Canada makes last-minute push to close NAFTA gap
When he rode into office promising an overhaul of the North American freetrade Agreement, U.S. President Donald Trump vowed to finish renegotiations within months. His first deadline was December, 2017. Then, March, 2018. Then, late April.
Last week, House of Representatives Speaker Paul Ryan set May 17 as the last possible day for a deal that could be approved by Congress before the end of this year.
On Thursday, Mr. Ryan’s deadline arrived with no conclusion to NAFTA talks in sight. None of the most contentious demands have been resolved at the bargaining table.
What’s more, the United States is threatening to hit Canada and Mexico with steel and aluminum tariffs if there is no agreement by June 1.
Canadian officials are making a last-ditch push for a quick resolution. Justin Trudeau’s chief of staff, Katie Telford, and Brian Clow, head of the Canada-U.S. relations unit in the Prime Minister’s Office, travelled to Washington for talks with the Trump administration. Foreign Affairs Minister Chrystia Freeland also arrived in the U.S. capital to sit down with business and labour leaders.
Mr. Ryan, for his part, gave some reason for hope, saying there could be a week or two worth of wiggle room in the congressional calendar if an agreement were finished in the next few days.
Some officials have floated the possibility of a so-called “skinny” deal, under which Canada and Mexico would agree to stricter rules for auto makers – the Trump administration’s priority in the talks – and a handful of uncontroversial issues, in exchange for the United States leaving all other contentious areas in the pact untouched.
But such a limited agreement would risk looking like a defeat for Mr. Trump and could fail to pass the U.S. Congress – leaving him no choice but to dig in for the long term.
Canadian officials are making a last-ditch push for a quick resolution.
And even as Mr. Trudeau told the Economic Club of New York on Thursday that he was “feeling positive” about a deal, Mexican Economy Minister Ildefonso Guajardo addressed him on Twitter to say it would be “unacceptable” if a renegotiated NAFTA leads to job losses in Mexico – an apparent reference to Trump administration demands for auto-sector rules designed to move car plants to the United States. It all suggests an easy resolution is increasingly remote. Without a quick deal, negotiations could drag on into 2019, leaving the pact that governs more than $1-trillion in continental trade up in the air.
WHY IS THERE A CONGRESSIONAL DEADLINE?
Under U.S. trade law, Congress delegates the ability to negotiate deals to the president, subject to a series of procedural timelines. These include a 180-day period for the U.S. International Trade Commission to review and report on a deal before it is submitted to Congress for approval.
Because of those timelines, Mr. Ryan said he needed to see a deal by May 17 for Congress to have enough time to vote on it by year’s end.
On Thursday, he said it might still be possible to get a deal through Congress by the end of 2018 if the ITC takes less than its allotted 180 days to do a review. Mr. Ryan, however, does not control this part of the process. “Time really is of the essence,” he said.
WHY DOES ANYONE CARE ABOUT THIS DEADLINE?
For one, a new Congress will take office at the start of 2019 and could set out new priorities for trade talks. Incorporating those into NAFTA bargaining, on top of what has already been negotiated, could take even more time.
Also, Mr. Trump would like to conclude talks for political reasons. And businesses in all three countries would like to know what the rules are going to be before they make investments.
WHAT IS DEADLOCKED AT THE BARGAINING TABLE?
Most of the negotiations recently have focused on a U.S. demand that 40 per cent to 45 per cent of the parts in North American-made vehicles come from factories where workers earn at least US$15 to US$17 an hour.
This is designed to push auto jobs away from Mexico, where workers make closer to US$4 an hour. Mexico is fighting this proposal.
Several other contentious U.S. demands are also at an impasse, including:
A Buy American procurement rule that would severely limit the amount of U.S. government contracting that Canadian and Mexican firms could bid on.
A sunset clause that would automatically terminate NAFTA in five years unless all three countries agreed to keep it.
Abolishing the Chapter 19 dispute-resolution system, which Canada has successfully used to challenge U.S. tariffs on softwood lumber.
Abolishing Canada’s protectionist supply management system, which fixes prices for milk, eggs and poultry. Canadian officials are meeting their American counterparts in the coming days to sort out a path forward. Mexican negotiators are expected in Washington early next week, as well.
Mr. Trump could try to bypass Congress and implement a new NAFTA deal by executive order. There is some precedent for changes to the pact – particularly in the rules of origin – that do not have to go through Congress. But making any substantial overhauls without a vote is certain to anger legislators and could lead to a court battle.
The other scenario is for the three countries to simply keep negotiating as they have been before. It could ultimately make for a long, arduous stretch of talks, extending into next year.
ARE THERE OTHER DEADLINES THAT MATTER NOW?
Mr. Trump has threatened to hit Canada and Mexico with tariffs of 25 per cent on steel and 10 per cent on aluminum if there is no deal on NAFTA by June 1.
Also, Mexico holds a presidential election on July 1, with the winner taking office in December. The front-running candidate, Andres Manuel Lopez Obrador, has vowed to put his own negotiating team in place if NAFTA talks are still going on after he takes power.
The other scenario is for the three countries to simply keep negotiating as they have been before.