The *tell* is within: “we have agreed not to conduct our negotiations publicly.”
Remember, U.S.T.R. Lighthizer, Jared Kushner, Secretary Ross and the U.S. team have never made a public comment about internal negotiations, ever. The only trade team that has discussed the dialogue, and specifically their individual terms within the dialogue, is Justin from Canada’s team, specifically Chrystia Freeland. This has been a weakness of team sparkle socks all along because it highlights their political prism.
So when princess rainbow sparkles and Justin back away from talking about their unicorn demands they are signaling a shift from a political prism toward a more economic-based set of determinations. Essentially, their political approach has failed; they are weakened.
“what both sides need” interpreted: Justin and Chrystia are trying to gauge the best retreat from the position of political damage. I’m going to hold-off on expanding consequences to Canada joining until I see if they actually do join. However, the biggest part of the U.S./Mexico agreement would eliminate Canada’s ability to use the NAFTA loophole.
The auto-sector (rules of origin) requirements are factually more difficult for Canada to meet than Mexico. Auto companies in Canada will have to change their supply chain completely because Canadian auto assembly plants have a higher content of Asian parts.
Here’s the part of the new agreement that applies:
The United States and Mexico have concluded substantive discussions on new rules of origin and origin procedures, including product-specific rules for passenger vehicles, light trucks, and auto parts. This update to the rules of origin will provide greater incentives to source goods and materials in the United States and North America.
Key Achievement: Increasing Regional Value Content Rule
This deal encourages United States manufacturing and regional economic growth by requiring that 75 percent of auto content be made in the United States and Mexico.
The rules will:
Incentivize billions annually in additional United States vehicle and auto parts production.
Help to preserve and re-shore vehicle and parts production in the United States.
Transform supply chains to use more United States content, especially content that is key to future automobile production and high-paying jobs.
Close gaps in the current NAFTA agreement that incentivized low wages in automobile and parts production.
If Canada joins on to the above agreed terms, they will save most of their current auto-manufacturing. However, many Canadian car manufacturers will likely have to open ancillary component manufacturing to meet the rules-of-origin threshold; that will likely lead to more component manufacturing and assembly in the U.S.
Think about it? If you are a company supplying an auto manufacturing plant currently in Canada: where are going to safely put your facility (physical plant expansion), given the renewed regulatory and compliance process; and the nature of a six year review for trade-deal continuance? Answer: In the U.S.
In addition to the above, to join the U.S-Mexico agreement Canada will have to:
- open their telecommunications and banking sector (eliminate non tariff barriers).
- eliminate soft-wood (lumber) and aeronautics subsidies.
- begin a process of lowering their assembly use of Chinese/Asian goods.
- eliminate protectionist tariffs on dairy and farm products.
The bottom line is that Canadian workers will gain considerably if Justin and Chrystia sign on to the current deal. Yes, it would require several industries within Canada to restart (Steel, Aluminum, Coal, etc.); however, that’s a benefit to the Canadian worker, not a loss.
The big challenge is within the protectionist barriers Canada would have to give up. Liberal Canada likes to have governmental control over several segments of their economy; loosening regulations and opening up to a free market means less control for the planning authority…. you know, that pesky free enterprise thing.