Free Trade

How the new USMCA strengthens Canada in future trade deals: U of T expert

noreen.rasbach — Mon, 22 Oct 2018 19:17:22 +0000

How the new USMCA strengthens Canada in future trade deals: U of T expert

noreen.rasbach Mon, 10/22/2018 - 15:17

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Prime Minister Justin Trudeau and Minister of Foreign Affairs Chrystia Freeland hold a news conference on the United States Mexico Canada Agreement (USMCA) in Ottawa on Oct. 1 (photo by Patrick Doyle/AFP/Getty Images)

Andrew McDougall

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Global Lens

Free Trade

Global

Mexico

The Conversation

United States

Now that the threat of the NAFTA-pocalypse has lifted for Canada, the Monday morning quarter-backing is well underway on whether the new United States-Mexico-Canada Agreement (USMCA) is better or worse than trade pact that preceded it.

But beyond the negative headlines, the USMCA probably leaves Canada stronger than it was going into the negotiations when it comes to future trade negotiations.

Three components of the deal, however – those surrounding dairy, the non-market economy clause and the new sunset provision – are worth reviewing for how they change Canadian trade politics both domestically and globally.

Dairy

Canadian dairy farmers have long been largely untouchable politically. That may now be changing, and they should expect to have their market access further eroded in future trade agreements.

In the short run, U.S. President Donald Trump was probably the best thing that ever happened to them. His disdain for Canadian dairy caused Canada to close ranks to support supply management even though it was already under intense scrutiny domestically as well.

An important turning point came with a seminal 2012 research paper. In the report, author Martha Hall Findlay argued that the 1970s version of supply management was outdated, unjustified, was enriching dairy farmers on the backs of middle-class and low-income consumers and interfering with our trade agenda.

When Trump demanded dairy concessions, it not only solidified but calcified support among politicians for a system in Canada that was otherwise losing ground. Nonetheless he probably only delayed the inevitable.

Cows check out visitors on a dairy farm in Saint-Henri-de-Taillon, Québec, in September (photo by Jacques Boissinot/The Canadian Press)

The number of dairy farmers actually in the system is down about 90 per cent since supply management’s start in the early 1970s to around 11,500 from about 140,000 in the late 1960s and early 1970s, and they have been a key irritant in nearly all of the country’s trade negotiations.

The political power of Canada’s dairy farmers rests on a crumbling consensus about the value of supply management. The Institute for Research on Public Policy recently found many Canadians supported dismantling the system.

Nearly every other country has phased out similar supply-management systems. With Canadian concessions in the Trans-Pacific Partnership (TPP) with the Pacific rim, the Comprehensive Economic Trade Agreement with the European Union (CETA) and now the USMCA, it seems likely that supply management is something that will be increasingly bargained away.

Despite the promise of compensation from Ottawa, the industry needs to prepare now for long-term liberalization.

Section 32.10

Probably no section of the new agreement has raised as many eyebrows as Section 32. It compels each of the three parties to notify the others three months before they start trade negotiations with a country defined as having a “non-market” economy – namely, China.

A trade pact’s text must be disclosed within 30 days of signing it for review by the other two USMCA partners. If the other two countries don’t like it, they can kick that country out of the USMCA.

The provisions have been erroneously reported as giving the United States a veto over Canadian trade policy. It doesn’t (but don’t take my word for it, go ahead and read it).

Further, given that under Section 34.6, the USMCA allows for withdrawal on six months’ notice from any country for any reason at all, the clause is more political than legal. Even without the China clause, if the U.S. doesn’t like Canadian trade policy, it can just leave the USMCA under 34.6.

In this November 2017 photo, President Donald Trump and Chinese President Xi Jinping shake hands during a joint statement to members of the media in the Great Hall of the People in Beijing, China (photo by Andrew Harnik/Associated Press)

So who wins with this largely symbolic provision? Trump, for domestic reasons. The president can present this to his protectionist base as part of his wider trade war on China. This gives him a win as both the midterm elections and 2020 loom.

But longer term, Section 32 may actually serve Mexico’s and Canada’s interests more than America’s. It symbolically ties the U.S. tightly to the USMCA by linking its global anti-China ambitions to the trade agreement. That’s not a bad thing for Canada from a trade perspective.

Why?

‘Political cudgel’

Presenting the USMCA to the world as a common front against China – the American intent with Section 32 – means abandoning the trade agreement is now more difficult for the United States. Any future threat to kill the agreement from Washington (and it won’t come from anywhere else) can now be framed by supporters of the USMCA as being weak on China.

That will likely reduce any chance it will be scrapped, which benefits Mexico and Canada.

The agreement comes up for its first mandatory review in six years to decide whether it should be extended. At that time, Section 32 provides a political cudgel to Ottawa and Mexico City to remind the United States that the USMCA helps to cement their global leadership against countries it views as strategic competitors.

There was no similar provision in NAFTA, but if there was, there’s no doubt it would have helped us at the bargaining table.

Does this risk our relationship with China? Not likely. Remember, we’re nowhere near a trade agreement with China anyway given very different perspectives on environment and labour standards.

But that doesn’t mean there aren’t options, and Canada has every right to pursue an agreement if we want. Mexico has already told China that it doesn’t see the USMCA as hindering any future agreements. Canada can and should do the same.

Canada can also use the USMCA to its advantage with China – a country many times its size. While NAFTA was in doubt, Canada was in a weaker position negotiating with China.

Now, by fully securing continental trade, Canada can leverage its more secure position at the bargaining table to more credibly insist on a deal that works for North America.

Sunset clause

The U.S. walked back its insistence on a five-year sunset clause on NAFTA. Now, the USMCA technically expires every 16 years, unless all parties commit to renewing it after the first six years.

Failure to do so will lead to an automatic expiry after 10 years, but with meetings held annually to work out the differences. The parties meet every six years otherwise to review the agreement.

Again, there is less here than meets the eye. The agreement can theoretically be terminated on six months’ notice anyway. But this process has some potential upsides for keeping the deal up to date.

Overhaul was long overdue

Drama aside, there was nothing wrong with updating NAFTA. It was time; the agreement was 24 years old and included nothing on topics like the digital economy. Yet there was scant motivation by its three members to overhaul it.

We shouldn’t wait for a crisis to break out every quarter century to review our most important trade agreement. The technical expiry dates of the USMCA can and should be used to make regular changes that will keep the agreement fresh and remind all three countries of its importance to their economies.

That means we may end up with a better, more flexible USMCA.

To summarize, the USMCA, while imperfect, is overall a positive development for Canada. It has a number of structural elements that may very well leave us stronger when negotiating trade pacts in the future.

Andrew McDougall is a sessional lecturer at the University of Toronto

This article is republished from The Conversation under a Creative Commons license. Read the original article.

NAFTA negotiations may threaten pharmacare: U of T expert

noreen.rasbach — Mon, 10 Sep 2018 18:26:32 +0000

NAFTA negotiations may threaten pharmacare: U of T expert

noreen.rasbach Mon, 09/10/2018 - 14:26

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The ongoing NAFTA renegotiations could put a Canadian national pharmacare program in jeopardy, and could have a particular impact on Canadians who need expensive arthritis drugs, says U of T's Joel Lexchin (photo by Shutterstock)

Topic

Around 91 per cent of Canadians want a national pharmacare plan, according to a recent national poll, so they don’t have to choose between buying groceries or paying for drugs to keep them healthy.

The same public opinion survey has also found that prescription drug access and affordability are issues for almost 25 per cent of Canadian households.

But depending on what happens with the ongoing North American Free Trade Agreement (NAFTA) renegotiations, the cost of such a pharmacare plan could go up, possibly dramatically.

This has to do with something called intellectual property rights (IPRs). Usually when talk turns to IPRs people think about patents. But there’s also something called data protection.

The data that’s being protected is information about the effectiveness and safety of drugs that comes out of the clinical trials that brand name drug companies do when they want approval to market a new drug.

Generic drugs essential to pharmacare

The data is the private property of the brand name companies and can’t be used by anyone else, including generic companies, for a period of time.

It would be very costly for generic companies to do the original testing all over again, and it would also be unethical because the results of the trials are already known. So generic companies use the data once it’s no longer protected.

Data protection is not a sexy topic, but it’s important in determining how quickly some low-cost generics can reach the market. The presence of generics keeps public drug plans affordable and will be essential for any pharmacare plan.

Right now, seven out of every 10 prescriptions are filled with generic drugs, but paying for generics only uses up 21 cents out of every dollar that is spent on prescription drugs in Canada. A generic prescription is about one-third the price of a brand name one.

Patents already mean that brand name drugs are on the Canadian market for more than 12 years without any competition. When patents run out, generic drugs can be sold, but sometimes patents expire before the data protection period is up. Until the data protection period ends, there can’t be any generics. What’s more, unlike patents, data protection can’t be challenged in the courts.

Ten years of data exclusivity

Canada used to offer five years of data protection but both the lobby group for Big Pharma here and in the United States found that time period unacceptable.

In the end, as a result of the lobbying efforts by the pharmaceutical industry, Canada amended its regulations on data protection to allow for eight years of data exclusivity. An extra six months is possible if the company marketing the drug is able to determine that children need the drug.

Now comes word that in the bilateral United States-Mexico NAFTA talks, there was an agreement that biologics will have 10 years of data exclusivity.

Biologics are injectable drugs that are used to treat various forms of arthritis, Crohn’s disease and ulcerative colitis (inflammatory bowel conditions), multiple sclerosis and a variety of other diseases.

Biologics can be very effective but they come with a high cost.

Big money spent on biologics

According to the latest report from the Patented Medicine Prices Review Board, a federal agency that sets a maximum introductory price for new patented medicines, biologics accounted for seven of the top 10 patented drugs in Canada based on the amount spent in 2017.

No. 1 on the list is infliximab (Remicade), used in the treatment of rheumatoid arthritis and ulcerative colitis, among other illnesses. The average annual cost for a course of treatment with Remicade is close to $29,000 and, in total, just shy of $1 billion was spent on this one medicine alone in 2017 by patients, provincial drug plans and private insurers.

No. 6 on the list is etanercept (Enbrel) also used for various forms of arthritis. The average annual cost for Enbrel is $13,600.

But for some of these biologics, there is the rough equivalent of a generic, known as a “subsequent entry biologic (SEB).” Whereas a single dose of Enbrel costs $406, a single dose of its SEB is only $255 – more than a third less expensive.

If the U.S. pushes Canada to accept the same data protection period that Mexico did, then data protection here goes up by another 1.5 to two years. Then we might very well be spending a lot more on some biologics, because the SEBs will be delayed.

If we want a national pharmacare system, then we need to make sure that our negotiators don’t give in to any American demands about medical data protection.

Joel Lexchin is an associate professor of family and community medicine at the University of Toronto, professor emeritus of health policy and management at York University, and an emergency physician at the University Health Network.

This article was originally published on The Conversation. Read the original article, including his disclosure statement.

U of T expert on NAFTA negotiations: Two's company, three's a crowd?

noreen.rasbach — Wed, 29 Aug 2018 15:58:57 +0000

U of T expert on NAFTA negotiations: Two's company, three's a crowd?

noreen.rasbach Wed, 08/29/2018 - 11:58

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The national flags of Canada, the U.S. and Mexico, are lit by stage lights before a news conference at the start of North American Free Trade Agreement renegotiations in Washington (photo by Jacquelyn Martin/AP)

Topic

Munk School of Global Affairs & Public Policy

The Conversation

United States

Two’s company, three’s a crowd. The third wheel. There’s no good term for someone who jams a couple, seemingly invited out of pity.

Is that the position Canada finds itself in with the United States and Mexico, brought back into the negotiations to conclude a new continental trade pact at the 11^th hour after Washington and Mexico City have made a deal of their own?

And, if so, how did it get to the point that the United States’ most important trading partner appears to be essentially an afterthought in talks fundamental to Canadian national interests?

The Trudeau government said for weeks that Ottawa wasn’t frozen out of the negotiations. It was normal for two parties in a three-way negotiation to huddle and work on issues fundamental to them alone, Ottawa said.

Fundamental issues

But the U.S.-Mexico agreement initialed this week didn’t deal solely with bilateral issues, but with issues fundamental to Canada too, such as the dispute-resolution mechanism that was Canada’s most important trade objective when Ottawa first signed a free-trade pact with the United States in 1987.

If anyone traditionally worried about being the third wheel in the North American relationship, it was Mexico.

Mexico was only invited to negotiate its way into the free-trade zone after Canada and the United States had done their deal and put it into effect. Once those trilateral negotiations began in 1991, the three parties were scrupulous in ensuring they remained three-way talks.

Certainly, there were issues that concerned Canada only, such as cultural protections. And there were issues that concerned Mexico only, such as protections for its energy industry. But Canada and Mexico maintained a common interest in engaging the United States. And Washington didn’t try a divide-and-conquer strategy, recognizing that NAFTA involved continent-building as much as trade facilitation.

U.S. Trade Representative Robert Lighthizer, left, and Mexican Secretary of Economy Idelfonso Guajardo, right, walk to the White House on Aug. 27. President Donald Trump says the prospects are ‘looking good’ for an agreement with Mexico that could set the stage for an overhaul of the North American Free Trade Agreement (photo by Luis Alonso Lugo/AP)

Behind the eight ball

Not so now. Canada now finds itself behind the eight ball in these negotiations, possibly faced with a choice between a bad deal and no deal at all, precisely what the Trudeau government was determined to avoid.

In particular, the price of signature may include a humiliating climb-down on protections for the supply-managed dairy and poultry sectors.

Much of this is the fault of the Trump administration. The White House has been singular in its contempt for its trading partners and in its dismissal of any concept of a North American community.

Canada and the United States have fought over trade since before Canada was a country (the first dispute over softwood lumber trade dates to shortly after the American Revolution), but Ottawa and Washington always sought to make those disputes about those disputes alone.

U.S. President Donald Trump, in contrast, talks as if Canada’s dairy tariffs are symptomatic of Canada’s trading practices rather than the exception.

Unrealistic expectations

But Ottawa deserves plenty of blame too. The Trudeau administration went into the NAFTA talks with unrealistic expectations.

Its demand for a progressive pact, worthy as that goal might have been, simply turned off the White House, just as it did the Chinese government in putative trade talks last year.

Canada’s Minister of Foreign Affairs Chrystia Freeland headed to Washington a day after the U.S. and Mexico announced progress on a bilateral trade deal (Darryl Dyck/CP)

More costly still was Ottawa’s determination to show no flexibility on supply management. More than one prime minister over the past three decades has wished quietly for an opportunity to reform this protectionist throwback, even as they mouthed fealties to it.

This negotiation was the opportunity to act but, instead of doing it proactively and strategically, the Trudeau government may be forced into it as the price of saving Canada’s most important trade pact.

It’s now widely accepted that Canada is too dependent on the U.S. market given the wave of protectionism washing over U.S. politics. But, if anything, it may be more accurate to say that Canada didn’t do enough to protect its North American advantage by building a community of interest and institutional ties in the United States.

Instead, Canada took the U.S. market – as big as the entire European Union and right on our doorstep – for granted.

The White House, having finally grabbed Ottawa’s attention, may now agree to a deal that Ottawa can live with. Or it may work to drive a very hard bargain with the clock ticking. If so, another European comparison comes to mind: Canada just might have been sleepwalking to its own Brexit.

Drew Fagan is a professor of public policy at the University of Toronto's Munk School of Global Affairs and Public Policy.

This article was originally published on The Conversation. Read the original article.

Free trade with Europe is not dead, but it’s in a coma, says U of T political scientist

lavende4 — Mon, 24 Oct 2016 13:02:21 +0000

Free trade with Europe is not dead, but it’s in a coma, says U of T political scientist

lavende4 Mon, 10/24/2016 - 09:02

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Protesters outside a meeting on CETA at the Parliament of Wallonia in Belgium (Nicolas Lambert via AFP/Getty Images)

Terry Lavender

Author legacy

Terry Lavender

Topic

European and Canadian politicians and diplomats are scrambling this week to salvage a trade agreement that was supposed to be signed Thursday, but which is now in doubt because of the objections of Wallonia, a francophone region in Belgium.

If ratified by Canada and the European Union, the Comprehensive Economic and Trade Agreement (CETA) would open up markets and drop nearly all import taxes on everything from food to cars to metal and forestry products.

U of T News spoke to Stefan Renckens, an assistant professor of political science at U of T Scarborough, about the collapse of the trade agreement. Renckens has a master’s degree from the University of Leuven in Belgium and worked there as a research and teaching assistant at the Institute for International and European Policy and as a research fellow of the Flemish Research Foundation before moving to North America.

Why is Wallonia balking at CETA?

There are substantial objections and political motivations. Substantially, one of the contentious issues is the so-called Investor-State Dispute Settlement mechanism, whereby foreign companies can sue governments. Even though a modified, more modest version has now been introduced in CETA, compared to the original draft and to other existing trade treaties, there is still a fear that this gives too much power to foreign companies and will lead to governments self-censuring out of fear of being sued by a company. In addition, there is fear – justified or not – that CETA can over time lead to a lowering of social, environmental and food safety rules, and that the elimination of trade barriers will lead to a loss of jobs in the agricultural and industrial sectors.

Considering the specific situation in Belgium, political motivations play a role as well. Over the last few months, there has been increased attention to several of these trade agreements, in particular the Transatlantic Trade and Investment Partnership (TTIP), an agreement the EU is negotiating with the U.S. The negative perceptions around the TTIP negotiations have spilled over to CETA and have led to significant mobilization by civil society, which culminated in a large demonstration in Brussels in September.

Why does Wallonia have the power to veto the deal?

While the EU has the sole competence to negotiate trade agreements, the European Commission decided to label CETA as a “mixed agreement” instead of an “EU-only” agreement, indicating that both EU and member state competences were being touched upon in the agreement. As a result, 38 national and regional parliaments need to vote on CETA. This would in essence not be a problem if Belgium was a normal federal country. However, unlike other federal systems, there's no hierarchy of rules in Belgium, meaning that a decision by a regional parliament cannot be overruled at the federal level. And hence Wallonia has veto power.

Is CETA dead?

Not quite yet. The last few days, there were attempts to overcome the objections of Wallonia, especially around the dispute settlement mechanism, but they officially failed on Friday when Freeland left the negotiations. While the official deadline for an agreement was set for Friday, the unofficial one is Monday, by which time Canada would decide whether or not to cancel Justin Trudeau’s trip to the signing ceremony. Sources inside the European Commission have indicated that they will continue talking to the Wallonia government to see whether an agreement can be reached. So maybe over the weekend, we could see white smoke, but I doubt it.

Wallonia had hoped that they would get more time to negotiate. Their argument was that they notified the European Commission of their concerns already a year ago, and that not much was done to alleviate them. A few more weeks or months of negotiations shouldn’t be an issue, they argue, especially since just over the last few days several concessions have been made, which shows there is still room for negotiations. From the other side, EU officials and politicians from member states are saying that it is irresponsible to veto the agreement at such a late stage (negotiations started in 2009) and after all the other parliaments have agreed to sign. They argue that reopening the negotiations is not that easy, since it will undoubtedly put issues back on the table that negotiators thought were agreed upon. Over the last few days, the parties have only worked at improving an interpretative document that clarifies the agreement, instead of changing the agreement itself. But maybe the only way to alleviate Wallonia’s concern is to open up the agreement itself, which may be opening Pandora’s box.

Several Belgian politicians – especially of the Flemish Liberal Party Open-VLD – have suggested that the Belgian federal minister of foreign affairs should ignore Wallonia's “no” and vote in the Council of Ministers to sign the treaty anyway. This would, however, be unconstitutional and not hold up in the Belgian Constitutional Court. The Belgian minister of foreign affairs has said he will not do this. And without his yes vote, there is no agreement.

If no agreement is reached over the weekend, it looks like CETA will be at least in a coma for the near future. I believe they will try to resuscitate it at some later stage, since I don’t think they want to throw away seven years of hard work. But for now, it doesn’t look good, not just for CETA but also and especially for TTIP.

How important is CETA for Europe? For Canada?

Proponents say it will lead to economic growth and job creation. Opponents both in the EU and in Canada are saying that the gains will be modest at most. It is extremely hard to predict these potential gains, and each side has their own reports to back up their claims. Equally important as its pure economic impact is its political importance. Not signing the treaty would be a political setback for the EU, since it will be seen as an unreliable partner. EU officials are now saying that if we can’t even conclude a trade treaty with a close ally like Canada that shares many of our own values, with whom can we then credibly conclude a trade treaty? Even if it is signed in the end, it will certainly lead to a discussion on the way trade deals are negotiated by the EU and the voting procedure that is causing this crisis now.

Is Wallonia’s rejection indicative of wider European unease about free trade agreements?

There certainly is broader disagreement and concern in Europe about globalization in general, not just trade liberalization. This backlash follows in the wake of the Great Recession, austerity politics, and the emergence and popularity of populist parties. There were and still are concerns about CETA in countries such as Germany, France and Eastern European countries, even though none of them have formally blocked the process like Wallonia now has. The secrecy of the negotiations has also been used by opponents to argue that deals are being made against the interests of the people.