Steve Verheul made plenty of headlines in 2017 and 2018 as he wrangled with U.S. and Mexican representatives to forge a fair trilateral deal.Nicolai Gregory/The Globe and Mail
Quite a tome, the Canada-United States-Mexico Agreement on trade. Twice as long as the prequel (NAFTA), it runs about 1,500 pages, divided into 34 chapters and several detail-filled “annexes.” And though CUSMA has its critics, never has a book so long, read by so few, meant so much to so many.
Now a nation hangs on tenterhooks, awaiting word on the progress of the rewrite. Supply management, digital trade, rules of origin—some of Canada’s’ favourite sections are up for review, while the fates of featured characters including steel, aluminum and autos hang in the balance. How will all of this unfold? What should Canadians expect to hear about those Section 232 tariffs we’ve come to know and dread?
We thought there was no one better to ask than (forgive us stretching the metaphor) one of the original’s co-authors, Steve Verheul. As Canada’s chief negotiator for CUSMA, Verheul made plenty of headlines in 2017 and ’18 as he wrangled with U.S. and Mexican representatives to forge a fair trilateral deal. With the July 1 deadline for the CUSMA review approaching, he spoke to us from his home in Ottawa, where he’s now a trade consultant.
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In advance of the original CUSMA negotiations, you were called “the prototype of the type of person you need to get a deal done.” What are the components of that prototype?
Well, that’s a good start. I think what you need for any kind of high-level negotiation is a lot of patience and a willingness to dig into a lot of detail. You do have to understand the fine details of the issues that are being negotiated in order to have an advantage in the negotiation.
What’s your view of Canada’s chief negotiator, Janice Charette?
She’s got a lot of the strengths we need. She’s certainly dedicated to consulting with industry, which I thought was important. She’s patient. She’s not going to get excited about any particular up or down in the negotiation. She’s very steady, very confident, a lot of common sense, and won’t panic. And she’s spent a lot of time getting up to speed on the finer details of the issues and of trade negotiations more broadly.
Things are heating up between Canada and the U.S. We’re hearing a lot of noise from both sides. How would you characterize the state of play compared to last time?
Last time, there was no political involvement in the early stages. We started with a very formal approach, looking at what eventually became 34 chapters. We had separate negotiators for most of the individual chapters, and my task was to try to put that all together with different trade-offs between issues. This time, there’s only a handful of issues that are going to be addressed. And to date, the U.S. has focused on bilateral discussions. Their discussions with Mexico are far more advanced than the discussions with Canada are. And that, I think, is of some concern. Because not only are the U.S. and Mexico discussing bilateral issues; they’re also starting to discuss trilateral issues, rules-of-origin issues, issues of economic security for North America, critical minerals. So Mexico and the U.S. have moved significantly ahead of where Canada and the U.S. are.
Was that because of a decision made by Canada to hold off?
No, I think it was much more a U.S. decision that they wanted to work with Mexico. The issues with Mexico are quite different. They’re larger in number, and they’re probably of greater significance in economic terms than many of the issues between Canada and the U.S. But the U.S. has still approached them in very different ways. They’ve been engaging continually and intensively with Mexico. There’s been very little discussion between Canada and the U.S.
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Recently it came out that the U.S. was demanding upfront concessions—essentially an “entry fee” to begin negotiations. What do you make of that?
It’s a questionable tactic, I think, because it puts Canada in a politically impossible situation. The U.S. has sent the message that they’re frustrated with Canada. They want Canada to show some flexibility. I’ve received that message myself from people in the U.S. But to expect that Canada is in a position to grant concessions just to get to the table is very much a misreading of the Canadian dynamic. There’s just no way that can happen.
You’ve said that the U.S. is breaching the core fundamental obligations under CUSMA on a regular basis, and you expect it to continue. What do we gain by agreeing to anything?
I think that’s a question now. I was concerned last year that the Canadian government may have been tempted to reach one of these framework deals that countries like Europe, Japan, South Korea and others had reached. I didn’t think that was a good idea for Canada. Far better for us to try to reach another agreement that’s legally binding. The existing CUSMA is legally binding. The U.S. has nevertheless breached obligations by imposing tariffs on steel, aluminum, autos and other products. I think the discussions now have to try to get us back to that space. What we’re looking for, more than most other objectives, is some kind of security and predictability.
U.S. Commerce Secretary Howard Lutnick recently responded to your declaration that time was on Canada’s side in trade talks. He said, “That is the worst strategy I’ve ever heard.” And regarding Canada: “They suck.” What was your reaction to all of that?
[Chuckles.] Well, if we’re getting that kind of reaction from Howard Lutnick, I don’t think it’s necessarily a bad thing. It may be an indication that we’re on the right track. My comments were about how I think the pressure on the U.S. is going to increase over time. They’ve embarked on this project to use tariffs to incentivize production of manufacturing in the U.S. But the reality is that manufacturing starts declined in the U.S. last year. Manufacturing jobs declined last year. The trade deficit increased. So I think the approach they’re taking with tariffs has been demonstrated to be a failure so far.
What’s our leverage in these talks?
We’re already seeing that the general public in the U.S., business interests in the U.S., even Congress, recognize that the better path is to continue this agreement and get rid of these tariffs. That is certainly a source of leverage that will become increasingly important. In terms of leverage at the table, we certainly provide the U.S. with a lot of products that it needs, whether it’s energy, critical minerals or various others. I don’t think there’s an appetite to try to use those in an aggressive fashion, but I think there is an interest in trying to demonstrate to the U.S. that if we work together, build things together and try to advance the interests of the North American market more broadly, we’ll be far more competitive in the world at large.
You have been critical of the way Mexico and Canada have been building distance between themselves over the past few years. How are you feeling about where things are at now?
I don’t think we’re there yet. I think the fact that the U.S. and Mexico are moving far along on issues, including trilateral issues, is a concern. I see that President Claudia Sheinbaum has talked about wanting to have some kind of outcome on steel, aluminum and autos even before the CUSMA review. Those are causes for concern. I’m a member of a coalition for North American trade. I had a conversation with my U.S. and Mexican counterparts today. And with my Mexican counterpart, we did have discussions about how we can start to encourage Canada and Mexico to become more closely aligned. Because at the moment, I think there’s a gap that’s potentially problematic from a Canadian perspective.
Steve Verheul.Nicolai Gregory/The Globe and Mail
I want to spend some time now in the room. First, when you’re in negotiations, how long a day is it?
In my experience, anywhere from a couple of hours to 16 or 20 hours, if you’re getting into contentious issues. It’s not unusual to go around the clock.
Our countries have very different styles. Canadians are more respectful, politically. The Americans are belligerent, insulting. Is that reflected in how things go in the room?
It is. With respect to the negotiations in the first term, we started out having discussions only between officials. We knew each other. We were trying to reach an outcome. The dynamics were usually constructive. A different story if you get to the political level. And I think one of the things that Mexico has done recently under this negotiation is that they’ve spent a lot of time building up relationships with the U.S. team, including at a technical level. So there’s a lot of discussion taking place, a lot of analysis being shared. On the Canadian side, it’s tended to be more high-level discussions. Many of those discussions are difficult ones.
Trump is notoriously chaotic. How do you prepare for the possibility that he’ll pull the chair out from under things at the last minute?
You always have to be prepared for those curveballs, and there are many in the current Canada-U.S. dynamic. The important part is not to be thrown off course by some offhand comments that can be disruptive.
What about Trump’s tendency to overstate and then pull back at the last minute? Is that something you would factor in at the table?
Oh, absolutely. Over time, you get a sense of when some of the U.S. comments might have gone further down the track than they may be prepared to maintain.
How hard can you push in the room? Does it ever get to a point of shouting?
At the officials’ level, sure, I’ve experienced yelling. I’ve walked out of negotiations when U.S. positions were unacceptable. When you get to the political level and they’re directly engaged in the discussions, you’re likely to see more strong reactions, more threats, more ultimatums. You have to be able to make the distinction between what’s theatre and what’s a serious negotiating position.
When a negotiation gets stuck, how do you get it moving again?
Sometimes it makes sense to take a pause, suspend the discussions, evaluate whether there are other possibilities to go forward. The other main tactic is to try to shift the nature of the discussion by putting forward a different kind of proposal that would achieve similar ends. In the negotiation in the first term, the U.S. had come out with a proposal on rules of origin for autos that required any auto to be 50% produced in the U.S. By our analysis, this would have resulted in the destruction of our auto manufacturing industry over time. Clearly unacceptable to us, unacceptable to Mexico. Eventually we came back with the notion of “labour value” content. It addressed the U.S. concern about Mexico’s cheaper labour advantage by introducing a provision that said autos had to be produced in a plant with a wage of at least $16 an hour. That moved the U.S. off their U.S.-specific position to something that could be worked into a trilateral agreement.
Early in 2018, you came out and said, “The U.S. offer on government procurement is the worst offer ever made by the U.S. in any trade negotiation.” What were you hoping to achieve?
Many of the U.S. proposals at the beginning of the negotiations were quite radical. So I did come out publicly and describe some of them. Virtually all those positions were eventually dropped. On the government procurement issue, they offered us a proposal that would have given us less access to the U.S. market than Bahrain gets.
Did you have to clear that statement with anybody in advance?
Well, I didn’t.
Did it blow back on you at all on the Canadian side?
No. There was an occasion where we were talking about dispute settlement when it comes to trade remedy actions, and the U.S. said that they weren’t even going to talk about that issue. And it’s a fairly significant priority for us. And I did say, “If you’re not prepared to talk about that issue of interest to us, then we’re not prepared to talk to you on issues of interest to you.” And I walked out. That was a bit of a surprise to Ottawa. But I got a call from my American counterpart very early the next morning, and he said, “Okay, let’s talk about your issue.”
When you look ahead to these negotiations, what’s your gut feeling about how things will resolve?
If we take long enough, and if the pressure on the U.S. continues to increase, I think they’ll be looking for a bit of a safe haven. And that safe haven is the North American market. From the perspective of the affordability pressures they’re under, and pressures because they’re alienating a lot of allies, if they could reach some kind of understanding with Canada and Mexico, I think that would be a positive signal. So I think we could land at a place where much of the agreement is maintained. There’s some tweaks, particularly on the trilateral issues, that I think all three parties could agree to. But I think that’s going to take some time. The big question is, what happens to the tariffs on steel, aluminum and autos? Canada has to have an outcome on those issues in order to be able to accept an agreement.
It’s going to be a tumultuous summer. When we hear negotiators complaining or Trump making threats, what should we take from that as things go on?
There’s going to be lots of inflammatory statements being made. But we need to keep our eye on the ball and on what we’re trying to achieve at the table. A lot of the rest is just noise, and most of it comes and goes without any real implications.
Will you be standing by the phone in case Janice Charette needs to reach you?
I’ve made it clear that if there’s any interest in having my views, I’m open to it and happy to provide it.