NAFTA AND THE AUTO INDUSTRY.

• Position: Proceedings of the 42nd Canada-United States Law Institute Annual Conference: Back to the Future: The Canada-United States Relationship at a Crossroads - Discussion

Moderator: Richard Cunningham

Speaker: John D. Tennant

Speaker: Basil "Buzz" Hargrove

Speaker: Dan Ujczo

MR. PETRAS: If you can take your seats. These panels just keep getting better and better. This is a very exciting conference so far.

It is my job to introduce the moderator of our next panel, Dick Cunningham. Dick has been a long-time friend and associate and member of the Executive Committee of the Canada-US Law Institute. He goes way back to the early days of coming to Cleveland at the invitation of Henry King and speaking to the Greater Cleveland International Lawyers Group, and it is an honor to have him.

Dick has more than 40 years of experience as an international trade lawyer. He is a partner at Steptoe & Johnson in Washington where he leads that practice, and when he is not in Cleveland, he is normally in Korea or Japan or someplace else working on trade agreements.

So without further ado, Dick?

MR. CUNNINGHAM: Thank you. Thanks for the introduction. My favorite introduction was Undersecretary of Commerce, who once introduced me as Dick Cunningham, the leading practitioner--and I am, boy, this guy knows his stuff--the leading practitioner of the Black Art of International Trade Law.

(Laughter.)

MR. CUNNINGHAM: Which I probably carry that medal with me. This panel is a great panel, and it is really an important panel. I hope that all of you picked up at the desk this little brochure, U.S.--Canada-US trade facts, and if you turn to it and look at the table inside of the ten leading U.S. exports to Canada and the ten leading U.S. goods imports from Canada it is obvious that the auto sector dominates US-Canada trade. It is 44 percent of those ten top U.S. exports. It is 55 percent of the top U.S. goods import from Canada.

That's true in a number of the U.S. trade relationships. Auto trade was and remains the key issue in the U.S.-Korea trade negotiations, and it is central to the NAFTA negotiations, and that's what we are going to discuss here today.

We are going to discuss auto trade, and we are going to discuss NAFTA. We have got a great panel to do it. Those of you who are particularly observant probably have noticed this is not Ms. Wilson sitting next to me.

MR. UJCZO: Only on Saturdays.

MR. CUNNINGHAM: But Dan Ujczo is an embodiment of the clear rule that the Canada-US Law Institute is the path that leads on to greatness. Dan has been a long-time associate. He was--he worked with us for years and years, and he is now a practitioner of international trade law, working at the firm of Dickinson Wright where he specializes in trade policy issues and is working deeply in NAFTA negotiations.

To his left is John Tennant. John is formerly Consul General of Canada in Detroit. His distinguished career in public service has focused on trade, investment, and economic development, and today he is the Managing Director of the W2N2 partnership and principal of its global investment group.

And of particular interest to this panel, his companies were commissioned by Global Affairs Canada a few years ago to produce a global automotive sector strategy for Canada, which the NAFTA renegotiations is probably well on its way to disrupting.

Finally, on my far left is Basil Hargrove. Buzz Hargrove was national president of the Canadian Auto Workers where he was and is one of the most recognized labor leaders in Canada.

Mr. Hargrove is now distinguished visiting professor at the Ted Rogers School of Management at Ryerson University in Toronto where he is co-director of the Center for Labor Management Relations, and if you look at it in the brochures that I have handed out, you will notice one of the things that I always thought as a distinction between Canadian labor and American labor is that in the spelling Canadian 'labour' has a U in it, and American labor sometimes lacks that.

Let me turn first, if I can, to John Tennant. John, I would like to put the NAFTA talks on automobiles in a bit of context going back a few years and sort of a how did we get here at this point?

MR. TENNANT: Thank you very, very much, Dick. In addition to my spell in Detroit, I also served twice in Japan, in the '70s, early '80s, and then again, in the '90s.

Coming to CUSLI is comforting I find. Lawyers, trade policy people are committed to working out problems within certain norms. That's even more comforting in a world now that seems to be a bit rudderless and lawless. So it is nice to hang out a bit here.

But regrettably, as I think we have come to find out, international trade, trade and economic relations have long been political. And very evidently, they still are.

This NAFTA renegotiation is to a very considerable extent political, and it applies to auto deja vu all over again. There are two aspects that I think really express the political. The first is, I think history has shown us that when a country aggressively grabs market share in the U.S. in a major sector, as Mexico has done in autos, they should anticipate that there are going to be some restrictive counter measures on the part of the U.S.

From a Canadian point of view, of course, we have been living since the 1980s with lumber where the industry in Canada has certainly found a growing market and has not been hesitant to exploit it. But time and time again, we have ended up with responses from the U.S. that have usually led to some type of negotiated settlement.

It is a great generalization, but I think it could be said in contrast to lumber the Canadian steel industry over time has been much more measured in the extent to which it has marched into the U.S. market knowing that it would face actions, some of which it has managed to avoid.

In the case of the automotive sector, we started, of course, with the auto pact of 1966 that did allow Canada the comfort of being able to set content, Canadian content requirements. That was fine for a while, but we, of course, in the 1980s ran into the Japanese automotive industry entering the United States and Canada.

The U.S. confronted Japan over exports, and as the Japanese were growing the market, some would say, in part, because of having fuel efficient high quality vehicles, the U.S. ultimately won voluntary export restraints during the Reagan Administration.

Of course, there are some people on the front lines now who were around then, too, and the Japanese were pressured to establish production in the U.S.. Canada got into the game, too.

When the Japanese only seemed to be paying attention to the U.S. pressure that was being applied, Canada's then Minister of Industry Trade and Commerce, Ed Lumley, got Japan's attention by moving beyond what anybody would normally recommend by having a Japanese car that arrived in Vancouver inspected by customs officers. And that got some Japanese attention, and Canada then proceeded to find a very innovative way, new ways to incentivize the Japanese to be investing in Canada as well as in the United States.

Then, of course, we moved into the opportunity of Canada-US free trade and then NAFTA. The U.S. was certainly interested in the Canada-US Free Trade Agreement on the auto front because of how imaginative we had become in beginning to introduce some new ideas, like our duty remission incentives.

So we ended up in a situation where we refashioned the Canada-U.S. relationship. In fact, there was out of the initial bilateral agreement of 1988 some things that didn't work as perfectly as they might have, and in the original NAFTA Agreement, one of Canada's good reasons to be in it was that the automotive content provisions that Canada had thought were in the Canada-US Free Trade Agreement weren't interpreted identically by the U.S., and indeed, it represented some risk to Canada.

Now, of course, here we are with a situation where NAFTA has created opportunity in Mexico and where there was literally--I think we would all agree --a stampede to investment in auto production in Mexico up until a little less than two years ago.

That stampede is one that clearly President Trump has sought to corral. I mean, there is a difference now. It is more political than it may have been before, but the trend I think is very, very clear.

And do remember I think it is important as the discussion goes on about content. Not only was there the issue of sorting out an agreed definition of content in the Canada-US Free Trade Agreement and the higher level in NAFTA, but in the Canadian case, the automotive content provisions in the comprehensive and progressive Transpacific Partnership have certainly not been to the liking of most of the Canadian industry parts industry.

There will be a lot of eagle eyes on how all of this comes forward. I think this case paints the context of politics and how it really rules, and one is the importance of auto and the question of imbalance or change occurring. Because it is so important, it invites a political response.

Arguably, too, just as a final note, steel has always been very much in that category, and it certainly seems to me that steel is very much at the foundation of U.S. objectives when it comes to the automotive sector as reflected in the content requirements, dialling back to make sure that that becomes part of the content.

MR. CUNNINGHAM: I just want to tell a short anecdote to underscore the truth of what you were saying John about politics really determines trade actions by governments in an important economically powerful industry like autos. You referred to the Japanese voluntary export restraints. There came--that's one of the favorite moments that I look back on in my career.

There was a real movement by both the industry and the union to take measures against Japanese imports in the 1980s, which, as you say, were assuming a dominant role in the U.S. market. The industry was mixed, as it often is in the auto industry about this, and the Administration worked with the United Auto Workers to file a case under Section 201, our safeguard proceeding--we call it...