U.S. House breaks with no new NAFTA tabled for ratification. Now what?

OTTAWA – Canadians will likely enter a fall election with the new North American free trade deal hanging in the balance, as Prime Minister Justin Trudeau said Monday he’s not rushing to ratify the pact in the face of U.S. political differences.

The Democrat-controlled U.S. House of Representatives began its five-week summer break on Monday without introducing a ratification bill – a scenario Trump and his cabinet worked hard to avoid.

The Democrats want changes to the United States-Mexico-Canada Agreement, or USMCA. They want to change provisions on labour, the environment, patent protection for drugs and enforcement, and have by all accounts been working hard with Trump’s trade czar Robert Lighthizer to move forward.

“We recognize that there is a difficult partisan context in Washington right now between the Democrats and the Republicans. We have said from the very beginning that we would keep pace with the American process on ratification of the new NAFTA accords,” Trudeau said at an event in Vancouver.

“But we will do that in line with the American process when it picks up again this fall.”

Ever-ticking political clocks in both countries mean U.S. lawmakers – with one eye towards Trump’s 2020 re-election bid – won’t be in a position to take even the most tentative steps forward on the deal before the start of Canada’s federal election campaign, which is set to begin by mid-September at the latest.

Canadians head to the polls on Oct. 21.

“I do not see that there will be a vote on the USMCA implementing bill by the U.S. Congress prior to the writ dropping for the Canadian election. The earliest that the USMCA implementing bill could be introduced is Sept. 9 and there likely will be committed hearings in both chambers of Congress on the matter,” said Dan Ujczo, the Ohio-based trade specialist with the firm Dickinson Wright.

A delay isn’t necessarily a bad thing, said Meredith Lilly, a Carleton University trade expert.

“The existing NAFTA, which remains in effect, is a better deal for Canada than the USMCA. So, the current situation is not a bad one for Canada, bearing in mind that ongoing uncertainty is generally negative for investment here.”

Trudeau reiterated his government’s position that the status quo is acceptable. “We of course benefit right now from the existing NAFTA that ensures that Canadians are well-served with good and reliable access to the North American market.”

NDP Leader Jagmeet Singh said his party shares key concerns of U.S. Democrats. Both parties want to strengthen labour enforcement provisions to ensure Mexico delivers on its promised reforms of workers’ rights, and they oppose the extension of patent protection for some new drugs from eight years to 10, which would delay the arrival of less costly generic products on the market.

“It doesn’t make sense to rush ahead with something where we know the Democrats in Congress are working to make it better,” Singh said in an interview Monday.

Trade experts in Canada and the U.S. are divided on whether the delays may raise the odds of Trump invoking the six-month notice period to withdraw from NAFTA – a threat he repeatedly made during the tense renegotiation of the pact that he pushed on Canada and Mexico.

Cyndee Todgham Cherniak, a Toronto-based international trade lawyer, said the Democrats are likely to want substantive changes that could leave the deal in limbo for many months. In the meantime, the Democrats will be sharpening their talking points on USMCA to use against Trump in the 2020 U.S. election.

And that could set Trump off, she said.

“He might say that Prime Minister Trudeau was not effective in getting Congress to pass the USMCA prior to now. And if they don’t come back until September, and if the Democrats want to use this as a talking point in connection with the U.S. election, he might lash out at the Trudeau government.”

Trudeau met Democratic House Leader Nancy Pelosi on Capitol Hill after his White House meeting with Trump last month. Trump, at the time, said he was pleased Trudeau would be talking to Democrats.

Lawrence Herman, a Toronto international trade specialist, said it is unlikely Trump would pull the plug on the new NAFTA so close to his own election campaign because it would sow economic uncertainty that wouldn’t benefit him politically.

“As well, if as many experts believe, the U.S. is heading into a period of economic sluggishness, the threat of NAFTA withdrawal and the uncertainty that would unleash in the period leading up to the 2020 election would probably be a disincentive to Trump embarking on such a move.”

Ujczo said it is unlikely Trump would serve notice to withdraw, but even if he did, Congress or the courts could step in to delay that.

“The NAFTA will be in place through 2019. It is unlikely that companies will face a scenario where neither the NAFTA nor USMCA is in place during 2020,” he said.

“The question remains how much disruption will occur along the way. The president seems increasingly unwilling to threaten his greatest success – the economy – and that weighs in favour of no NAFTA withdrawal.”

Mike Blanchfield, The Canadian Press