Fifth round of NAFTA talks end in Mexico CIty with little progress

(November 22)The 5th round of NAFTA talks ended on Tuesday that had started on Friday in Mexico City. Even after three months of talks, the parties remain far apart on major issues.

Lack of progress even on minor sections of NAFTA agreement

The negotiations that started Friday ended with negotiators failing to finalize new agreements on even minor sections of the NAFTA pact.

Robert Lighthizer, U.S. Trade Representative, complained that Canada and Mexico are not seriously negotiating on key areas in NAFTA that need to be overhauled. He said that the U.S. will not accept a deal that does not shift trade flows in favor of the U.S.

Lighthizer said: “While we have made progress on some of our efforts to modernize NAFTA, I remain concerned about the lack of headway.”

The U.S. has advanced proposals that neither Canada nor Mexico are willing to accept.

Phil English, a senior adviser at the law firm of Arent Fox in Washington DC said: “They really need to be much further along than this, and I’m concerned that this negotiation is on the verge of stalling out. I’m very concerned that this growing inertia on the big issues is creating an environment that will lead to bad results.”

The three political leaders from each country leading the talks did not take part in this round of talks. They are not expected to attend smaller sessions held between now and the sixth round that is scheduled for Jan.23-28.

An anonymous U.S. government official said that it was still possible to reach a deal by March. In a joint statement the three countries said: “Chief negotiators reaffirmed their commitment to moving forward in all areas of the negotiations, in order to conclude negotiations as soon as possible."

Unresolved issues

The U.S. wants a full sunset clause that would terminate the pact unless all three countries agree on an extension. A revised U.S. list of objectives speaks only of a periodic review of the pact.

On the important issues of auto content there was no movement. Nor was there a solution to the problem of dairy products with Canada insisting that its supply management system be protected. The U.S. also wants to end dispute resolution panels — while Canada just recently submitted U.S. actions imposing duties on some Canadian softwood lumber to the panel arguing they were unfair and a violation of NAFTA.

U.S. demands are already generating tit-for-tat proposals. The U.S. wants to limit foreign access to U.S. government procurement projects resulting in Mexico making a similar proposal with respect to its own projects.

Mexico is planning to put forth a counter-offer to the U.S. content demands in the auto sector. Mexican Economy Minister Ildefenso Guajardo said that the current U.S. proposal was impractical and inefficient for the industry. He said that Mexico was willing to help the U.S. balance its trade with Mexico but only through expansion of exports not limitation on trade between the two countries.

Guajardo said: "It’s a negotiation with a high degree of complexity, but we’re working through it, and at some point we will find spaces for a landing that serves everyone."

Guajardo noted that there had been progress on issues of digital commerce, food safety and the environment. Much of the technical work was already finished he said and that some of those issues could be concluded even between negotiating rounds.

Mexico and Canada have issues with some U.S. proposals

The Canadian Foreign Minister Chrystia Freeland told reporters that there were significant differences in key areas. She said the U.S. position on the sunset clause and the auto proposal were extreme and could not be accepted. Freeland maintained the sunset clause was redundant since any party can withdraw after six months notice. Canadian officials have even warned that there will be no NAFTA deal if the U.S. doesn’t back down on some issues.

The U.S. is demanding that half of the content of all North American-built autos be produced in the U.S. The broader North American content should be increased from 85 percent from 62.5 percent. There is currently no rule in NAFTAgoverning U.S.-only production. The U.S. also wants all steel to originate in North America.

Asked if Canadians should prepare for life without NAFTA, Freeland said Canada's position is to "hope for the best and prepare for the worst and Canada is prepared for every eventuality."

The talks often pit the U.S. against both Mexico and Canada. Steve Verheul, the lead Canadian negotiator said: “Canada and Mexico are working very closely together. We have a lot of issues in common.”

Trump has repeatedly threatened to scrap the deal if the terms don't suit him.

Talks could extend even into 2019

Brett House, an economist at Scotiabank, said that Trump could give notice of withdrawal and not follow through. He could also try to withdraw and face huge resistance in Congress. House thought that there was only a 20 percent chance that there would be a deal by March but that it was much more likely that they would muddle through for the rest of the year and into 2019.

Previously published in Digital Journal