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U.S. presidential hopefuls glower over scope and impact of free trade

Even past supporters of trade deals ‘more protectionist’ now, warns Baird
By Jeff Buckstein
September 23 2016 issue

Republican U.S. presidential candidate Donald Trump, left, and his Democratic opponent Hillary Clinton, right, are worrying Canadian business observers because they are both displaying a hostility to, and mistrust of international trade deals.
[Donald Trump photo: andykatz / IstockPhoto.com, Hillary Clinton photo: Bastiaan Slabbers / IstockPhoto.com]

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Whether Hillary Clinton or Donald Trump emerges triumphant in November to become the 45th president of the United States, there appear to be clear signs the next U.S. administration will be less amenable, if not downright hostile, toward international free trade deals.

Not only would that represent a sharp break from White House policy over the past 30 years, there could be a significant negative impact on Canada, as America’s largest trading partner.

“Even people who have been reliable pro free traders and internationalists have become demonstrably more protectionist, and that’s disturbing,” said John Baird, a Toronto-based senior adviser at the law firm Bennett Jones LLP.

Baird, Canada’s minister of external affairs under former prime minister Stephen Harper, said there has been a growing protectionist attitude in the U.S. emanating from both the left and right wings of the political spectrum.

“Regardless who becomes president, it’s going to be a lot harder to solve the bilateral trade irritants, because the president won’t either have the inclination or the capacity, let alone the ability to be able to address them,” he said.

Republican candidate Trump, in particular, has attacked recent trade deals as being bad for the U.S., and is arguably most critical of the 12-nation Trans-Pacific Partnership (TPP), drafted in October 2015 by the trade team of President Barack Obama.

The TPP requires ratification by countries representing at least 85 per cent of the 12 participating nations’ collective GDP, comprising the United States, Canada and Mexico, Chile, Peru, Australia, New Zealand, Japan, Malaysia, Singapore, Vietnam and Brunei. The U.S. produces more than half of that group’s GDP, so failure of the U.S. to sign on would kill the deal as currently constituted.

Trump has also been highly critical of the North American Free Trade Agreement (NAFTA), signed in 1994 by President Bill Clinton, husband of the Democratic candidate.

Keith Head, a professor of economics at the University of British Columbia’s Sauder School of Business in Vancouver, noted that Hillary Clinton was involved in negotiating the TPP agreement during her term as secretary of state. (She served in the first Obama administration between 2009 and 2013).

Head noted that Clinton appeared to change her position as the TPP became unpopular with some grassroots members of her party during the Democrat presidential primaries.

“She has to sort of disavow it, I think,” said Head, who considers it unlikely that Clinton could turn around and implement the TPP if elected.

However, Head does not expect Clinton to backtrack on previous agreements such as NAFTA.

Paul Ferley, the Toronto-based assistant chief economist for Royal Bank of Canada, said another big unknown affecting free trade will be the composition of the new Congress, and whether members of the Senate or House are going to be sympathetic toward or philosophically opposed to free trade agreements such as the TPP.

Cyndee Todgham Cherniak, founder of LexSage Professional Corporation, an international trade law and sales tax firm in Toronto, doesn’t expect the U.S. will ratify the TPP before the election. But she pointed out that the best chance of doing so might be right now while President Obama, who negotiated the agreement, remains in office facing a Congress controlled by Republicans, a party that has historically supported free trade.

If that happened, the newly elected president would be backed into a corner because they would be bound by the agreement unless they took steps to undo it, she noted.

Moreover, once ratified by enough countries with the requisite percentage of GDP to put the TPP in force, Canada and the other participating countries would get the benefit of the TPP and reduce the likelihood of the United States withdrawing and being the odd country out, Todgham Cherniak added.

The fate of NAFTA, which has been in force for more than two decades, could be more complicated.  

“I don’t believe that either Trump or Clinton is going to rip up NAFTA,” said Todgham Cherniak. “I think that both will ultimately realize what’s in the best interests of the U.S. economy and U.S. businesses is to ensure that goods flow freely across the border, and to expand the free movement of business persons across the border,” she added.

But Todgham Cherniak also noted how the U.S. has been making adjustments to NAFTA for many years, citing the example of softwood lumber.

“The Softwood Lumber Agreement that Canada signed (in 2006) is not consistent with NAFTA. Article 309 of NAFTA prohibits restrictions on exports. Article 314 prohibits export taxes and charges on exports of any good to the territory of another party. Canada was forced to restrict exports of lumber, impose export charges on softwood lumber and allow the U.S. to keep a lot of money that should have been refunded when we won the antidumping/countervailing duty cases,” she said.

Head doesn’t believe there are any obvious tweaks for NAFTA that would be open for renegotiation unless the U.S. was no longer interested in free trade with Canada or Mexico. He noted that NAFTA is basically the Canada-United States Free Trade Agreement, which was signed in 1989, extended to Mexico.

Many lawyers are asking whether, if the U.S. backed out of NAFTA, it could revert back to the Canada-United States Free Trade Agreement, said Todgham Cherniak.

Should that occur, “I believe that Canada and the U.S. would be well served to interpret the Canada-U.S. free trade agreement provisions as reviving…and the duty-free treatment and the benefits continue,” she said.

The issues that have turned many Americans away from supporting free trade are complex, say experts.

“There are very significant communities that have been pretty hard hit by the decline of manufacturing. The huge growth of Chinese exports to the U.S. does appear to be strongly implicated in the decline of manufacturers in the U.S. And that decline has hurt some communities much worse than others. There are people that are really suffering,” said Head.

Growing isolationism “certainly doesn’t bode well for those of us who extol the virtues of free trade,” said Baird, who noted that while some Americans believe globalization may be virtuous for the U.S. overall, they worry about things like stagnant wages and loss of manufacturing jobs affecting them directly.

“The same sort of sentiment that you see among the supporters of Brexit in the United Kingdom, you see in the United States,” he said.

Baird said the challenge is not exclusively globalization, but also advances in technology and robotics, which have come at the same time as free trade and contributed to the reduction of jobs.

Political statements about altering or discarding agreements such as NAFTA, or refusing to ratify the TPP raise concerns about increased wariness among the U.S. electorate who are not seeing the benefits of free trade. That is resulting in pushback and support for candidates who are inclined to pull away from free trade, said Ferley.

“Free trade agreements are, on net, a positive for an economy, with the benefits of greater access to foreign markets outweighing the costs of greater domestic competition from foreign imports. However, it is important that policies are put in place that counter these costs, with workers being provided with the means to transition to those areas of the economy that benefit from free trade,” he added.

It is hard to predict now how vulnerable Canada might be under a new U.S. administration that is less supportive of free trade, say experts. However, clear concerns have been expressed. In the Chartered Professional Accountants of Canada’s Business Monitor Q2 2016 survey, 69 per cent of respondents holding senior positions in industry said they were worried that the new U.S. president, whoever is elected, will enact more restrictive trade policies with Canada.

“We are hopeful that after the U.S. election, the new leadership will become more pragmatic and focus on how to strengthen that trading relationship rather than weakening or threatening it. Working together can lead to more jobs and greater prosperity on both sides of the border,”” said Nicholas Cheung, CPA Canada’s Toronto-based vice-president of member services.

Head noted that Trump has also spoken about potentially pulling the U.S. out of the World Trade Organization (WTO), which should be concerning for Canada because the WTO constitutes the framework for all international trade.

“If the U.S. were to drop out of that, and therefore not to have to live by any of its WTO obligations, Canadians would be in a much weaker [position] in terms of any kinds of negotiations between the U.S. and Canada,” said Head.

“I don’t believe that either Trump or Clinton are going to take irrational, illogical actions,” said Todgham Cherniak. “During elections, a lot of things are said. Once someone has power, and has smart advisers looking carefully at the issues, saner heads prevail.”

Todgham Cherniak stressed that the U.S. needs to participate in world markets and the country is not an island onto itself that is capable of manufacturing everything Americans need within its own borders.

“I believe that regardless of whether it’s Clinton or Trump they will take action that is in the best interests of the U.S. economy and the U.S. workers, and those actions will be to stay in NAFTA and to stay in the WTO,” she said.

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