U.S. Trade Representative Robert Lighthizer is meeting with Canada’s Chrystia Freeland and Mexico’s Ildefonso Guajardo in NAFTA sessions yesterday and today in Washington. The talks come among what Freeland called an “intense phase” after the ministers’ last session on April 6. Lighthizer is pressing for a quick deal to avoid clashing with a July 1 presidential election in Mexico.
The ministers’ meeting are being closely watched for signs of breakthroughs on some of the key divides. However, no statement or announcement is expected at this time, said a U.S. administration official speaking on condition of anonymity. Mexico Foreign Minister Luis Videgaray is said to be planning to come to Washington to try to break a NAFTA impasse.
“We are very committed to getting a deal, to getting a modernized NAFTA,” Freeland said. “We also think we need to take the time it takes to get a good deal, to get details right on complicated issues. So we’ll see where this weeks talks go,” Freeland said speaking to reporters yesterday in Washington.
Talks have shifted gears to what Guajardo called a permanent round of negotiations as the Trump administration eyes a deal. U.S. President Mike Pence and Ildefonso Guajardo both said a deal could be reached in the coming weeks, though there are signs that there could be a deal that leaves the fine-print to further talks between bureaucrats.
Though trade among the U.S., Canada, and Mexico has tripled since the NAFTA agreement took effect in 1994, President Trump blames the accord for a loss of U.S. manufacturing jobs and for trade deficits. Talks to update NAFTA effectively began last August with a pair of objectives-modernizing an aging agreement for new economies and rewriting it to appease President Trump.
With time running out to get a deal in time for this U.S. Congress to pass it, following are the major sticking points:
The Tariff-Free Auto
For President Trump, NAFTA is mostly about cars. Mexico has emerged as an auto-making powerhouse within NAFTA, sending on average $4.3 billion of parts and $2.6 billion of finished vehicles each month to the United States over the last five years. Under current NAFTA rules at least 62.5 percent of a car need to be soured from the three countries in order for it to be traded tariff-free. U.S. negotiations are said to want to raise that to 75 percent (down from their initial proposal of 85 percent). Canada and Mexico have warned that the U.S. proposals are to much, too fast, and that companies would simply abandon using NAFTA and pay U.S. tariffs, which are relatively low, rather than contort their supply chains.
Mexico’s Fruit and Canada’s Milk
The U.S. seeks the phase-out of Canada’s protectionist system of quotas and tariffs for dairy and poultry, known as supply management, which is something of a sacred cow. Its demise is seen as a political non-starter for Canada
The Airing of Grievances
Two of NAFTA’s provisions for settling fights are under fire. One sets up panels to review complaints that a country is flooding another’s market with an underpriced product. The stakes over these so-called Chapter 19 panels are high. Canadian Prime Minister Justin Trudeau says the panels are “essential. The U.S. wants them gone. U.S. negotiators are also targeting panels, which deal with disagreements between a company and a government.
The Sharing of Work
U.S. administrations have long advanced so-called Buy American policies to shield public-works projects from foreign bidders. Such policies can result in other countries retaliating by blocking U.S. corporations. The U.S. wants to cap the combined value of contracts available to Canadian and Mexican bidders at whatever the value is of contracts those countries award to U.S. companies. Such a formula could benefit the U.S., since its economy and populations dwarf those of its neighbors. The sides are in a standoff on this issue.
The Five-Year Itch
The U.S. wants to add a clause specifying that NAFTA expire in five years unless the three countries agree to extend it. Businesses warn that such a move would kneecap long-term investment by adding too much uncertainty into the mix. However, NAFTA already has an exit clause as any country can quite on six months’ notice.
