Canada makes last-minute push to close NAFTA gap

The Globe and Mail (Prairie Edition) - - REPORT ON BUSINESS | SPORTS - ADRIAN MOR­ROW

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.

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