Tuesday, October 9, 2018

The USMCA - How the Trudeau Government Surrendered Canada's Trade Sovereignty

While some of Canada's mainstream media, particularly the Globe and Mail as shown here:

...is lauding the recent signing of the new USMCA trilateral trade agreement with the United States and Mexico, the devil, as always, is in the details, many of which have not been covered by the media.  Let's look at one particular Article that shows us how the Trudeau - Freeland negotiating team has sold Canada's trade sovereignty all in the name of striking a flawed agreement.

Here is part of what the Canadian government has to say about the USMCA:

"Canada, the United States and Mexico have reached an agreement on a new and modern trade agreement called the United States-Mexico-Canada Agreement (USMCA). This outcome will reinforce the strong economic ties between the three countries and support well-paying middle-class jobs for Canadians.

This modernized agreement maintains the tariff-free market access from the original NAFTA, and includes updates and new chapters to address modern-day trade challenges and opportunities. Since negotiations began in August 2017, Canada has engaged constructively and pragmatically with our USMCA partners – always intent on achieving a good deal for Canadians, not just any deal.

The agreement provides key outcomes for Canadian businesses, workers and communities in areas such as labour, environment, automotive trade, dispute resolution, culture, energy, and agriculture and agri-food. Importantly, the USMCA recognizes the importance of progressive and inclusive trade, and includes language on gender and Indigenous peoples rights.

The agreement also provides a secure and stable trade environment for Canadian workers and businesses, which is particularly important in light of the recent national security investigations launched by the U.S. on its automotive imports….

When it comes to disagreements, the USMCA continues to offer Canada legal avenues for recourse that are the same as NAFTA. This includes:

Preserving the use of binational panels to resolve disputes on countervailing and anti-dumping duty matters, which is critically important to preserving market access outcomes and defending Canada’s interests in trade remedy cases.

Preserving the state-to-state dispute settlement process of the original agreement, and to improve elements of this process including with respect transparency and expediency."

The entire United States - Mexico - Canada Agreement text can be found here.  The document consists of 35 Articles/Chapters most of which consist of multiple sections. 

Here's what we find in section 10 entitled "Non-Market Country FTA" under Article 32 which outlines "Exceptions and General Provisions" of the Agreement with a non-market country

"1. At least 3 months prior to commencing negotiations, a Party shall inform the other Parties of its intention to commence free trade agreement negotiations with a non-market country. For purposes of this Article, a non-market country is a country that on the date of signature of this agreement at least one Party has determined to be a non-market economy for purposes of its trade remedy laws and is a country with which no Party has a free trade agreement.

2. Upon request, the Party shall provide as much information as possible regarding the objectives for those negotiations.

3. As early as possible, and no later than 30 days before the date of signature, that Party shall provide the other Parties with an opportunity to review the full text of the agreement, including any annexes and side instruments, in order for the Parties to be able to review the agreement and assess its potential impact on this Agreement. If the Party involved requests that the text be treated as confidential, the other Parties shall maintain the confidentiality of the text.

4. Entry by any Party into a free trade agreement with a non-market country, shall allow the other Parties to terminate this Agreement on six-month notice and replace this Agreement with an agreement as between them (bilateral agreement).

5. The bilateral agreement shall be comprised of all the provisions of this Agreement, except those provisions the relevant Parties decide are not applicable as between them.

6. The relevant Parties shall utilize the six-month notice period to review the Agreement and determine whether any amendments should be made in order to ensure the proper operation of the bilateral agreement.

7. The bilateral agreement enter into force 60 days after the date on which the parties to the bilateral agreement have notified each other that they have completed their respective applicable legal procedures." (all bolds mine)

According to the United States Commercial Service, a "non-market economy" nation is defined as a foreign nation that does not operate on market principles of cost or pricing structures with the following factors to be considered by the U.S. government:

"(i) the extent to which the currency of the foreign country is convertible into the currency of other countries,

(ii) the extent to which wage rates in the foreign country are determined by free bargaining between labor and management,

(iii) the extent to which joint ventures or other investments by firms of other foreign countries are permitted in the foreign country,

(iv) the extent of government ownership or control of the means of production,

(v) the extent of government control over the allocation of resources and over the price and output decisions of enterprises, and

(vi) such other factors as the administering authority considers appropriate. 

It is clear that this provision is directly aimed at trade with China.  Let's say that Canada wishes to enter into a free trade agreement with a group of nations that includes China (or China on its own), one of the United States current "trade enemies".  Should Canada elect to proceed despite Washington's objections, under Article 32.10, the United States could give Canada six month's notice that would result in termination of the current USCMA which would be replaced with a bilateral agreement between the United States and Mexico, leaving Canada out in the cold.  This single provision means that Canada no longer controls its own trade agenda with other nations, most particularly China.  This is particularly pertinent as Canada is attempting to develop its trade with Asia, particularly in liquified natural gas (LNG); this single clause in a massive trade agreement could prove to be a roadblock.  This will prove to be problematic given that PetroChina, China's largest oil and gas producer and distributor has already approved its $3.46 billion share (15 percent working interest) of the $31 billion LNG Canada project.  PetroChina has already launched three LNG terminals in China and is counting on Canada's exported natural gas now and in the future.  Here is a video showing the signing of the joint venture agreement between the LNG partnership:

The construction and completion of this project is very important to the economies of both Alberta and British Columbia and will provide a significant alternative market for Canada's natural gas, outside of the United States, the current recipient of a growing volume of Canada's gas as shown on this table:

While the USMCA trade agreement still has to be ratified by the three participating nations, it's pretty clear that the Trudeau government's haste to sign an 1812 page-long trade deal at any cost will prove to be very costly to Canadian sovereignty.  Trade bullying has clearly worked in favour of the Trump Administration and its end run around Canada's trade sovereignty is just part of its plan to freeze China out of a very important source of energy.

Crystia Freeland - trade warrior indeed.

1 comment:

  1. It seems that China is currently purchasing a substantial amount of discounted Canadian crude/bitumen as low prices - no other markets. China will plan on continuing to buy oil from Canada but it wouldn't take much to lose this client and there are not that many - plenty of oil on the market (Iran, Saudi Arabia, Venuzuela and several other countries). Turdeau sold the boat but are we really surprised? Not at all!