NAFTA Officials Indicate Plans for Resuming Talks, One Month After Missing Informal Deadline

21 June 2018

One month after negotiators from Canada, Mexico, and the United States were unable to meet an informal deadline for modernising the North American Free Trade Agreement (NAFTA), talks are reportedly due to resume for the trilateral trade pact within weeks, though exact dates are not yet clear. 

Trade officials from the US and Canada indicated last week their intention to continue negotiating over the coming months, without confirming whether they would try to clinch an agreement in principle this year. The three parties had missed an informal 17 May deadline for reaching such an accord, following statements from US Speaker of the House Paul Ryan which suggested that this was when a deal would need to be ready and notified in order to be considered by the current Congress. (See Bridges Weekly, 17 May 2018

Separately, Mexican Economy Secretary Ildefonso Guajardo Villareal said during a meeting of Pacific Alliance trade ministers late last week that he also expects the NAFTA negotiations to resume next month, and that technical work is continuing in the interim. 

How officials will overcome the hurdles that have dogged the talks over the past several months remains unclear however, despite repeated statements from officials that an updated NAFTA could be an opportunity to test out new, improved trade rules that are in line with 21st century realities. 

Freeland highlights NAFTA potential, notes Section 232 tensions 

Freeland, during a speech in Washington last week, stressed that the talks could be a valuable opportunity to address some of the “growing pains” caused by rapidly evolving job markets, the non-stop introduction of new technologies, and increasing costs in areas such as education and housing that have disproportionately affected the middle class in many countries. 

“These are the wrenching human consequences – the growing pains, if you will – of the great transformative forces of the past 40 years: the technology revolution and globalisation. Of the two, technology is having the greatest impact. But even free-traders like me need to recognise that globalisation has contributed as well,” said Freeland. 

On trade, she referred to the potential benefits from comprehensive new or updated accords, both at the regional level and at the World Trade Organization, as well as the need to boost trade enforcement efforts. 

“When it comes to trade, we need to introduce labour standards with real teeth, as Canada and the EU have done in our free trade agreement and as we [Canada, the United States and Mexico] are discussing as part of our ongoing modernisation negotiations for NAFTA. It is long past time to bring the WTO up to date with the realities of 2018 and beyond. We need to seriously address non-tariff barriers to trade and forced technology transfers,” she added. 

The Canadian official also noted, however, that the current political trading climate with the US, its top commercial partner, are causing hefty strain, and questioned the legality of Section 232 tariffs on imported steel and aluminium that the US has justified on national security grounds. 

“The 232 tariffs introduced by the United States are illegal under WTO and NAFTA rules. They are protectionism, pure and simple. They are not a response to unfair actions by other countries that put American industry at a disadvantage,” she added. 

Canada and Mexico have both announced responsive measures to the Section 232 steel and aluminium tariffs, planning to impose duties on a host of US-made products. Various other countries or country groups have indicated plans to do the same: for example, the EU’s planned “re-balancing measures” on nearly €3 billion worth of US goods are due to take effect this Friday. 

Pompeo: NAFTA deals possible within weeks 

Meanwhile, the US’ top diplomat said this week that a resolution to the NAFTA discussions could be imminent, without explaining how the three parties might overcome entrenched disagreements on topics such as automobile rules of origin, a proposed “sunset clause” that would require parties to approve NAFTA’s continuation every five years or see it expire, or differences on how to treat public procurement market access. 

“On NAFTA and Mexico, the President’s working hard. I am confident that we will get deals, deals that will be good for Mexico, a deal that will be good for Canada, and deals that will be wonderful for American workers,” said US Secretary of State Mike Pompeo during a speech in Detroit, Michigan, on Monday 18 June. 

“A lot changed in the 24 years since NAFTA was first put in place, and our goal is to achieve an outcome that rebalances that situation. We’re going to level the playing field for the American automotive industry and other sectors, incentivising manufacturing here and not there,” he added, suggesting that deals could be announced “in the coming weeks.” 

Pompeo’s remarks were otherwise scant on details, besides highlighting further the importance of automobile trade within the context of NAFTA. While he referred to deals in plural, he did not specify whether the US is seriously considering separate agreements with its two NAFTA partners. 

Political, electoral climates 

The continued uncertainty over the fate and structure of NAFTA has drawn intense scrutiny, given what it could mean for the business and investment climate as producers across sectors attempt to make long-term plans. 

Meanwhile, a proposed Section 232 investigation on imported automobiles has also drawn criticism for its potential to strain trade ties further, both among the NAFTA parties and with the US’ other commercial partners. While the US Commerce Department has only just launched the investigation, kicking it off in late May, the prospect of further global tariffs has raised the heckles of both other national governments as well as several US industry players. 

“If this proposal is carried out, it would deal a staggering blow to the very industry it purports to protect and would threaten to ignite a global trade war,” said Thomas J. Donohue, US Chamber of Commerce President and CEO, in a statement last month. 

“The administration has already signalled its true objective is to leverage this tariff threat in trade negotiations with Mexico, Canada, Japan, the European Union, and South Korea. These allies provide nearly all US auto imports and are among America’s closest partners,” Donohue added. 

The Chamber of Commerce is a massive business coalition headquartered in Washington and with regional offices across the US, with its members numbering over three million companies. 

Other outstanding trade questions that may affect the political climate, even if outside the formal ambit of the NAFTA negotiations, include a long-running row between the US and Canada over the former’s duties on imported softwood lumber and the lack of a new agreement to govern softwood lumber trade. Canada has filed legal cases both under existing NAFTA dispute settlement rules as well as under the World Trade Organization. (See Bridges Weekly, 9 November 2017 and 7 December 2017

Questions over the electoral climate also loom over the talks. While Mexico’s presidential election is set for 1 July, the inauguration of Enrique Peña Nieto’s successor will take place several months later, on 1 December. What approach Peña Nieto’s government may take towards the NAFTA talks during this months-long “lame duck” period remains unclear, and the top contender for the Mexican presidency, Andrés Manuel López Obrador, has indicated that he has his own priorities that he would like to see addressed in a NAFTA reboot. (See Bridges Weekly, 12 April 2018

In addition, any completed NAFTA deal will likely be ratified by the next US Congress, rather than the one currently in session, given the statutory timeframes for publication, comment, signature, and ratification set out under current US trade law. The makeup of that next Congress, which takes office in late January 2019, will not be known until early November after the congressional midterm elections. 

ICTSD reporting; “Renegociaciones sobre el TLCAN se podrían reanudar en julio: Guajardo,” 24 HORAS, 18 June 2018; “NAFTA talks to continue in tense atmosphere, as US also prepares new tariffs for China,” CNBC, 14 June 2018.

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