U.S. Commerce Secretary Wilbur Ross departed slightly from his president Wednesday in choosing his words on the renogotiation of the North American Free Trade Agreement, saying he still hopes, and believes, a deal can be reached.
"As you've seen in the media, from time to time, [U.S. President Donald Trump has] expressed a total willingness to depart from NAFTA should that become necessary," said Ross during an interview with Canada's former Conservative industry minister, James Moore, during a trade event at the Washington offices of international law firm Dentons.
"We don't hope it will, we don't desire it that it will, we don't believe that it will, but it is at least a conceptual possibility as we go forward."
"We wouldn't be wasting all this time if we weren't hopeful."
Moore, who now sits on the Liberal government's advisory NAFTA panel, is also a senior business adviser at Dentons.
The fourth round of NAFTA negotiations kicked off Wednesday and will wrap next Tuesday.
Here is a transcription of their conversation. It has been edited for length and clarity.
James Moore: Round four started today. Highly anticipated. How are the renegotiations going in your view?
Wilbur Ross: So far the talks have mainly done basic background things, kind of what I would call boilerplate things, or relatively easy issues. Some more contentious issues will be coming up very shortly, those would include things like rules of origin, sanitary and phytosanitary, probably medical and pharmaceutical, technical barriers to trade, and textiles, as well as trade remedies and dispute settlement. ...
In terms of timetable going forward, there is no precise deadline and those of you familiar with trade negotiations know these are progressing at lightning speed compared with the normal ones. It's not usual to have so many days of consecutive negotiations. Not usual to have small intervals between negotiation sessions.
There's a reason for that and the reason for it is the political calendar: the fast-track authority (the Bipartisan Congressional Trade Priorities and Accountability Act, or TPA) that we have in the U.S. expires in July of 2018. Given the nature of Congress nowadays, who knows whether we'll get that extended or we won't. So that could be one deadline. If we lose TPA I don't think you'll ever see a deal done here because what TPA does do — it's not so much that it's fast, we've actually found it painfully slow because of all the consultations — but what it does do is the final deal gets put to a vote in Congress yes or no, no amendments possible.
Second, the Canadian provincial elections are around mid-year, the Mexican presidential elections are a little bit after mid-year and then in November we have our own mid-term elections here. So, in general terms, once you get into next year nobody's going to get as big and complicated a deal as this done. So more or less the end of this year is the realistic deadline.
It will be longer than the original deal. The original one had 22 chapters, this will probably have 28.
The tone so far has been pretty constructive, but we've not gotten to the hard part. Both Mexico and Canada, particularly Canada, have been lobbying very aggressively. Canada visited with me and the president today, they lobbied in the Congress as well. And obviously all parties have been trying to stir up trade groups in the U.S. to have U.S. go easy in the negotiations.
The president is determined that if we have a new NAFTA it has to be one that suits our interests better than the existing NAFTA. And as you've seen in the media, from time to time he's expressed a total willingness to depart from NAFTA should that become necessary. We don't hope it will, we don't desire it that it will, we don't believe that it will, but it is at least a conceptual possibility as we go forward.
There are a few issues specific to individual countries. Particularly to Canada, they undoubtedly will consider bringing up something about softwood lumber, they undoubtedly will consider bringing up something about Bombardier and Boeing, although they have yet to do so in the formal negotiating sessions. So that's sort of a thumbnail sketch of where we are at the moment.
JM: You said something there, towards the end, you said your expectation is that it will be successful?
WR: We wouldn't be wasting all this time if we weren't hopeful.
JM: I want to put a question to you that I think is on a lots of people's minds and that is the issue of trade deficits. Rhetorically, it's been gone to over and over by the president as the pre-eminent frustration with NAFTA. The United States has a trade surplus with Canada —
WR: That's not correct if you include crude oil and everything else. We're talking goods. We have a goods deficit if you include crude oil.
JM: How do you plan to remedy trade deficits? How is that achievable in a trade agreement?
WR: It's several things. The first thing is through enforcement. Our feeling is that prior administrations were not as aggressive as they should have been with trade enforcement. We've brought, since I came on the scene, 48 per cent more cases so far this year than was true in the last year of the prior administration. So more cases and different cases.
We are very interested in self-initiation as an activity. We're interested in it for a couple of different reasons. First reason is now if you're a smallish industry or a highly fragmented industry or one that has a lot of foreign participants, it can be hard to meet the requirements for the industry itself to initiative the case. We have the power to self-initiate and if the facts justify we can, we will and we're going to do more.
The second factor is that, it costs millions of dollars to bring one of these cases. And again, if it's a smaller or more fractured industry, that is a little bit of a challenge for them.
If a company or a group of companies brings a complaint, say, against China or Japan or any other big player they become quite subject to retaliation. If the Commerce Department initiates the case there's not a lot they can do to retaliate against us. We think it will enable more companies to come forward and be more candid with the information they give us because they will have a degree of anonymity from the perpetrators.
JM: Canada has said Chapter 19 [dispute settlement] is a red line that can't be crossed. Mexico has signalled the same thing. What is a red line in the negotiations for the Americans?
WR: I think it's premature to talk about red lines. You have to define what they really are. We'll see what comes in the give and take, and we'll see whose red lines are really red lines.
JM: As you know, no doubt, Tom Donohue of the U.S. Chamber of Commerce has been quite aggressive. I'll read you a quote and let you respond: "There are several poison pill proposals still on the table that could doom the entire deal. All of these proposals are unnecessary and unacceptable. We've reached a critical moment. And the chamber has had no choice but ring the alarm bells."
WR: Tom is a good friend of mine, we have good working relationship. Tom is a free trader and he's right, the agricultural community is worried. The multinational community is worried because they're the ones who have things potentially at risk. Our effort will be first of all to do no harm and not have retrograde motion in any aspect of NAFTA as it relates to the U.S. Second, to try to build upon the limited concessions that Canada and Mexico made in TPP negotiations and then, third, to pursue what we think are important factors that have been hurting us in terms of the trade amongst the three countries.
JM: They identified three poison pills and I'll ask you to speak to them. First is on rules of origin: 85 per cent North American content, 50 per cent American content. The Ford Mustang is very much identified as an American car but it's assembled in North America with less than 50 per cent American content, whereas you have Honda hybrids which are assembled in Japan with over 70 per cent of North American content. So, defining what constitutes American content with rules of origin seems to be bit of a moving target.
WR: I don't think it's that hard at all. People always use the outlier examples, those are two that you've cited. In reality, the cars coming in from Mexico and Canada have less than 20 per cent U.S. content. The same cars have far more than 25 per cent content from outside NAFTA. Those are anomalies that were not intended. The non-NAFTA content in automobiles and in manufactured goods in general has been growing and growing rapidly and largely at the expense of the U.S. So that's the reason we have rules of origin as a target.
JM: But isn't that because many of those industries — backup cameras, sensors, safety equipment — are industries that frankly don't exist in the North American marketplace. In order to keep the costs competitive of the entire unit of the automobile, that is to say to keep North Americans employed, keeping those costs down to keep the North American platform competitive, that's what you do?
WR: Well, I think you will find we will get increased percentages in the rules of origin and I think you'll find the car companies will adapt themselves to it.
JM: A five-year sunset proposal on NAFTA on an ongoing rolling basis is the administration's position. Seen as a red line…
WR: As I said red lines, blue lines, purple lines. Those are colours in a rainbow. This is a big complicated negotiation. What's key is to have the overall package one that works for us.
JM: [An amended NAFTA] ... has to be approved by Congress. People are a bit anxious about the relationship between the president and Congress given what we've seen.
WR: Well as best I recall there are two parties in the Congress. One is the GOP and one is the Democrats. Our agenda, I think you'll find, is being supported by quite a few Democrats.
JM: Since 1993, agriculture exports or three-way trade between the parties has gone from $9 billion to $39 billion. Canada is the largest export market for the United States, Mexico is the third largest. David MacLennan, CEO of Cargill, says exiting NAFTA would be a big mistake and has taken pointed shots at the administration's approach of chastising America's NAFTA partners on agriculture.
WR: One of the industries the U.S. does very, very well and very, very efficiently is agriculture. And I don't think there's anybody who buys a product from us at a premium price to where they get it from anywhere else. I think our industry is extremely competitive. We even sell a lot of agricultural products to China and places who'd be delighted if they could find some cheaper way to do it themselves
So I think it's a little bit of an empty threat to agriculture. If somebody cuts off their purchases of soybeans from us, they're going to have to get it from some other marketplace — that will free up that market for us. As far as I can tell, there is not a world oversupply of agricultural products. So unless countries are going to be prepared to have their people go hungry or change diets, I think it's more of a threat to try and frighten the agricultural community than it is something that they could really live with.
JM: An update on the softwood lumber agreement? Should NAFTA fail, we would then go into of course a sector-by-sector managed trade relationship with the United States. Given that we have 100 years of relationship on this one file, and we can't seem to land the plane on this one file, why would that give anybody confidence on the ability of the Canadian and American governments to resolve sector-by-sector issues?
WR: Those questions presuppose some sort of answers. I'll just address softwood lumber itself. There have been prior agreements between the U.S. and Canada. And the U.S. position is that Canada has violated those agreements once again. The final determination will be not too far in the future one way or the other. They've made agreements in the past. We'll make agreements the future. We had an equally difficult thing with the Mexicans with sugar. We got that resolved, not easily, but we got it resolved. Things can get resolved over time.
JM: One of the headline out of today's meetings between Prime Minister Trudeau and President Trump was a line that the Americans would be prepared to consider a bilateral [deal] with Canada. It's kind of catching people off guard...
WR: Well, the president had indicated earlier that he was receptive to either a trilateral or two matching bilaterals or to no NAFTA if it came to that. All he's really saying is he's keeping his options open.
JM: The president said many times in the campaign that NAFTA was the worst deal America had ever signed. You were a strong advocate for the candidate Trump in 2016. Should NAFTA fail we would revert back to the Canada-U.S. free trade agreement. Is that an agreement that would satisfy the administration?
WR: Well, it would depend on what the agreement says. It isn't the form of the agreement that's critical, what's critical is the content.
JM: On the issue of trade of course policy is personnel. On the question of diplomacy, I think a lot of Canadians are watching and are curious to know about the relationship between President Trump and Prime Minister Trudeau.
WR: You can be good friends with someone and yet be stuck with a preexisting bad deal. Neither Prime Minister Trudeau nor President Trump negotiated NAFTA to begin with. So it's neither of their handywork.