A new study says Canada's gross domestic product would fall by 1 percent over the next five to 10 years if the North American Free Trade Agreement were scrapped, which seems increasingly likely in the wake of U.S. demands for changes that Canada so far doesn't support.
The Royal Bank of Canada found that the collapse of the trade deal would cost Canada 1 percent of GDP growth, in part because of the 4 percent Canada's exports would face in the United States in the absence of NAFTA. Much of that pain would fall on Canada's oil industry, and its car, metal and plastics manufacturers.
"The implied annual impact of 0.1 percent to 0.2 percent might not appear all that large, but it adds up to a substantial amount of foregone production potential — about $20 billion (in today’s dollars) of annual output over time,” Royal Bank economists Nathan Janzen and Mathias Hartpence told the Financial Post, a Canadian Newspaper.
It is likely that the U.S. negotiators are hoping that their Canadian counterparts will want to avoid such impacts and will therefore make concessions to U.S. positions. Agriculture Secretary Sonny Perdue said Wednesday that his department was already in the process of drawing up contingency plans should the U.S. exit the deal.
"We're talking with the administration and Congress about some mitigation efforts if that were to occur — about how we could protect our producers with that [agricultural] safety net based on prices that may respond negatively to any kind of NAFTA withdrawal," he said.
In a letter sent to the House Agriculture Committee Friday responding to lawmakers' criticisms of his country's policies on dairy and poultry policies, Canadian Ambassador David McNaughton told lawmakers that the existing version of NAFTA has greatly benefitted the U.S. agricultural sector and added that he "fully supported" the view that regarding NAFTA "we can't go backwards."
A spokesperson for the U.S. Trade Representative's Office declined to comment, but the Trump administration has said it would leave NAFTA without radical revisions, most of which Canada and Mexico have opposed.
Among other things, the U.S. has pushed for a sunset provision for NAFTA, a way to opt out of the investor-state dispute settlement system, and language making it harder for products to qualify for the "made in America" label.
Canadian Embassy spokeswoman Christine Constantin told the Washington Examiner that her country was still hopeful for a "win-win-win" conclusion to the talks. But she added, "We will not accept any changes to the agreement that are not in our country’s interests. We are looking for a good deal for Canada, and one that makes North America as a whole more competitive for years to come. Canada will continue to negotiate in good faith and present pragmatic solutions."
Numerous reports have described negotiations as tense and rocky the behind the scenes. The fourth round concluded last month in Arlington Va., where the respective countries' top negotiators publicly traded barbs. U.S. Trade Representative Robert Lighthizer said he was “surprised and disappointed by the resistance" to the proposals.