NAFTA Parties Wrap Up Anti-Corruption Chapter, Acknowledge Continued Divides

1 February 2018

Ministers from the North American Free Trade Agreement (NAFTA) countries said on Monday 29 January that they had essentially wrapped up a chapter on anti-corruption and advanced in various other negotiating areas, while acknowledging that deep divides still remain on the more contentious topics. 

The news came following the sixth round of talks to modernise the accord, which was held in Montreal, Canada, and concluded on 29 January. The NAFTA talks involve Canada, Mexico, and the United States, and formal negotiations to update the trade deal have been underway since last August. 

Ministers did not release a trilateral statement after this round, though they have done so on previous occasions. Instead, they each gave a closing statement to reporters outlining their views on the progress made and the challenges ahead. 

“The road towards the sixth round has not been an easy one. However, reaching this stage of the negotiations allowed us to assess some of the main outcomes of the process in its entirety,” said Mexican Economy Secretary Ildefonso Guajardo Villareal at the closing press conference. 

For example, he noted that Canada’s new ideas on certain difficult topics were important to recognise. “We still have substantial challenges to overcome, yet the progress made so far put us on the right track to create landing zones to conclude this process,” said Guajardo. 

He also told reporters that the talks are “at a much better moment,” referring to progress in various area, particularly those that “aim to modernise NAFTA.” 

For example, he said that the anti-corruption chapter would have provisions that were more ambitious than those seen elsewhere, and suggested that the next negotiating round could see a series of chapters and annexes concluded.

These could include chapters on telecommunications, digital trade, and sanitary and phytosanitary measures, as well as sectoral annexes on chemicals and pharmaceuticals. Customs and trade facilitation are also advancing smoothly, he said, suggesting that the final outcome could go beyond both the WTO’s Trade Facilitation Agreement and the Trans-Pacific Partnership’s (TPP) rules in this area. 

The three parties have also closed a sectoral annex on information and communication technologies, Guajardo said, without going into further detail. 

Canada and Mexico are both members of the TPP, now known as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), which was concluded last week and is due to be signed in March. While the US was a member of the original TPP, it has since withdrawn under the administration of US President Donald Trump. (See Bridges Weekly, 25 January 2018

Guajardo also flagged the substantial interest from a range of stakeholder communities on both the current NAFTA and a future updated version, suggesting that this interest is a positive result from the process. The discussion, he told reporters, is “a necessary debate that should go on even [after] we conclude these negotiations to keep the new NAFTA 2.0 strong in the years ahead.” 

Over the past week, reports have suggested that officials are privately expecting the talks to drag on throughout the year, rather than concluding at the end of March. If so, it would mark the second extension of the NAFTA negotiating timeframe, after ministers confirmed late last year that they would not be ready to clinch a deal before the end of 2017. 

The next round will be from 26 February to 6 March in Mexico City, according to a statement from the Mexican Economy Secretary. The following round will return to Washington, though officials have not yet announced dates for that event. 

Lighthizer, Freeland debate trade deficits, proposals

Lighthizer and Freeland’s respective statements reiterated both past debates over how to interpret the current US-Canada trading relationship, as well as how to approach some of the more contentious areas of the NAFTA negotiations. 

During the press conference, Lighthizer zoned in on the goods trade between the US and Canada, citing Canadian data which showed a goods surplus for the US’ northern neighbour, whether or not energy products are considered.

“Now I ask Canadians because we’re in Canada, is it not fair for us to wonder whether this imbalance could in part be caused by the rules of NAFTA? Would Canada not ask this same question if the situation were reversed? So we need to modernise and we need to rebalance,” said Lighthizer. 

His Canadian counterpart, Foreign Minister Chrystia Freeland, told reporters in Montreal that the latest round had advanced  into detailed discussions on what she termed the US’ “unconventional proposals” from the fourth NAFTA round in October. (See Bridges Weekly, 19 October 2017

Freeland also responded to the trade deficit figures raised by her US counterpart, along with the approach taken by Washington in some negotiating areas. 

“Now, Canada does not consider trade deficits and surpluses to be the ultimate arbiter of whether trade is good or bad, but it is worth noting that in overall trade, including goods and services, Canada had a trade deficit with the United States of nearly US$8 billion in 2016 out of total bilateral trade worth US$634.8 billion. That’s close to balanced, but it’s a small deficit for Canada,” she said. 

She added that data was from the US Bureau of Economic Analysis in the Department of Commerce, and noted that while Canada has a major surplus in energy goods, “those Canadian energy exports are helpful to the American economy and they crucially support US energy security.” 

Lighthizer openly criticised some of Canada’s suggestions in the latest round, which were in response to proposals that the US negotiators put forward in October, such as on rules of origin for automobile production; investor-state dispute settlement (ISDS); and the potential inclusion of a “sunset” clause in an updated NAFTA. 

The US has called for increasing the threshold of both regional content and US-specific content in automobiles in order for those goods to qualify for preferential treatment under NAFTA. It has also asked to eliminate Chapter 11 of the original NAFTA on ISDS, and it has suggested including a “sunset” clause that would require current parties to opt in to continuing with NAFTA every five years. 

“We find that the automobile rules of origin idea that was presented, when analysed, may actually lead to less regional content than we have now and fewer jobs in the United States, Canada, and likely Mexico. So this is the opposite of what we are trying to do,” said Lighthizer, referring to the Canadian ideas put forward in the latest round. 

Freeland, meanwhile, said that Canada’s proposals were “creative ideas we believed could move us forward on some of the unconventional US proposals.” 

“These US proposals are unprecedented and in some ways represent an approach quite different from anything that Canada has encountered before as a trading nation,” she added. Freeland described Canada’s approach on rules of origin as one meant to find a path forward that would attract “new investment to the North American industry, fostering value-added R&D jobs, next-generation autonomous electric cars, and North American steel and aluminium production.” 

Canada has reportedly suggested that the US push for higher content thresholds could be met by counting money spent on inputs such as technologies towards that threshold. Canada has also called for having a “meaningful five-year review process to ensure that NAFTA is working well for all partners and adapting to technological change,” rather than a sunset clause, along with attempting to address ISDS by allowing the US to opt-out of the mechanism while Canada and Mexico would still be subject to it. 

Bilateral tensions come to the fore

The two trade ministers also raised some bilateral irritants that are technically not part of the NAFTA talks, such as US trade remedies on imported softwood lumber, as well as a wide-ranging WTO case filed by Canada in January on various aspects of US trade remedies. (See Bridges Weekly, 18 January 2018

As for softwood lumber, “Canada considers this to be on a separate track from NAFTA,” Freeland said, calling for reaching a negotiated solution to replace the now-expired Softwood Lumber Agreement (SLA). The SLA had governed bilateral trade in the timber for several years and prevented new trade remedies. 

She also rebuffed Lighthizer’s criticism of Canada’s decision to take legal action in response, telling reporters that “there is an easy solution, and that is to return to the negotiating table and to negotiate a settlement on softwood lumber.” 

ICTSD reporting; “Canadian auto plan in doubt after lifting NAFTA talks,” REUTERS, 30 January 2018; “Canadian NAFTA auto rules of origin idea ‘opposite’ of U.S. goals: Lighthizer,” IPOLITICS,” 29 January 2018. 

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