4th round of NAFTA talks may be de­ci­sive this week

Baltimore Sun Sunday - - NEWS - By Steven Muf­son, Joshua Part­low and Alan Free­man

As nearly 700 of­fi­cials gather this week to dis­cuss over­haul­ing the free-trade agree­ment among the United States, Mex­ico and Canada, par­tic­i­pants and an­a­lysts say the ne­go­ti­a­tions are at an in­creas­ing risk of fail­ure.

Pres­i­dent Don­ald Trump’s Twit­ter bombs and rhetor­i­cal at­tacks on what he calls the “worst deal ever made” and his ad­min­is­tra­tion’s vague and con­fus­ing pro­pos­als have dis­mayed Canada, which is now ex­plor­ing backup op­tions. And they have in­fu­ri­ated Mex­ico ahead of a pres­i­den­tial elec­tion in which vot­ers are de­mand­ing that their lead­ers stand up to the United States.

If of­fi­cials can­not make more progress in re­vis­ing the North Amer­i­can Free Trade Agree­ment this week — the meet­ings in Wash­ing­ton start­ing Wed­nes­day are the fourth of seven sched­uled rounds of ne­go­ti­a­tion — the odds of reach­ing a deal will fall even fur­ther. That would give an open­ing to Trump to exit the agree­ment, a move that could dis­rupt the North Amer­i­can econ­omy.

This could be the de­ci­sive week. Cana­dian Prime Min­is­ter Justin Trudeau flies to Wash­ing­ton on Tues­day for a meet­ing with Trump about the ne­go­ti­a­tions and will then fly to Mex­ico to update Pres­i­dent En­rique Pena Ni­eto. Mean­while, the U.S. ne­go­ti­at­ing team is ex­pected to fi­nally re­veal its hand at the fourth round of talks.

But there are grow­ing risks that the U.S. ne­go­ti­at­ing stance could un­der­es­ti­mate the lim­its of Mex­i­can and Cana­dian lead­ers and in­ad­ver­tently wreck the ac­cord. “We’re be­ing faced with a U.S. set of de­mands that is framed by an ‘Amer­ica first’ per­spec­tive,” Lawrence Her­man, a Toronto trade lawyer, said. “That col­ors the ne­go­ti­a­tions in a very neg­a­tive way.”

Those who be­lieve that Trump wants NAFTA to fail think he may plant poi­son pills so un­palat­able that Mex­ico, which has a pres­i­den­tial elec­tion in July, might with­draw on its own. Oth­ers be­lieve Trump is ful­mi­nat­ing as a bar­gain­ing ploy.

“I think fail­ure is an op­tion,” said C. Fred Berg­sten, a vet­eran trade ex­pert and se­nior fel­low at the Peterson In­sti­tute for In­ter­na­tional Eco­nomics. “It de­pends on whether the Trump peo­ple fol­low through on their rhetoric.”

Al­though Trump has blasted NAFTA, he has not yet sub­mit­ted the for­mal six months’ no­tice re­quired to pull out of the treaty. In­stead, his ad­min­is­tra­tion has floated the idea of a “sun­set clause” that could ter­mi­nate the agree­ment af­ter five years, dis­cour­ag­ing the in­ter­na­tional in­vest­ment NAFTA was meant to pro­mote.

And Trump’s team has talked of wip­ing out bi­lat­eral trade deficits — a move that trade ex­perts call “eco­nomic non­sense” and one that could be a red line for Pena Ni­eto, who is wor­ried about be­ing seen as bow­ing to Trump on un­rea­son­able de­mands.

One source of un­cer­tainty and frus­tra­tion in Canada and Mex­ico is that the Trump ad­min­is­tra­tion has not yet made con­crete pro­pos­als on the most con­tentious is­sues — al­though th­ese may be com­ing at the fourth round in Wash­ing­ton.

They in­clude “rules of ori­gin,” or the per­cent­age of parts that must be made in North Amer­ica for a prod­uct to qual­ify for free­trade sta­tus; lan­guage on how to set­tle dis­putes af­fect­ing for­eign in­vestors; chang­ing Mex­i­can la­bor stan­dards; and Trump’s stated goal of re­duc­ing U.S. bi­lat­eral trade deficits.

Robert Lighthizer, the U.S. trade rep­re­sen­ta­tive, has also blamed some of the prob­lems with the talks on a “whole com­pli­cated process” that re­quires ne­go­tia­tors to clear po­si­tions with mem­bers of Congress and of­fi­cials at other agen­cies.

Even if Trump is able to ham­mer out an agree­ment with Canada and Mex­ico, he will have to take it to Congress for ap­proval.

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