With its new trade deal, Canada surrenders sovereignty to a bully: Neil Macdonald
We're obliged to inform the U.S. of any intention to pursue negotiations with a "non-market" country
So first, Clause 32. It's long-winded and uses code language, but basically, it says that if Canada wants a trade deal with China, it has to notify the Americans about any negotiations, and tell them the substance of those negotiations, and submit the text of any deal, "including any annexes and side instruments" in advance, for American scrutiny, and then, like a puppy, await Washington's verdict.
If the Americans don't like the deal – and it's a safe bet the Americans aren't going to like any deal that binds Canada to a rival economic giant – Canada will be summarily excluded from the new version of NAFTA, which will revert, at America's whim, to a bilateral deal with Mexico.
It's a breathtaking thing for Canada to accept, but unsurprising. It's of a piece with the Trump approach: brutalize allies and partners, insult them and club them into submission with crude threats like Trump's "motherlode" tariffs on autos and auto parts.
To paraphrase Trump's coarse inauguration speech, fair trade stops here and it stops now. America first, ladies and gentlemen.
Trade with "non-market" countries
Clause 32 doesn't actually mention China. It instead uses the euphemism "non-market country," and stipulates that each party "shall inform the other parties," but there's no doubt about what a non-market country means — China — or who Canada is meant to tell. At the moment, U.S. President Donald Trump is prosecuting an all-out trade war with China, and he doesn't want any allies getting cozy with the other side.
But it's more than that. The United States has clearly heard the voices in Canada and other Western countries urging their governments to diversify and strengthen ties with other trading partners as a shield against Trump's America-first bullying. The Americans consider Canada and Mexico to be client states, and aren't going to stand for any Canadian assertions of independence.
"This is all about the Americans laying down a marker," says a Canadian lawyer who's been inside the NAFTA renegotiation. "They are effectively saying 'We are going to control North America.'
"I cannot believe Canada would sign this. It makes me want to puke."
Gordon Ritchie, who helped negotiate the original Canada-U.S. Free Trade Agreement, takes a more charitable view. He says Clause 32 is mostly about American fears of Chinese goods making it into their market through a Canadian back door.
Such fears are overblown, he says, but Canada probably went along because "shielding your head means the blows will fall on your back."
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In fact, though, Clause 32 goes even further than informing America about any negotiations with China, or giving Washington the text of any deal with China. Clause 32 obliges Canada to inform America, at least three months in advance, of any "intention" to pursue negotiations. It is a certain surrender of sovereignty.
But Canada in the end probably didn't have much choice. When your economy is so stitched to a power the size of America, you eventually do as you're told. You sign a deal like this one, even if it doesn't protect you from Trump's illegal "232" maneuver – declaring that Canadian aluminium and steel constitute a threat to American national security, and therefore must be tariffed.
The idea that Canadian metal threatens American security is lunacy. The fact that Trump, with a smug smile, is actually citing it, and gets to continue to cite it at will, says all that needs to be said about his regard for the "closest of friends" relationship we've been told about all our lives. To Trump, Canada is a bothersome vassal that needs to learn its place in an American-led world.
That said, Canada did manage to keep some of its high protectionist walls from destruction by the American trebuchet.
Our government-managed cartel that protects Canadian farmers from competition by forcing Canadians to pay higher than market prices for dairy, poultry and eggs remains largely intact.
And Ottawa, pushed by the association representing Canadian retailers, has seen to it that cross-border e-commerce will remain mostly out of reach for millions of Canadian consumers.
On the face of it, the so-called de minimis level – the threshold under which any shipment from abroad comes into Canada without duty or taxes applied – is rising. Canada has for more than 30 years stopped any incoming parcel worth more than a trifling $20 Canadian, and applied duties and taxes. That number is going to change.
But anyone who thinks it will be easier and cheaper to order that nicely priced shirt from Land's End is in for a Canadian surprise. (Actually, no one should be surprised at all, given the extent to which Canada relies on protectionism, rather than competition, to rule its markets).
Fees behind the numbers
Look at the numbers. The new trade deal declares that all shipments under $150 will be allowed into Canada duty-free. Great so far.
But in reality, peanuts. The average duty on goods coming in from the United States is 2 per cent. Meaning Canada has agreed to forgo $3 on a shipment of $150.
Meanwhile, Canada will continue to collect 12.25 per cent HST on any shipment valued at more than $40. Meaning $18.40 on that $150 shipment.
And the way it will work means that, in effect, the Canadian border will remain discouragingly sclerotic. Big American shippers, which don't have the time or inclination to start collecting Canadian taxes on behalf of the Canadian government, generally just hand parcels over to a courier like UPS or FedEx.
Those couriers automatically engage customs brokers to smooth the passage of goods across the border. The brokers calculate tax and duty, impose it on the price, then add their own hefty fees, often doubling the cost to the consumer of a small purchase, which makes the exercise rather pointless, which is exactly the way Canadian retailers, and the government, want it.
Smaller shippers, though, generally use the post office, and Canada Post, to the extreme annoyance of the federal government and Canada's retail industry, does not hire parasitic customs brokers; it merely offers parcels to Canadian customs agents for inspection, and the Canada Border Services agency doesn't have the staff to handle the job. Which is why postal shipments often arrive at Canadians' homes without any fees, duties or taxes applied. People in the e-commerce game call that "duty roulette."
Tellingly, Canada's department of finance immediately confirmed that the new de minimis applies only to shipments by private courier, not to any parcel sent by mail. Think about that: Canada's new rules don't apply to its own post office.
Andrea Stairs, CEO of eBay Canada, says 90 per cent of her small shippers do ship via the post. Overall, she says, 70 per cent of cross-border shipments are postal packages. Which means the new rules exclude the vast majority of shipments. Of course they do.
Stairs is not celebrating today. All the new deal does, she says "is make things even more confusing for Canadian consumers, let alone small businesses trying to work in a global economy." If postal shipments are excluded from the new deal, she says, the whole thing is just "a missed opportunity."
Consumers will henceforth have to calculate what percentage of their purchase will be taxed, what percentage will be duty-free, and whether it makes more sense to ask for postal shipping, and hope the package sails past customs uninspected.
"We're pretty comfortable with where it ended up," Karl Littler of the Retail Council of Canada told Bloomberg News.
Pretty comfortable indeed. Because nothing will change.
Ottawa's calculus, in the end, was pretty obvious. Surrender to American bludgeoning on the big-picture stuff, and hang on if possible to barriers and protections that force Canadian consumers to pay for our lack of competitiveness.
Because that's the way Canada rolls.