Opinion: B.C. legislators launch NAFTA roulette

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A single clause was all that was required. One that exempted citizens of countries with trade and investment agreements with Canada from the 15-per-cent tax on purchases of Metro Vancouver residential real estate. The North American Free Trade Agreement (NAFTA) is just one such trade agreement.

For want of a clause like that, B.C. legislators this past week passed into law a tax bill that deprives Americans of their NAFTA opportunities and protections. B.C. MLAs have thus put British Columbians and all Canadians with U.S. residential real estate at risk of U.S. retaliation and, in the case of one state — Hawaii — have legitimized their ongoing efforts to deprive Canadians of their NAFTA protections and opportunities.

Since 2012, Hawaii has been introducing legislation to nationalize the property of off-islanders who own legal vacation-rental properties there. The Hawaii bills are barriers to trade and investment and, whether by accident or design, capture Canadian cross-border investors by violating NAFTA at Chapter 11.

These Hawaii bills were the typical anti-NAFTA effort: Canadians with cross-border investments in residential vacation-rental properties must use local banks. Canadians must forfeit management of the property and any handling of money to local realtors or property managers. Canadians must be licensed, like doctors, to operate the investment. And this year, eight bills to re-designate vacation-rental zoning as non-tourism zoning.

In 2012 and 2015, The Vancouver Sun carried op-eds on Hawaii’s assault on Canadians’ NAFTA opportunities and protections. Those pieces were picked up in Hawaii, and so The Vancouver Sun helped save British Columbians from nationalization of their properties by anti-NAFTA Hawaii.

But there’s a critical difference to the Hawaii bills targeting vacation-rental properties: They’d force existing off-island owners, i.e., Canadians, to transfer management to locals, who are exempted from the laws, or to sell the diminished investment to locals and abandon the Hawaii market. Long before B.C. acted to “put British Columbians first,” Hawaii was asserting the need for such off-island-owned housing to be in Hawaii residents’ hands.

The Harper and Trudeau governments were asked to step in to encourage Washington to ‘have a word’ with Hawaii to remind it of its NAFTA obligations. And this year, as in each year since 2012, these NAFTA-violating Hawaii bills disappeared at crossover or conference. Canadians’ properties in Hawaii have not been nationalized and nor has control been forfeited to third parties selected by Hawaii legislators. And, critically for Canadians, the effort has not spread to other U.S. states.

Irrespective of one’s views on Canadian federal governments, their quiet efforts likely helped save individual Canadians from U.S. efforts to violate NAFTA. Good on them, and good on The Vancouver Sun for giving space to the matter as it gave credence to the need for provincial calls for federal action to preserve Canadians’ NAFTA opportunities and protections.

It’s expensive for Canadian companies to launch a NAFTA challenge. It’s all but impossible for individual Canadian or U.S. citizens to launch one. Were these Hawaii bills to become law, and were other states — like those home to residential real estate in which Ontario and Quebec residents have invested — to follow Hawaii’s lead, perhaps egged on by B.C.’s unilateral action to deprive Americans of their NAFTA opportunities, Canadians would fast come out on the losing end.

For decades, until we were surpassed by China, Canadians were the largest foreign purchasers of U.S. residential real estate. The value of our cross-border holdings in U.S. residential real estate must be in the hundreds of billions.

Perhaps in the aftermath of this made-in-B.C. trade mess, Hawaii’s efforts to nationalize Canadian citizens’ cross-border investments in U.S. residential real estate will spread to other Canadian-rich locations of U.S. residential real estate investment. After all, Canadians do tend to buy the cheaper U.S. properties — properties right in the bullseye of the U.S. middle-class property preference. And ‘Putting our people first’ is as powerful a rationalization for anti-NAFTA laws in Florida and California as it is in B.C.

It’s unlikely B.C.’s ‘analysis’ of the NAFTA implications of its residential tax on foreigners considered Hawaii’s assaults on Canadians’ NAFTA protections and opportunities, and the risk to British Columbians with cross-border investments there.

Nor was B.C. likely to have considered the ‘green light’ it’s anti-NAFTA law provides to Hawaii and its determination to ignore NAFTA in the drive to separate off-islanders, i.e., Canadians, from control of their Hawaii residential real estate investments. Hawaii is no innocent when it comes to anti-NAFTA bills, and going forward, it will require remarkable temerity for individual B.C. residents to ask Hawaii legislators to uphold NAFTA, when B.C. has just terminated protections and opportunities Americans have under it. British Columbians have been fighting Hawaii’s NAFTA-violating bills for five years. Last week, B.C. legislators cut the legs out from under us.

Some powerful folks in the U.S. have said that they’d renegotiate NAFTA. In passing this law, B.C. legislators have done it. It is simply too risky for Canadians to hope that a B.C. welsh on a trade agreement, at perhaps the most dangerous time given stated U.S. disdain for NAFTA, will go unreciprocated in the U.S.

B.C. legislators should move fast to correct this trade misstep — before U.S. states decide to take the B.C. anti-NAFTA route to put their residents first, too, on any number of trade and investment fronts.
And for good measure, Canada’s federal government should quietly, but quickly, ‘have a word’ with B.C. to remind it of its responsibilities in honouring NAFTA obligations.

Adam Leamy operates B.C.-based Northwest Public Affairs, and owns an investment property in Hawaii.