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NAFTA round four: Turn on the charm, Trudeau

THE CANADIAN PRESS via iPolitics/Sean Kilpatrick
October 10th, 2017

It’s highly unusual for a Canadian prime minister to schedule a bilateral meeting with an American president at the White House while trade talks with the U.S. are being held in Washington at the same time.

But that’s the set-up for Wednesday’s meeting between Justin Trudeau and Donald Trump, which occurs as the U.S. hosts the fourth (and possibly pivotal) round of NAFTA talks with Canada and Mexico.

Trudeau also will meet with the 39-member House Ways and Means Committee, the rules-maker on trade in the House of Representatives. That’s a smart move — a necessary step in making Canada’s case to Congress and the states, as well as to the Trump administration.

Members of Congress know exactly how many jobs in their districts depend on exports to Canada: nine million. And two-thirds of U.S. states call Canada their biggest customer.

Trudeau might politely remind Trump of that, but the prime minister’s real objective is to get a sense of where Trump is coming from on NAFTA, and where he wants to go. Never mind the trash talk on Twitter about “terminating” NAFTA “at some point.” What are Trump’s real bottom lines?

Trudeau’s significant interpersonal skills have enabled a surprisingly positive relationship with Trump since their first White House meeting in February, and subsequent encounters during the NATO, G7 and G20 summits in Europe. Trudeau also had the presence of mind to call Trump and offer Canada’s help and best wishes in the wake of Hurricane Harvey in Texas.

Team Trump has made some big asks on rules of origin in the auto industry, which currently require 62.5 per cent North American content in cars and light trucks. The Canadian Press has reported that the Americans this week will demand 50 per cent U.S. content and 85 per cent North American content in vehicle assembly.

That benchmark would be challenging to meet — not only for Canada and Mexico but for the highly integrated North American auto and parts industry itself, which sends cars across the borders six or seven times during assembly. CP’s Joan Bryden spoke to Flavio Volpe of the Canadian Automotive Parts Manufacturers Association, who noted that “studies have found Canadian-produced vehicles already contain 63 per cent American content, while those produced in Mexico contain 40 per cent.” And a research note from Scotiabank Economics puts current North American content at 75 per cent.

If we’re already at 63 per cent U.S. content in Canadian assembly lines, Trump’s 50 per cent American ask might be acceptable to us, as would 75 per cent North American content (though not 85 per cent). That would give Trump bragging rights in the automotive and steel states of Michigan, Ohio and Pennsylvania — the three swing states that put him in the White House. After campaigning against NAFTA as “the worst trade deal ever,” Trump desperately needs a couple of wins in re-negotiating it.

But the Americans are also behaving boorishly on a number of stand-alone trade issues, notably aerospace and softwood lumber.

The U.S. Department of Commerce has slapped 300 per cent preliminary duties on Bombardier’s CSeries aircraft. Boeing, in its complaint against Bombardier, asked for only 80 per cent. In its first ruling, the Commerce Department hit the CSeries with a 220 per cent countervailing duty because the Quebec government took a 49.5 per cent interest in the project and Ottawa has made a $370 million repayable loan.

Adding insult to injury, the Commerce Department ruled that Bombardier dumped the price on its sale of up to 125 CSeries to Delta Airlines. Boeing wasn’t even bidding against Bombardier for the Delta deal and — except for the Boeing 737 — doesn’t even make single-aisle aircraft any more. But it doesn’t like foreigners invading American airspace, as Airbus did decades ago.

Boeing is bringing corporate hypocrisy to a new low. The U.S. Export-Import Bank is known as “Boeing’s Bank” because it receives about 40 per cent of the bank’s grants to subsidize sales to foreign airlines. And on the R&D side of the business, Boeing has for generations been the recipient of Pentagon largesse in developing military aircraft — like the 18 Super Hornets that Ottawa will not be buying for $6 billion as replacements for CF-18s as long as Boeing is trying to put Bombardier out of business.

And the CSeries isn’t just being built in Canada. Bombardier’s Belfast plant is the largest employer in Northern Ireland, and British Prime Minister Theresa May needs the support of 10 Northern Irish Unionist MPs to keep her minority Conservative government in office.

Trudeau also may wish to point out to Trump that Bombardier has an annual U.S. payroll of $2.4 billion, employing nearly 23,000 people in 10 states, including Learjet in Kansas and business jet service centres in several states.

On softwood lumber, the Department of Commerce put a 27 per cent preliminary countervail and dumping duty on Canadian imports in the spring. This is the latest eruption of a decades-old American grievance — that stumpage fees on Crown-owned Canadian forests constitute government subsidies of softwood exports to the U.S. Driven by the U.S. Lumber Coalition, the U.S. has been litigating on softwood for decades … and it keeps losing one case after another.

Softwood should not be an irritant in the middle of the NAFTA talks. There’s a do-able deal here: The Americans lift the preliminary duties in return for Canada accepting a cap on U.S. market share a few points below the 34 per cent in the last softwood lumber agreement, which expired in 2015. Call it 30 per cent — about where we are now, with demand ramping up to rebuild in Texas, Florida and Puerto Rico following the hurricanes.

Meantime, softwood might give Trudeau the opportunity to remind Trump that this is precisely the sort of situation the independent dispute settlement mechanism in Chapter 19 of NAFTA, carried over from the original Canada-U.S. FTA of 1987, was designed for. Thirty years ago last week, it was the deal-breaker for Brian Mulroney. So it is today for Justin Trudeau.

It’s not personal, Donald. It’s business. It’s the Canadian national interest; defending it is Trudeau’s job. Have a good meeting.

The views, opinions and positions expressed by all iPolitics columnists and contributors are the author’s alone. They do not inherently or expressly reflect the views, opinions and/or positions of iPolitics.

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