NAFTA Ministers Acknowledge Significant Challenges, Extend Timetable to 2018

19 October 2017

Negotiators from Canada, Mexico, and the United States completed their fourth round of negotiations for modernising the North American Free Trade Agreement (NAFTA) on Tuesday 17 October, with ministers announcing that the talks are in a challenging phase and will need to be extended into 2018.

The past week of meetings was held in Arlington, Virginia, a suburb of Washington, from 11-17 October. It began with the confirmation that negotiators had concluded a chapter on competition policy in between the third and fourth rounds, as previously signalled, along with the announcement that the talks would take two days longer than originally announced.

“The United States, Canada, and Mexico have agreed to obligations providing increased procedural fairness in competition law enforcement so that parties are given a reasonable opportunity to defend their interests and ensured of certain rights and transparency under each nation's competition laws,” said US Trade Representative Robert Lighthizer in kicking off the talks.

However, by the end of the latest round, officials from all three parties made clear that both the substance and tone of the talks meant that they would need more time to negotiate.

“Parties have now put forward substantially all initial text proposals.  New proposals have created challenges and ministers discussed the significant conceptual gaps among the Parties. Ministers have called upon all negotiators to explore creative ways to bridge these gaps,” they said in their joint trilateral statement on Tuesday.

Negotiators will reconvene for the fifth round from 17-21 November, giving them more time to address these issues. Mexico City is due to host those meetings.

“It has been no secret to anyone… that this is the round where some of the really hard issues came to the table,” Canadian Foreign Minister Chrystia Freeland said, calling the “candour” from ministers and added time a positive development.

Ministers express frustration, concern

At their closing press conference on Tuesday, ministers from the NAFTA parties openly expressed concern and frustration over some of the developments seen in the past week. Among the areas that are known to be major sticking points are US proposals on revising dispute settlement rules; increasing US content requirements in automobile rules of origin; and a “sunset clause” to end NAFTA after five years unless all parties agree to continue.

“We’ve also seen a series of unconventional proposals in critical areas of the negotiations that make our work much more challenging,” said Freeland in remarks to reporters, after welcoming progress made in areas such as competition policy.

“In rounds three and four, we have seen proposals that would turn back the clock on 23 years of predictability, openness, and collaboration under NAFTA. In some cases, these proposals run counter to WTO rules,” the Canadian official added.

She later cited both automobile rules of origin and dispute settlement as major issues for Ottawa, and reaffirmed Canada’s commitment to a “rules-based international order” as the reason for citing WTO rules in her remarks.

Washington’s proposal on automobile rules of origin, Freeland told reporters, would “severely disrupt these supply chains, make North American producers and manufacturers less competitive relative to imports from outside the region, and put in jeopardy tens of thousands of jobs across North America.”

She also referred to major differences of opinion on NAFTA’s various dispute settlement chapters, which the US aims to revise or do away with. She cited in particular Chapter 19 dispute settlement system on trade remedies, which the US has expressed interest in eliminating. (See Bridges Weekly, 20 July 2017)

“As Prime Minister [Justin] Trudeau and I have said, an effective, transparent, and enforceable dispute settlement mechanism is essential to NAFTA. Just as good fences make good neighbours, good dispute settlement systems make good trading partners,” Freeland continued.

Ildefonso Guajardo Villareal, Mexico’s Economy Secretary, similarly alluded to major differences of opinion regarding the approach to the NAFTA talks, warning that some proposals could undermine the decades-old trading relationships that have defined the North American market.

“We must understand that we all have limits. Despite our current differences, we must ensure that decisions we take today do not come back to haunt us tomorrow,” said Guajardo.

“We undertook this as a win-win-win negotiation, not to be in a lose-lose-lose situation. None of us wants to end this process empty-handed, and there is no reason for that,” the Mexican official continued.

Meanwhile, Lighthizer vocally criticised both Canada and Mexico in his closing remarks, warning that only by being “reasonable” going forward will the talks succeed.

“We, of course, have a US$500 billion trade deficit, so for us, trade deficits do matter, and we intend to reduce them. Frankly, I am surprised and disappointed by the resistance to change from our negotiating partners on both fronts,” said Lighthizer in his closing remarks.

He also criticised his counterparts for a “refusal to accept what is clearly the best text available in spite of the countries having agreed to it in the past,” arguing that in some areas Canada and Mexico have been against language that was previously put forward under the Trans-Pacific Partnership (TPP) negotiations.

“I would have thought by now we could have cleared chapters dealing with digital trade, telecommunications, anti-corruption, and several of the sectoral annexes, for example. As difficult as this has been, we have seen no indication that our partners are willing to make any changes that will result in a rebalancing and a reduction in these huge trade deficits,” the US trade chief continued.

He also repeated claims by the current administration regarding NAFTA being “unbalanced” towards the United States, stating that “I understand that after many years of one-sided benefits, their companies have become reliant on special preferences, and not just comparative advantage. Countries are reluctant to give up unfair advantage.”

Leaders talk trade

Just days before, US President Donald Trump and Canadian Prime Minister Justin Trudeau met in Washington for discussions on an array of policy topics, including the future of the NAFTA talks.

Speaking to reporters on 11 October before their bilateral meeting, Trump did not confirm whether he believes the NAFTA talks will succeed, while promising more clarity at an unspecified date.

“We’ll see what happens. We have a tough negotiation, and it’s something that you will know in the not-too-distant future,” he said. Trump later reiterated his opposition to NAFTA, while noting that should negotiations fail, then the accord will be terminated.

He also confirmed to reporters that he would be willing to take on bilateral trade deals with the US’ NAFTA partners, should the trilateral talks collapse. However, whether the US president has the legal authority to end both NAFTA and its implementing legislation is a growing question in trade circles, and has also been raised by lawmakers in Washington.

Meanwhile, Trudeau also met recently with his Mexican counterpart, President Enrique Peña Nieto, with the two leaders reiterating their shared commitment for a “win-win-win” agreement with benefits for all parties.

“Prime Minister Trudeau and myself will continue to work to reach a beneficial and positive upgrading for the three countries,” said Peña Nieto, according to comments reported by Bloomberg.

ICTSD reporting; “Trudeau and Peña Nieto Pledge Trade Unity as Trump Threatens NAFTA,” BLOOMBERG, 13 October 2017; “Can Congress Block Trump if He Pulls Out of NAFTA?” FOREIGN POLICY, 17 October 2017.

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