Politics·Analysis

NAFTA 2.1: The changes Democrats (and Canada) settled on

Canada has again joined Mexico and the U.S. to sign on to the final — and this time they really mean final, apparently — text to improve the North American free trade agreement. What do these changes mean for Canada?

Without new compromises, Donald Trump's trade representative couldn't get the new trade deal ratified

Deputy Prime Minister Chrystia Freeland, second left, acknowledges the applause of her Mexican counterparts after signing a new protocol to amend the North American trade agreement in Mexico City Tuesday. (Marco Ugarte/Associated Press)

Canada has again joined Mexico and the U.S. to sign on to the final — and this time they really mean final, apparently — text to improve the North American free trade agreement.

Mexico was the target of most of the revisions and concessions that Congressional Democrats were looking for, in return for letting the new NAFTA (officially the Canada-United States-Mexico Agreement, or CUSMA) come to a vote in Congress.

But Canada had to agree to it all anyway. And a few of the changes impact Canada directly.

For most of the day, all Canadians knew of the compromises House Speaker Nancy Pelosi had orchestrated came from a four-page, partisan sales job handed out by Democrats on the powerful House ways and means committee. 

It was suppertime before the Canadian government released "a summary of revised outcomes": the Coles Notes version of the legal text Deputy Prime Minister Chrystia Freeland signed on Canada's behalf in Mexico City Tuesday.

That official text was not public as of late Tuesday night, meaning that while Canada signed on, Canadians hadn't been told exactly what they were signed up for. However, on Wednesday morning the United States Trade Representative's office published the 27-page protocol of amendment, and Global Affairs Canada followed with English and French versions Wednesday afternoon.

Here are some key things we've learned so far:

State-to-state dispute resolution: fixed

Chapter 31 of the new text signed over a year ago failed to fix a fundamental weakness of the original deal: the ability of a country to block the formation of arbitration panels to settle disputes arising from accusations that one partner has failed to live up to their obligations.

Over time, this panel-blocking rendered NAFTA's dispute settlement process (Chapter 20 in the original agreement) nearly useless. In order for the agreement to be enforceable, it needs effective arbitration. So it was a disappointment when the 2018 text came out and a country still had the ability to block the appointment of panellists to weigh the evidence when complaints arose.

No longer. Tuesday's changes mean that a panel will automatically be established upon request. A roster of panellists from the three countries is being created, and new rules for the evidence presented in this arbitration process are meant to improve its transparency.

Freeland called the changes that congressional Democrats negotiated with Donald Trump's trade representative a "win-win-win." (Marco Ugarte/The Associated Press)

To boil down three decades of trade skepticism: the U.S. labour movement no longer trusts Mexico to live up to the standards NAFTA sets, and unions are sick of seeing jobs go south to factories that get away with doing less for workers. Democrats wanted to ease their minds by having a strong arbitration process in place.

That's why on top of this Chapter 31 fix, new "bilateral mechanisms" between Canada and Mexico, and the U.S. and Mexico, will provide a "facility-specific, rapid-response mechanism" to ensure Mexican companies that enjoy NAFTA benefits (such as tariff-free goods) comply with the new higher labour standards, such as employees' rights to collective bargaining. If an investigation finds flaws, exports from those plants could face penalties.

The Americans are going so far as to add new "labour attachés" and "environment attachés" to their diplomatic teams in Mexico, to keep watch.

In a perfect world, every country will comply and disputes will never arise. Since no one trades in a perfect world, having arbitration that works was key to ratification proceeding in Washington.

New environmental obligations

Both the labour and environment chapters are being adjusted to shift the burden of proof from the accuser to the violator: when standards aren't met, this will now be presumed to be affecting trade or investment unless a country can prove otherwise.

Seven multilateral environmental agreements are also being written directly into the free-trade agreement's obligations. Canada is a signatory to five of them:

  • The Convention on International Trade in Endangered Species of Wild Fauna and Flora.
  • The Montreal Protocol on Substances that Deplete the Ozone Layer.
  • The Protocol of 1978 Relating to the International Convention for the Prevention of Pollution from Ships.
  • The Convention on Wetlands of International Importance Especially as Waterfowl Habitat.
  • The Convention for the Establishment of an Inter-American Tropical Tuna Commission.

Canada is not required to ratify two others to which it has not previously signed on — the Convention on the Conservation of Antarctic Marine Living Resources and the International Convention for the Regulation of Whaling.

Drug protections: now status quo

According to the deal signed a year ago, Canada was required to change its intellectual property laws to provide ten years of data protection, up from eight years, for biologics: a specific class of pharmaceutical drugs that shows great promise but also sells at high prices.

The extension essentially delays the entry of cheaper generics of biologic drugs by two years.

No longer. Democrats successfully struck this part of the deal. (Republican senators who normally go to bat for the pharmaceutical industry may have more to say on this, but that battle lies ahead for now.)

Deputy Prime Minister Chrystia Freeland signed the revised new North American free trade agreement in Mexico City today. Freeland called the deal 'excellent' for Canadian workers and said it's something everyone 'can be proud of'. 1:46

At present, the data protection period will continue to be eight years, meaning no new drug costs (potentially tens or hundreds of millions, though the research is debatable) will be directly caused by the new trade agreement, as some provinces and patient advocates had feared.

Other new measures, including ones that allowed companies to obtain patents for new uses of existing drugs, were also walked back.

The efforts of Democrats to strike this part of the deal were probably helped by U.S. President Donald Trump's emerging concern for lowering drug prices. Some Democratic presidential contenders have talked tough about bringing down drug prices as well.

Another steel demand

The 2018 NAFTA rewrite required 70 per cent of the steel that automakers purchase to come from North America. If they don't comply, tariffs could apply to the vehicles they're exporting.

Workers manufacture car dash mats in Ciudad Juarez, Mexico. New minimum wage and labour standards will apply to Mexico's automotive sector under the revised NAFTA. (Ivan Pierre Aguirre/The Associated Press)

Late in the negotiations, the Mexicans were asked to accept a new definition of North American steel as having to be "melted and poured" in North America. This proved contentious, because steel is manufactured in a variety of ways, and not all inputs originate domestically.

In the end, according to the Canadian government's document, the only further change to the steel or aluminum requirements in the automotive chapter is "to clarify that all steel manufacturing processes must occur in one or more of the [countries], except for metallurgical processes involving the refinement of steel additives, for purposes of meeting the 70 per cent requirement."

The Democrats' summary of the changes didn't mention anything about this at all.

Also, neither summary mentioned digital chapter changes reported by some media outlets late in the negotiations. Pelosi explained Tuesday that she wasn't able to get these changes through.

Whenever the final text is released, lawyers and businesses will pounce on the fine print to make sure no other surprises await.

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