Front Burner - New NAFTA: What you need to know

Episode Date: December 11, 2019

Deputy Prime Minister Chrystia Freeland has signed the new free trade agreement with the U.S. and Mexico. Today on Front Burner,Globe and Mail reporter Adrian Morrow explains what the new Canada-U.S.-Mexico Agreement (CUSMA) accomplished for Canada and why it took so long to get signed.

In the Dragon's Den, a simple pitch can lead to a life-changing connection. Watch new episodes of Dragon's Den free on CBC Gem. Brought to you in part by National Angel Capital Organization, empowering Canada's entrepreneurs through angel investment and industry connections. This is a CBC Podcast. Hello, I'm Jamie Poisson. And when this agreement is enacted, NAFTA will not only be preserved, it will be updated, improved, and modernized for the 21st century. That is Canada's now Deputy Prime Minister Chrystia Freeland.

She was in Mexico on Tuesday to sign the new NAFTA, also known as USMCA or CUSMA, depending on where you live. You might be thinking to yourself, I thought we signed this thing already like a year ago. Well, we signed it again. The Globe and Mail's Adrian Morrow

has been covering the story from Washington and he's here with me now been covering the story from Washington, and he's here with me now to explain what the new NAFTA really accomplished for Canada. This is FrontBurner. Hi, Adrian. Hi, Jamie. Welcome to Frontburner. It's nice to have you here, iterations of the story, all the updates. And I found myself kind of falling off of that. So I'm really happy that you're here today. And hopefully you can explain it to me. First of all, you know, why should I care about Yusmaca? I guess the main thing is, yeah, the actual details of it can be pretty, you know, nerdy and wonkish and specific.

Which is cool. I'm into that. But yeah. Yeah. Yeah. Some people are. But I think, you know, like the overarching kind of the reason it's important is that it governs, you know, over a trillion dollars worth of trade between Canada, the U.S. and Mexico. And so basically what it did, when NAFTA was first brought into force in 1994,

is it basically got rid of just about all the tariffs between those three countries, which basically meant that it was much easier and much cheaper to trade goods back and forth across all three countries. Bush saying it would bring more jobs and prosperity. We are creating the largest, richest and most productive market in the entire world that stretches 5,000 miles from Alaska and the Yukon to the Yucatan Peninsula. You know, it might, again, it might seem like this kind of academic exercise, but the basic, like, you know, sum total of it is that it makes consumer products, you know, cheaper. Cheaper for us. Exactly. Like, what are we talking about here? Just about everything. I mean, you know, cars, for instance, are one of the big examples. It was one that came up all the time during, you know, during these negotiations.

Basically, you know, this made it possible for companies, you know, building cars to create supply chains across all three countries. So you say, okay, I can get this part made, you know, most efficiently. Right. And most cheaply. You do the frame in Mexico. Right. Exactly. Right.

So it's like, I can get this specialty thing done in Canada. I can get this other, you know, this intellectual property, this computer chip, whatever, designed in the United States. I get the frame in Mexico. I can put them all together into a car. And that's much cheaper than say, okay, we have to do all of this in Canada, or more likely, if we didn't have this deal, we have to do all this in the US and then export it into Canada through a tariff barrier. And then we would have to pay a ton of taxes on it, and then it would be more expensive for us. Exactly, that's right.

And so the idea is that on top of the goods being cheaper, it just makes the economy more efficient, which essentially means overall, essentially more jobs. You have more disposable income that you're not spending on that car that you bought, and so then you can spend it on other goods and services in Toronto, in your community, that's going to create more jobs. Okay, perfect.

And I should say, you know, we've been calling it USMECA, USMECA, like the Canadians are also calling it CUSMA now, the Canada-US-Mexico Agreement on Trade. So just for people listening, it goes by all these names. You can call it, I guess, whatever you want. Okay, so, you know, you've just sort of painted a very

helpful system that makes goods cheaper for us. But Donald Trump came out guns blazing after he was elected. One of the worst deals ever made by any country having to do with economic development. It's economic undevelopment as far as our country is concerned. Why did he think that the NAFTA that we had before was such a lousy deal? Basically, he blamed NAFTA and trade deals generally for taking manufacturing jobs out of the United States. His argument was that, you know, because of NAFTA, because it suddenly became cheaper to import things from Mexico, that that meant that all these factory jobs had left the U.S., you know, for Mexico. So we let all our people go. We fire everybody. They make cars.

They make products. They make everything in another country. They send them into the United States. No tax. And he may be partly correct in that, in the sense that trade is one of many, many different factors, including automation. Automation, yeah. Yeah, exactly. It's one of many, many different factors, including automation. Automation, yeah.

Yeah, exactly. And just like the general kind of globalization of the economy over the last 20, 30 years that have led to these kinds of shifts in the manufacturing base. What he didn't sort of appreciate was that, yes, maybe the auto jobs left the U.S. and went to Mexico, but there are other jobs that have replaced them in the innovation economy, in the other things that people are spending money on because they have money left over after buying a cheaper car. You know, but in his mind, all that really mattered were these manufacturing jobs.

And also in his mind, he felt that the primary culprit and maybe the only culprit, you know, were these trade deals. And that's why he wanted, you know, some basically he on the campaign trail vowed to either radically overhaul NAFTA or rip it up completely. To get a much better deal for America. And we'll walk away if we don't get that kind of a deal. With the notion that this would magically make all of these factory jobs leave Mexico and come back to the U.S. OK, so very negative, you know, in his campaign and after he's elected, and he wanted to claw back big parts of NAFTA. You know, they've had a deal for a year now. What did he generally succeed at doing?

First of all, he promised sort of radical, a radical overhaul of NAFTA. And USMACA is not that. You know, USMACA actually preserves, you know, a good probably 80% or so, maybe 90% even, of what was in the original NAFTA. So the basic framework of no tariffs, free trade between the three countries, all that was successfully preserved by Canada and Mexico at the bargaining table. What he did get in USMCA were a few changes basically meant to give the US an advantage over Mexico. And the single largest one was he essentially got a rule put in that said, you know, between 40 and 45 percent of everything that goes into making a vehicle

within North America has to come from factories where workers are paid at least $16 an hour. Because Mexican auto workers make about three or four bucks an hour, you know, typically in most cases, that basically meant that this would give factories in the U.S. mostly, but also in Canada to a certain extent, an advantage over workers, over factories in Mexico. And so that was kind of meant to basically constrain Mexico a little bit, you know, give companies a little bit more of an incentive to put their plants in the U.S. And will that make like cars more expensive for us? Presumably, yeah. It's such a small change in some ways to a very specific thing that I'm not sure you're going to see a massive effect from that. But yes, that's the notion,

that it will ultimately make vehicles a bit more expensive. So we have this deal like a year ago. It's been so well reviewed, I don't expect to have very much of a problem to ensure the complete implementation of our agreement. The tariff-free access that NAFTA guaranteed for more than 70% of Canada's total exports is secure. And that's essential. But then we've been waiting, right, for the U.S. Congress to ratify it. That's my understanding. So what happened? Basically, the Democrats won a majority in the House of Representatives, and they said, we're only going to ratify the SMACA if you change it to our liking and give us a handful of things that we want in the deal. We do not want to pass this agreement just slightly different from NAFTA, with a little sugar on top and said, see, we did something different,

if it really isn't going to be enforceable. And so basically they had a long list of changes that they wanted to the deal. But the two that maybe are most relevant are, you know, number one on labor standards in Mexico, that they essentially agreed, the Democrats actually agreed with Trump that, you know, Mexico has been taking American jobs. And the reason is because their labor standards are so low. The Democrats wanted those labor standards not only raised, you know, for Mexico, but they also wanted more enforcement, essentially, where the U.S. would be able to basically punish Mexico if they failed to raise their labor standards. The second really significant thing that the Democrats asked for, and ironically, this was actually something that was hugely beneficial to Canada, is that in the original USMCA that

they agreed to a little over a year ago, one of Canada's biggest concessions was that they agreed to a U.S. demand to put increased protections for big pharma companies into the deal and basically protecting them from competition from generic drug manufacturers. Canada didn't want that, you know, in large part because the fact that there's more competition in Canada is one of the reasons we have, you know, lower pharmaceutical prices than the U.S. does. It's why Bernie Sanders comes across the Detroit border to Windsor and like up a bunch of pills and talks about how wonderful it is here, right? One out of four insulin users in the United States are rationing their insulin. That's a pretty crazy situation. It typically has retailed me U.S. dollars, $26 to $30. As opposed to $340.

Exactly, yeah. And so the big pharma companies in the U.S. have always wanted, you know, other countries, including Canada and Mexico, to have these higher, these tougher protections that make it harder for generics to compete. The Trump administration agreed, you know, forced Canada and Mexico basically to agree to put that into the USMCA. Democrats, however, want to lower prescription drug prices. And so they actually, you know, campaigned successfully to to get all of that stripped out of this new deal, Yusmika?

I think the question that I want to get at here with you is, was this a good deal for us? You've heard, I've heard people over the course of the last year say this was a bad deal for us. And here with me in studio, former policy director to Stephen Harper, Rachel Curran of Harper & Associates. And it is worse than the original NAFTA deal. So this is not a win-win deal. We are making a whole series of concessions, some of which are very expensive. But the government is going to get a lot of political credit because Donald Trump is on the other side of the negotiating table. The original USMCA, it was good for Canada in the sense that Canada basically prevented the Trump administration from doing all the really protectionist stuff that they wanted to do at the outset. So, for instance, early on, the Trump administration proposed that there be a rule where 50% of all content in cars and trucks made in Canada and Mexico had to come from the U.S.

Stuff like that that would have really advantaged the U.S. You know, stuff like that that would have, you know, really advantaged the U.S., you know, over Canada and Mexico. They wanted other rules that would have made it really hard for Canadian companies to get U.S. government contracts, things like that. And so Canada's big victory, in a sense, was that none of that actually ended up in the deal. That Canada kind of held back the tide on that one. You know, beyond that, I mean, Canada did concede a bunch of stuff, but it was generally fairly, fairly small. I mean, the pharmaceutical stuff, that was the biggest one, which then got rolled back because of this other negotiation with the Democrats. You know, we made some concessions on the dairy sector, basically giving the U.S. a bit more access to Canadian dairy. Again, these are very...

Right, you do hear dairy farmers upset about that, although the government says that they're going to compensate them here. The federal government will make available $1.75 billion over eight years to Canada's nearly 11,000 dairy producers. It's a pretty, yeah, and it was a pretty small, the concession itself there was relatively small, affecting a kind of small number of farmers. So there were like little things kind of here and there like that, that Canada gave up. But for the most part, it was mostly, you know, that the finished product is essentially kind of status quo. So is it fair for me to say that this isn't so different from NAFTA, right? Which is, I think, maybe why I've had such a hard time digging into this story. Because it felt like the stakes were just set so high. Like this was so dramatic when Donald Trump came to office.

And then as this thing chugged along, it was sort of like, oh, like, it's not really just this kind of status quo. Yeah, yeah, yeah, that's yeah, that's correct. I think I think it's true that Trump, you know, Trump elevated this into some sort of existential battle over the future of international trade. But once they actually got down to negotiating it, and I think once the US realized that Canada and Mexico, you know, weren't going to budge on a lot of these things, you know, and sort of call Trump's bluff, I guess, to actually tear up NAFTA. You know, once they realized that, I think the US kind of went for a lot of kind of smaller victories. And at the end of the day, you know, what they really got were these, you know, kind of tougher rules, particularly in the automotive sector, and particularly meant to

disadvantage Mexico. And that's, yeah, and for the most part, Canada kind of tougher rules, particularly in the automotive sector, and particularly meant to disadvantage Mexico. And particularly in Mexico, yeah. And that's, yeah, and for the most part, Canada kind of came out of it, you know, fine. I mean, it could have been so much worse. Yeah, we should be so happy to be so boring. It's true. In the Dragon's Den, a simple pitch can lead to a life-changing connection. Watch new episodes of Dragon's Den free on CBC Gem. Brought to you in part by National Angel Capital Organization, empowering Canada's entrepreneurs through angel investment and industry connections.

Can we talk about the timing of this for a second? Because I obviously couldn't help but notice that today Nancy Pelosi made the announcement that she was accepting these sort of changes to USMECA. There is no question, of course, that this trade agreement is much better than NAFTA. But in terms of our work here, it is infinitely better than what was initially proposed. But it happened on the exact same day or almost at the exact same time

that she turned around and announced these articles of impeachment. The first order of business for members of Congress is the solemn act to take an oath to protect and defend the Constitution. Yeah, I think within about an hour of each, you know, she announced the articles of impeachment,

and then within an hour, she had a separate press conference to announce that she was accepting the, you know, the USMACA deal. So it was very funny. And I think it's mostly a consequence of kind of getting to the end of the legislative session. But I think I think at the end of the day, what's happening here is that, you know, the Democrats have to please a couple of very different constituencies within their party. And so there is one side of their party that is hell-bent on impeaching Trump, that really doesn't like him. And I think with the Ukrainian scandal, Pelosi finally kind of came around to that and said, OK, this is something that is so bad and so obvious what happened know, we can do impeachment on that. At the same time, you know, there's a huge constituency within the Democratic Party that substantially agrees with Trump on trade, that actually thinks that, you know, Mexico and other countries have taken all these manufacturing jobs unfairly from the US and kind of agrees with what he was trying to do. And so

on that front, I think, you know, Pelosi always wanted to find some way to ratify USMCA, as long as there could be, you know, maybe even more in there for labor, you know, maybe even something in there that would kind of give the Democrats a victory. And there are some people who said, why make it look like he has a victory? Well, we're declaring victory for the American worker in what is in this agreement. And so we want to go ahead with this. Well, that's, yeah, that's really interesting analysis. I imagine the parts of the Democratic Party that needed this are probably in states that swing or could go Republican. So maybe on a day like today, while there are people in those states who would disagree with impeachment, like this is kind of a win, right?

Yeah, absolutely. You know, USMAC was kind of one opportunity that Pelosi has to push something through his speaker, you know, push it through and say, OK, here's something that we that we accomplished. You know, we actually were able to make this a better deal from our perspective. We got some victories for our constituencies and we managed to pass it, you know, so we weren't just there to impeach Trump for two years. Right, right. This isn't just about impeachment. They themselves stand for something, too. too. Okay, last person I want to talk about today, last character in this whole story is Krista Freeland. This is a progressive trade agreement that will be profoundly beneficial for our economy, for Canadian families, and for the middle class. In a lot of ways, Yusmaka Kusma was her baby, right? As foreign minister, she was at the forefront of the negotiations. And let's talk a little bit about how the now deputy prime minister

handled herself and, you know, how it put her sort of in the spotlight of Canadian and also international politics. Yeah, I think substantivelyively she probably got the best deal that anybody on the Canadian side could have gotten. And I think she largely got it by, A, by holding her ground, especially early on, and not making concessions in the opening rounds of negotiation, which was one potential strategy they could have pursued.

It sounded like they did not like her for a while. Yeah, and they didn't like her. It's true. The Americans were constantly blaming Canada for being obstructionists at the bargaining table. Frankly, I am surprised and disappointed by the resistance to change from our negotiating partners on both fronts. But I think that was ultimately the correct move to kind of hold things back to the end. At the same time, the other thing that they did was they found ways of basically satisfying the Americans in a way that wasn't going to hurt Canada. And that would, I guess, would sort of look would look less protectionist than actually was. And so the proposal, for instance, to tie some content in vehicles to a wage standard at factories, that was originally a Canadian idea that they sort of put out there and the Americans ran with and adopted, basically.

Oh, I didn't know that. Yeah, because essentially the Canadians wanted the Americans to take their 50% U.S. content requirement off the table. And so they suggested that as the substitute because it basically got at the issue the Americans were after, which was how do you find a way to, you know, to stop, you know, to disadvantage Mexico in auto jobs? You know, but it basically satisfied, A, it ensured that Canada wasn't going to pay any sort of price. But it basically satisfied, A, it ensured that Canada wasn't going to pay any sort of price. It was all going to be on Mexico. And B, it doesn't look explicitly protectionist

because you can basically frame it as like, this is supporting workers' rights. This is supporting higher wages for workers. Yeah, better labor standards. Exactly, yeah. So it was sort of this mix for Freeland of really holding the ground and being kind of top of the bargaining table

while also sort of proposing these workable compromises. That was kind of the, you know, the private side of the negotiations where I think Freeland was quite effective. Publicly, I think the jury's still out because, you know, in public, sometimes Freeland was very cautious and kind of handled these the way that you would in most trade negotiations. But there were definitely times when I think she sort of went out of her way to kind of assert how she was a sort of free trading liberal internationalist and how she was very different from Trump. And in the middle of negotiations, you know, in June of 2018, she came down to Washington and gave the speech to a foreign policy magazine dinner. Yes, very famous speech now. Yeah, essentially, the entire thing was a whole

subtweet of the Trump administration. She basically said, like trolling them. Yeah, the entire thing was a whole a subtweet of the Trump administration. She basically said, she's like trolling them. Yeah, absolutely. It just said, you know, you may feel today that your size allows you to go mano a mano with your traditional adversaries and be guaranteed to win. But if history tells us one thing, it is that no one nation's preeminence is eternal. And basically, your protectionist way of doing things is a dead end, it's not going to work, and that kind of thing. And my understanding is that Lighthizer is the main American negotiator,

that he kind of took it in stride, and he and Freeland, even though they fundamentally disagreed on most of this stuff, generally got along fine, and were able to negotiate. He went to her house for dinner. He did, that's right. They celebrated in the fall of 2018, they finally reached a deal. She had him over for a home- did. That's right. They celebrated in the fall of 2018. They finally reached a deal. She had him over for a home-cooked meal in Toronto. But my understanding is that

other people in the Trump administration, particularly people in the White House close to the president, were upset by that and were kind of put off by it. And I remember Trump made a couple of oblique references to not liking Freeland. We're very unhappy with the negotiations and the negotiating style of Canada. We don't like their representative very much. It was a reference to her. Shocking to see this administration get personally offended by something.

So, you know, I mean, there's some people who might think that, like, maybe it was actually a good play on Freeland's part to really stake out Canada's ground and say, no, we're not gonna be pushed around. And further than that, like, we're not gonna be, we're not scared of Trump. Like, we're willing to go down there and, you know, poke the guy in the eye when we think he's, you know, he's wrong, despite the fact these negotiations. I imagine other people thought

it was stupid. Absolutely. Other people thought it was, it was foolish. And the fact that it was unnecessary, that there was no reason Freeland had to go give this speech. I think she just did it because she felt like this was part of her, her public persona, her brand is to stand up for, you know, for liberal internationalism and free trade. So I think there was a bit of a split there between how obviously effective she was behind the scenes at the bargaining table, while still sort of doing things in public that at the very least are questionable. Right. All right. Adrienne Morrow, thank you so much for taking me through NAFTA, Yusmeca, Yusmeca, Kuzma.

Freelander was referred to as the new NAFTA, sort of a little bit of a subtweet, a way of trolling Trump. It was perfect. Thank you so much. It was a pleasure. Thanks for having me. Adrian and I briefly mentioned that the Democrats laid out articles of impeachment against Donald Trump on Tuesday. Basically, these are the charges that could be used as the basis to remove Trump from office. House Democrats say that he abused the power of his office and obstructed the investigation into his conduct around Ukraine. Some of the details are probably really familiar to you now. They say Trump sought to damage his political rival, Joe Biden, by asking Ukraine to investigate Biden's son and to investigate the discredited theory that Ukraine, not Russia, interfered in the 2016 election.

They say he used the prospect of a White House visit and military aid as leverage over the Ukrainians. But the part about obstructing the investigation, that might not be so familiar. Democrats say that by ordering people to defy subpoenas issued during the impeachment investigation, that Trump engaged in, quote, unprecedented, categorical and indiscriminate defiance. They say it's an abuse of power that subverts the Constitution. The House Judiciary Committee could hold a vote today. That was a mouthful. That is all for today, though. Thanks so much for listening to FrontBurner and see you tomorrow.