As North American Free Trade Agreement (NAFTA) talks continue, much remains undecided.
The United States and Mexico have already reached an agreement in principle on a new free-trade arrangement. But in light of Trump's complaints about Canadian dairy tariffs, the highest hurdle for Canada will be our supply management programs.
The U.S.-Mexico deal, while still light on details, means Canada faces a serious threat of trade and investment diversion over time if Mexican producers have tariff-free access to the U.S. while Canadian producers don't.
That means NAFTA -- or, if U.S. President Donald Trump gets his way, "USMC" talks, for a U.S., Mexico and Canada pact -- is in jeopardy.
Post-NAFTA, Canadians may dream they can rely on the Canada-United States Free Trade Agreement, established in 1987.
But Trump has demonstrated his disdain for trade commitments. Canadian negotiators therefore have less leverage in bargaining with U.S. negotiators than they did before the U.S.-Mexico deal.
For example, Canada is worried about U.S. insistence on a sunset clause, which would force Canada to recommit every five years to the trade pact or watch it automatically end.
But in reality, the Trump administration will invoke new tariffs whenever it suits its political purposes.
The higher domestic content rule, which requires that 75 per cent (up from 62.5 per cent) of the parts in any car sold in North America be produced in the U.S. or Mexico, presents no real problem for Canada to adopt in a similar agreement with the U.S. Nor does the requirement that 40 per cent to 45 per cent of auto parts in cars sold be made by workers earning at least US$16 per hour.
But Mexico's apparent commitment to increase imports of U.S. agricultural products brings front and centre the main challenge facing Canada's government.
Again, maintaining Canada's supply management system is likely a deal breaker, from Washington's perspective. It's the one outstanding issue the Trump administration can't resolve unilaterally.
While the Canadian government has rejected Trump administration criticisms of Canada's high tariffs on dairy products, it has not explicitly stated that supply management -- now a hot button issue on Canada's political scene -- is non-negotiable.
The time is coming when Prime Minister Justin Trudeau and his cabinet will need to be explicit about whether Canada will walk away from a bilateral agreement with the U.S. to protect domestic dairy farmers.
Steven Globerman is a senior fellow at the Fraser Institute. Gary Hufbauer is a non-resident senior fellow at the Peterson Institute for International Economics
