Everything has changed.
The future always contains a degree of uncertainty. The known unknowns that can turn cause even the best-laid plans of mice and men down blind alleys.
So we build systems to safeguard against the outcomes we cannot fully predict. Laws, regulations and treaties are our bulwarks against chaos, created to impose a degree of predictable order.
For the last 25 years, the North American Free Trade Agreement has been one of Canada’s surest and steadiest economic defences. It defined how our nation, Mexico and the United States of America did business. Whatever imperfections NAFTA might have had, it prevented – to borrow a metaphor from the late Prime Minister Pierre Trudeau – the American elephant from rolling over and crushing Canada.
NAFTA did not build a utopia, but the treaty became deeply ingrained in all three countries, and millions of jobs depend on its rules.
But everything has changed.
The election of Donald Trump to the presidency of the United States swept into play a new era of populism and economic nationalism. America, in the world according to Trump, got a raw deal out of NAFTA. Canada and Mexico were taking advantage of the U.S.
“The worst deal ever,” is how the president has described NAFTA.
If the deal could not be rewritten to better suit American interests, it could be torn up, he said.
Four furious rounds of negotiations between Canada and the U.S. have failed to produce a revised deal. The tension between the two sides spilled from the negotiating table into the public as Foreign Minister Chrystia Freeland and U.S. Trade Representative Robert Lighthizer traded barbs in front of reporters when the fourth round of talks failed to produce a deal.
A fifth round began in Mexico in November, but there were few signs the acrimony was fading. Both Canadian and Mexico baulked at U.S demands that all North American cars be built with 50% American parts.
The tensions are so high and the sides so far apart that many industry leaders, including members of Canada’s wine industry, are actively tamping down expectations that a deal will be reached anytime soon.
Writing for National Newswatch, Canadian international trade expert Peter Clark, who has advised Canada’s wine industry on trade issues, says that until the U.S. “take, take, take” approach gives way to a willingness to reach a compromise, little progress will be made.
“On the poison pills, where the divisions are deepest and most intractable, there is no movement. All are deal breakers. Even those proposing these impossible changes are not trying to find a middle ground,” Clark writes. “If you cut the poison pill in half, the remainder is still toxic. Seppuku is not a popular sport among Canadian negotiators.”
And while the back and forth continues, communities like Niagara can only wait to see if NAFTA will swallow the poison pill or spit it out.
“NAFTA has a huge impact, and a community like Niagara has many businesses and many industries that depend on NAFTA,” says Mishka Balsom, president and CEO of the Greater Niagara Chamber of Commerce. “There are industries like the wine industry in Niagara, but there are also many smaller industries, including smaller manufacturers that depend on NAFTA.”
Niagara’s wine industry is understandably nervous. NAFTA contains provisions that allowed it, and its sister industry in the British Columbia wine region, to grow and expand.
Canada negotiated some protectionist concessions for the domestic wine sector when the original Canada-US free trade agreement was forged in 1987. In exchange, Canada agreed to open its markets to more American wine.
While that agreement resulted in a significant increase in American wine sales in Canada, the protectionist measures were grandfathered into NAFTA in 1994, says Dan Paszkowski, president of the Canadian Vintners Association, giving the domestic industry enough shelter to grow.
Although Canadian wine producers have had to navigate a labyrinth of domestic laws and regulations to sell wine at home – including archaic regulations that prevent the sale of wine between provinces – NAFTA allowed Canadian wine to be sold in Canadian grocery stores, and wineries could sell their product exclusively in their own shops.
Combined with market initiatives like Vintners Quality Alliance (VQA) labels to identify wines made from Canadian grapes and the rise of wine tourism, the NAFTA provisions helped the Canadian wine industry become a $9 billion a year business.
It’s an impressive statistic, especially when one considers how little land Canada has to grow grapes that can be used to produce quality wines. However, Canada’s wine industry is still a pigmy compared to its Godzilla sized American counterpart.
Paszkowski says California has more land to grow wine grapes than the entire Canadian grape growing sector. What’s more, the American wine industry is worth $275 billion annually, he says, and controls about 14 percent of the Canadian market. Domestic wine, by comparison, holds around 10 % of the market. The rest is held by imports from international wine regions including Europe.
At the same time, Canadians have to jump through a series of hoops to sell wine in the U.S, including hiring American distributors to bring the wine to markets, Paszkowski says. This drives up the price of Canadian wine in the U.S. and reduces sales.
The result is a wine trade deficit of some $460 million in favour of the US. Paszkowski notes the irony that a US trade deficit with Mexico was a key factor in Trump’s drive to revamp NAFTA in the first place.
The deficit will only increase if the White House gets its way.
American negotiators are claiming the exclusive sale of Canadian wines in Canadian grocery stores – a situation supported by the grandfathered clauses in NAFTA – is unfair. They are seeking to open up grocery stores and speciality shops to American products. Paszkowski says that has the potential to destabilize the share of the Canadian market held by Canadian winemakers.
“It’s not just about free trade, but also fair trade,” Paszkowski says.
A quieter concern in the wine industry is that Ottawa, in a bid to protect larger Canadian industries like softwood lumber, may give in to American demands on wine as a quid pro quo.
St. Catharines MP Chris Bittle says Canada does not intend to sacrifice one industry to protect another.
“Certainly I have heard the concerns of our wine industry, and I raise those concerns (with the federal government) at every opportunity,” he says.
However, there are many key issues separating Canada, and the U.S. and the demise of NAFTA remains a possibility.
Exactly what would happen if the United States walked away from NAFTA is as unclear as the fate of the talks themselves.
Paszkowski said the best case scenario if NAFTA collapses would be the restoration of the old Canada/US free trade agreement that predates the three-way agreement with Mexico.
If that happens, the grandfathering clauses in NAFTA that were part of that earlier agreement would remain intact and, for the wine industry, little would change.
However, given the strident America-first approach adopted by the White House, it isn’t at all clear if the old agreement will be restored. It seems as likely as not that the U.S. may want to craft an entirely new bilateral agreement with Canada.
The solution for Canada may lay not with Washington, but with individual states.
Since Trump was elected, Canada has begun to approach state governors on those issues, such as climate change, where there appears to be no compromise with the White House.
Bittle says part of the Canadian NAFTA strategy has been to appeal to those states that benefit the most from the trade pact. Since they stand to lose millions of dollars if NAFTA dies, the strategy aims to place pressure on Trump from inside the U.S. as well as from Ottawa. Already state politicians and industry actors are pressing the Trump administration to turn the heat down on NAFTA talks.
Whether this approach could mean Canada would pursue deals on a state-by-state basis if NAFTA dies is something Bittle would not speculate on.
No one can really predict what will happen next, Bittle says. No one expected to be in this place because NAFTA was one of the certainties in a world where few exist.
But everything has changed.
Want more of Grant? Read Grant’s previous article Print Is Not Dead here