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NAFTA Talks to Extend Into 2018 as Partners Express Frustration

Thursday, October 19, 2017
Sandler, Travis & Rosenberg Trade Report

The U.S., Canada, and Mexico are extending their ongoing NAFTA modernization negotiations in an effort to find ways to resolve disagreements on a number of contentious issues. The next round is now planned for Nov. 17-21 in Mexico City and additional rounds will be scheduled through the first quarter of 2018. The three partner countries had been seeking to conclude an updated agreement by the end of 2017 to avoid political difficulties associated with election cycles that will ramp up early next year.

A trilateral statement said the fourth round, which took place Oct. 11-17 outside of Washington, D.C., saw progress in several negotiating groups, including customs and trade facilitation, digital trade, good regulatory practices, and certain sectoral annexes. Substantially all initial text proposals have now been put forward on nearly 30 agreement chapters.

However, the statement acknowledged that new proposals “have created challenges.” These were primarily offered by the U.S. and include increasing the regional content requirements for automobiles, adding a provision to automatically terminate NAFTA every five years unless it is specifically renewed, significantly revamping the dispute settlement system, making it easier to bring trade remedy cases against seasonal fruits and vegetables, and reducing the amount of U.S. government procurement open to NAFTA partners. These proposals highlight “significant conceptual gaps” among the three parties, the statement said, and the longer intersessional period before the fifth found is designed to give negotiators time to “explore creative ways to bridge these gaps” and ensure that an updated NAFTA “provides a solid framework to create jobs, economic growth and opportunity for the people of North America.”

The three trade ministers, however, were noticeably frustrated with the current status and future prospects of the negotiations. “Frankly, I am surprised and disappointed by the resistance to change from our negotiating partners,” said U.S. Trade Representative Robert Lighthizer in a statement read at the concluding press conference. There has been “some headway” on the objective of updating NAFTA to reflect the modern economy, he said, 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” (e.g., in the Trans-Pacific Partnership negotiations). He suggested this has prevented negotiators from closing chapters on digital trade, telecommunications, anticorruption, and several sectoral annexes.

In addition, Lighthizer said he has seen “no indication” that Canada and Mexico “are willing to make any changes that will result in a rebalancing and a reduction” of the “huge” U.S. trade deficits he said NAFTA had caused. He attributed this position to Canadian and Mexican companies being “reluctant to give up unfair advantage” conferred by NAFTA’s “special preferences,” which has resulted in “many years of one-sided benefits.” He also warned that national manufacturing policies that are “largely dependent on exports to the United States without balance cannot long continue” and that “it is unreasonable to expect that the United States will continue to encourage and guarantee U.S. companies to invest in Mexico and Canada primarily for export to the United States.”

Lighthizer said his fellow trade ministers “must understand” these things and “be reasonable if there is any chance for these negotiations to be successful.” However, Mexico Secretary of Economy Ildefonso Guajardo countered that “we must understand that we all have limits.” Guajardo indicated that Mexico’s priorities include designing trade rules for the modern digital economy rather than “the 20th century economy,” providing certainty for investments, maintaining access for “affordable high-quality food products that meet the highest safety standards,” keeping government procurement open to all NAFTA-area companies, and keeping the trilateral trade relationship updated “by cooperation under the NAFTA umbrella, not by eliminating it completely.” He expressed confidence that negotiators can “find the necessary balances” in these areas and reiterated Mexico’s willingness to “continue at the negotiating table.”

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