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If we’re renegotiating NAFTA, let’s be ready to walk away

Gordon Laxer

The Globe and Mail

August 31, 2016

‘Just not done.” That’s the stance of Canadian business and opinion leaders about whether and how the United States could leave the North American free-trade agreement unilaterally. Like David Cameron before the Brexit referendum, their approach is to avoid thinking about it, hope for the best and go without a Plan B.

Whoever wins November’s presidential election, Washington will likely push to renegotiate NAFTA or even scrap it. Populist pressures from ordinary Americans feeling the pain of globalization and deindustrialization demand it.

If Washington intends to renegotiate NAFTA, Canada must formulate its own demands. This could be the opportunity we’ve been waiting for to right the fatal flaws in the agreement.

Most Canadians don’t see NAFTA’s benefits. In June, an Angus Reid poll showed that only one-quarter do. As many oppose it, while a third want it renegotiated.

If NAFTA is up for renewal, what should Canada demand?

Things have changed a lot since the mid-1980s, when Canada negotiated the Canada free-trade agreement (FTA) with the United States that formed the basis for NAFTA when Mexico joined in 1994.

In the 1980s, many believed neo-liberal promises that globalization would lift all boats. It didn’t. Branko Milanovic’s book Global Inequality: A New Approach for the Age of Globalization shows that more boats sank than rose, at least in the rich countries.

The big winners since 1988 (the year the FTA was signed) have been the global 1 per cent. The big losers have been the lower-income and middle classes in the rich countries. That underlies the populist revolts of Brexit and the presidential candidacies of Donald Trump and Bernie Sanders.

NAFTA’s first big flaw was to give foreign corporations the right to sue Canadian governments for passing laws that hurt their profits. It’s rigged against Canada.

Wealthy foreign owners have sued Canada 39 times, mainly over our environmental protection laws, and won $190-million from Canadian taxpayers. The United States has never lost a case.

Canada sought free trade in the 1980s to overcome unfair U.S. trade laws, such as those that then limited (and still limit) Canadian softwood lumber exports.

But instead of changing bad U.S. laws, the FTA and NAFTA changed the judges. Only they weren’t judges – NAFTA has secret tribunals run by exorbitantly paid corporate lawyers to decide what Canadian laws hurt U.S. corporate profits here.

Canada’s first demand should be to scrap these tribunals.

Our second demand should be to get a Mexican exemption from NAFTA’s energy proportionality rule. That rule requires member countries to continue to make available for export the same proportion of total energy supply that it has over the previous three years. Its aim was to ensure unlimited U.S. access to Canadian energy resources.

Mexico said no way. Canada should demand a similar exemption – otherwise we cannot meet our Paris climate commitments.

Thirty years ago, it was believed that the world had plenty of easy oil. Few had heard of the impending climate-change disasters. Most Canadians felt they had boundless energy resources that could be tapped at will without major environmental costs.

It made sense to many to give the United States unrestricted access to our vast energy resources. In return, Canadian Big Oil would get unlimited access to the U.S. market.

President Barack Obama broke that key understanding underlying NAFTA when he stopped TransCanada’s Keystone XL oil pipeline in January, 2012, ending Canada’s unrestricted access to the U.S. energy market.

NAFTA’S proportionality rule was broken. But it was never acknowledged.

Canada’s greatest source of emissions is the production of oil and gas – especially in Alberta’s oil sands – rather than their use in transportation. We must reduce our biggest source to have any hope of meeting our 2030 Paris promises.

According to Environment Canada, the oil and gas sector was responsible for 25 per cent of Canadian emissions in 2013. With Alberta allowing oil sands emissions to rise to 100 million tonnes a year, more than 40 per cent above 2013 levels, the oil and gas sector will account for 44 per cent of Canadian emissions by 2030 if Canada hits its Paris commitments. The rest of the economy would have to cut emissions by 47 per cent. Not a likely prospect.

NAFTA is flawed and outdated. Two of its rules hurt Canada. We must be ready to negotiate hard and to walk away if necessary, using the six-month exit clause.

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