NAFTA Ministers Ramp Up Efforts to Clinch Deal Within Weeks
The North American Free Trade Agreement (NAFTA) members have undertaken a series of high-level meetings over the past week, in a bid to accelerate and finalise talks to update the 24-year-old trade accord that governs commerce between Canada, Mexico, and the US.
With critical political deadlines approaching, officials have provided varying estimates of when a draft deal might be ready, with some suggesting that one could be wrapped up within days, while others hint that the talks could continue into June. Ministers and other high-level negotiators were meeting in Washington as recently as Tuesday to bridge outstanding gaps in the talks.
The negotiations to update NAFTA began less than a year ago. While the talks had initially progressed quickly, they later slowed as the three parties started to address some of the more politically and technically challenging negotiating areas, leaving unclear when and whether a new deal may emerge.
Recent statements from high-level government officials and key stakeholders indicate that the negotiations are now gaining momentum. For example, Mexican leaders, policymakers, and private sector representatives have lately expressed hope for a successful outcome soon.
“We fully trust and we have optimism as well that we’re going to be concluding the renegotiation, modernisation of the North American Free Trade Agreement with North America, as I have said, ensuring benefits for all its partners,” said Mexican President Enrique Peña Nieto on Sunday during an event in Hanover, Germany, according to comments reported by Reuters.
Commenting on the Mexican Central Bank’s policy scenarios, Alejandro Díaz de León-Carillo, the bank’s governor, told CNBC that the “baseline scenario” assumes “that there will be a version of NAFTA.” Meanwhile, Canada’s Foreign Affairs Minister Chrystia Freeland described the talks as “energetic and productive,” but warned that automotive industry remains a crucial sticking point as negotiators enter the home stretch.
The round-the-clock negotiating schedule comes amid challenging political schedules facing the individual NAFTA parties. For example, the US midterms are due to take place in November, while the Mexican general election is in early July.
Furthermore, under current US trade legislation, the executive branch must give Congress a 90-day notice before agreeing on any new trade deal, among a series of other time-bound deadlines. To do so while the current Congress is in session means that a deal, at least in principle, would need to be confirmed within a matter of weeks.
With talks still underway, parties have yet to announce the resolution of several issues, including automotive rules of origin, investor-state dispute settlement, trade remedies, provisions related to public procurement, and certain agricultural sensitivities, among others. (See Bridges Weekly, 12 April 2018)
Reports have suggested, however, that progress in the challenging field of automobile rules of origin has begun to emerge. The US’ original position had been treated by its NAFTA partners as controversial, with the three parties debating how to structure content requirements that would allow autos to receive preferential treatment under the accord.
While the US had pushed for regional content requirements, for example, to increase to 85 percent, reports suggest the thresholds being considered are now somewhere between 70-75 percent, depending on the value of the input involved and other factors. The timing for these and other changes are also being considered, given the need to provide business certainty and time for transition.
Migration debate, CPTPP ratification in the background
On Monday, US President Donald Trump publicly suggested that the NAFTA talks should also resolve other bilateral policy issues, namely migration from Mexico to the United States – a suggestion which drew a prompt response from Mexico City officials, who argued against addressing the issue in this context.
“Mexico, whose laws on immigration are very tough, must stop people from going through Mexico and into the US,” Trump said on social media site Twitter on 23 April. “We may make this a condition of the new NAFTA Agreement.”
Luis Videgaray Caso, Mexican Foreign Secretary, said on Twitter that Mexican immigration policy is a subject that his country decides “in a sovereign manner” and that cooperation with Washington on the subject must benefit Mexico as well. “It would be unacceptable to condition the renegotiation of NAFTA on migration issues that are outside this framework for cooperation.”
In March, the Trump administration also suggested that Canada and Mexico could win permanent exemptions to steel and aluminium tariffs, which could depend partly on the advances seen in NAFTA. Canada and Mexico are among a group of countries who have an exemption in place until at least 1 May, pending further discussions with the US to find “alternative” ways to address the alleged national security concerns that Washington says come from an influx of these imported metals. (See Bridges Weekly, 29 March 2018)
Meanwhile, Mexico and Canada are working to advance the ratification of an 11-country regional trade deal. The accord is known as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), and was signed last month. The original version of the deal had included the US, but Washington later withdrew under the new administration.
Mexico’s Senate ratified the CPTPP on Tuesday, and the country’s Economy Secretariat noted that the move makes Mexico the first of the coalition’s 11 countries to approve the deal. The CPTPP is set to reshape the rules of the road for Pacific regional trade, creating one of the largest free trade blocs in the world. While US officials have floated the idea of asking to re-join the accord, Trump has lately clarified that he does not plan to pursue this approach. (See Bridges Weekly, 19 April 2018)
ICTSD reporting; “Mexican president says optimistic about reworking NAFTA trade deal,” REUTERS, 22 April 2018; “Mexico fully expects to reach a consensus on NAFTA trade deal,” CNBC, 23 April 2018; “Mexico seeks flexibility for new NAFTA deal as ministers meet,” REUTERS, 24 April 2018; “NAFTA Negotiations Resume In Washington, D.C.; Auto Industry Remains In Dispute,” BAYSTREET, 24 April 2018; “Trump says may tie Mexican immigration control to NAFTA,” REUTERS, 23 April 2018; “NAFTA deal could be done as early as this week: sources,” THE CANADIAN PRESS, 24 April 2018.