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The good, the bad and the ugly in NAFTA 2.0

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Trade deal protest. Photo: Fee Plumley/Flickr

At midnight on Sunday, Canada and the U.S. agreed on a new NAFTA deal, one which would now be called the USMCA, the U.S.-Mexico-Canada Agreement.

Here is the good, the bad and the ugly within the agreement.

Good news first

  • No Chapter 11 between the U.S. and Canada

For many years, the Council of Canadians and others have been advocating to get rid of Chapter 11, the investor-state dispute-settlement (ISDS) process. These are the provisions that allow corporations to sue countries over decisions, even if they are made in the public interest. For years, Canada has faced corporate lawsuits that made provinces renounce public auto insurance, accept toxins and pay for refusing dangerous quarries.

Now, at the request of the U.S., there will be no ISDS process between U.S. and Canada. This is a paradigm shift for Canada, which has been actively promoting the mechanism in deals such as the Comprehensive Economic and Trade Agreement with Europe (CETA) and the new Trans Pacific Partnership (TPP),and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). Canada is the most sued country under ISDS, with 37 cases, mostly by U.S. companies. The U.S. has only faced 21 cases and has never lost one. So the elimination of Chapter 11 will be beneficial to Canada's public interest.

  • No energy proportionality

Energy proportionality, which obliges Canada to export a set amount of energy to the United States, is not in the agreement. However, the agreement does not allow limiting exports or imports. Council of Canadians members are responsible for this victory.

The iffy

  • Culture

Canada said that it has kept its cultural exemption from the original NAFTA despite pressure from the United States to abandon it. This means that Canada can keep cultural protection policies that shield culture from the marketplace and the U.S. mega cultural industries.

While this is true, it has the flaws of the original agreement. Namely, it defines cultural industries in the way that they were defined in the 1990s before Netflix, video games and the online world.

However, the digital trade section of NAFTA disallows restrictions on digital commerce, preventing Canada from enacting future policies that would protect culture in the digital world.

  • Environmental and labour chapters

It is no surprise that "climate change" is not mentioned within U.S. President Donald Trump's new agreement. While there is an environmental chapter, nothing refers to the Paris agreement, so the chapter is relatively weak. The agreement makes some reference to pollution, marine traffic, endangered animals, ozone, etc, but not to global warming.

The labour chapter and the environment chapter both suffer from weak enforcement. While the government will say that it is binding, it is only enforceable in the event that existing laws actually affect investment. There are, though, some interesting demands that Mexico reinforces collective bargaining and increase auto wages. While the labour chapter is lacking, it does reflect the concerted effort of organized labour in the three countries and would be an improvement over the original NAFTA.

  • Water

The Council of Canadians has argued that water should be protected. In the original NAFTA, there was an annex that defined water as a good, which meant if they started, Canada could not limit water exports to the U.S. Moreover, Canada would be bound by proportionality provisions to continue exporting water. In this agreement, there is a side letter on water, but it is very unclear how enforceable that is. And it only applies to natural water, not to bottled water, or any other water that has been made a commodity.

The bad

  • Farmers and BGH milk

The U.S. access will gain 3.59-per-cent access to our supply management system, even more than what we are giving in the CPTPP. This means that combined with the access given in the CPTPP, and CETA, we will have fewer farms. Farmers will have to compete with U.S. milk, which is subsidized and uses bovine growth hormones (BGH) to increase production. BGH is not allowed to be used in Canada due to its health effects.

  • Gender and Indigenous chapters

They aren't there. Goodbye progressive trade! 

  • Drugs and patent prices

Canada and Mexico caved on this. Our patents on biologic drugs will go up to 10 years. Right now, it is eight years. Remember: these are the most expensive drugs on the market and they are vital for arthritis, Crohn's and ulcerative colitis sufferers, among others. It will also make the prices impossible for a public drug system – pharmacare – to bear. Already, increasing biologic patents from five to eight years were estimated to come at a price of $800 million a year. According to the U.S.-based group Public Citizen, for access to medicines, this is the U.S.'s worst free-trade deal. It will also facilitate evergreening, the process of extending patents for new uses of drugs.

  • Regulatory cooperation

The agreement is filled with language about how rules – safety, environmental, food labelling and others – are to be handled, with the idea of "cooperation." It also talks about "risk-based" handling of regulations, which means the onus is on individuals and not on industry to prove harm. Regulatory cooperation allows companies to bypass parliamentary processes and come up with its own rules. It also has administration rules that will facilitate "simpler" rules around things such as building pipelines, and ensuring that public interest rules are harder to maintain and need to be justified.

  • ISDS still exists between the U.S. and Mexico

It is not, however, out of the cards between Mexico and the U.S., but it has been reduced in scope, limiting what kinds of lawsuits qualify, making sure investors really are from the country they say they are, and making sure they go through domestic courts first. Big U.S. Oil, though, made a special push to keep ISDS on state contracts. Mexico has been eagerly reforming its energy contracts and wishes to review them. Government contracts in energy, telecommunications and infrastructure will be subject to ISDS provisions.

Other information

There is a dispute settlement mechanism similar to Chapter 19 and a sunset clause for renewal of the agreement every 16 years. There are also side letters agreeing on the process of getting rid of 232 tariffs on autos. Steel and aluminum tarrifs are not in the agreement.

This is a preliminary analysis. With our allies, we will continue to update you with more information. It is a comprehensive agreement, so it will take some time to understand the larger ramifications.

Sujata Dey is a Trade Campaigner with the Council of Canadians. This article was first posted on the Council of Canadians blog.

Photo: Fee Plumley/Flickr

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