NAFTA Closer to Ending

On Tuesday, the Fourth Round of NAFTA negotiations concluded. Leading the U.S. delegation was United States Trade Representative Robert Lighthizer. The Canadian delegation was led by Canadian Foreign Affairs Minister Chrystia Freeland and Mexican Secretary of the Economy, Ildefosno Guajardo led the Mexican delegation. The three ministers issued a joint statement stating that the concluded negotiations were “building on the progress made in prior rounds.”

Then each country’s representative offered their own closing remarks.

Lighthizer argued that the Trump administration has been clear about the second goal of the U.S. reason for renegotiating NAFTA; reducing the trade deficit. Lighthizer stated, “NAFTA has resulted in a huge trade deficit for the United States and has cost us tens of thousands of manufacturing jobs.” He the added:

“Frankly, I am surprised and disappointed by the resistance to change from our negotiating partners on both fronts. We have made some headway on the first objective, but even here we have sometimes seen a refusal to accept what is clearly the best text available in spite of the countries having agreed to it in the past.”

Lighthizer went on to add:

“As difficult as this has been, we have seen no indication that our partners are willing to make any changes that will result in a rebalancing and a reduction in these huge trade deficits. Now I understand that after many years of one-sided benefits, their companies have become reliant on special preferences and not just comparative advantage. Countries are reluctant to give up unfair advantage.”

For her part, Chrystia Freeland labelled the latest round of NAFTA negotiations “troubling”. Freeland added that “unconventional” demands were turning “back the clock on 23 years of predictability and collaboration under NAFTA.” Freeland was referring to the Trump administration insistence in adding a sunset clause to the revised version of NAFTA as well updating the rules of origin, from 62.5% to 85% to include that at least 50% of automobile content comes from the U.S. The 5-year sunset clause is seen by both the Canadian and Mexican governments as a redline for a revised version of NAFTA. A sunset clause would make long-term investment difficult, if not impossible. The rules of origin seek to increase the content of U.S. components in duty-free NAFTA products. Both Canada and México object to this as well.

Freeland also stated that some of the United States’ proposals “run counter to World Trade Organization” rules. México has more leverage in a tit-for-tat tariff war against the United States in that under WTO rules, México can impose higher retaliatory tariffs on both U.S. and Canadian imports in retaliation to U.S. punitive import taxes.

Freeland also pointed out that the inability to satisfactorily conclude the NAFTA renegotiations would jeopardize thousands of jobs in all three countries. She added that the United States has developed a “winner-takes-all” mentality.

The Mexican representative, Ildefonso Guajardo warned the Trump administration about making decisions “that could haunt” the country’s future generations. Guajardo added in his statement that México has its “limits,” signaling that the latest Trump administration demands may have reached a breaking point for México. The U.S. also wants to do away with NAFTA’s mechanism with dealing with disputes in the agreement.

The next round of negotiations is scheduled for November 17, 2017 in Mexico City.

Although this is seen as a pause in the current stalemate as well as the possibility of continuing the negotiations, the date pushed back the timeframe for concluding the renegotiations agreement from this year into next.

México will be embarking on presidential elections making any Mexican concessions politically difficult as presidential contenders would use them to hamstring the PRI party’s candidate. The United States will also go into midterm elections forcing the NAFTA issue aside. This would effectively kill the NAFTA agreement because of its uncertainty and the likelihood that politics will force México or the U.S. to retaliatory steps.

The pause will also force Donald Trump to consider using NAFTA as a tool to re-energize his political base by issuing the six-month exit clause for the agreement.

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