February 29, 2008

NAFTA: What is one to read between the lines here??

Ottawa plays oil card in NAFTA spat

With both Clinton and Obama campaigning on the future of free trade deal, Emerson reminds U.S. of its easy access to energy

From Thursday's Globe and Mail

OTTAWA — Americans' privileged access to Canada's massive oil and gas reserves could be disrupted if Washington cancels the NAFTA accord as Democratic presidential candidates threaten, Canadian Trade Minister David Emerson warned yesterday.

"There's no doubt if NAFTA were to be reopened we would want to have our list of priorities," he said.

"Knowledgeable observers would have to take note of the fact that we are the largest supplier of energy to the United States, and NAFTA has been kind of a foundation of integrating the North American energy market," Mr. Emerson said.

"When people get below the rhetoric and start picking away at the details, you are going to find that it's not such a slam-dunk proposition to go from the rhetoric to a meaningful improvement," he said.

Canada and the United States have free trade in energy because the accord effectively prohibits discriminatory export controls on oil and gas. Mr. Emerson's comments come after Democratic presidential candidates Barack Obama and Hillary Clinton promised Tuesday to withdraw the United States from the North American free-trade agreement after taking office, unless the deal was completely renegotiated.

The pact has become a target for criticism by U.S. unions, which blame it for the disappearance of thousands of jobs, but studies have repeatedly shown that trade has thrived and all three NAFTA signatories have benefited since the deal took effect in 1994.

But Mr. Obama's rhetoric on the subject may be just that, CTV News reported last night. Citing Canadian sources, the network said that a senior member of Mr. Obama's campaign team called Canada's U.S. ambassador, Michael Wilson, within the past month, warning him that Mr. Obama would be taking some "heavy swings" at NAFTA in the campaign.

"Don't worry, ... it's just campaign rhetoric, ... it's not serious," CTV reported the campaign official as saying.

Late last night, a spokesperson for the Obama campaign said the staff member's warning to Mr. Wilson sounded implausible, but did not deny that contact had been made. "Senator Obama does not make promises he doesn't intend to keep," the spokesperson told CTV.

Mr. Emerson called the Democratic candidates' NAFTA vow political posturing aimed at party voters, predicting it would fade from sight if either wins the presidency.

But he said he's nevertheless worried about a rising tide of protectionism in the United States. "It's been getting more strident; it's permeating congress ... and it's not just the heat of the presidential campaign that is causing concern, it's the whole congressional system."

During the final Democratic candidates' debate before next week's Texas and Ohio primaries, Ms. Clinton said Tuesday she would demand new environmental and labour provisions in NAFTA as well as a new dispute-resolution mechanism. And she'd eliminate the right of foreign firms to sue Washington for enacting measures to protect its workers. Mr. Obama agreed.

But Mr. Emerson said reopening the deal would open a can of worms, with new demands for changes from all countries. He said one beef Canada would have is the deal's dispute-resolution mechanism, which failed to solve the long-running softwood trade war between Ottawa and Washington.

"If you reopen [NAFTA] for one or two issues, you cannot avoid reopening it across a range of issues," he said.

He scoffed at Democratic suggestions that they want to toughen labour and environmental provisions, saying: "I don't think the United States has got anything to teach Canada about labour and the environment."

It's far from certain that tearing up NAFTA would leave Canada without any trade deal with the U.S. That's because its predecessor, the Canada-U.S. free-trade agreement (FTA) of 1988, was suspended, not cancelled, when NAFTA came into force and it was what delivered the benefits of free trade to the two nations.

"My understanding is that abrogation of the NAFTA would automatically trigger reversion to the FTA," Michael Hart, a trade expert at Carleton University who helped negotiate the original Canada-U.S. free-trade deal, said.

"In U.S. law, there is both a NAFTA Implementation Act and an FTA Implementation Act. Congress would need to revoke the first, which would then reactivate the second," Mr. Hart said.

Gordon Ritchie, an architect of the Canada-U.S. FTA, said Canada would be in a good position to weather things if the free-trade arrangements fell apart because the two economies have become much more integrated since 1992. Also, since then, multilateral trade rules have cut global tariffs and established a World Trade Organization system to arbitrate disputes that's no worse than the NAFTA mechanism, he said.

"At the end of the day, the Americans would be foolish to embark on this course, but if they did, we could deal with it just fine," Mr. Ritchie said. "It wouldn't be the end of the world."

Still, he noted, it's not certain that Ms. Clinton and Mr. Obama are only thinking about Mexico when they criticize NAFTA. "Remember these comments were made in Ohio, and that sounds like Canada to me," he said, noting that the northern state is suffering job losses that some groups blame on Canada.

International lawyer Lawrence Herman urged Ottawa to prepare a contingency plan in case either presidential candidate makes it to the White House, given the protectionist mindset of both.

"I think this is to be taken very seriously, since both Obama and Clinton seem to be speaking from the same hymn book on this," said Mr. Herman, with Cassels Brock & Blackwell LLP in Toronto.

"We can't just be complacent and not be thinking of a Canadian strategy in light of these recent developments," Mr. Herman said.

With reports from Gloria Galloway and Shawn McCarthy

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