Trudeau government should concede on key NAFTA issues for the benefit of most Canadians

According to U.S. officials, if Canada does not reach a deal with the United States for a trilateral NAFTA pact by September 30, Washington will proceed with a Mexico-only agreement, leaving Canada out in the cold.

As often happens in trade talks, several obstacles stand before a new agreement including the Trudeau government’s reluctance—mindful of the Quebec election on October 1—to dismantle even a modest part of Canada’s supply management system, which slaps tariffs on imports of staple foods such as milk, eggs and poultry.

Canadian trade negotiators also reportedly refuse to lengthen the period of data protection for biologic drugs, insist on protecting Canada’s cultural industries, and remain attached to the current NAFTA dispute resolution process.

Strong industry groups such as the Dairy Farmers of Ontario are pressuring Ottawa to resist U.S. demands on these issues, arguing it’s in Canada’s national interest not to back down. However, the self-interested nature of their arguments is obvious. Dairy farmers in Canada benefit from high prices delivered by supply management; generic drug manufacturers benefit from shorter periods of data exclusivity granted to branded drug manufacturers; and Canadian copyright holders benefit from broadcasting regulations that restrict the supply of foreign programming distributed in Canada.

Whenever industry groups invoke “national interest” arguments to defend the economic advantages they enjoy (courtesy of government regulations), skepticism from the public is justified.

Consider this. Canadian consumers would clearly benefit if the government dismantled barriers to imported dairy products. The price of milk in Costco stores near Buffalo, New York is about half the price of milk sold in Costco stores in Ontario.

Conversely, strengthening the position of Canada’s generic drug companies to compete against U.S. branded manufacturers would likely lower drug prices in Canada, since it would facilitate earlier entry of generic substitutes into the marketplace. But it’s not clear that this potential gain, which might be offset over time by reduced access to new drugs, should torpedo a new agreement. And the fact that Canada agreed to lengthen its period of data protection in the free trade agreement signed with the European Union is not lost on U.S. trade negotiators.

On the broadcasting front, as more programming content is distributed over the Internet, the effort to protect Canadian content will increase government intrusion into consumer decisions about their online news and entertainment choices. Any serious and effective government initiative to control available Internet content in Canada raises obvious threats to the democratic process.

Finally, Canada’s love affair with an efficient dispute resolution process is certainly justified. Even before President Trump entered the White House, U.S. abuse of its anti-dumping, countervailing duty and safeguard statutes was commonplace. However, the president has multiple statutes at his disposal to limit trade (and has shown a great willingness to use them). A new dispute resolution process will not cover them all—certainly not the powers grounded in “national security” or “national emergencies.”  When abuses occur, the Canadian government can either launch a case in the World Trade Organization or resort to retaliation, as it has already done in response to U.S. tariffs on steel and aluminum imports.

If Canada can’t strike a deal with the U.S., the economic fallout will be severe—a short-term devaluation of the Canadian dollar and a long-term loss of investment and commercial opportunities to Mexico. As politically difficult as it might seem, Canada should compromise on the remaining stumbling blocks, not only to conclude a new trade agreement, but to benefit most Canadians.