Canada breathes sigh of relief as ​Trump backs off Nafta

During his campaign, presidential candidate Donald Trump was quite clear and colourful about his feelings for the North American Free Trade Agreement (Nafta). He hated it, it was the worst deal ever, it had to go.

Indeed, his favourite talking point on the subject – the lost jobs as US companies moved production facilities and factories to southern neighbour Mexico – has been credited as a big reason he won the presidency.   

That was then. In recent weeks, the White House reportedly circulated a draft letter to Congress outlining its approach to renegotiating Nafta and it appears that the Trump Administration’s position on the agreement has become far more moderate. The general consensus has become that he will not have the US unilaterally withdraw from Nafta.

The relief has been palpable in US and Mexican manufacturing circles, among retailers, in any company, in fact, that has ties with Mexico as the country was sure to retaliate if the US attempted to unpick Nafta. Canada also counts among the relieved, even though its reliance on Nafta was under-emphasised in the debate.

Ties that bind

The US, Canada and Mexico have established deep economic ties under Nafta, says Daniel Kiselbach, a partner at Deloitte Tax Law in Vancouver.

“US and Mexican investments in Canada have tripled under Nafta. At the end of 2015, the stock of direct investment in Canada from the US was $387.7bn,” he says. Mr Kiselbach’s best guess about the proposed adjustments to Nafta is that they will likely focus on reforms to the investor-state dispute settlement (ISDS) provisions.

“ISDS provisions are set out in Chapter 11, Section B (‘Settlement of Disputes between a Party and an Investor of Another Party’),” he says. “They provide investors with the right to submit a claim that a Nafta party has breached one of its investment protection provisions to arbitration. Their purpose is to facilitate increased investment between Nafta countries.”

Meanwhile, companies in all three of these countries would be wise to double down on contacts at the state and local level throughout Mexico, Canada and the US, says Carlo Dade, director of the Centre on Trade and Investment Policy at the Canada West Foundation in Calgary.

Even though the US’s tone towards Mexico has changed, it would not be smart to take it for granted – at least on the national level, Mr Dade adds: companies need to pay close attention to how the states and provinces are interacting.

There has been a great deal of outreach between US officials and their Canadian counterparts to facilitate trade and investment in the event that Mr Trump kept to his hard line about Nafta. “There is a lot of that the states and provinces can do to facilitate trade and these officials will care about your investment a hell of a lot more than the US president will,” says Mr Dade.