November 2017

By Daniel P. Erikson and Gabriella Ippolito

As part of our renewed focus on the Western Hemisphere, the Blue Star Brief is pleased to introduce “Spotlight on NAFTA,” a feature that will track what is occurring behind the headlines as the United States, Canada, and Mexico try to complete negotiations by the end of 2017.

The North American Free Trade Agreement (NAFTA) was in the cross-hairs throughout the 2016 U.S. presidential campaign. In the first nine months of the Trump administration, the three countries have grappled with whether to amend, renegotiate, or terminate the world’s largest free trade area linking 444 million people producing $17 trillion in goods and services.

What is happening?

A fourth round of negotiations recently took place in Washington, DC, wrapping up on October 17, 2017. The next negotiating session will take place in Mexico City from November 17-21. This fourth round was extended by two days and the fifth round was pushed back by two weeks so as to give negotiators time to consider the existing proposals. The countries have officially stated that negotiations will be scheduled into the first quarter of 2018 but that they still intend to complete them before the Mexican presidential election in July 2018. However, the extended deadline already signals the failure of one of the principal goals of the aggressive original timeline, which was to ensure that the NAFTA negotiations did not become ensnared in Mexico’s contentious election. Instead, the slippage dramatically increases the likelihood that the parties will fail to reach agreement.

After the fourth round was completed, negotiators said that the three countries had completed the chapter on competition and made progress on other sections such as customs and trade facilitation, digital trade, and good regulatory practices. New formal proposals by the United States, such as the five-year sunset clause, were non-starters for Mexico and Canada.

What are people saying?

  • On October 11 in his Oval Office meeting with Canadian Prime Minister Justin Trudeau, President Trump said in reference to the trilateral relations with Canada and Mexico: “Absolutely it’s possible we won’t be able to reach a deal with one or the other, but in the meantime we’ll make a deal with one. I think it’s going to work out well for both countries and Mexico.”
  • On October 17, U.S. Trade Representative Robert Lighthizer said in closing remarks at the fourth round of talks: “NAFTA has resulted in a huge trade deficit for the United States and has cost us tens of thousands of manufacturing jobs. The agreement has become very lopsided and needs to be for us, trade deficits do matter. And we intend to reduce them.” He added: “Frankly, I am surprised and disappointed by the resistance to change from our negotiating partners.”
  • On October 18, Mexican Foreign Minister Luis Videgaray told the Financial Times: “All three countries want to continue the talks, but we have important differences. Are these differences impossible to resolve? We don’t know.”
  • On October 22, Canadian Foreign Minister Chrystia Freeland told CNN: “Canada is kind of like the girl next door. It’s easy to take us for granted. These negotiations are really important not just for Canadians but for Americans.”

What are the sticking points?

  • The U.S. proposed a requirement that 85 percent of the value of an automobile be manufactured in North America to benefit from NAFTA’s zero tariffs, up from 62.5 percent currently. This proposal were criticized by both Mexico and Canada.
  • The U.S. stance on the dispute settlement mechanism, Chapter 19, is deeply opposed by Mexico and Canada.
  • The proposal of the five-year “sunset” clause by the U.S., whereby after five years the agreement would expire automatically unless each party agrees to extend it, is a non-starter.

What’s next?

The next negotiating session will take place in Mexico City November 17-21, 2017. The contentious U.S. proposals are expected to be discussed in greater depth with considerable opposition from Canada and Mexico. NAFTA-watchers will need to buckle their seatbelts, because it will be a bumpy ride ahead.