In the first part of this series, I discussed whether Canada would be better off with a bilateral or trilateral trade agreement. I would like to now examine the five-year sunset clause demanded by the United States for inclusion in NAFTA. At the 2018 G7 in Quebec, President Trump stated again that he would be willing to have a trilateral trade agreement or separate bilateral trade agreements with Canada and Mexico so long as the trade agreement could be renegotiated every five years.
Prime Minister Trudeau swiftly stated that the five-year sunset clause is untenable as it creates uncertainty for long term investments. Instead, he raised the possibility of a “check in and a renewal” clause, where member nations would come together and review NAFTA every five years. Prime Minister Trudeau is doing the right thing as he is trying to ameliorate the possibility of a member nation unilaterally exiting the trade agreement. We can push for more, though.
We must remember that Trump was able to threaten to leave NAFTA with six-month’s notice under Article 2205, so eliminating the six-month’s notice provision and replacing it with a five-year sunset clause may actually be better for all parties involved. How NAFTA has for over 20 years been able to promote long term investments with a six-month notice provision conclusively demonstrates that a five-year sunset clause is not detrimental in and of itself to Canada’s long-term interests.
The news coverage in Canada has outlined Canada’s opposition to steel and aluminum tariffs. There is also coverage of Canada’s opposition to any changes to supply management in Canada’s dairy industry. But there is one industry that has not chimed in during these NAFTA negotiations and that is the energy industry.
NAFTA, through Article 605, dictates to Canada how it must distribute its’ own energy or basic petrochemical goods. Specifically, Canada can not reduce the proportion of exports compared to the most recent 36-month period, can not impose a higher price for exports than charged domestically, and can not disrupt normal channels of supply. This is outrageous as Canada does not have full sovereign control over its’ own natural resources and one wonders why Canada did not try to exit NAFTA when oil prices were over $100 a barrel. NAFTA is the reason why Canada sold oil at a deep discount to the United States and why Canadians paid and continue to pay such high gas prices in Canada.
Canada’s major exports to the United States are natural gas, crude oil, and petroleum products and we sell these products at a deep discount because of NAFTA. If we redirect even a portion of these goods onto the world market and upgrade our energy products at home before exporting, Canada can make many times what we currently get from the United States. Any talk of a trade surplus with the United States would be moot as our exports would go way down while our imports would stay the same.
The success of NAFTA negotiations, will not rest on a sunset clause. It will rest on provisions that help Canadians and Canadian corporations. If the terms and conditions of NAFTA are not favourable, Canada should want to renegotiate as quickly as possible. President Trump has given Canada a golden opportunity to right the wrongs of NAFTA. It remains to be seen whether the federal government will grasp this chance to improve trade and remove handicaps to full participation on the world stage.