U.S. demands make it harder to reach consensus
Dispute resolution, autos and dairy stand as roadblocks to real progress
What we’ve done in some of these areas is ask for a better understanding of those proposals. We really feel a fact-based approach is the way to get a good result.
The fifth round of NAFTA negotiations wrapped up in Mexico City on Tuesday with little progress on major contentious issues, including auto rules of origin, raising the question of whether the three sides can reach an agreement by the March 2018 deadline — if at all — as the U.S. stands by its demands.
Negotiators in Mexico made progress on a variety of technical files, according to The Canadian Press sources, nearly concluding some less-controversial chapters such as digital trade, sanitary measures, telecommunications and customs enforcement.
However, on files like autos, dairy and dispute resolution, the sources cited no real progress.
“There are some areas where more extreme (U.S.) proposals have been put forward. These are proposals we simply cannot agree to,” Foreign Affairs Minister Chrystia Freeland told reporters in Ottawa.
“What we’ve done in some of these areas is ask for a better understanding of those proposals. We really feel a fact-based approach is the way to get a good result ... (We’re asking): ‘Do you agree with our facts, or do you disagree with our facts?”
The office of the United States Trade Representative (USTR) updated its summary of objectives for the NAFTA renegotiation on Friday.
With changes that include increases to auto rules of origin, a new Scotiabank report says the U.S. “has made it even harder for the three NAFTA parties to form a consensus on renegotiation and modernizing the accord by the current deadline of March 30, 2018.”
“The fact that the USTR acknowledges some areas of accord between the parties in no way biases the rest of the negotiations toward an easier conclusion. In fact, the update puts a sharper point on many areas of stark disagreement that will become more difficult to resolve with this revision of the objectives,” Scotiabank vice-president and deputy chief economist Brett House wrote in the report, released Tuesday.
Among the most controversial U.S. demands is the desire to increase the NAFTA content rule for autos to 85 per cent from 62.5, as well as introducing a new countryspecific rule that would require half of the components to be from the U.S. — something both Canada and Mexico have firmly pushed back against, refusing to issue a counter-proposal on the policy during the latest round of negotiations. The revised U.S. objectives strengthened the call for tightened rules of origin, specifically pointing to “incentivizing production in North America as well as specifically in the United States.”
“The new version of this goal underscores the U.S. ‘poison-pill’ demand to tighten U.S. and NAFTA content requirements, in line with Commerce Secretary Ross’ particular focus on vehicles,” the Scotiabank report says.
Dan Ciuriak, fellow-in-residence at the C.D. Howe Institute and head of his own international trade consulting group, said he expects negotiations to drag out, leaving North American investors in “an environment of uncertainty.”
“The idea that this could be done very quickly and that you could solve problems that are unusual in the trade world, dealing with bilateral deficits, was never really going to happen,” Ciurak said. Canada and Mexico pushing the U.S. for more information about the auto rules of origin could mark the start of bringing the negotiations “down to earth,” he added.
Ciuriak said a forthcoming C.D. Howe report focusing on the impact of withdrawing from NAFTA shows that while leaving the pact would not destroy the Canadian economy, “it will leave a significant dent in it.”
Ciuriak, the lead author of the report, said the NAFTA region as a whole would see a real GDP decline of 0.225 per cent. Mexico would suffer the most, with a 1.2-per-cent decline, while Canada would see a 0.54-per-cent decline. The U.S. would see a 0.1 per cent decline.
The next round of NAFTA talks returns to Canada in late January. Politicians will review progress made and begin assessing next steps for the February and March rounds, and what happens thereafter if there’s no deal.