with Export Action Global who was a staffer to former Conservative Trade minister Ed Fast (Abbotsford, B.C.), said the government is likely considering contingencies for if free trade with the U.S. falls apart, but it’s probably not top of mind.

“In a world where there’s various scenarios, that’s probably, when all hope is lost, the scenario they would look to,” he said. “I would think in a world where you’ve got to have a Plan A, Plan B, Plan C, that might be Plan F, and therefore you’re not spending too much time yet on Plan F because you’re actually confident that Plan A or Plan B will ultimately prevail, so probably most of your resources are put into that.”

Mr. Taylor and others say the upcoming NAFTA renegotiations could actually be a positive development for Canada, as there are improvements that could be made for this country’s benefit, such as creating conditions for better labour mobility between the two countries.

“People travel much more frequently across our borders nowadays, and as long as we ease the movement of goods and services, we should also ease the movement of people,” he said.

Mr. Everson said Canada is probably looking for new provisions in the trade agreement that deal with the cyber-economy. For example, he said businesses can still get away with selling into another country’s market via the internet without paying taxes to that country if they don’t have a physical presence there.

He added that Canada would probably like to include in NAFTA some of the provisions regarding intellectual property that were in the Trans-Pacific Partnership (TPP), which appears to be dead following Mr. Trump’s revoking of U.S. support for that trade agreement upon taking office earlier this year.

Mr. Eyking agreed that the renegotiation of NAFTA could be an opportunity for Canada.

“Every deal or arrangement sometimes has to be relooked at. I think the hardest part is how it’s happening and why it’s happening,” he said. “I think if you knew what was coming in a different way, and it wasn’t so politicized in the United States, then maybe there would be a little more civilized approach to it.”

Mr. Eyking said he’s heard from Canada’s sugar industry that it struggles to compete in the U.S. because that sector is heavily subsidized on the other side of the border. As well, he said Canadian exporters of pork and beef say they regularly face difficulties with unnecessary inspections when sending their products to the U.S. that food producers in that country don’t experience when sending products this way.

Many watching this NAFTA situation unfold say Canada is and should be creating allies in the U.S. who can make the case to the Trump administration about just how important trade with Canada is.

Mr. Eyking said members of the Trade Committee have been making frequent trips to the U.S., and he was recently part of a delegation that made stops in states like Washington, Colorado, and California.

“We’ve been reaching to [U.S.] Senators, Congressmen, governors, in these regions that do a lot of business both ways with Canada,” he said.

Mr. Eyking said he also met with representatives of the private sector, such as the California Chamber of Commerce, which was reminded of things such as that Canada is the state’s top export market for wine.

“It’s a meet-and-greet, it’s reaching out a hand, but also reminding them of the business that goes back and forth,” he said.

Consultant Adam Taylor says the Canadian government is reaching out to U.S. lawmakers and businesspeople to bolster its position in trade talks. Photograph courtesy of Adam Taylor’s LinkedIn

Mr. Taylor said federal officials are systematically targeting federal and state lawmakers and essentially conducting a “data dump” on them of numbers that show just how important Canada is to the U.S. in terms of trade.

“The messages are: ‘We’re your No. 1 customer and if you put tariffs on us, it hurts you,’ ” he said.

He said government is also “activating” American business leaders to make the case to U.S. policy-makers for an integrated economy with Canada. As for how important this can be, he brought up the recent case where Mr. Trump seemed poised to withdraw from NAFTA only to be talked out of it, at least partially, from phone calls with Mr. Trudeau and Mexican President Enrique Peña Nieto.

“We heard a rumour that … in fact the White House switchboard and Congressmen and other influential lawmakers got bombarded by American business interests saying, ‘Don’t do this; this will be bad for us.’ ”

Referring to a meeting Ms. Freeland had with U.S. Commerce Secretary Wilbur Ross last week, Mr. Taylor said the Trudeau government seems to be trying to establish “personal rapport” with the Trump administration in hopes that it works to Canada’s favour in trade talks.

Mr. Taylor said this follows the Brian Mulroney way of “how to do business in D.C. … It’s a piece of advice that I think worked well in [Mr. Mulroney’s] time, but it doesn’t work as well in a world where there’s just so many competing interests and there’s a complete local sort of focus. If all politics is local in the best of times, in these times it’s more so.”

dabma@hilltimes.com

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