Washington Insider: New NAFTA Concerns

U.S. officials involved in NAFTA negotiations are “making proposals on battleground issues that Canada and Mexico would never agree to, intensifying doubts of reaching compromise on their tight timeline,” according to Bloomberg.The details focus on U.S. proposals in several specific areas, including government procurement, textiles and fresh produce—areas “seen by Canadian and Mexican governments as red-line issues with little or no hope of agreement,” officials said.Bloomberg also noted that the “last round of talks that ended Wednesday in Ottawa took on a more negative tone at times compared with previous sessions,” again citing the officials.The group concludes that the U.S. stance “sets up a showdown in the next negotiating session in Washington from Oct. 11-15.” The officials cited expect the U.S. will present contentious proposals on automotive rules of origin - the share of a car that must be made in the three countries to get NAFTA’s tariff-free benefits - and on an overall U.S.-specific content requirement. They expect those will also be essentially impossible for the other countries to accept.However, the U.S. Trade Representative’s office, which is leading the U.S. NAFTA negotiations, has not yet responded to requests for comment.The administration has made cutting the trade deficit as the top-line goal of a NAFTA re-negotiation. Auto manufacturing is the main source of America’s $64 billion goods gap with Mexico. The administration launched the revamp in August by warning that a revised version of the deal that underpins $1.2 trillion of trade annually must have better terms for American workers and industries.The President has repeatedly threatened to pull out of NAFTA, saying in April that he was “psyched” to terminate the deal but reconsidered after Canada and Mexico asked him to renegotiate instead. Commerce Secretary Wilbur Ross reiterated that threat earlier this month.U.S. Trade Representative Robert Lighthizer told reporters last week that “significant progress continues to be made” in areas including competition, state-owned enterprises, digital trade and telecommunications. But he said “there is an enormous amount of work to be done, including on some very difficult and contentious issues.” Also, the goal of reaching a deal this year is "very, very optimistic" and will be "very, very difficult," Lighthizer said. "But there are reasons to do it. So when there are reasons to do it, we have a lot of motivation."The parties are aiming to secure a deal before the political calendar fills up next year with presidential elections in Mexico, congressional mid-terms in the U.S. and provincial votes in Ontario and Quebec.Bloomberg’s report included several fairly specific areas of conflict. On government procurement, for example, Bloomberg reports that the U.S. is proposing to cap its market for contracts at a dollar-for-dollar level with the combined Canada-Mexico market, according to the three officials. That would mean the total value of contracts the Canadians and Mexicans could access, together, couldn’t exceed the total value that U.S. firms could win in those two countries, the officials said.This could effectively leave the two with less access to U.S. procurement than some other countries, Bloomberg concluded.Also, the U.S. wants to essentially open so-called “seasonal products,” such as fruit, to dispute-resolution mechanisms that would be expected to lead to disputes with U.S. growers and possibly tariffs, which could hinder Mexican exports.The officials likened the potential fallout to the case of Boeing Co.’s challenge against Canadian-owned Bombardier Inc., which led to imposition of preliminary duties on Tuesday by the U.S. Commerce Department and will put a chill on the aerospace sector.If one of the three countries were to walk away from talks, a next step would likely be issuing a six-month notice of withdrawal from the pact, though that wouldn’t guarantee an exit. Steps after that get murky - trade powers in the U.S. are divided between the executive branch and the U.S. Congress. An attempted U.S. exit could trigger political and legal battles.Mexico and Canada have said they want a modernized NAFTA and have downplayed administration threats. “As the negotiations move forward, it is important we have the will to table positions that encourage constructive discussions," Mexican Economy Secretary Ildefonso Guajardo told reporters Wednesday.The third round of talks ended with an agreement on a NAFTA chapter related to small- and medium-sized businesses. The duty imposed on Bombardier while talks took place hung over the final day of discussions, with Canadian Foreign Minister Chrystia Freeland calling the U.S. “a protectionist administration” in relation to the issue, Bloomberg said.It is too early to conclude that the talks are in danger or not, given the rhetoric being employed. It is clear that the nature of the integration of the three North American economies is likely to change—but just how and how much remains to be seen. Certainly, the talks should be watched especially closely as they proceed, Washington Insider believes.