NAFTA Negotiators Report Progress, Warn of Challenging Road Ahead

5 October 2017

Ministers from Canada, Mexico, and the United States announced last week that they have made steady progress in their latest negotiating round on modernising the North American Free Trade Agreement (NAFTA), and are set to reconvene next week in Washington to continue negotiating.

The 11-15 October round will come just one fortnight after officials wrapped up their third negotiating round in Ottawa, Canada. At that gathering, ministers announced that the three parties have now effectively wrapped up the chapter on small and medium-sized enterprises (SMEs), with just a few items remaining.

They also confirmed that they plan to finish up talks on the competition policy chapter before they meet in Washington.

“Negotiators are now working from consolidated texts in most areas, demonstrating a commitment from all parties to advance discussions in the near term,” said a trilateral statement from the three countries.

They also confirmed that there had been a first exchange of market access offers in public procurement, along with citing progress in various areas, including customs and trade facilitation, digital trade, and good regulatory practices. Ministers did not specify what those chapters entail in detail.

Canadian Foreign Minister Chrystia Freeland also said that discussions were held on her country’s proposal for a chapter on gender and trade, as well as a concept paper on an indigenous people’s chapter – both of which she had announced previously as key areas of interest for Ottawa. (See Bridges Weekly, 14 September 2017)

“These have been a very productive past five days. Our negotiators met across 28 tables and they were working to identify and consolidate common ground,” said Freeland last week.

Officials have previously confirmed that they plan to hold seven negotiating rounds before year’s end, including the ones held to date, with the hopes of wrapping up the talks through this “accelerated timeframe” before 2018.

“Our timelines are very ambitious. Negotiators from all three countries are working at an accelerated pace,” Freeland said. “Our priority is to get to an agreement that is win-win-win. NAFTA is 23 years old. A thorough update was overdue.”

Ministers generally affirmed, however, that the challenging parts of the NAFTA negotiations are yet to come, even with the progress seen in the third round. Officials have noted, for example, that tough areas like rules of origin for major products such as automobiles, and dispute resolution between investors and governments as well as for trade remedies, are likely to take longer to resolve.

“As negotiations move forward, it is important that we have the will to table positions that encourage constructive discussions and programmatic solutions. For the next round in Washington, DC, we will have substantial challenges to overcome,” Mexican Economy Secretary Ildefonso Guajardo Villareal told reporters last week.

Measuring trade benefits

Amid the reports of progress, the public debate over how to quantify NAFTA’s benefits also continued, as all three ministers made references either to competitiveness, trade deficits and surpluses, and reciprocity in their statements to reporters.

US Trade Representative Robert Lighthizer told reporters that slashing the trade deficit remains key for Washington going forward.

“Of course, there is an enormous work still to be done, including some very difficult and contentious issues. We continue to push for ways that will reduce the US trade deficit. We are committed to a substantial renegotiation that reinvigorates US industry and ensures reciprocal market access for American farmers, ranchers, and businesses,” said Lighthizer.

The US trade chief, as well as President Donald Trump, have both said repeatedly that one of the administration’s priorities in trade negotiations will be lowering trade deficits, along with trade enforcement and ensuring a level playing field for American producers.

However, the Canadian foreign minister outlined in her remarks a series of sectors where the United States already has a trade surplus over Canada.

“I cite these statistics not because we believe trade surpluses or deficits are a good measure of the success or failure of a trade deal, but to stress that our trade with the United States is reciprocal, mutually beneficial, and nearly perfectly balanced,” said Freeland.

The Canadian official also held up the EU-Canada Comprehensive Economic and Trade Agreement (CETA), which took provisional effect last week, as an example of the high bar that should be met or surpassed in NAFTA, along with calling for a final deal to include “robust labour standards, environmental protection, and social justice.”

Guajardo similarly commented that competitiveness and freer trade are key for Mexico, telling reporters that his side “will be open to new ideas, but it must be clear that Mexico has the firm decision of increasing our competitiveness and create new business and investment opportunities for our citizens.”

“We don’t want to restrict any possibilities to create wealth and trade,” he said.

Bombardier spat

Bilateral tensions on non-NAFTA topics also flared up last week between the US and Canada, after the US Commerce Department announced on 26 September that it would be issuing orders to collect preliminary countervailing duties on certain Canadian-made planes, with a final determination due in mid-December.

Countervailing duties are meant to counter instances of unfair state aid by foreign governments to their country’s producers.

The US federal agency announced that its preliminary subsidy rates for Bombardier, the Canadian aerospace giant, were found to be 219.63 percent, with the same rate for all other producers. The planes involved can hold between 100 to 150 passengers, though the agency noted that the imports in question have yet to enter the United States.

The news came just one day before the end of the third round, and stoked concerns that it could affect the pace or tone of the talks.

However, Lighthizer said that the issue would not have implications for the NAFTA talks, according to comments reported by the Reuters news agency. Freeland, meanwhile, told reporters that the Commerce Department ruling was “unjust” and “punitive.”

An anti-dumping investigation on Canadian civil aircraft is also underway. Dumping refers to instances where goods are sold abroad at prices below their normal value, or “dumped.”

ICTSD reporting; “U.S. trade envoy says Bombardier dispute with Canada does impact relations,” REUTERS, 27 September 2017; “Negotiators weigh NAFTA progress as Canada fumes over Bombardier,” REUTERS, 27 September 2017.

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