NAFTA Ministerial Concludes, Negotiators Press to Address Remaining Issues This Week

17 May 2018

High-level talks last week to revise the North American Free Trade Agreement (NAFTA) closed without any major breakthrough in efforts to reach an agreement in principle, with trade ministers pledging to have their teams continue work ahead of a target date this week to clinch a deal. 

The pact, bridging Canada, Mexico, and the United States, created a massive regional free trade area when it took effect in 1994. Several successive rounds of NAFTA negotiations have been held since tripartite talks to update NAFTA began last August, recently accelerated by several weeks of intense technical talks in Washington. 

The top trade officials of each NAFTA country met on Friday, amid growing political pressure, including a 17 May deadline to notify American lawmakers set by US Speaker of the House Paul Ryan. That deadline, Ryan said, is key to permit sufficient time for the current Congress to vote on an updated accord. 

Though Canadian Foreign Minister Chrystia Freeland and Mexican Economy Secretary Ildefonso Guajardo Villareal have now returned from Washington, negotiating teams reportedly stayed on site to continue technical work on narrowing remaining differences. 

“It’s going to take as long as it takes to get a good deal,” said Freeland following the ministerial talks, noting a pattern of “good, solid meaningful progress” since negotiations began to intensify in March. “NAFTA is an extremely complicated agreement; it governs the trading relationships in the world’s largest economic bloc and it’s really important to get this right.” 

“We’re not going to sacrifice the quality of an agreement because of pressure of time,” Guajardo said. 

“The current NAFTA is a seriously flawed trade deal, and the Trump Administration is committed to getting the best possible trade agreement for all Americans,” said US Trade Representative (USTR) Robert Lighthizer in a statement issued on Monday.  

“The United States is ready to continue working with Mexico and Canada to achieve needed breakthroughs on these objectives. Our teams will continue to be fully engaged,” the US trade official added. 

US Speaker of the House: 17 May deadline

The current US legislation for Trade Promotion Authority (TPA) entails timeframes, procedures, and conditions for signing, ratifying, and implementing trade agreements, including the requirement that the US executive branch notify Congress of its intent to enter new trade agreements 90 days before signature. 

The TPA also mandates procedures for debate in each chamber, including for “fast track” votes to pass trade deals without amendments so long as they meet TPA requirements; calls for the production of a report on the trade agreement’s economic impact; and requires a description of the changes to US laws in order to clear the way for implementation. 

In view of TPA requirements, Ryan set the informal deadline of 17 May in order to ensure an adequate review period for the current Congress to be able to approve the deal this year. The midterm elections scheduled for 6 November are set to usher in a new Congressional makeup which could alter prospects for the requisite domestic political support. 

“As the author of TPA, I can tell you, we have to have the paper – not just an agreement, we have to have the paper – from USTR by May 17 for us to vote on it this year, in December, in the lame duck,” Ryan said last week. 

Ryan, a Republican from Wisconsin who will be retiring from Congress, was one of the architects of the current TPA legislation, which has been in effect since 2015. “Lame duck” refers to the period after the November elections but before a new Congress has taken office, the latter of which takes place in January. (See Bridges Weekly, 2 July 2015

Officials from other NAFTA countries have warned, however, that such a deadline will be a tough one to meet in practice, given the level of work remaining. 

“The possibility of having the entire negotiation done by Thursday isn’t easy, we don’t think it will happen by Thursday,” Guajardo said, according to comments reported by the Wall Street Journal

Presidential elections in Mexico, which take place on 1 July, have injected additional uncertainty in terms of a conducive political climate to pass a revised deal. Andrés Manuel López Obrador is currently leading in the polls for winning the Mexican presidency, saying in late March via a YouTube video message that he hopes nothing is signed on NAFTA prior to the Mexican elections, given that he has particular objectives for items to include in a revised trade deal. 

Meanwhile, Mexico has recently strengthened its commercial partnerships through the conclusion of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), becoming the first signatory to complete domestic ratification processes in April. Canada is also a CPTPP signatory but has not yet ratified. Mexico also reached an agreement in principle on the modernisation of the Mexico-EU free trade deal last month. (See Bridges Weekly, 26 April 2018

In addition, 1 June marks the end of exemptions for NAFTA countries, as well as the EU, from the US’ Section 232 global steel and aluminium tariffs. (See Bridges Weekly, 3 May 2018

“Canada and Mexico also have the postponement until June 1. So depending on where we are on NAFTA on June 1, the president will decide whether or not to extend their situation,” US Secretary of Commerce Wilbur Ross said in Washington this week, according to comments reported by Reuters. “So it’s unforecastable at the moment.”

Remaining issues 

Negotiations have stumbled over various tough topics. For example, US trade negotiators have further sought to modify investor legal protections, proposing an opt-in clause to allow each party to decide whether to make use of the investor-state dispute settlement mechanism. Other proposed dispute settlement modifications include the elimination of Chapter 19 on dispute resolution with regard to antidumping and countervailing duties, along with making state-to-state dispute settlement panel rulings non-binding. 

The US has also pushed to introduce a “sunset” clause, requiring periodic review of the pact’s content and effects, which would cause the agreement to expire automatically after five years unless parties agree to renew it. 

On agriculture, Washington has presented a proposal related to seasonality, enabling farmers to present anti-dumping and countervailing duty cases against select seasonal produce, even if they account for less than half the market share, including a catalogue of 61 Mexican products that could be implicated. The US has also sought to secure greater access to Canada’s dairy market and has called for cuts to tariffs on all supply-managed products, including dairy, poultry, and eggs, to be phased out over time. 

In particular, automobiles have been deemed a crucial issue, essential for a successful revision of the agreement and an important component of the US administration’s push to grow manufacturing jobs and investment in the US. 

“We’re importing a lot of cars, and we want a lot of those cars to be made in the United States,” Trump said in a meeting at the White House with major automakers and industry trade groups last Friday. “We’ll see what happens,” Trump said, “But NAFTA has been a horrible, horrible disaster for this country, and we’ll see if we can make it reasonable.” 

Several technical details remain to be worked out with regard to automobile rules of origin. US negotiators have pursued increased regional content requirements for auto parts to qualify for duty-free treatment, most recently seeking to raise North American auto content to 75 percent from the current 62.5 percent over four years for light vehicles. 

The US proposal has further linked labour requirements to the production of vehicles, establishing that 40 percent of passenger vehicles are built in areas that pay at least US$16 per hour. Mexico has reportedly sought a more gradual phase-in period, a more flexible wage specification, and a lower content threshold. (See Bridges Weekly, 9 May 2018

“The big topics like that are still a work in progress. And those are very complex issues, particularly rules of origin, so eventually it will come down to every comma, every semicolon, everything before we can figure out if it’s something that’s workable,” US Commerce Secretary Wilbur Ross told reporters on Monday.

In the meantime, leaders have continued contact at a high political level, in a bid to maintain momentum over the coming days. “President Trump underscored the importance of quickly concluding an agreement” in a phone call with Canadian Prime Minister Justin Trudeau on Monday, according to a White House news item. The exchange broached the possibility of “bringing negotiations to a prompt conclusion,” according to Trudeau’s office. 

ICTSD reporting; “NAFTA 'hot topics' unresolved as deal deadline looms, says U.S. official Ross,” REUTERS, 14 May 2018; “Negotiators fail to reach NAFTA deal, Trump launches new attack,” REUTERS, 11 May 2018; “Nafta Trio Set to Miss Ryan's May 17 Target Without Deal,” BLOOMBERG, 14 May 2018; “Trudeau, Trump talk about immediately wrapping up NAFTA deal in phone call,” THE CANADIAN PRESS, 14 May 2018; “NAFTA deal not reached, Freeland says talks will persist for ‘as long as it takes’,” REUTERS, 11 May 2018; “Trump’s Goal for Nafta Rewrite Looks Unattainable in 2018,” THE WALL STREET JOURNAL, 15 May 2018.

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