4th round of NAFTA talks may be decisive

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 free-trade 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.