NAFTA’s moment of truth may be on horizon

WASHINGTON — A moment of truth approaches in the NAFTA negotiations, with the coming days likely to reveal not only whether an agreement is achievable this year, but also how extensive such an agreement might be.

Even participants at the negotiating table profess to be in suspense about how the U.S. will proceed, should it finally secure its much-coveted deal on autos.

One thing everyone appears to agree on is that if a pact doesn’t happen soon, the prospects of one happening this year dim considerably: U.S. trade czar Robert Lighthizer has pegged the window at one or two weeks.

Autos will be the first order of business when ministers gather Monday in Washington, in an effort to seal an agreement before elections in Mexico and the U.S. Congress slow the process.

Any potential agreement hinges on the ability of Mexico and the U.S. to bridge a key ideological gap: in an effort to steer manufacturing north, the U.S.’s latest demand is that 40 per cent of every car be produced in highwage jurisdictions, with some credit for spending on research.

Mexico is set to deliver a counter-offer.

The great unknown is what happens next, if the U.S. and Mexico make peace on the auto file. Would the U.S. stick to a series of hardline positions, or rush through the rest to wrap everything up?

“That probably is the crux of what happens next,” said one person familiar with the talks.

“One does not know how the next week will play out.”

More than a half-dozen groups have been meeting in recent days to try clearing the non-controversial issues off the table, so the ministers can focus on the hardest political trade-offs.

For example, one group met to discuss customs procedures, but avoided the toughest of all customs issues: online purchases and whether Canada will move its meagre $20 duty-free level closer to the U.S.’s $800 limit.

One person who has closely followed the career and methods of U.S. trade czar Robert Lighthizer believes he is now deploying two textbook tactics in pursuit of a deal.

The first is to create a deadline threat. This person, who asked to remain anonymous, calls the tactic, “the death machine” — where some fearsome fate awaits your counterpart, in the absence of a deal. In this case, steel and aluminum tariffs are set to kick in June 1. The second is to make a bunch of difficult demands, some of which truly matter and some of which are a bluff, a thing to be traded off.

This person suspects Lighthizer’s true goals involve autos, and the dispute-resolution systems under chapters 11 and 19 — and that the other, more expendable, demands involve dairy and duty-free purchases.

“Bob is a good negotiator,” this person said. “He uses the methods of a good negotiator.”

He predicts the biggest confrontation with Canada will involve Chapter 19 — which Lighthizer has long resented as a violation of U.S. sovereignty, but which was a do-or-die issue for Canada in the original NAFTA, allowing companies such as softwood-lumber producers to fight punitive duties.

Other U.S. industries say their causes cannot be ignored.

The pharmaceutical industry wants changes in the way drug prices are set; it wants more transparency and appeal rights, as well as longer patent-style protections on biologics treatments.

The industry has powerful support in the U.S. Congress. Its most famous backer, Sen. Orrin Hatch, leads one of the two key committees that would be responsible for driving through any NAFTA implementing legislation before the current Congress leaves office.

“Intellectual property remains a very high priority for [the administration],” said trade lawyer Brian Pomper, who works on such issues.

“And that’s not dissimilar, to be honest, from lots of other U.S. administrations. You know, IP is not a partisan issue.”