Lexpert US Guides

18 | LEXPERT • June 2017 | www.lexpert.ca/usguide-corporate/ Still, John Boscariol of McCarthy Tétrault LLP in Toronto doesn't think doomsday is around the corner. "[President] Trump is not the end of the world, and I don't believe we'll see complete chaos in the world trading regime, as cooler heads will prevail," he says. "But even if he does some of what he says he will do, Canada is likely the country best positioned to ride it out because — as the American business community recognizes — our economies are so integrated both from a trade and an investment perspective. Changes may hurt at the nuts and bolts level, but whether we end up with NAFTA or something else, there won't be another coun- try with greater preferential access to the US." But even if the pundits are not confounded, they're certainly not united. Opinions have ranged from prognostications of out- right doom for the Canadian economy to optimism that foresees a host of benefits arising from the expected negotiations and re- lated policy changes. "For example, the new administration prob- ably represents a net positive for the energy sector, especially oil and gas," says Mark Adkins of Blake, Cassels & Graydon LLP in New York, who predicted that Trump would, as he soon did, ap- prove the Keystone XL pipeline project that had been nixed by President Obama. Boscariol believes that Prime Minister Trudeau was right in taking the opportunity to leave open the possibility of NAFTA's renegotiation. "NAFTA was a leading-edge trade agreement when it came into force, but it's now more than 20 years old," he says. "By comparison, CETA [the Canada-European Union Comprehensive Economic and Trade Agreement] is a much more advanced treaty that sets a new standard, contemplating even closer integration than NAFTA does. If there are some elements of CETA that could be incorporated in NAFTA, I think that would be great and confirm that Prime Minister Trudeau made the right decision in opening that up." Yet another view focuses on the spillover benefits to Canada from President Trump's overall economic policies, which many observers expect will boost the US economy. Naysayers point out that the $1-trillion infrastructure program that is at the heart of President Trump's policies also embraces a "Buy America" ap- proach. As well, UNIFOR's National President, Jerry Dias, re- cently blamed NAFTA for General Motors' potential layoff of up to 600 workers at its CAMI plant in Ingersoll, Ontario, in July. Former Bank of Canada Governor David Dodge also appears to be leaning to the naysayers: while he is on record that faster post- election growth in the US could well represent short-term gain for Canada, he opines that we could find ourselves struggling over the medium and long term in trade and other areas. Stephen Schwarzman, the head of President Trump's Strategic and Policy Forum, has tried to be reassuring. "Canada is very well- positioned for any discussions with the United States," he report- edly told the Trudeau cabinet. "I don't think [Canada] should be enormously worried because Canada is held in very high regard." For their part, Prime Minister Trudeau and Finance Minister Bill Morneau have focused on an amorphous openness to chang- es that advance the country's interest — without particularizing what those changes might be. Perhaps they're not "enormously worried" about them, but nobody out there thinks they're not worrying at all. "What I'm telling clients is that, even if the up- take in enforcement activity at the border is likely to be focused on China and Mexico, there could be considerable sideswipe po- tential affecting trade to and from Canada," Millar says. What is clear is that unraveling NAFTA will mean unwinding some of the very complicated stitching that characterizes what has become a truly integrated market. "What I'm really curious about are the unintended consequences if the US actually with- draws from NAFTA," Adkins says. The manufacturing process for cars and trucks, for example, routinely criss-crosses North American borders, helping the US auto industry to compete with Asian and European manufacturers. Still, while NAFTA may have increased GDP and incomes in the US, skeptics point out that it has cost the country's blue-collar workers a host of well- paying jobs in the manufacturing sector. Reverting to CUSFTA, a document that needs even more modernizing than NAFTA, could arguably create more prob- lems than it solves. While bilateral trade in nearly all goods would remain duty free, CUSFTA could prove problematic for Canada in other ways: by way of example, CUSFTA rules of origin are less precise than those found in NAFTA; Canadian exporters would no longer be shielded against injurious import measures; there would be no binational dispute settlement mechanism for dumping and subsidy disputes; and services and investment trade protection would be narrower. So although article 2205 of NAFTA allows a country to with- draw from the agreement on six months' notice, the more likely scenario is a renegotiation. "It's too early to panic," says Dalton Albrecht of EY Law LLP in Toronto. "[President] Trump is a ne- gotiator who is using the prospect of ripping up NAFTA as a bluff and an opening bid." Indeed, Steven Mnuchin, the new Treasury Secretary, ex- pressed optimism during his confirmation hearing that a "win- win" scenario was in the offing. If that's the case, the question becomes one of exactly what will be at stake in the negotiations. Canada will likely be looking for a softening of Buy America policies; changes to the rule requiring minimum shipments of oil to the US; modernization of rules of origin; wider regulatory co- POLITICAL DIVIDE "Even if [President Trump] does some of what he says he will do, Canada is likely the country best positioned to ride it out because … our economies are so integrated both from a trade and an investment perspective." John Boscariol McCarthy Tétrault LLP

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