August 30, 2018

Are we witnessing a North American Brexit in the making?

located:	USA, Mexico, Canada
editor:	Yair Oded

Earlier this week, the U.S. government announced it reached a preliminary trade deal with Mexico that would replace the North American Free Trade Agreement (NAFTA) between Mexico, Canada, and the United States. Following the announcement regarding the new bilateral agreement, the American president asserted that Canada has until Friday to negotiate its place in the new deal, or be left out. Alarmed, Canadian officials raced to Washington to hash out a potential agreement with its biggest trading partner. It is not an exaggeration to state that this week’s North American trade fiasco is a mini, fast paced version of the Brexit talks from two years ago, as a potential collapse of NAFTA would alter the lives of thousands across the continent and mark the end of a critical partnership between the three countries involved.

NAFTA was signed in 1994 with the aim of lowering tariffs, boosting trade, and raising the standard of living in Canada, Mexico, and the U.S.. Naturally, the deal was imperfect, and disputes arose over the years between the member countries. Some American farmers, for instance, have long complained about Canada’s tariffs on dairy products, which average 249%. That being said, the overall effect of NAFTA has been positive, particularly for the U.S. and Canada. According to a 2012 survey of leading American economists, 95% of them argued that the average U.S. citizen benefits from NAFTA and that the damage is generally concentrated in very specific industries; they also indicate that the rapid industrialization of China has had a much greater negative impact on American workers than the deal with Canada and Mexico. Canada now constitutes America’s second largest trading partner (after China), and in 2017 alone $341 billion of American goods and services were sold in Canada. The U.S. is Canada’s largest trading partner, and has purchased $332 billion worth of Canadian goods and services in 2017.

The strong economic ties between the countries aren’t only reflected in the import and export of goods and services, but also in mobility of workers. Under NAFTA, certain skilled workers are permitted to travel to any of the member countries should they find employment there. Such a work permit (referred to as TN) is valid for three years and can often be extended. Presently, over 60,000 Canadians and nearly 20,000 of their family members reside in the U.S. under a TN status, and roughly 20,000 Americans are in Canada as NAFTA workers. Although the mobility of Mexicans is more restricted, there are nonetheless thousands of them residing in both the U.S. and Canada under a TN status.

There are a couple days left before the Friday deadline, and it remains to be seen whether Canada and the United States will be able to reach an agreement. According to experts’ predictions, no stipulations exist in the preliminary agreement between Mexico and the U.S. that Canada would find too outrageous, and it seems that all member countries recognize that adjustments to the trade deal must be made. Yet, it is the theatrics and politics that surround the current negotiations, and the hasty (arguably sneaky) manner in which the U.S. government has embarked upon them, that hinders the prospect of reaching a proper deal. It seems that Canada is being backed into a corner by its neighbor to the south, and it is unclear how its leadership will navigate these precarious negotiation talks, considering both the need for a trade deal that would ensure economic stability and the political risk it takes by appearing timid in response to America’s bullying.

It is crucial that citizens on both sides of the border remain alert to the negotiations as they unfold, and comprehend the gravity of the regional (and international) implications of a failure to sustain a healthy North American trade partnership.