A U.S.-led effort to renegotiate NAFTA could see supply management scrapped, but that’s just the beginning, say two Canadian commentators.
Speaking separately at the Canadian Global Crops Symposium April 12, the National Post’s Andrew Coyne and Dalhousie University’s Sylvain Charlebois both said the North American Free Trade Agreement could provide the pretext for major changes in agriculture and the economy at large. NAFTA, which includes Mexico, took effect in 1994, superseding the Canada-U.S. Trade Agreement of 1988.
“(NAFTA) is probably the biggest single, short-term issue facing this (Canadian) government,” Coyne told the conference of more than 200 grain industry members.
“If the Americans demand we get rid of supply management, I for one will not be shedding many tears.”
Sylvain Charlebois expects that’s exactly what the Americans will do.
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“They know right now supply management is under a lot of stress,” Charlebois, Dalhousie University’s dean of the faculty of management said in his end-of-conference address.
“Supply management now is a mess just because of the tensions going on around NAFTA, around protein dairy coming into the Canadian market, CETA (European Union trade pact) is creating a breach in the quota system,” he said.
“There’s no direction, there’s no strategy and the Americans know that. They want to take advantage of that I think.
“NAFTA will become a major catalyst for change.”
When running for president, Donald Trump threatened to “tear up” NAFTA if a better deal for the U.S. isn’t reached. After the election Trump said the trade agreement would only be “tweaked.” But depending on who is speaking in the Trump administration there could be a “fundamental overhaul,” Coyne said.
Charlebois says it’s the latter, based on U.S. Commerce Secretary Wilbur Ross’s comments last week.
“We are starting to see that NAFTA 2.0 is not just going to be a change on the cover, there is going to be more,” he said. “It is going to be more substantive.”
Former prime minister Brian Mulroney delivered a similar message to the federal cabinet April 6.
Charlebois and Coyne agree Canada must be prepared.
“It is not inconceivable that we could get demands at that (negotiating) table that we can’t accept,” Coyne said. “And if we can’t accept them then we’ve got to be able to walk away from the table. And if we walk away from the table they may call our bluff and abrogate the agreement. So we’ve got to decide what’s worth keeping in NAFTA. Is it worth keeping at any price?”
For example, Peter Navarro, who heads the White House’s new National Trade Council, has said in any future American trade agreements the U.S. should be able to trigger renegotiations the minute the U.S. goes into a trade deficit, Coyne said.
The U.S. might demand Canada put a floor under its exchange rate or press Canada into a customs union to create a common trade policy, preventing it from making its own trade deal with China.
Trump bombed Syria to make a statement, Charlebois said.
“That’s the kind of presidency we are dealing with right now,” he said. “So if we are not careful we can pay dearly. I know you guys aren’t in livestock but still it’s going to affect your business down the road for sure.
“So NAFTA matters a lot. I think it matters a lot more than what Mr. Trudeau envisions. I think there’s more at stake.”
Canada’s ability to negotiate the Comprehensive Economic Trade Agreement (CETA) with the European Union, in part, came from having all the provinces involved, Charlebois said. The same should occur with NAFTA.
“We need to be clear about what we need to sacrifice,” he said.
Most economists agree NAFTA has been overall good for all three signatories, including Mexico.
The federal government says merchandise trade, as measured by the total of each country’s imports from its other two NAFTA partners, exceeded $1 trillion (U.S.) in 2015 — more than a threefold increase since 1993. Canada-U.S. trade in goods and services alone was nearly $881 billion last year.
Reform not abolish
Charlebois said supply management has prevented Canada from becoming a global player in world agricultural exports. But unlike Coyne, Charlebois says it needs to be reformed not scrapped.
“Abolishment would be a travesty I think,” Charlebois said.
Instead of basing returns to dairy farmers on average production costs, use top performers, he said.
Canada has 11,000 dairy producers and some are inefficient, Charlebois said.
Under CETA Canada is required to allow imports of 18,000 tonnes of cheese. Because of that and other changes the World Trade Organization should allow Canada to export dairy products, he said. In the past the WTO has refused on the grounds that supply management is seen as a type of subsidy. Although the money doesn’t come from government, the policy restricting dairy imports, which keeps prices up, does.
Canada would need 18 to 20 years to wind down supply management, Charlebois said.
“There is $30 billion worth of quotas out there,” he said. “A lot of it is financed by us — FCC (Farm Credit Canada) is one creditor so you have to be careful.”
After 45 years of supply management, it’s time Canada realized it can’t be protectionist and pro-trade, Charlebois said.
“Either you commit to trade or you don’t.
“The problem with Canada is we want to talk on both sides of our mouth.”