The epic trilateral negotiations that produced NAFTA three decades ago and its successful renegotiation in 2018 stand as testament to a broad consensus on the economic benefits of trade liberalization. Former NAFTA negotiator John Weekes, who was present at the creation of the massive trade deal that transformed the North American economy, provides a tour d’horizon of the agreement’s impact, importance and future. 

John M Weekes

As history has proven over and over again, personality matters as much in policy as in politics. Strong leadership by Prime Minister Brian Mulroney and President Ronald Reagan was critical to the initiation and success of the Canada-United States free trade (FTA) negotiations. Similarly, the North American Free Trade Agreement (NAFTA) negotiations were successful, in large part, because the three North American leaders – President George H. W. Bush, Prime Minister Mulroney, and President Carlos Salinas – were all strongly committed to an ambitious outcome. 

Unfortunately, recent history has proven that personality works both ways.  President Donald Trump’s approach to trade and relations with Canada and Mexico posed an existential threat to NAFTA. The commitment of Mexican President Lopez Obrador to the implementation of the new Canada-United States-Mexico Agreement (CUSMA) seems uncertain. These worrying developments show that it is necessary to build strong domestic support for trade agreements at the grassroots level and across the political landscape. Leadership at the top is important but not enough. 

The proposal to negotiate a free trade agreement with the US was a bold response by Canada to the challenges it faced in the mid-1980s. The Macdonald Royal Commission on the Economic Union and Development Prospects for Canada was established in 1982 by Prime Minister Pierre Trudeau and reported its findings to the new Mulroney government in 1985. Its call for free trade with the United States had a major influence on the new prime minister. The threat to Canadian access to the US market from protectionist pressures and a plethora of protectionist bills in Congress strengthened the rationale for strong action on the trade front. 

Through vigorous leadership and hard work, a high-quality free trade agreement was secured which, in addition to eliminating almost all duties, included specific commitments for the liberation of trade in services and innovative dispute settlement provisions to ensure the undertakings of the agreement would be respected by both sides. 

When the FTA came into force in 1989, the Mexican business community took note and pressured the Mexican government to seek a similar outcome. The Bush administration  was receptive to the Mexican overtures and began preliminary discussions with Mexico. Initial Canadian reaction to participating in a trilateral effort was cautious but soon the government decided that engagement was a wiser course than standing to one side. On February 5, 1991, the three North American leaders issued a joint statement committing to “proceed as soon as possible, in accordance with each country’s domestic procedures, with trilateral negotiations aimed at a comprehensive North American free trade agreement. The goal would be to progressively eliminate obstacles to the flow of goods and services and to investment, provide for the protection of intellectual property rights, and establish a fair and expeditious dispute settlement mechanism.”

This clear and succinct political instruction went a long way to ensuring the negotiation of what was then the most ambitious major free trade agreement in history. Actual negotiations were initiated by ministers in Toronto on June 12, 1991, and concluded with an agreement on August 12, 1992. It was initialed by the trade ministers on October 7 in the presence of the two presidents and the PM and then formally signed by the leaders in December but not yet ratified. 

In the American presidential election of November 1992, Bush lost to Bill Clinton who, while supportive of the NAFTA, said he would only put it to Congress for ratification if it was complemented with provisions on labour and the environment. Canada and Mexico agreed to enter negotiations on these parallel matters which were initiated in the spring of 1993 and concluded on August 12, 1993. After a strenuous political fight, the US Congress approved the NAFTA in October 1993, and it came into force on January 1, 1994. In Canada, the Mulroney government  decided to seek parliamentary approval for the NAFTA, and the necessary implementing legislation was tabled in the spring of 1993, before Mulroney stepped down as PM in June. When Jean Chrétien became prime minister in November 1993, his government had to seek parliamentary approval of additional legislative provisions needed to implement the NAFTA side agreements on labour and environmental cooperation. The new Liberal government also had to decide whether to proceed with the final implementation of the NAFTA. 

These were interesting times and the fact that the agreements all came into force at the beginning of 1994 was testament to the broad support of the enterprise in all three North American countries. It also showed the importance, not only of political leadership at the top, but of working hard to ensure broad stakeholder support from business, civil society, regional governments and across political lines. This new reality became even clearer two decades later, when President Trump threatened to tear up the NAFTA and withdraw from the WTO. 

These negotiations on the North American continent took place against the backdrop of the most far-reaching multilateral trade negotiation in history, the Uruguay Round of GATT – initiated in 1986 in Punta del Este, Uruguay and concluded in 1994 in Marrakech. Exceptional leadership was shown in the Uruguay Round by both Canada and the United States. Canadian Trade Minister John Crosbie hosted a meeting of all GATT trade ministers for the mid-term review of the Uruguay Round negotiations in Montreal in 1988. This meeting played a critical role in laying the groundwork for eventual success. This negotiation culminated in the creation of the World Trade Organization which came into effect on January 1, 1995.

The North American framework of regional trade agreements, including the Canada-US FTA and the NAFTA proved to be extraordinarily successful. Trade expanded rapidly as did cross-border investment. Production of many products,  notably automobiles and parts, became integrated on a North American basis. As the saying goes, Canada, the United States and Mexico went from selling goods and services to each other, to making things together. 

The actual provisions of the NAFTA were remarkably progressive and far-reaching. This was the first trade agreement to include broad, across-the-board obligations on trade in services and investment, as well as provisions protecting intellectual property. However, in my view, the most important benefit from a Canadian perspective was psychological. For the first time in the history of the continent, Canadian business people had the confidence to believe that they could do business in the North American marketplace on an equal footing with American business. 

Unfortunately, the NAFTA very nearly became the victim of its own success. The private sectors in the three countries used the NAFTA’s provisions and the domestic legal framework set up to implement the agreement to develop very successful North American business operations. While business took the new reality for granted, opposition to globalization and labor dissatisfaction with free trade led to growing opposition to the NAFTA. The political management of the agreement was neglected; there was no political prize for touting the NAFTA’s success and little interest in more ambitious approaches to North American trade. In fact, Barack Obama and Hillary Clinton owed some of their political success to taking pot shots at the NAFTA. This erosion of support opened the door for Donald Trump to call NAFTA the worst trade agreement ever negotiated, and to call for it to be renegotiated or terminated. 

Faced with this situation, Prime Minister Justin Trudeau announced within days of Trump’s election in 2016 that Canada was ready to renegotiate. It was a very difficult situation. Trump wanted NAFTA to be rebalanced in favour of the United States. Securing a decent outcome was an uphill battle for Mexico and Canada. Fortunately, many American interests realized that NAFTA was very beneficial to the United States and that its demise would be damaging for all three North American countries. Both Canada and Mexico mobilized a broad range of domestic interests to reach out to their counterparts in the United States to build support for maintaining a strong and barrier-free North American marketplace. This effort was largely successful and resulted in the conclusion of a new agreement, the Canada-United States-Mexico Agreement (CUSMA) – called USMCA by the Americans. 

Unfortunately, there was some backsliding, notably in the automobile sector, where the Trump administration wanted to reduce Mexican and Canadian inputs to the production of vehicles in the United States. Some important modernising of the agreement was achieved in areas like digital trade. 

One provision that may cause real trouble down the road is Article 34.7: Review and Term Extension. This provision provides for the termination of the CUSMA 16 years after its coming into effect unless the three countries agree, at the level of heads of government, to continue the agreement for a further 16-year period. The article provides for a “joint review” of the agreement by the CUSMA Free Trade Commission (composed of the three trade ministers) on the sixth  anniversary of the agreement. The article further provides that any party “may provide recommendations for the Commission to take action”. It is not difficult to imagine how continuation of the agreement could become hostage to American demands that Canada or Mexico agree to certain changes to the agreement. For instance, over American concerns about Canadian dairy policy. Preparations for the first joint review will be underway in a little over three years. 

The work of tending the free trade garden is never over. Going forward, Canada will need to be on guard. Canada should be constructive but also prepared to defend its interests. This means the Canadian government will need to be prepared to retaliate in the face of possible unjustified American action against Canadian trade interests. It also means that Canada should be working continuously with partners in the United States, who share an interest in maintaining a strong trade relationship. Ideally, these efforts should start with a strong relationship at the top between the president and the prime minister, but must also involve strengthening cross-border relationships among business interests, civil society, provinces and states, legislators at all levels and political leaders of all stripes. 

The road ahead will not be easy but with the right effort, Canada will continue to benefit from an open, prosperous, and predictable trade relationship with the United States.  

John M Weekes was the chief negotiator for Canada in the original NAFTA negotiations. He was Canada’s ambassador to GATT during the Uruguay Round that led to the formation of the WTO. For the past 20 years, he has been a senior adviser to business and governments on trade matters.