12. Chile and the Progressive Trade Agenda (2017)
Chileans will often remind visitors that their country was once known as finis terrae, the end of the earth. Its northern deserts, the Andes cordillera and the inhospitable Cape Horn seas, always challenged would-be visitors. But far from being a lost corner of the world, Chile was, during my tenure in the country, a full-fledged member of the network of international trade agreements that regulated the globalized world. In fact, Chile’s physical isolation is a good part of the reason its governments of both right and left adopted such an openness to world commerce.
In the early 2010s, the international consensus about the value of ever-liberalizing world commerce had reached its high-water mark. A rising tide of populist and nationalist opposition to this model, greatly under-estimated even at that late stage, had not yet breached the three-decade-long bulwarks of conventional wisdom. Although the Doha round of World Trade Organization talks had foundered, a substitute path to wider liberalization had been charted through the negotiations for the TransPacific Partnership involving the United States, Japan, Australia, New Zealand, Mexico, Singapore, Brunei, Malaysia, Peru, Vietnam, Canada and Chile. The negotiations brought together countries representing about 800 million consumers and roughly 36 per cent of the world’s GDP. Negotiators, conscious of criticisms that previous trade agreements had sidelined concerns about social justice in favour of a concentration on economic growth, were negotiating additional provisions on co-operation and capacity-building, development, and transparency and anti-corruption. As well, in keeping with changes that had entered world markets two decades earlier, an article on e-commerce was incorporated. Negotiators proclaimed the TPP a truly modern agreement that established “a gold standard” for such pacts.
For Canada, which had a 20-year-old bilateral trade agreement with Chile, the TPP would enhance an already-strong trade policy framework that we were in the process of updating. Those updates to a series of technical provisions covering sanitary and phytosanitary measures related to food safety; technical barriers to trade such as incompatible regulations; and government procurement provisions were already underway under the government of Stephen Harper. But with the election of Justin Trudeau in October 2015, the new government saw the talks as a way to introduce some ideas from what it called a progressive trade agenda.
From the point of view of the world trade agenda of ever-expanding markets and freer trade in goods and services, all seemed to be following the prescribed trajectory. Until that accepted consensus was suddenly challenged by the emergence of long-suppressed populist political forces in the United States and Europe, which disdained the forces of globalization and which found expression in the election of Donald Trump and in Britain’s ill-fated referendum on Brexit, its proposed exit from the European Union.
The Canadian Embassy in Chile had long been awaiting a “high-level” visitor to underline how much we valued our relationship with Chile; that we held this enduring and law-abiding democracy and business-friendly market in high regard; and we wanted to keep moving forward on a mutually beneficial and amiable trajectory.
A problem – ironically – was that there was little to complain about in our official relations. Canada had recently done away with the requirement that Chileans obtain visas before travelling to Canada, a move welcomed by individual tourists, families and businesses in both countries. Some Chilean winemakers were pressing the Ontario government for not giving sufficient or prominent shelf space in provincial liquor stores. But this matter was wending its way through a formal dispute settlement process. Pressed to name an outstanding “irritant”, we managed to refer only to Chile’s reluctance to accept imports of Canadian salmonid eggs for breeding on fish farms. Not the stuff of headlines. With little need for care and maintenance, there were few practical reasons for statesmen to meet, or for officials to spend the hours, days, and weeks necessary to organize a logistically complicated official visit, when more pressing problems elsewhere in the world made greater claims on their time.
Nonetheless, the Chilean foreign ministry was making it clear that they would more than welcome a visit, especially from a representative of the recently elected Justin Trudeau government, to burnish – for its domestic audience – the “progressive” credentials both countries shared. At the very least, the two countries should celebrate the 20th anniversary of the Canada-Chile Free Trade Agreement. An unstated motive for the Chileans was that the beleaguered Bachelet government could try to polish its battered reputation before the end of its scheduled term in office in the hope it would assist the new leader of Bachelet’s political coalition in the election to come.
As with so much else in that period, it was the unlikely election of US President Donald Trump and his bellicose and disruptive trade agenda that finally kicked our visit planning into high gear. Trump’s decision to withdraw from the TPP prompted an effort of TPP members to try to save the furniture by negotiating a deal that did not include the United States. It was the first proposal of such a rescue that brought a commitment from our headquarters to dispatch then-International Trade Minister François-Phillippe Champagne to Santiago.
Canada had been a somewhat hesitant partner in the TPP. As with the NAFTA more than 20 years before, the Liberals were suffering a bout of bad conscience in endorsing a proposed trade agreement that a previous Conservative government had negotiated and over which the Liberals had cast doubt. There were worries from some sectors, including among them the auto, supplied-managed dairy and poultry, and generic pharmaceutical sectors. There were also the perennial issues of the environment, gender equity and labour standards brought forward by “civil society” organizations. The Liberals’ strategy to respond to these concerns was first to run longwinded consultations at the end of which it was expected they might agree to proceed, if they were able to introduce features of a “progressive trade agenda” in further negotiations.
When Donald Trump announced that the United States would withdraw from the TPP, the immediate reaction of many was that the deal was dead. The US market was so important for each national participant that none would see any advantage without Washington’s membership. In fact, under the agreement’s terms, without the US economy the requisite level of combined GDP would fall short of the threshold necessary for ratification. My own inquiries to our geographic desk and TPP negotiators were met by the immediate response that this arduously negotiated accord had met the fate of the proverbial Monty Python parrot. (That being: It is deceased, demised, passed on, no more.)
This fatalism was not shared by other TPP members, however. Chile, through statements issued by the top trade official of the foreign ministry’s economic directorate (DIRECON), Paulina Nazal, broached the possibility that the TPP could be kept alive even without US participation. Nazal first raised this idea during the Asia Pacific Economic Cooperation (APEC) Summit in Lima, Peru, in late November 2016, suggesting resuscitation in a modified form. To bring it more openly to the table, Chile then invited the TPP members, as well as China and South Korea, to attend a “high-level dialogue on the integration initiatives in the Asia-Pacific region” in the resort city of Viña del Mar, on March 14 and 15, 2017.
Enter Champagne, who had recently replaced Chrystia Freeland as trade minister, in a cabinet shuffle, in which Freeland moved on to the foreign ministry. Views were shifting on a TPP revival as Chile coaxed reconsideration. Although the invitation for Canada to attend the dialogue had moved desultorily through several political and bureaucratic filters before reaching Champagne’s office, the minister quickly accepted it. He arrived in Chile on March 13. Brimming with enthusiasm as Canada’s “top salesman” – as he described himself – he was a compact force of charm and positivity. Champagne was like an actor who is always “on.” His entrances were rapid, and he sought to command his stage. Although he is at the low end of five feet something, he was an unmistakeable presence. He exhibited a well-honed confidence and immediately struck up conversations that were pleasant but nonetheless “on message.” He was a political pupil of prime minster Jean Chrétien in his Shawinigan riding before launching a career in international business. If not as folksy as Chrétien, he was as direct and uncomplicated. A meeting with embassy staff was arranged for his arrival.
“We are very proud of what the Trade Commissioner Service does,” he said to me on our being introduced. “Your work around the world is excellent. You are providing Canadians with a truly vital service to advance Canada’s interests.” Rote perhaps, but certainly appreciated by any trade commissioner who believes in his or her work, as most do.
The key event organized for Champagne by the embassy before the Viña del Mar “international dialogue” was a business lunch at the Club 50. We had arranged to commemorate the twentieth anniversary of the Canada-Chile Free Trade Agreement and had specially produced for the occasion a video in which Chrétien, whose government negotiated the deal, would offer a few words of welcome. The former prime minister delivered his recorded remarks in his typically plain-spoken style and extended his regards to former Chilean president Eduardo Frei Ruiz-Tagle, the leader who signed the original deal, who was seated with Champagne at the head table.
Champagne’s speech was replete with the new “progressive trade” gospel: “We have in Chile a partner committed to a rules-based, fair trading environment and a progressive and open trade agenda . . . When nations trade together, good things happen for our people, and that is ultimately our primary objective: making trade work for people . . . (But) we need to do everything we can to ensure that the benefits of trade are more widely and equitably shared.” In these remarks could be heard the echo of the Lloyd Axworthy’s “human security agenda” revealing a satisfying continuum between Liberal regimes.
We had been working on making improvements to the Canada-Chile agreement since my arrival in Chile in 2014. One of the first functions Suzanne and I organized in our apartment in Las Condes was a reception that brought together Canadian and Chilean negotiators who were working on modifications of the chapter on technical barriers to trade. The subject sounds dry, but it’s an important feature of modern trade agreements. Regulations between countries are different but may be aimed at achieving the same objective. If officials can agree, for example, that each side’s regulations on electrical appliances ensure their safety, then the rules can be recognized as equivalent, and the appliances can be sold in each other’s market.
I didn’t hear much talk about the substance of the negotiations that evening at our apartment. Instead, it was a chance to connect with many of Chile’s trade policy experts, who I would need to work with in the months to come. Among them was Alejandro Buvinic, who would soon be named the head of Chile’s equivalent of the Trade Commissioner Service, ProChile. As was so often the case, the party drifted to our apartment’s large balcony from which we could see the glimmering lights of “Sanhattan”, Santiago’s modern business district on one side, and the peaks of the Andes on the other, their glaciers reflecting the sunset glow. The pleasure of the social occasion would pay dividends in our relations with Chilean officials in the months to come.
Throughout my assignment in Chile, negotiators worked on other changes to the trade agreement including chapters on rules of origin and government procurement, as well as the chapter on investor-state dispute settlement. This latter had been added to the agenda by Freeland shortly after her appointment as trade minister in a clear effort to respond to free trade critics who had consistently and for years inveighed against this provision as it had originally appeared in NAFTA. In fact, I remember quite clearly NAFTA chief negotiator John Weekes telling me of this breakthrough in trade governance, describing it as a major and positive feature to expedite the resolution of investment disputes. The critics, though, said it gave private, foreign companies unusual power to overturn government regulations made for the public good. Hostility toward the NAFTA investor-state chapter in Canada grew in the wake of successful cases brought against Canadian governments by US investors, some yielding substantial settlements that the Canadian government had to pay.
Freeland inherited such a chapter in the talks for Canada-European Union Comprehensive Economic and Trade Agreement (CETA), all but completed by Stephen Harper’s Conservative government. Freeland, eager to put the Liberal government’s “progressive” stamp on the deal, negotiated modifications that stressed the right of governments to regulate in the public interest. The changes also included a permanent dispute settlement body supposedly more impartial than the ad hoc boards established under NAFTA.
I agreed with headquarters to consult the top Canadian investors in Chile on possible changes to the investor-state chapter. I set out on foot from the embassy to consult the chief executive officers or board chairs whose offices were scattered around the Sanhattan business district. The reaction I got did not surprise me. The relationship between Canada and Chile is different from that with many other trade partners, including the US and the EU. Unlike the Canada-US market, for example, investment between Canada and Chile is mostly one-way and very much in Canada’s favour. While Chilean investment in Canada is relatively small, Canadian investment on Chile is massive, amounting to about $18 billion during my tenure as senior trade commissioner.
Most of the top managers of Canadian businesses in Chile are Chilean nationals, mostly men of conservative tastes, practiced charm and cultivated manners. In some dozen offices in the boardrooms of glass-towered headquarters, these men received me politely. As I explained Canada’s wishes on free trade reform, their collective response was one of puzzlement. From their perspective, the investor-state dispute settlement chapter as it stood was a powerful instrument to protect their Canadian owners’ interests against any arbitrary and adverse changes in Chilean laws or regulations. In the 20 years of the agreement, the provision had never been used, but they all saw it as a valuable backstop, an insurance policy.
There had been one instance where the Canadian company Methanex had been tempted to resort to the dispute settlement provision. The company, whose origin was in the gas fields of Medicine Hat, Alberta, and which operated a large methanol production facility at Punta Arenas in Chile’s far south, had been denied supply of natural gas feedstock by Chile’s state-owned oil company, Empresa Nacional de Petroleo (ENAP). The failure to meet this contractual obligation had been forced on ENAP by a decision of the Argentine government to suspend all sales of natural gas to neighbouring markets. What gas Chile was able to draw from its own reserves was needed for heating and power in the southernmost, and coldest, part of Chile. Methanex, however, decided not to invoke the dispute settlement mechanism, choosing instead to work with the Chilean government towards a long-term solution. In fact, that solution emerged during my stay in Chile, as ENAP after years of exploration in the Magallanes region, was able to find sufficiently large gas reserves to meet both the region’s residential and, to Methanex’s satisfaction, industrial needs.
Despite the tendency of Chilean-based Canadian companies to seek to work with, rather than confront, Chilean authorities – as illustrated by the Methanex case – the executives were still baffled that Canada, without any pressure from the Chilean government, would make a voluntary change in the agreement that could reduce their leverage in the Chilean market. This I reported to Ottawa along with my assessment, based on the interviews, that none of the Canadian companies, despite their objection to the change, would be inclined to oppose publicly what Minister Freeland so clearly wanted. However, it was my personal evaluation, that the Canada-Chile agreement was a poorly chosen target on which to display the government’s “progressive” trade credentials, as it theoretically impeded Canadian interests without any offsetting advantage. But it was clear that the government’s desire to profile the progressive trade agenda took precedence in this case over national self-interest.
I wondered whether any of these executives would raise the issue with Champagne in a series of meetings we arranged before his speech to the Canada-Chile Chamber of Commerce. They did not, preferring to underline, in their polished and diplomatic manner, the harmonious relations they, for the most part, maintained with the Chilean government.
Champagne was still intent on promoting another aspect of the “progressive” agenda: the participation of women in trade. He stressed that his first meeting after landing in Chile had been with top executives of the Canadian mining company, Teck, which was running a program, in conjunction with the agency United Nations Women, to help Indigenous women benefit at the local level from business activity associated with the company’s Chilean projects. In his speech to the Chamber, he said: “Teck entered into a US$1 million partnership . . . to promote the empowerment of Indigenous women in the northern regions of Chile. The project seeks to promote capacity building among Indigenous women and address the barriers to their active political and economic participation.” “Capacity building”, one of the buzzwords of the modern international development professional, means equipping people with the tools and skills to move ahead under their own steam without need for grants, subsidies or other financial supports.
In the weeks leading up to Champagne’s visit, we had been in close communication with headquarters over the measures necessary finally to wrap up the new chapters of the Canada-Chile trade agreement, which we called its “modernization.” As his arrival approached, I exchanged numerous secure messages with headquarters colleagues.
All embassies have a secure area called the “vault” which houses their most secure communications equipment. The one in Santiago happened to be particularly frigid, partly due to the need to cool the embassy’s computer server, and I was shivering as I composed one morning a secure e-mail to Ottawa summarizing the state-of-play respecting official approval of the new free trade chapters. Ambassador Lebleu dropped by and suggested that I include in my message a proposal that Ottawa, in keeping with the progressive agenda, consider negotiation of a new chapter on women and trade. He wanted me to advise that such a proposal would likely be accepted by Chile, since our Chilean counterparts had recently negotiated such a pact with the government of Uruguay, the first in any trade agreement.
“I don’t think they’ll go for it,” I said, speaking of our colleagues at headquarters. “The existing chapters have taken long enough as it is. And there are still all the formalities of putting the package through cabinet, and Parliament, and the formal exchange of notes.”
I had anticipated headquarters’ reaction exactly. In less than 24 hours, we were thanked for the ambassador’s suggestion but told that the formal procedures and schedule could not accommodate a completely new chapter.
Apparently, the idea had not been considered serious enough to raise to the level of Champagne’s office. When Lebleu, at the Viña del Mar meeting, mentioned the idea to Champagne, the minister’s response was instant and enthusiastic. He immediately told his accompanying staff to advise Global Affairs deputy minister Tim Sargent to get the wheels rolling for the negotiation of a “gender and trade” chapter.
Lebleu, who liked to push boundaries and challenge traditional ways of doing things, had scored a small triumph.
I had the pleasure of attending the first round of the “women and trade” negotiations, where it became evident a deal would quickly be reached. The talks were led on our side by an experienced trade policy executive, David Usher. The chapter, as first modelled in the Chile-Uruguay deal, did not impose any burdensome requirements. Its primary purpose was to establish a series of regular consultations through a binational committee that would review measures promoting women’s involvement in the trade economy. I understand how critics might dismiss the provision as window-dressing, but other side deals have proved productive in the past. The environmental cooperation side agreement of the Canada-Chile free trade deal is a case in point. Since its implementation officials have demonstrated a high level of commitment and pushed practical research on climate change. But these provisions do rely on the goodwill of the partners, and a parallel side deal on labour cooperation had much less to show after years of only desultory activity. It was telling that one of the biggest obstacles to concluding the gender and trade chapter were the objections of Labour Canada, fearing that the consultation process would undermine what they saw as an equivalent process under the labour side deal – but which had seen no results.
The “progressive” women’s chapter was wrapped up in little more than three months, and it was ready to be announced, along with the rest of the modernized package, during the subsequently organized state visit to Canada of President Bachelet in June 2017.
Champagne’s activist trade diplomacy fit the moment. The Valparaíso meeting led ultimately to the re-negotiation of the TPP without the United States, under the name of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, which entered into force on December 30, 2018. Champagne was no longer in the portfolio, having been moved by Prime Minister Trudeau to Infrastructure Canada in July 2018. In truth, his profile in what has always been a prominent ministry had been eclipsed by Foreign Minister Freeland who had retained the Canada-US negotiations file, which dominated headlines in 2017 and 2018.
Ironically, one of the casualties of the successful talks for a revised NAFTA, the Canada US Mexico Trade Agreement, was the investor-state dispute settlement chapter. Despite the effort to make this provision more “progressive” in the Canada-Chile Free Trade Agreement, Canadian negotiators saw fit to accept its elimination in the new NAFTA. This concession to the Trump administration actually answered the prayers of some of Canada’s fiercest NAFTA opponents. Seen as a back door to undermine Canadian sovereignty, Chapter 11 was now put out with the trash, with little public lamentation. It lives on however in Canada’s agreements with the European Union and Chile.
As the southern hemisphere summer began to turn to fall in April 2017, the time for our departure from Chile drew nigh. Although my tenure as senior trade commissioner had coincided with a period of slow economic growth for Chile, there was still no shortage of Canadian firms scouting the market for sales and investment. One of my last appointments was with the head of a major Canadian diversified company exploring new opportunities in energy, infrastructure and manufacturing. The firm had previous experience in the Chilean market; it had sold its assets in the country to a rival firm several years ago at an advantageous price. It had stayed clear of Chile for several years to comply with its agreement not to compete with the buyer. Now those terms had expired, and it was ready to return to the market.
What was an emerging trend was the arrival in the Chilean market for the first time of Chinese investors. Although China had made strong inroads into other Latin American countries, these tended to be poorer countries eager to accept Chinese capital with few restrictions. Chile’s stricter regulatory environment; its attractiveness to a diversity of international investors; and hence little temptation of Chilean authorities to make special concessions to lure investors, had kept Chinese capital at bay. But there were signs that China had begun to recognize that to enter the Chilean market its firms had to pay competitive prices for available assets. In the months before and after my departure, Chinese companies bought the lion’s share of Canadian assets in SQM and the assets of Canadian-owned Brookfield Asset Management in Chile’s main electricity trunk line company, Transelec. The tectonic plates of the world economy were starting to shift, and Canadian firms would need to factor in the challenges posed by expanding, more robust and state-supported Chinese enterprises.
My departure from Chile was not just the end of another assignment. It also represented an exit into the final anteroom of my career. That moment my personnel officer Luc Cousineau had mentioned to me 27 years ago was imminent. It had always been my intention to retire shortly after I turned 65. It was time for me to leave room for equally ambitious young officers moving upward through the department’s ranks. I advised the department’s executive staffing office that I would take my leave in January 2018.
I was amazed, after so many years devoted to pursuit of a set of general organizing principles regarding trade and diplomacy, to see these so readily abandoned by the United States which, since the end of the Second World War and through both Democratic and Republican administrations, had been their most faithful advocate. What had characterized my work at the embassy was a dedication to not only maintain but further enhance the trade policy framework in accordance with a commitment to open markets and free trade. It is clear that countries like Chile have not lost faith in these principles, but can Canada, Chile and the likeminded countries of the TPP and the EU manage to abide by them in the face of the iconoclasm set in motion by the Trump administration, the threat to the EU caused by Brexit and a resurgence of nationalism, and the eruption of public scepticism about the benefits of globalization? Can the old consensus be rescued, or a new one constructed? Will, as Justin Trudeau’s Liberals hoped, the progressive trade agenda be enough to persuade doubters that the international trade policy structure is worth saving? Or has its fate been completely taken out of our hands at the start of new era of winner take all, beggar the hindmost?