The Trudeau government deserves credit for holding the Trump administration to a draw in the U.S. assault on free trade. In the current climate, dispute settlement is the most important section any free trade agreement can have.
But 13 months of negotiations leading up to the Sept. 30 agreement for a revised North American Free Trade Agreement trade pact is likely to be only the first round in a litany of trade disputes with Washington.
There have been signs of a prolonged dispute already. Five days before Canada and the U.S. finally settled on the U.S./Mexico/Canada Agreement (USMCA) on trade, Ottawa quietly laid down a gauntlet that could not have pleased the White House.
Ottawa released an eight-page document that could be called either a proposal or a manifesto, depending on your point of view. That document is aimed at reinforcing the World Trade Organization (WTO) and shielding it from non-stop attacks by the Trump administration.
The document, Strengthening and Modernizing the WTO, calls on like-minded nations to forge an alliance “to restore confidence in the multilateral trading system and disparage protectionist measures and countermeasures.” In other words, “Trump-proof” the WTO.
Although the WTO is a U.S. creation, the Geneva-based international trade arbiter clearly is on Trump’s hit list.
Trump is threatening to quit the WTO. He continually attacks the organization as being biased against U.S. interests.
Washington is progressively undermining the international dispute-settlement system by refusing to nominate judges to sit on the WTO appeals tribunal – a tactic that could bring the trade organization’s dispute- resolution process to a halt. If that happens, the Trump administration will be free to use any protectionist tactic it wants.
So, the language in Canada’s document will be regarded by the U.S. as fighting words.
The document also will be on the agenda when trade ministers from the European Union (EU) and a dozen other WTO members meet in Ottawa on Oct. 24-25. So far, the U.S. and China have not been invited to that meeting.
A crippled WTO matters to Canada and all trading nations. China is locked into an unwarranted trade war that the Trump administration started. Canada is fighting U.S. steel and aluminum tariffs, as well as a long-standing dispute with Washington over softwood lumber. A thwarted WTO appeals process would prevent Canada from winning final decisions and relief from U.S. duties.
It’s easy to see why Washington would like to see the WTO dispute-resolution process gone. The U.S. has been hauled before the WTO more than any other country – 150 times since the trade body was created in 1995 – and lost 87% of the time.
Canada appears to be taking the lead in protecting the world’s trading rules.
In December 2017, Canada hauled the U.S. before the WTO over Washington’s constant use of countervailing and anti-dumping duties against its trading partners.
Nominally, the complaint was about softwood lumber. But Canada’s complaint appears to have been made on behalf of the rest of the world, citing 200 examples of alleged U.S. wrongdoing against other trading partners, such as China, India, Brazil and the EU.
With the exception of China, Canada seems to be the only nation not afraid of Trump’s wrath.
On a less noble front, the Trudeau government won’t mind being seen before next year’s federal election as our nation’s defence against Trumpist imperialism.
But there’s one obscure section in the USMCA that could be troublesome: Section 32 imposes reporting conditions for new trade deals with “non- market countries,” giving USMCA partners the right to vet any resulting agreement. Canada could be forced out of the USMCA if the other signatories don’t like an agreement with a non-market country.
“Non-market country” generally is understood to refer to China because of its government-controlled economy and Trump’s animosity toward it. So, does the USMCA interfere with Canadian sovereignty if Canada wants to do business with China?
Trudeau simply says Canada still is looking for trading opportunities with China.
A free trade deal with China is likely to take most of a decade to negotiate, and Trump will be gone by then. Ottawa probably is banking on time and a changed political climate to clear the way for free trade with China.