Negotiators of the original Canada-US FTA knew that constant well-publicized announcements are not the way to go, writes Stanley Hartt. They’d also have other tips for today’s NAFTA talks.
By Stanley Hartt, Oct. 27, 2017
For those of us who participated in the negotiations of the original Canada-US Free Trade Agreement (FTA), the serial public announcements telling us that negotiators would be meeting for various of the planned seven rounds of North American Free Trade Agreement (NAFTA) talks have been jarring. The whole concept of negotiating in public is inimical to the kind of horse trading that has to go on between countries whose interests diverge, however friendly and united they may be in their common objective of modernizing the 23-year old treaty.
Setting up the news media by pre-arranged appointments to “negotiate” invites the need to comment about “progress.” But negotiations don’t work that way; they don’t advance by small increments until a perceptible “whole” emerges; tiny, unimportant issues can be resolved and put in the bin for signed-off and agreed clauses, but all of the important provisions will be discussed and debated, and consensus withheld until each side gets the most of what it expects or hopes to achieve.
Thus, the agreement is done when it is done and watching it in its stages of gestation is even less useful than waiting for a pot of water to boil. In this case, it may actually prevent it from ever achieving that state. The reason for this is simple: the issues between the three amigos can be quite contentious. Yes, a good deal needs to be good for all participants, but not every concession to gain a desired advantage is popular with every constituency back home. Speculation about such things won’t help earn negotiators the support of those affected.
Not every concession to gain a desired advantage is popular with every constituency back home.
And that is true even when all parties are in fact trying their best to achieve a common goal. One never knows with President Trump, who has vigorously promised to tear up the document and the relationship in pursuit of a better deal for the US. But it is a certainty that selective “announcements” about the subject matters to be discussed in the first, second, third or what-have-you round, together with speculation about the demands of one side or the other, is the antithesis of how to ensure public endorsement for the process or the end product.
During the FTA process, by contrast, numerous groups of industry and subject matter experts beavered away in total and utter discretion about vastly contentious issues with no thought whatsoever about feeding the media machine with regular updates. Intensive consultations were carried on with a very large variety of interested parties, from industry associations, to consumer groups and trade experts to estimate the impact of this or that potential outcome, but absolutely outside the glare of regular publicity.
In fact, back then, the only memorable departure from this sensible practice of remaining under the radar was the entirely stage-managed walk-out of Canadian negotiators. Simon Reisman, our hard-nosed and time-tested chief FTA negotiator, recommended the move when he sensed that Peter Murphy, the chief negotiator for the Office of the US Trade Representative, was not treating the remaining unresolved matters with the urgency that was required if we were to meet the deadline mandated by the fast-track authority Congress had given to President Reagan. Simon, who had famously once stubbed his cigar out on the desk of US Treasury Secretary John Connally (the desk had originally belonged to Alexander Hamilton), knew that we needed to generate some political will behind the FTA or it would not get done. It worked. Then Vice-President George H.W. Bush was dispatched to Ottawa to assure Prime Minister Brian Mulroney that the US would do whatever was necessary to finish the job. A new team was assembled on each side, Canada’s led by the Prime Minister’s Office Chief of Staff Derek Burney and the Americans’ by Treasury Secretary Jim Baker. The rest is history.
Back then, the only memorable departure from this sensible practice of remaining under the radar was the entirely stage-managed walk-out of Canadian negotiators.
So what would Simon do in the current atmosphere? Here is what I believe Simon would say:
- Stop negotiating in public. Stay in continuous session and don’t lure the press into expecting newsworthy breakthrough or breakdown sound bites from what is essentially a snail-like process of groping towards a sensitive combination of concessions and compromises.
- Read Understanding Trump, Newt Gingrich’s new book about how to deal with the President’s special personality. Take away the lesson that confronting “The Donald” nose to nose is a bad strategy. He loves (needs) victories that he can claim are his idea. Help him appear to keep promises.
- So, for example, if the US is demanding that a greater proportion of the content of autos and auto parts originate in North America and that an unsustainable proportion of these are from the United States itself, prepare a small victory for the President by starting from the proportions satisfying the current Rules of Origin requirements and enhance slightly the North American requirement, but make no concession as to US content.
- Then, make it a condition that to be eligible to be counted in this newly available potential space, the country of actual origin would have to meet certain criteria under the two supplements to NAFTA, originally added at the insistence of President Clinton as a condition of proceeding with ratification of the treaty negotiated under his predecessor, Bush 43, the North American Agreement on Environmental Cooperation (NAAEC) and the North American Agreement on Labor Cooperation (NAALC).
- This would have two effects: One, it would give our current Liberal government the ability to say that two of its priorities had been given greater standing by becoming incentives instead of nice-to-haves. Second, it would ensure that Mexico actually had to step up to the plate in order to enjoy the investment in plant and equipment it has benefitted from otherwise by maintaining a low wage economy and third world environmental standards. The incentives would have to be realistic and could be set up to increase over time, so as to ease Mexico into a more level competitive playing field. Opportunity for Mexico, modest victory for Trump, and potential benefit for Canada.
- On the US demand that we rid ourselves of our dairy, poultry, turkey and egg marketing boards by 2027, and that we massively increase quotas for imports on those products from the US in the meantime, remember that we faced a similar starting position in the Trans-Pacific Partnership (TPP) where we managed to persuade our 13 partners that the expectations needed to remain within the Earth’s gravitational pull. We ended up with a quite acceptable concession of 3.25 percent of market share.
Think of how the wine industry flourished after the FTA and NAFTA and how the grain industry adapted to the abolition of the Canada Wheat Board.
- Rather than respond with phrases like “outrageous” and “non-starter,” we should be quietly assessing the benefits to Canadian consumers if a combination of enhanced foreign imports available in our country and reciprocal dismantling of price support measures practiced by the Americans were to be simultaneously applied. It is clear that the immediate disappearance of our supply management regimes would be a very difficult political sell, but remember that the Australians accomplished exactly such a goal by purchasing the quotas of dairy farmers at fair market value. This might be impossible to achieve in one fell swoop given the size of the cheque that would be required. But adjustment measures to ease the burden on affected industries should always be included in our calculus of whether to offer some more modest mechanism to increase US access while preserving and even enhancing the efficiency of our industry and the profitability for its participants.
- Think of how the wine industry flourished after the FTA and NAFTA and how the grain industry adapted to the abolition of the Canada Wheat Board. Above all, get something huge in exchange for any significant concession on this issue, say the preservation of the existing regime in Chapter 19 (Dispute Resolution), on which more below.
- Free Trade is meant to be free trade, so accommodation on actually enhancing the competitive access for our partners in industries like the ones referred to above needs to be exchanged for the abandonment of proposals that actually are not free trade.
- Canada should expect the Americans to bend on US proposals for “Buy American” protectionism for public works projects; a proposed sunset clause, which can be used to bully partners into fearful concessions if some future US Chief Executive threatens to pull the rug out from under the entire relationship; and, above all, the demand that US Courts be the place where US adherence to its own trade laws be tested, rather than the independent international dispute settlement panels. The price should be our willingness to actually increase the “F” and the “T” in NAFTA.
- The natural protectionist instinct in America will never entirely dissipate and the Chapter 19 panels have proven their worth indescribably, which is why the Trump trade representative is trying so hard to eliminate them. Not to put too fine a point on it, the record shows that, as early as 1991, the US administration had succumbed to political pressure where, in order to “encourage” three Senate votes in favour of extending fast track negotiating authority, it had agreed to request an Extraordinary Challenge Committee (a review on alleged errors of law and the only form of “appeal” from otherwise binding Chapter 19 bi-national panels) where three retired justices (two Canadian, one American) unanimously ultimately rejected the proposed countervailing duties on Canadian pork.
- This highly-politicized interpretation of American law is precisely what the panels were created to protect against and Canada should insist on retaining (and even be willing to trade for, as long as the price is freer access to markets in all three countries, including ours).
Stanley Herbert Hartt, OC, QC is a lawyer, lecturer, businessman, and civil servant. He currently serves as counsel at Norton Rose Fulbright Canada. Previously Mr. Hartt was chairman of Macquarie Capital Markets Canada Ltd. Before this he practised law as a partner for 20 years at a leading Canadian business law firm and was chairman of Citigroup Global Markets Canada and its predecessor Salomon Smith Barney Canada. Mr. Hartt also served as chairman, president and CEO of Campeau Corporation, deputy minister at the Department of Finance and, in the late 1980s, as chief of staff in the Office of the Prime Minister.