Mexican-U.S. team preparing text for two-way trade deal without Canada
Prolonging process seen to carry risks as dairy, dispute resolution remain hurdles
A U.S.-Mexican team is actively drafting a text of their bilateral trade deal that can be released in 10 days, Mexico confirmed Thursday, amid speculation that Canada and the States will not strike their own pact until after the Quebec election Oct. 1.
The two-country text will incorporate placeholders allowing Canada to be slotted in if it agrees to join the accord by the Sept. 30 deadline, said sources briefed on the process.
But it appears increasingly possible that Canada’s talks will continue up to and possibly beyond the end of the month, with key sticking points including the Chapter 19 dispute-resolution system.
Meetings between Foreign Affairs Minister Chrystia Freeland and U.S. Trade Representative Robert Lighthizer ended Thursday without a breakthrough.
Freeland was expected back in Ottawa on Friday, meaning the ministerial-level discussions would resume next week at the earliest.
An agreement then would come on the eve of voting in Quebec, where much of the milk industry is based and major concessions on access to the dairy market could turn into a volatile election issue. The latest poll shows the governing Liberals creeping ahead of the CAQ in a tightly fought race.
The word throughout the U.S. administration and Congress is that Canadian trade negotiators are not willing to make deep dairy compromises until after Oct. 1, said Dan Ujczo, a trade lawyer closely monitoring the talks.
“If we move past today without any significant progress, I think we’re looking at a post-Quebec election scenario,” he said. “If I’m a Canadian negotiator, why would I make significant concessions days before the Quebec election? It doesn’t make sense.”
To achieve the goal of having Mexico’s outgoing president sign a revamped NAFTA before he leaves office Dec. 1, U.S. law says a text of the accord must be released 60 days earlier – by Oct. 1.
Mexican trade officials, who shook hands on a sweeping bilateral pact with the U.S. last month, returned to Washington last week, and with their American counterparts have been turning their handshake agreement into a detailed text.
“We are currently working on the legal review of those texts,” said a Mexican official Thursday, asking not to be named. “Little or no change is expected as a result of the negotiation between the U.S. and Canada.”
While it’s still hoped Canada will be in the text made public in 10 days, one with just Mexico will definitely be ready, said Chris Sands, head of the Center for Canadian Studies at Johns Hopkins University.
Added Ujczo: “The U.S. will go full steam ahead with the U.S.Mexico deal, no question about it. The text will be ready.”
Nothing prevents Canada from being added into the agreement after Oct. 1, but prolonging the process does carry risks. The steel and aluminum tariffs imposed by the U.S. would likely remain in place, along with the threat of devastating automobile levies. And it’s possible the U.S. could give notice it was pulling out of NAFTA at the same time it released wording of the Mexico deal, said Sands.
What’s more, as the American trade war with China heats up, attention to the Canadian question by the White House and Congress may well wane, he said.
The Mexico-U.S. agreement includes some contentious elements, like extending patent protection for certain drugs and raising the value of goods that individuals can import duty free, but analysts say Canada is likely to endorse those provisions by next week.
That leaves a few, hard-fought bilateral issues between the States and Canada, including the dairy question and the U.S. demand to kill Chapter 19, the NAFTA system for resolving disputes over antidumping and anti-subsidy duties.
“My understanding is the U.S. has not moved off any of its demands,” said Ujczo. “Canada has been negotiating in good faith and putting creative solutions on the table, but the U.S. has yet to bite.”
He said Lighthizer and colleagues are “infuriated” by what they see as the hypocrisy of Canada defending dairy supply management while preaching the virtues of free trade.
Sources say Canada has offered some additional access to the dairy market beyond the quota that now allows the U.S. to export about $500 million in milk products duty free to Canada yearly.
A greater sticking point may be the Chapter 19 dispute resolution.
Canadian negotiators see preserving the NAFTA trade panels partly as a matter of principle, an emblem of the rules-based international trading system which Freeland is set to champion at a meeting of the World Trade Organization in Ottawa next month.
Lighthizer has long criticized such international bodies as undermining American autonomy.
“What’s at stake here now with Chapter 19 is essentially national sovereignty versus international norms,” said Washington-based consultant and trade expert Eric Miller.
“So it’s a question of who’s going to blink first.”