What does a new NAFTA really mean for Canada?
TORONTO -- The changes to the North American free trade deal pushed through by U.S. Democrats Tuesday bring such “serious and major changes,” mostly aimed at lifting labour and environmental standards in Mexico, that it should be called NAFTA 3.0, says a Canadian business professor.
Experts had been referring to the deal as NAFTA 2.0, expecting updates and tweaks to the agreement first signed in 1993, says Ian Lee, an associate professor at Carleton University.
But when the text of new agreement was released Tuesday, after the Democrat-controlled House of Representatives secured key changes, it was clear this is a “wholesale revision,” Lee told CTV’s News Channel.
The major changes are:
-complaints about labour or environmental violations will be heard by panels of independent experts rather than delegates of other governments;
-single violations are punishable, where the current deal said they have to be “sustained or recurring” in order to invoke penalties;
-strengthens enforcement of protections for freedom of association and collective bargaining in workplaces, with both Canada and the U.S. establishing “rapid-response mechanisms”;
-burden of proof is reversed, so that’s now presumed that a labour or environmental violation affects trade and investment, requires responding government to prove otherwise;
-creation of an interagency committee that will monitor Mexico’s labour reform;
-established key benchmarks for Mexico’s labour reform implementation process;
-enhanced rules of origin requiring any steel used in auto-making to be “melted and poured” within the free trade zone, which is expected to benefit the steel industry in Canada and the U.S.;
-abandoned a provision that would have extended protection for exclusivity on pharmaceutical biologics from eight years to 10 years.
That last change will save Canadians and their healthcare system an estimated $169 million a year thanks to reduced drug prices, according to the Parliamentary Budget Officer.
Biologics are an expensive class of drugs derived from humans, animals, or microorganisms and used in the treatment of Crohn's disease, ulcerative colitis, rheumatoid arthritis, and other autoimmune diseases.
Pharmaceutical companies developing biologics have eight years of protection in Canada and 12 years in the U.S. during which time generic manufacturers are denied access to the clinical trials data submitted to get regulatory approval for a drug.
U.S. Democrats won other pharmaceutical concessions, including a curb on “evergreening,” which is a practice where companies can obtain new patents based on small changes to existing drugs, in order to block generics.
Former Canadian ambassador to the U.S. David MacNaughton told CTV Power Play Tuesday that the negotiation process has been fascinating because Canada faced criticism for trying to push a progressive deal, but the Democrats took it even further.
The NAFTA deal has been a source of consternation in Canada since U.S. President Donald Trump was elected in 2016. He repeatedly threatened to tear up the deal, saying it undermined U.S. interests. The three leaders signed a new deal on Nov. 30, 2018.
Deputy Prime Minister Chrystia Freeland told a gathering in Mexico City where she signed the updated text Tuesday that fashioning a new NAFTA “has been a long, arduous and, at times, fraught negotiation. We made it to the finish line because we learned how to work together.”
Lee says unions have complained about Mexican labour standards for years, arguing lower wages, fewer job protections and little in the way of benefits gave a competitive advantage to companies setting up shop there. The unions have managed to leverage a trade deal to force Mexico to make changes, says Lee.
He agrees with U.S. Trade Representative Robert Lighthizer that the deal will make all three countries richer. He says 300 years of trade theory and practice shows that “when you liberalize trade, you raise the standards of everyone.”
Tamara Kay, a trade expert at the University of Notre Dame, says the deal is notable for consumers because contentious tariffs on steel and aluminum – unpopular in all three countries – have been scrapped and overall tariffs are “incredibly low.”
The deal will open the Canadian dairy market to U.S. imports, which makes the domestic producers unhappy, but at the same time, opportunities will open to them in the U.S., she told CTV News Channel Wednesday.
“There are always trade winners and losers. Trade policy is about how best to manage those different kinds of interests. In the original NAFTA agreement, the interests that were basically getting prioritized were corporate interests.”
She said the new version is the result of Democrats and different progressive organizations in the three countries pushing for labour and environmental protections and enforcement.
Christopher Cochrane, a political science professor at the University of Toronto, said on CTV News Channel Tuesday that failure to reach a deal would have created difficult and costly uncertainty and unpredictability for the Canadian economy.
“The fact this agreement got completed and the fact that it looks extremely similar to the past agreement, and, if anything, the Democrat qualms had to do with strengthening some of the provisions that the Canadian government advocated for in the first place, all of that suggest that our government, working with the difficult U.S. administration was able to achieve a significant policy outcome.”
Finance Minister Bill Morneau told reporters in Toronto Wednesday that the deal offers security to exporters and improves upon the existing NAFTA.
“We negotiated a deal that makes sense,” he said. “It’s positive from an economic confidence standpoint and it was even a little better what we signed yesterday, which is very good for our economy and for Canadians.”