Trump Still Expected to Withdraw From NAFTA, but Congress Could Save Treaty, Canadian Trade Group Executive Says
There's been momentum in the NAFTA negotiations, but "we still think it is likely the president could withdraw," said Brian Kingston, a vice president with the Business Council of Canada. President Donald Trump has threatened to leave the deal (see 1708310011). The Canadian government has made a lot of diplomatic outreach in the U.S. Congress recently, and Kingston is hopeful that lawmakers would just sit on the request and not take action, he said during an event at Johns Hopkins University's School of Advanced International Studies on March 15. That would result in a "zombie NAFTA," he said. "Not an ideal outcome." An announcement to withdraw is really a six months' notice of withdrawal, and some believe the U.S. cannot end NAFTA tariff rates without a congressional vote to set replacement rates (see 1711150031).
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Even with progress at the negotiating table, Canada remains concerned about the U.S. insistence on a sunset clause, its stance on government procurement rules and the demand for higher North American content in cars and trucks. With regard to U.S. Trade Representative Robert Lighthizer's comments that he can compromise on rules of origin, Kingston said that any U.S.-specific quota would be a "huge administrative burden." In order to track content on a vehicle-by-vehicle basis, an official would have to go through the Harmonized System code down to the eight-digit level. "At that point, you're just better off going with MFN [most favored nation] and WTO [World Trade Organization]" tariffs, he said.
Both Canada and Mexico have meaningful responses to the auto rules of origin and sunset clause, he said, and he said, "cooperation between Canada and Mexico has been excellent in these discussions." The Mexican economy minister said March 15 that Canada and Mexico might have to ink their own agreement without the U.S., Reuters reported. But that would be very disruptive to Canada's economy,as exports from Canada to Mexico are barely over 1 percent of Canada's total export volume, while exports to the U.S. are 76 percent of all exports.
Kingston said Canada has long wanted to diversify, and the Business Council has urged that it should. "If you were a company, and one customer were responsible for 76 percent of your sales, that would be negligence," he said. But given the size of the U.S. market and its proximity to Canada, it's hard to strongly shift resources to exporting to Europe, Japan or China. Canadian NAFTA negotiators do their best to tune out Trump's tweets on trade with Canada, he said: "I've learned it's not healthy to get drawn into the day-to-day drama." On a day when reports emerged that Trump admitted to not knowing whether there's a trade deficit with Canada despite pressing the issue with Canadian Prime Minister Justin Trudeau, Kingston said at first Canadians felt the need to yell from the rooftops when Trump complained that Canada sells more to the U.S. than it imports from the U.S. (see 1802120034).