US pressing for quick NAFTA in principle deal

(April 26)Regular negotiations for NAFTA stopped some time ago to be replaced by negotiations between ministers from the US, Mexico and Canada. A handful of high placed politicians are working out a deal behind closed doors.

The process is quite opaque and only a few people are involved. There has been no public input into the process and few if any details are available as to what is happening.

President Trump speaks of the talks as going nicely. In the past Trump has complained about how bad the deal was but as often happens has changed his tune. He has also in the past talked of walking away from the deal if it is not improved to his liking.

Frantic negotiations taking place in Washington

Significantly there is no hint now of spreading the negotiations among the three countries. The recent talks have all been in the United States capital Washington D.C.

Mexican Economy Minister Ildefenso Guajardo and Chrystia Freeland the Canadian Foreign Affairs Minister both attended meetings April 24th at the US Trade Representative's office in Washington. These high level meetings are expected to continue Wednesday and probably Thursday as well according to an anonymous official familiar with the talks. The negotiations come prior to a US trade mission to China, and as Mexican and US elections come closer.

Goal of faster negotiations not entirely clear

The US has spoken about getting a deal "in principle" and then having the technical details worked out later However, Mexico claims it wants a comprehensive agreement. Trump said as well at his meeting with French President Macron: “I could make a deal very quickly, but I’m not sure that’s in the best interest of the United States. We’ll see what happens, but we’re doing very well.” No doubt he hopes to milk more concessions from Mexico and Canada in exchange for not imposing duties on steel and aluminum.

Deal could come soon.

Moises Kalach, the trade head for the Mexican business chamber CCE said in an interview there was a 70 percent chance of a deal being made soon, within the next ten days under optimistic conditions. If there is no deal in coming days, Kalach said it made sense to put negotiations on hold until after the Mexican election in July and the US elections in November. However, this would complicate matters because the likely winner of the Mexican election is a leftist who is opposed to NATO as it is now. He will likely be a tougher negotiator.

However, Kalach points out that negotiating teams have agreed on nine or ten more topic areas that are ready for ministers' review and approval. Work is reportedly finished on telecommunications issues. Of course there is no hint of what the new regulations are. Yet wide differences remain including the rules of origin for vehicles and their components.

The rules governing vehicle origins and parts

Early on, the US promoted increased US content for cars and parts, policies designed at boosting US manufacturing but would cause problems for existing supply chains. Neither Canada nor Mexico would accept the US proposals and they have been since modified.

Friedlander claims that negotiators have been having constructive talks on the subject, and that the talks were moving ahead due to some creative thinking put forward last month by the US.

Friedlander said that although there were other issues to be resolved "we think a win-win-win agreement is possible". As far as Americans, Canadians, and Mexicans are concerned it will be a lose-lose-lose agreement but it will be a win situation for global corporations as their power over governments increase as the deal will create a more favorable framework of operation for those corporations within the three countries.

US is pushing for agreement by early in May

The Trump administration is pushing for a deal by early May. Guajardo said that he thought that there was an 80 percent possibiliity that there would be an agreement by the first week of May before the Mexican elections on July 1. Polls show leftist candidate Andre Obrador is likely to win posing a new set of problems for negotiations.

The present negotiations have covered the most ground since the last official round of negotiations that was back in early March. As well as the automotive issue, agriculture, and dispute settlement mechanisms have also been discussed according to a preliminary agenda seen by Bloomberg.

Guajardo called what is happening as a permanent round of negotiations. Freeland said that the negotiators were working hard late into the night on some of the issues and would be back at it the next day. There should be updates about the negotiations soon but dont expect to learn much if anything about the details of what is happening.

Key issues need to be settled

Some key issues are not even being discussed such as the proportionality issue, as discussed in a Digital Journal article about NAFTA and Canada's priorities: "The proportionality clause is unique to NAFTA: "Proportionality is "unique in all of the world's treaties," writes Richard Heinberg, a noted California energy expert. Cyndee Todgham Cherniak, a Toronto trade lawyer, says the energy chapter is unique for a trade agreement. There are only three free trade agreements in the world that have energy chapters, and the other two don't have NAFTA-like proportionality clauses." Proportionality requires NAFTA members to make available the current share of energy exports to other NAFTA members even when their are energy shortages in that country."

The Canadian priorities often consist of vague generalities whereas the US list was 14 pages and full of specifics. The Council of Canadians has a list of what it thinks should be Canadian concerns. While a few are on the actual list of Canadian priorities many are not:

"Remove Chapter 11.

Put workers and their rights at the heart of a new agreement.

Promote and protect public services.

Include strong provisions to protect the environment and natural resources.

Maintain the right to regulate in the public interest.

Remove the energy chapter and cancel the proportional energy sharing provision.

Remove all references to water.

Maintain and expand the exemption for culture.

Protect Canada’s supply management system.

Protect and enhance Indigenous rights."

This is a dream list while we await what may be a nightmare result. A favorable results would be for Trump, Canada, or Mexico to simply walk away.

Previously published in Digital Journal

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

First round of NAFTA talks ends with no agreement on key issues as yet

(August 24, Washington) American, Canadian and Mexican negotiations began the first talks on renegotiating NAFTA on Friday in Washington. The thorny issue of rules of origin for products in the NAFTA region, services trade, and a commercial dispute system were discussed.

The two key Canadian issues of the proportionality clause and water as a commodity to be traded have not been mentioned so far by the Canadian negotiating team as far as I have seen. U.S. Trade Representative Robert Lighthizer emphasized when the talks opened on Wednesday that the U.S. was seeking major increases in the regional content required for goods to enter the three countries free of tariffs. He also demanded "substantial U.S. content' in the auto sector. This demand will no doubt be strongly resisted by Canada as it could have a negative impact on the Canadian auto manufacturing sector.

Both Canada and Mexico urged the U.S. to be cautious in trying to change the rules so as to avoid disruption in a supply chain that has been developed over the 23 years that NAFTA has been in force. The U.S. auto industry also supports the position of Canada and Mexico. It remains to be seen if this view will prevail against Trump's American First campaign that promises that more will be made in the U.S.

However, Steve Bannon one of the strong nationalists is gone and so far globalists appear to be winning more power in the Trump administration. However, the Trump administration is often not very predictable. On Friday the Mexican Economy Minister Iledefenso Guajardo said that country-specific rules of origin would be impossible to include. On a Mexican radio station he said of the requirement: "In the world of international trade, there is not a single precedent (for that), not in a bilateral or multilateral agreement."

The U.S. has emphasized the trade deficits between the U.S., Canada and Mexico. In the case of Canada this may be in part because of the huge purchase of our natural resources such as oil. In the case of Mexico it may have to do with much export production from Mexico into the U.S. because of lower wages in Mexico. Large U.S. global corporations no doubt will not want this situation radically changed.

On Wednesday and Thursday discussions were held on Canadian and Mexican demands for better access to U.S. government procurement and U.S. public works projects. However, such demands conflict with Trump's touted "Buy American" scheme for spending taxpayer dollars. Canada is also pushing new rules on climate change counter to Trump's agenda which includes reviving the coal industry. Negotiators also discussed on Saturday a dispute resolution system that the U.S. wants to eliminated — but both Canada and Mexico want to maintain the provisions.

The next round of talks are scheduled for Sept. 1-5 in Mexico. After five days of discussion in Washington the three countries said that they want to wrap up negotiations quickly with a far-reaching deal. The three parties released a statement on Sunday saying: “While a great deal of effort and negotiation will be required in the coming months, Canada, Mexico and the United States are committed to an accelerated and comprehensive negotiation process that will upgrade our agreement and establish 21st century standards to the benefit of our citizens.” The talks are to move to Canada late in September and then back to the U.S. in October. There are also to be additional rounds before the end of this year. It appears that the group would like to finish negotiations before Mexico's general election next February and also the November 2018 U.S. mid-term elections.

The negotiations are very much behind closed doors and it remains to be seen if the group releases much if any information on their progress. The recent statement contains nothing about anything being decided. Chad Brown , a senior fellow at the Peterson Institute of International Affairs in Washington said: “Despite good intentions, this Nafta renegotiation may be more akin to a lengthy process of couples therapy than a quick exercise in speed dating." The joint statement does say that the negotiating groups agreed to provide additional text, comments or counter proposals within the next two weeks with the statement saying: “The scope and volume of proposals during the first round of the negotiation reflects a commitment from all three countries to an ambitious outcome and reaffirms the importance of updating the rules governing the world’s largest free trade area." Trump has threatened to scrap the deal if he does not get the changes he wants. Given that his cabinet is filled with Wall Street executives and billionaires Trump may be pressed to change his mind — which he often does.

Some had doubts that the negotiations could be completed by early next year and at the same time result in a substantial revision of NAFTA. John Masswohl, of the Canadian Cattlemen's Association said: "It's hard to imagine how they can do something very substantive and do it very quickly. It's almost as if you can have one or the other. You can have it quick, or you can have it meaningful."

Trump claims he is ready for "massive" renegotiation of NAFTA

(May 13) In an interview with the Economist, US president Donald Trump said that as soon as his trade czar is approved by the Senate he will start a major renegotiation of the North American Free Trade Act NAFTA.

Just today, the US Senate voted in favor of approving Robert Lighthizer as the US Trade Representative. Lighthizer's nomination had been held up by his having to get a legal waiver as he had worked for foreign governments.

Trump said he intends to file a 90-day notice with Congress and would work with it on negotiating priorities. Talks would start with Canada and Mexico later this year. Trum said that the clock started with Lighthizer's nomination. The Trump administration has already said it wanted significant changes in a number of areas that included dairy, auto, and pharmaceuticals as well as the dispute-resolution mechanism. Trump said that he wanted "massive changes" to the system. This may not sit well with either Canada or Mexico who could very well reject Trump's suggested changes and also demand changes of their own. So far, Canadian PM Trudeau has made no comment on the proportionality clause that many critics want changed nor the necessity to ensure that water is not classed as a commodity or service. It should be excluded from the agreement.

It may take ages for a massive renegotiation of NAFTA assuming it is even possible. Negotiations wont start until later this year. Mexico wants a deal by early next year before the Mexican election but most observers think it will take more than a few months to make a major overhaul of NAFTA. Given the problems that appear to be building up for Trump he may be more concerned with other issues than NAFTA, such as surviving as president.

Trump had earlier claimed he was ready to withdraw from NAFTA but after phone calls from Trudeau and the Mexican president urging him to reconsider, he decided not to do so. Trump said:"I have a very good relationship with Justin and a very good relationship with the president of Mexico. It was an amazing thing. They called separately 10 minutes apart. I just put down the phone with the president of Mexico when the prime minister of Canada called. And they both asked almost identical questions: 'We would like to know if it would be possible to negotiate as opposed to a termination.'And I said, 'Yes, it is. Absolutely.' So we did that and we'll start. "

What more likely happened is that alarm bells were going off within the business community and pressure was put on members of the Trump administration to stop Trump from actually withdrawing from NAFTA. Trump's own son-in-law Jared Kushner set up the Trudeau call. Trump may have wanted to take credit for forcing Canada and Mexico into negotiation before his 100 days in office. This is rather ridiculous in that both Canada and Mexico have always expressed their willingness to renegotiate NAFTA. However, Trump's moves being ridiculous are the norm rather than exceptional. However, neither government will step in to spoil Trump's joy in claiming credit for in effect doing nothing except what was planned all along.

Maryscott Greenwood of the Canadian-American Busines Council wrote in an article: "President Trump is eager for some wins. Canada can help provide him with one, while also advancing its own interests. The Canadian government could present the United States with a proposal for aligning a particular set of regulations. This would represent a bilateral victory for what is at the moment a U.S.-only effort to cut regulatory red tape." However, this is a minor issue. Any major overhaul will involve major disputes as well. It remains to be seen if Canada will bring up issues that were very much against Canadian interests in the original NAFTA agreement. Mexico too may want to make substantial change in its own interests. An America First policy may not be agreeable to either Mexico or Canada. There should be public consultation on the issues in all three countries and a transparent negotiation process. Trump has not asked for this but it would seem neither Trudeau or the Mexican president have either.