Substitution - Trade

 

At this stage, amendment to or withdrawal from trade agreements is required.  Given that all trade agreements are facing significant implementation difficulties that are penalizing Canadian food products (see Instruments, International trade agreements) and a new wave of interest in self-reliance has emerged because of COVID-19 (see Get started, Problems, General, Lack of resilience), opposition to withdrawal may not be so significant.

Using NAFTA (and soon USMCA) as a timely example, the provisions of amendment or withdrawal in the agreement are relatively straightforward.

NAFTA Article 2202: Amendments

1. The Parties may agree on any modification of or addition to this Agreement.

2. When so agreed, and approved in accordance with the applicable legal procedures of each Party, a modification or addition shall constitute an integral part of this Agreement.

NAFTA Article 2205: Withdrawal

(soon USMCA article 34.6)

A Party may withdraw from this Agreement six months after it provides written notice of withdrawal to the other Parties. If a Party withdraws, the Agreement shall remain in force for the remaining Parties.

In the NAFTA renegotiations, the complexities of amending or withdrawing from agreements was revealed.  These complexities are related to politics, corporate power, jurisdictions and the way trade agreements are layered.  Essentially, the CETA, NAFTA, and the CUSTA lie on top of the WTO agreements, which in turn are rooted in the GATT. What further complicates all this is the state of WTO negotiations.  Given multilateral discussion failures since 2001, countries are increasingly resorting to bilateral and regional agreements. The recently ratified Comprehensive and Progressive Agreement for Trans Pacific Partnership (see Instruments, International, Trade Agreements) is also intertwined with existing agreements, further complicating issues of withdrawal and amendment.

Some analysts argued that had President Trump triggered a withdrawal from NAFTA, that: a) the execution of the withdrawal might not be approved by Congress, making the Presidential action somewhat moot; and/or b) the execution of a withdrawal would have resulted in the CUSTA(FTA) being returned to force, unless that too was subject to a withdrawal action.  "The Canada-U.S. free-trade agreement (FTA) was never terminated; it was merely suspended for so long as NAFTA is in force between Canada and the United States. " (Barutchiski, 2017).

Furthermore, "When NAFTA was concluded, the intention was that FTA would kick back in automatically if NAFTA ceased to apply to Canada-U.S. trade, but it is not entirely clear if some sort of affirmative action is required. And the U.S. potentially could terminate FTA too, also on six months notice, leaving Canada-U.S. trade to be governed by WTO rules, including the WTO’s “most-favoured nation” duty rates." (Barutchiski, 2017)

The USMCA has an additional provision (Article 34.7) related to withdrawal, that the agreement is terminated 16 years after coming into force, unless the parties agree to continue it for another 16 year term.

Food is unlikely to be central to  higher level negotiations on potential amendment except that supply management might again be subject to pressures to dismantle it.  It's clear from the arguments advanced under Goal 2 that supply management must be strengthened, not weakened.  So amendments to protect and enhance supply management and Demand-supply Coordination are unlikely to be entertained in the medium term. In the original formulation of the GATT, agriculture (and therefore much related to food) was effectively exempt.  Returning food to essentially exempt status is likely the only amendment approach that is viable.

If such amendment, then, can not be achieved, withdrawal becomes the next option. But many things have to be in place for withdrawal to happen without severe consequences, which is why such an intervention is positioned as a Substitution strategy, with Efficiency and Substitution interventions implemented prior to triggering withdrawal.

While other trade domains would likely suffer, it's not obvious that food would be badly affected by reversion to FTA or WTO rules as the proposals outlined here are implemented.   Under the FTA, most goods remain duty free, but the difficulty is that some of the rules of origin are less precise and with the loss of some of the dispute resolution provisions of NAFTA, more aggressive actions on the part of the US to block Canadian exports would be likely (Barutchiski, 2017).  The essential idea though is that Canada focuses more on its domestic market and therefore reduces the volume of overall exports and imports, which in relative terms, reduces the value of the US as a food trading partner.

If Canada withdrew from the NAFTA (or the USMCA, either with notice or at the 16 year mark), it would also have to repeal the NAFTA Implementation Act and numerous related acts and regulations including the Special Import Measures Act. Once the USMCA is ratified, presumably there would be related Acts to repeal.  Bill C-4, currently before Parliament, has implementation measures affecting dozens of Acts that would all have to be modified if the USMCA was abrogated.  Note, that according to the National Farmers' Union, Bill C-4 contains measures related to grain and oilseed quality that are not explicitly required by the USMCA agreement, suggesting that governments are overstepping on implementation requirements (NFU Media Release: Unwarranted changes to Canada Grain Act must be removed from CUSMA Implementation Act, March 6. 2020)

Ultimately, withdrawing from the WTO would also then likely be required.  A nation can withdraw from the agreement (clause XXXI) or from a concession (XXVII).  Withdrawal from the agreement also requires 6 months notice.