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Focus: Will NAFTA changes impact Canadian companies?

Focus on: International/Cross-Border Law
|Written By Gabrielle Giroday

Impending negotiations around the North American Free Trade Agreement may mean changes for Canadian companies, say lawyers. With negotiations anticipated to begin later this year, lawyers are advised to stay aware of the potential impacts for their clients.

Discussions over proposed changes to NAFTA became part of the U.S. presidential election race last fall, with Democratic candidate Hillary Clinton and then-Republican candidate Donald Trump both discussing the possibility of renegotiations.

Following Trump’s election into power last fall, U.S. trade representative Robert Lighthizer sent a letter to U.S. Congress in May stating attempts would be made to begin negotiations with Mexico and Canada within 90 days over “modernization” of the agreement.

“The United States seeks to support higher-paying jobs in the United States and to grow the U.S. economy by improving U.S. opportunities under NAFTA,” said Lighthizer.

Warren Ragoonanan, senior business law associate at Gardiner Miller Arnold LLP, as well as chairman of the Ontario Bar Association’s international law section, says that, with the Trump administration, it’s “tough to tell what’s posturing and what is an actual concern.”

“I’m telling my clients that it’s wait and see for now because we have no information at the moment,” he says.

While Canada has launched an offensive to prove the agreement’s value to the U.S., nothing is certain about the outcome, especially in light of remarks by Trump that the agreement was the “worst deal ever.”

“In particular, we note that NAFTA was negotiated 25 years ago, and while our economy and businesses have changed considerably over that period, NAFTA has not,” stated the letter by Lighthizer, signalling new provisions are targeted for “intellectual property rights, regulatory practices, state-owned enterprises, services, customs procedures, sanitary and phytosanitary measures, labor, environment and small and medium enterprises.”

Geoffrey Kubrick, Ottawa-based national chairman of the international trade practice at McMillan LLP, says some companies have expressed worry over the possibility of impending NAFTA negotiations.

“There’s a lot of concern about the negotiations, but it’s not so much about the negotiations as what is being reported about what is going to be covered,” says Kubrick.

“For example, there are things like border taxes, and those things are never going to happen. What people should be focusing [on] is what really could change under NAFTA.”

Kubrick says he believes negotiations could focus on specific sectors where there were exceptions or reservations taken by Canada and Mexico.

“I think that’s where people should be focusing, but right now, there’s a lot of talk about things that probably aren’t going to happen,” he says. Kubrick says that when he recently reviewed NAFTA, he discovered that “about two-thirds of NAFTA is actually exclusions, reservations and exceptions, and most of those are for Canada and Mexico.”

“So, I fear that President Donald Trump was correct in that the United States gave up more than Canada and Mexico did,” he says.

Kubrick says that, in his opinion, industries that could see changes include the dairy industry and the poultry products industry. Changes could also impact the telecommunications and entertainment industries, digital services such as cloud computing and liquor rules.

Kubrick predicts that, in certain areas, the U.S. government will look to have “Canadian exclusions and exceptions and reservations removed or reduced,” such as for dairy and egg products.

“That will certainly be a topic of discussion, and if we want to keep it, we’re going to have to give the Americans something else,” he says.

Brenda Swick, partner at Dickinson Wright LLP, who practises international trade and customs law as well as government contracting law, says lawyers are “well advised to make sure that their clients’ views are heard.”

She says lawyers also need to be aware where NAFTA is involved in any contractual relations or provisions, such as supply contracts.

“I think normally negotiations would be a good thing, because NAFTA is over 20 years old and clearly in need of updating,” she says.

“But there is a risk that the process could go off the rails, if the Trump administration continues to paint — without economic justification — NAFTA as a villain, which causes massive disruption and harm because the facts prove otherwise.”

Swick says that, in the years since NAFTA was first negotiated, “supply chains have developed, and technology has intervened, and China has entered the scene.”

“[Re]negotiating NAFTA, as Mr. Trump would like, to return jobs to the U.S. would be destructive politically, internationally and economically,” she says.

 Kubrick says the negotiations could mean more work for lawyers.  

“The real issue for lawyers comes after the negotiation, on implementation,” he says.

“When the rules change, there’s always more work for lawyers. . . . If you have new laws, you have new rules, and they have to be tested to see where they stand.”

This is especially true for international trade lawyers.

“The more trade you have, the more trade disputes you tend to have,” says Kubrick.

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