A NAFTA deal in May? All sides to try, but it won’t be easy

May 7, 2018 - Cabinet-level negotiators from the three NAFTA nations are meeting again in Washington this week to attempt a breakthrough on the trade deal. It won’t be easy.

Several contentious issues remain unresolved after more than eight months of talks between the U.S., Mexico and Canada to renegotiate the North American Free Trade Agreement. Discussions resumed Monday for what U.S. Trade Representative Robert Lighthizer, Mexican Economy Minister Ildefonso Guajardo and Canadian Foreign Affairs Minister Chrystia Freeland hope to be the home stretch of negotiations for a deal this month.

Lighthizer met with Guajardo Monday and is scheduled to meet Freeland Tuesday morning. Despite insisting that he wants to secure a deal in the coming weeks, Lighthizer hasn’t shown signs of softening on proposals that Canada and Mexico see as damaging to their interests. Guajardo and Freeland, meanwhile, have pledged to stand their ground.

“You can’t say to the other side of the table, ‘You give us everything we want, and by the way the clock is ticking, so you only have 24 hours to do it,’” said Carla Hills, the former U.S. Trade Representative who negotiated NAFTA under President George H. W. Bush in the early 1990s. “It just won’t work that way.”

Speaking to reporters after his meeting, Guajardo said any breakthrough will depend on all sides being flexible. “We hope that this week will be highly productive, and that’s why we are here,” he said. “We’ll be here as long as is necessary.” Freeland was initially scheduled to meet Lighthizer Monday, but it was bumped to the next morning.

Lighthizer is pushing to get a NAFTA deal to meet deadlines for the U.S. House and Senate to debate and approve an agreement this year. Waiting until 2019, when a new Congress takes over, “changes the whole way you have to kind of construct the deal,” he said last week.

The U.S. official is fresh off a trip to Beijing, where two days of trade discussions ended with China agreeing to keep on talking, and little else. The U.S. asked China to reduce support for high-tech industries and help cut a trade deficit in goods that reached a record $375 billion last year, according to a document seen by Bloomberg.

Tariff Threats

As it parries with China, the U.S. is also threatening to impose tariffs on steel and aluminum imports from Canada and Mexico by June 1 if they can’t agree to a new NAFTA deal by then. Washington is negotiating tariff exemptions with other allies as well, including the European Union, as part of its strategy to protect domestic metal producers from foreign competition.

The U.S. is pushing to reach a NAFTA deal in principle to start advancing it through Congress, which is understood to mean 95 percent of the deal is agreed to, according to a summary of a Canadian government briefing published online last week by a rail industry group.

“We are really committed to doing whatever it takes to get a good win-win result,” Freeland told reporters during a Saturday conference call. “I am not going to prejudge the outcome of the talks.”

This week’s Nafta ministerial talks are scheduled to run through Monday, Tuesday and probably Wednesday, said a Canadian official familiar with the plans, speaking on condition of anonymity. Freeland and Guajardo have indicated ministerial talks could stretch longer.

Auto Rules

The topic of automobiles is likely to loom large, with Freeland saying ministerial-level talks will focus on that subject. Guajardo said talks Monday focused on autos. The U.S. has pushed for changes to the 24-year-old pact that would boost domestic auto manufacturing. Its proposals include tightening rules of origin, which govern how much regional content a car must have to qualify for NAFTA’s duty-free benefits, and requiring certain portions of a car to be built by people earning higher wages.

At the last round of talks, Mexico was outnumbered by the U.S. and Canada on auto wages, a battlefront that could upend the nation’s industry. Talks grew contentious, according to two people familiar with discussions, although negotiators emerged striking a relatively upbeat public tone.

The head of the Mexican automotive association, which represents companies with factories in Mexico, last week said the latest U.S. proposal is unworkable. He highlighted as problematic the demand for 40 percent of the value of certain cars to be made by workers earning at least $16 an hour. Mexican auto assembly workers generally make far less than that.

These Are Some of the Sticking Points on the Way to a New NAFTA Deal

Freeland said good progress has been made on the auto issues. Then again, Canada’s factory wages are closer to those of the U.S. than to Mexico.

Divides remain on several other issues, including seasonal barriers to agriculture trade, U.S. efforts to open Canada’s dairy industry to foreign competition, government procurement, dispute resolution, and a clause that would terminate NAFTA after five years unless the nations agree to continue it.

Despite the challenges, officials from the three countries have expressed some public optimism. As recently as last week, Juan Carlos Baker, Mexico’s deputy economy minister, said he saw an 80 percent chance for a deal this month. Former Canadian Foreign Affairs Minister John Baird, speaking Monday with BNN Bloomberg television in Canada, said he saw a 50-50 chance at some kind of deal over the next five to 10 days.

Stephen Kho, who spent nine years in a senior role at the U.S. Trade Representative’s office, said the ability to reach a deal in that time is far from certain.

“While you hear generally good vibes, it still wouldn’t be surprising if things fall apart,” said Kho, who’s now a partner at the law firm Akin Gump Strauss Hauer & Feld LLP.

Source: Bloomberg