Renegotiating NAFTA: U of T political scientist and economist on what's at stake

Canadian Prime Minister Justin Trudeau met privately with U.S. President Donald Trump during the G-7 summit this past weekend to discuss, among other issues, bilateral trade.

With Trump beginning the countdown to renegotiate the 23-year-old North American Free Trade Agreement, Canadian industry is nervous. Everything from the auto sector to dairy and softwood lumber could be affected.  

But trade economist Dan Trefler says keeping an eye on legal protections for intellectual property will be critical since Canada's economic growth depends on innovation.

“I am most worried about Big Pharma and the new breed of giant technology firms – Google, Amazon and Uber for example – who are trying to sew up access to data... Without equal access to such data, smaller Canadian firms will be at a competitive disadvantage,” he says.

With the Canadian government estimating that trade between Canada and the U.S. is valued at nearly $882 billion, U of T political scientist Grace Skogstad says Canada needs to make the case for negative impacts to American jobs. 

U of T News spoke with Trefler and Skogstad about renegotiating NAFTA.

Grace Skogstad, professor of political science at U of T Scarborough:

With Trump launching efforts to renegotiate NAFTA, what Canadian industries will likely be targeted?

If American rhetoric is to be believed, the renegotiation will focus on some industries that are already covered by NAFTA, like the auto sector, and some that are not, like the dairy and supply managed sectors. Any sector where the U.S. believes Canada has an unfair advantage either in gaining access to the U.S. market – autos, softwood lumber – or where Canada puts up barriers to American imports – like the dairy sector – is potentially vulnerable.

How will this affect average Canadians?

Jobs could be lost for Canadians if industries that rely on the American market face new barriers to entry into the U.S. And jobs will be lost in the dairy industry if the sector becomes more open to American dairy products.

How should Canada approach the renegotiations especially with an opponent as volatile as Trump? On what points should we remain firm? Where can we be more flexible?

Congress will need to approve any renegotiated NAFTA, and Congress will be the body that has to deal with Trump's volatility. Canada should, as it is already giving signs of doing, make the economic case for NAFTA, including pointing out negative economic impacts on American jobs of proposed rule changes. Canada will need to mobilize support in American states that would be harmed by changes to existing NAFTA rules. Canada has a lot of good expertise on how to handle trade negotiations. It recently concluded the Comprehensive Economic and Trade Agreement with the EU, and our trade negotiators are well briefed on American trade priorities as a result of taking part in the TPP negotiations. We should – and they will – remain firm on not making concessions in any industries where we'd lose Canadian jobs – autos, softwood lumber. 

We should remain firm on the right to regulate our financial sector/banks. We avoided the 2007-08 US financial crisis because of our much better regulated banking sector. No one goes into a negotiation promising to be flexible, but one potential bargaining chip is water. California is short of it – we're not.  I understand that Trump's Trade Representative Robert Lighthizer, is a not a fan of free trade but rather believes in managed trade. A managed trade approach is effectively what characterizes softwood lumber exports to the U.S. As long as it is not U.S. alone doing the 'managing,' a managed trade approach may give Canada more latitude to secure concessions for vulnerable sectors.

Will NAFTA actually get completed under a Trump presidency?

It depends how long the Trump presidency lasts – that is, whether he serves out his four-year term. Even so, four years is not a long time for a negotiation.

Dan Trefler, economics professor at the Rotman School of Management:

What could be the effect on Canada’s economy of a renegotiated NAFTA? 

Despite all the attention given to dairy and lumber, the fact is that these disputes are minor irritants. Our economic growth, first and foremost, is driven by innovation. Legal protections for intellectual property (IP) can help promote innovation-led growth, so the IP negotiations will be critical. If done correctly, a renegotiated NAFTA will be a boon to Canada.

What should we be wary of when it comes to demands the U.S. will put on us during negotiations?

Here is the kicker. Economists unanimously agree that the U.S. patent system is now so overly protective of IP that the system has become a drag on innovation and growth. Yet, we know from the Trans-Pacific Partnership Agreement (TPP) that some of the most powerful firms in the U.S. will be lobbying hard to remold Canada’s patent system into the American image. This will stymie Canadian innovation so the Prime Minister’s team must work hard not to give in on this. I know that his team is fully aware of this.

What industries are you most concerned about?

I am most worried about Big Pharma and the new breed of giant technology firms – Google, Amazon and Uber for example – who are trying to sew up access to data. They generate data through biologics, harvesting the web, monitoring our movements etc. Without equal access to such data, smaller Canadian firms will be at a competitive disadvantage. We cannot allow that.