NAFTA Countries Weigh Timing for Deal "In Principle"

12 April 2018

Negotiators working to update the North American Free Trade Agreement (NAFTA) are looking at whether they could announce an agreement “in principle” within the coming weeks, though various media outlets suggest that this goal will not be reached in time for a high-level regional leaders’ summit this weekend.

Clinching a deal would involve a significant scale-up in negotiating pace, given that only six of the planned 30 chapters of an updated NAFTA were completed at the time of the last round’s conclusion in early March. (See Bridges Weekly, 8 March 2018)

The US had reportedly been pushing to announce such a deal in time for the Summit of the Americas in Peru, set for 13-14 April, but has since reconsidered that timeframe following ministerial-level meetings in Washington last week and continued technical work set for this week.

The upcoming summit will allow top officials from the three NAFTA countries to meet, though US President Donald Trump will be represented by Vice President Mike Pence. The other two NAFTA partners will be represented at leaders’ level, with Canadian Prime Minister Justin Trudeau and Mexican President Enrique Peña Nieto confirmed to attend.

Trump said on Monday that countries are “fairly close” to a deal, according to comments reported by Bloomberg. The US leader has, however, left open the door to withdrawing from the deal if negotiations do not meet his standards. (See Bridges Weekly, 4 May 2017)

Ildefonso Guajardo Villareal, Mexican Economy Secretary, who is leading his country’s work in the negotiations, said there is “a very high probability – 80 percent,” of concluding an agreement “in principle” by the first week of May. In an extensive interview with Mexico’s broadcast network Televisa, Guajardo said that flexibility in the weeks ahead will play a key role in determining the talks’ success or failure.

Commenting on whether the talks could falter, Guajardo said that one “cannot ensure absolutely anything, because there is an unpredictable factor.”

“We are within weeks of knowing if the NAFTA talks close with success,” he added.

Pushing for a deal

The political calendars in the NAFTA countries are placing an additional onus on negotiators to wrap up a modernised accord in the short-term, given that US voters will go to the polls for congressional midterm elections in early November, while Mexico will hold its general election this summer.

The US administration has confirmed that it hopes to see the current Congress vote on the deal, rather than the Congress due to be sworn in this coming January. To meet this timeframe, however, there are set requirements under US Trade Promotion Authority (TPA) that will need to be met. (See Bridges Weekly, 8 March 2018)

TPA, known colloquially as “fast track,” is a law that, among other provisions, gives the US executive the authority to negotiate trade deals. It also enables Congress to endorse or oppose completed trade deals in a straight up-or-down vote, no amendments, subject to certain requirements. Additionally, it sets negotiating objectives for those accords and rules for consultations with Congress and public transparency.

The current legislation, enacted in 2015, has firm timelines for the congressional notification and publication of trade deals before signature and ratification. The law’s formal name is the Bipartisan Congressional Trade Priorities and Accountability Act of 2015.

For example, TPA requires the President to give Congress at least 90 days’ notice before entering into a new trade agreement, and publicly release the text of the renegotiated accord at least 60 days before that same date. There are other deadlines for notifying of any necessary administrative actions to implement the trade deal, along with requirements to make the trade deal text and supporting information public.

Any deal would require the approval of Congress before it can become law – a process that has traditionally taken several months or even years.

In testimony to Congress in mid-March, US Trade Representative Robert Lighthizer said his team of deputies would continue making the NAFTA negotiations a priority, and that his office also plans to “aggressively pursue free trade agreements.” Since then, his office and the Seoul trade ministry have confirmed a deal in principle under separate negotiations to amend the Korea-US Free Trade Agreement (KORUS FTA). (See Bridges Weekly, 29 March 2018)

Regarding NAFTA, “I have urged our trading partners to recognise that time is short if we are to complete a deal in time for consideration by this Congress,” said Lighthizer.

The TPA legislation itself is due to expire later this year, though lawmakers are expected to allow its renewal. The current iteration expires on 1 July and Lighthizer has confirmed that the Trump administration will be looking to extend it for an additional three years. Trump issued a request to do so in mid-March.

With Mexico eyeing elections on 1 July, it is yet unclear how the new Mexican leader would view the NAFTA process. The presidential frontrunner, Andrés Manuel López Obrador, has been a vocal critic of some of the Trump administration’s policy approaches. However, he has told the Bloomberg media outlet that he shares Trump’s views on working to raise wages in Mexico.

Remaining issues

Although officials from the NAFTA countries have reported progress in recent rounds, negotiators will need to craft creative solutions to address some sensitive topics, particularly in contentious areas such as dispute settlement and rules of origin for cars. (See Bridges Weekly, 8 March 2018)

On negotiations for calculating rules of origin for automobile trade, the US is reportedly considering other options for meeting its goals for revised regional and domestic content thresholds. Washington is said to be open to calculating the value of a car in a way that incorporates factors such as higher wages and research and development costs.

Late last year, Washington had proposed upping current regional and domestic content requirements significantly in order for automobiles to benefit from preferential treatment under NAFTA. For example, the US had called for 85 percent of a typical vehicle’s content to be North American-made, up from the current 62.5 percent, with 50 percent from the US.

Another issue is the US’ proposal for adding in a “sunset” clause to NAFTA, which would mean that countries would have to agree periodically to extend the agreement. Currently, countries are considering some sort of review mechanism that is not linked to termination, according to sources cited by Canada’s Business News Network (BNN).

Other issues include government procurement market access among the NAFTA countries, as well as how negotiators will address the US’ requests to eliminate Chapter 19 dispute settlement on trade remedies and Chapter 11 investor-state dispute settlement. Those requests have drawn intense pushback from Canadian and Mexican negotiators, leaving their future unclear.

ICTSD reporting; “Trump Skipping Peru Is Latest Signal Nafta Deal Isn't Imminent,” BLOOMBERG, 10 April 2018; “Guajardo: 80% de probabilidad para acuerdo TLCAN; podría mejorar tipo de cambio,” TELEVISA NEWS, 9 April 2018; “Trump Has an Unlikely Ally on Wages: Mexico’s Leftist Candidate,” BLOOMBERG, 9 April 2018; “Cars, cows, and a half-sunset: Here's how NAFTA 2.0 could look,” BNN, 9 April 2018.

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