U.S. softening on auto rules of origin sparks optimism for NAFTA negotiations
The United States’ apparent willingness to soften its contentious proposal on automotive rules of origin has brought optimism to NAFTA talks, but obstacles still remain before a deal can be reached.
U.S. Trade Representative (USTR) Robert Lighthizer told lawmakers in Washington on Wednesday that the U.S., Canada and Mexico were making progress on automotive rules of origin negotiations, which had previously been at a standstill due largely to a controversial 50-per-cent U.S. content requirement proposal made by the Americans.
“The United States had a proposal, Canada had a proposal and Mexico has been engaged on this issue. I think we are in a position where we are finally starting to converge,” Lighthizer told members of the House Committee on Ways and Means.
He added that he had also been working with the U.S. auto industry in Detroit to work on details of the agreement.
“We’re in a pretty good place.” Prime Minister Justin Trudeau said Wednesday he believes a NAFTA deal is “eminently possible” and that “there seems to be a certain momentum around the table now that I certainly take as positive.”
The comments from Lighthizer come the day after Canada’s ambassador to the U.S. David MacNaughton told reporters in Washington that recent discussions between the Canada, the U.S. and Mexico have been “more positive” than he’s seen before. He also said the U.S. brought forward “interesting ideas” regarding automotive rules of origin that would allow it to achieve the goal of safeguarding auto production without a strict 50-per-cent American-made content requirement — something Canada and Mexico are adamantly against.
“I think it’s a potential turning point because it’s the first time we’re seeing that kind of flexibility on the five poison pills (proposals brought forward by the U.S.),” said Brett House, the deputy chief economist at the Bank of Nova Scotia. However, he noted that it should be considered a modest turning point, as the proposed 50-per-cent U.S. rule of origin “was never really a feasible demand.”
“A lot hinges on whether the four-to-six-week (negotiation timeline) hope from Lighthizer is matched with greater flexibility from the U.S. and potentially a willingness to accept a more modest set of changes than laid out in the USTR’s negotiation objectives from last summer,” House said.
Flavio Volpe, the president of the Automotive Parts Manufacturers’ Association, met with USTR officials two weeks ago in Washington, where he said discussions progressed in a way that left him hopeful that a NAFTA deal could be reached.
“It’s one thing to speak with congressmen, senators and governors, but it ultimately comes down to the administration. For the first time the administration, via the USTR, has been willing to receive groups and individuals over the last month,” he said. “I was hopeful when I left that meeting. We are dealing with people who are interested in a real solution.”
The revelation that NAFTA negotiations are progressing saw the Canadian dollar climb by a full cent to US77.5 cents.
However, some economist and trade experts cautioned that there are still major obstacles that remain in NAFTA negotiations, including the USTR’s five-year “sunset clause” proposal and its desire to water-down the strength of NAFTA’s Chapter 11 dispute resolution panels.
While Lighthizer was largely positive on autos, he reiterated some grievances he has with Canada. He called Canada’s $20 dutyfree limit as “just ridiculous” and something that “has to go up.” He also said that “Canada has Third World intellectual property protection.”
“The news on NAFTA is good, but maybe not that good,” CIBC Capital Markets chief economist Avery Shenfeld said in a note on Wednesday. “Not that there are still some major gaps between the parties, including Canada’s desire to retain dispute resolution panels (needed more than ever given recent U.S. actions against Canada on lumber, paper and pipe) and the U.S.’ much more protectionist stance on government procurement.”
Dan Ciuriak, a senior fellow at the C.D. Howe Institute and an international trade consultant, agreed and said while the flexibility on rules of origin is a sign of progress, “we’re not out off the woods yet on NAFTA.”
“I don’t see a clear landing zone for this negotiation yet,” he said. “While it’s positive to hear that one of these poison pills may have been taken off the table ... we don’t have a resolution on several others. It’s progress, but let’s just say: curb your enthusiasm.”