Faced with competition from more loosely regulated US companies, Canada is seeking to protect its green economy in talks to renegotiate the North America Free Trade Agreement
Canada has put climate change on the agenda in talks to renegotiate the North America Free Trade Agreement, despite the US government officially being in denial of climate change.
Canada wants some type of border adjustment concept allowance for the US, Mexico and Canada, the signatories to the agreement, setting a unilateral border adjustment on a sector by sector basis, so that the Canadian government could apply a targeted carbon border adjustment tax. It also wants to be able to call out particular sectors and say it’s tantamount to dumping if they fail to have climate regulations costs included in cost of production.
The governing Liberal Party also wants to include the application of a carbon price on goods coming into the country, to better level the competitive playing field for Canadian businesses. Whether that can be sacrificed in favour of other demands remains to be seen.
“The point of all that would be to say our companies are competitively disadvantaged because US does not have a comparative climate policy as stringent as ours so we have to make our companies whole,” said Cameron Prell, counsel in the energy group of Crowell and Moring’s Washington, DC.
As the US’s second largest trading partner, Canada could have some leverage in the negotiations with the idea of a border tax. But in doing so, the country would need to slap on additional duties for every country, not just the US, to be in compliance with World Trade Organisation agreements.
Signalling out the US could be “dicey” said Prell, and in doing so Canada would be a guinea pig and would need to consider what political capital it would lose by insisting on a carbon price in Nafta.
“I don’t think that the PCF as a programme or initiative is going to fail because of the failure to do something like this [include language in Nafta], because there are ways of getting to this issue on an ad hoc basis that doesn’t require the US to agree with it,” said Prell. “If this were the issue that was going to be used to say that PCF [the Pan-Canadian Framework on Clean Growth and Climate Change] needs to go down, that would be, in my opinion, subterfuge.”
It wouldn’t be the first time a country has “gone it alone without their neighbours doing much,” said to Dr Mark Jaccard, professor of sustainable energy at Vancouver’s Simon Fraser University, noting the efforts of Scandinavia in the 1990s and California in the 2000s. In order to succeed under such conditions, he said, “You design the policies so that industry that is trade-exposed faces less stringent policies.”
Conservative opposition in Canada, like the United States, is okay with including environmental language in Nafta, but not with linking economics and climate change. They’ve criticised Trudeau for putting his social agenda on the negotiating table.
In a July letter to the prime minister, the Canadian Chamber of Commerce urged Trudeau to prioritise using carbon-tax revenue to protect jobs in the most at-risk sectors; not to layer extra regulations on top of the carbon pricing policies. It also asked the government to recognise past and current greenhouse gas reductions; to direct carbon revenues to R&D in clean-energy technology and to cut taxes.
“The solution is not to ignore climate change, but to proceed in a way that makes sense for Canada’s economy,” wrote Perrin Beatty, the chamber’s president. To offset rising costs for businesses, the country needs to lower costs elsewhere, ie other business taxes and labour/productivity cost increases. He later commented on Canadian businesses “losing competitive ground” to American companies, which faces lower taxes and a loosening of regulations under Trump. “If we don’t give Canadian businesses breathing room, many will suffocate,” he said. "The solution is not to ignore climate change, but to proceed in a way that makes sense for Canada’s economy."
This article is part of an indepth briefing on Canada and climate change. See also
Nafta Canada Mexico World Trade Organisation Canadian Chamber of Commerce PCF