NAFTA glossary: Talk trade like a boss, with these negotiating terms

By , on August 16, 2017


Logo of the NAFTA Secretariat of North American Free Trade Agreement (Photo By Nicoguaro - Own workVectorized from NAFTA_logo.png, CC BY 3.0)
Logo of the NAFTA Secretariat of North American Free Trade Agreement (Photo By Nicoguaro – Own workVectorized from NAFTA_logo.png, CC BY 3.0)

WASHINGTON — Negotiations start Wednesday for an update to the quarter-century-old North American Free Trade Agreement. This glossary of negotiating terms helps explain understand some of the underlying dynamics of these talks.

Demandeur: The party requesting a negotiation. In this case, it’s the U.S. The demandeur is generally considered to have weaker leverage, but that weakness is mitigated here by the U.S.’s economic might, and by President Donald Trump’s efforts to re-establish leverage with the ultimate threat: ripping up the deal.

Zone of possible agreement: Exactly what it sounds like. For example, say the U.S. wants Canada’s dairy industry opened 100 per cent to free-market competition, but would secretly settle for two per cent. And suppose Canada wants a zero per cent change, but would eventually settle for four per cent. That leaves an eventual zone of agreement between two and four per cent.

Non-agreement alternative: Your power at the negotiating table is tied to what happens if you walk away. If your Best Alternative To A Negotiated Agreement (BATNA) is the status quo, and you’re happy with it, you have power. This is Canada and Mexico’s position. Trump has moved to scramble that rosy scenario by threatening the end of NAFTA.

Fast track: Under the U.S. Constitution, Congress has power over international agreements. Because no country wants to negotiate with 535 amendment-adding American lawmakers, the U.S. political system has devised a compromise. It’s formally called Trade Promotion Authority — better known as “fast track.” Under a fast-track law, the White House handles negotiations with the foreigners. In exchange, lawmakers are guaranteed a role in shaping U.S. strategy, with regular consultations.

Supply management: A system that protects a sector shielded from free trade, with import limits and price controls. Canada has such a system for dairy and poultry. The U.S. hates it. Recent trade deals have seen Canada open up the system slightly. Canada agreed to a 3.25 per cent opening in the Trans-Pacific Partnership, for fear of a scary BATNA there: being shut out of a new global trade zone. It will now likely argue that, like the TPP, and like old milk, that offer is expired.

Diafiltered milk: Supply management isn’t the main irritant listed by the U.S. dairy industry. It’s especially unhappy that Canadian producers get to profit from price controls, and then can sell skimmed-off diafiltered components for cheese-making at (lower) market prices, squeezing Americans out of this growing market. The Canadian government created a new category of dairy product for this purpose, Class 7. It became internationally famous when President Donald Trump complained about it.

Rules of origin: Will be a big issue. It involves what percentage of a product is really North American, and therefore deserving of being traded without tariffs. Under NAFTA, a 62.5 per cent of car components must be North American to count as a domestic tariff-free product. The Trump team wants that raised. But key details still aren’t clear — including whether it will be designed to target Asia, or Canada and Mexico; how it will affect supply chains; and whether it will be calculated on the basis of where a piece gets assembled, or where its sub-components come from.

De minimis: This old phrase from Latin, meaning “of minimal” concern, is now relevant in regard to an ultra-modern retail giant: Amazon.com. EBay, too. The question is how much Canadians can spend on an online purchase from abroad, without paying a duty. Canada has one of the strictest de minimis thresholds in the world — it’s $20. The U.S. has it set at $800, and wants Canada to move that way. On the other side, bricks-and-mortar retailers in Canada are pleading with the Canadian government to keep a low threshold, arguing that the hunt for bargains abroad will damage jobs and businesses at home.

Two-level bargaining: The idea that national negotiators are working on two levels: with the other country, and with domestic parties. These domestic actors can be silent allies: think good cop, bad cop. The good cop (the negotiator) says he or she can’t move, because the bad cops at home will fight any concession. The U.S. has notoriously powerful domestic actors — big business donors to Congress, and a Congress itself that can, in the end, block whatever deal it wants. The renowned academic who developed two-level theory, Robert Putnam, says this sometimes benefits the U.S., and sometimes hurts it: “(It’s) an unhappy and unique feature of our democracy,” he once wrote. “(It) increases the bargaining power of American negotiators, but it also reduces the scope for international co-operation.” Canada’s domestic actors include the provinces. At TPP talks, Canadian officials printed up a news story about provinces complaining about supply management changes to distribute it, and made sure other parties were aware the provinces were unhappy.