NAFTA round one is over — and we’re getting to the trading-threats stage

NAFTA round one is over — and we’re getting to the trading-threats stage

By Peter Clark
August 21, 2017

The first round of the NAFTA re-negotiations is over. You can find the communiqué here. It’s dull pap meant to paper over differences and offer hope for some non-existent momentum.

The negotiations discussed, in a rather general way, how particular issues might be addressed — through conceptual presentations. There is still too much to do in too little time.

What struck me most about this week at the Marriott by the Zoo was what we didn’t see. There were no protesters, no clouds of teargas. There also was no progress, no apparent substance — leading to the very real risks of these talks collapsing, sooner or later.

The resurrection of the Trans-Pacific Partnership should have brought protesters out in droves. Perhaps the presidency of Donald J. Trump is such a target-rich environment for protesters that they have to be choosy about their gigs.

Don’t expect the same relative calm at Mexico City. There will be protesters, likely in force. Negotiators, stakeholders and the press may need to run a gauntlet between their hotels and the venue.

There was no movement last week on the most contentious issues. Consensus is a long way off, if it’s attainable at all.

Canada and Mexico believe their objective is to modernize NAFTA. This means building on NAFTA, bringing in 21st century issues and seeking important overall improvement. Canada’s model free trade agreement would build on CETA more than the TPP.

The U.S. is treating the talks as a re-negotiation – which would eliminate those parts of NAFTA which the U.S. does not like, to rebalance the deal in its favour.

Canada and Mexico want an everybody-wins result, focused on increasing trade and making NAFTA more acceptable to the general population by making it more inclusive and responsive to society’s evolving needs.

U.S Trade Representative Robert Lighthizer’s introductory speech made it clear that the Trump administration is mired in an outdated, mercantilist win-lose strategy. This is likely not saleable, and pushing it too far could jeopardize the livelihoods of tens of millions of American farmers, ranchers and manufacturers on the cutting edge and their workers.

Canada’s proposals on gender, Indigenous peoples and climate change have not been explained in detail. The very idea of including them in a trade agreement is no doubt perplexing to this U.S. team.

If NAFTA 2.0 is to be a model for future free trade agreements, it must be progressive. Canada considers these initiatives to be evolutionary. Washington will see them as revolutionary — and not in the good sense of the word. There is a significant gap to be bridged.

Canada believes that these new progressive issues must be reflected in future agreements in order to make them relevant to the evolving realities of international trade. The Trump administration and its negotiators will need considerable education and enlightenment to accept this.

U.S. demands on NAFTA Chapter 19 and global safeguards are extreme. These were conceptualized last week; there has been no formal engagement, nor have Canada and Mexico embraced this concept.

Trust and respect are essential in trade negotiations. It is difficult to muster trust when the one doing the demanding is not prepared to discuss those demands, or consider trade-offs to achieve them. Asking for clarification is not obstructionist. It’s what negotiations are about. This is a negotiation, after all. Trust will be difficult to develop as long as negotiations are mired in a swamp of uncertainty.

Negotiators will want to get U.S. demands and offers in writing and will be watching carefully for signs of a bait-and-switch. Normally one needs to ensure Congress will buy into the deal. In NAFTA 2.0, POTUS is the wild card. Trust cannot flourish if one is always waiting for the next tweet or eruption from the White House.

Negotiators are trying to combine texts and concepts from all parties so that negotiators will have something to work from in Mexico City. Washington’s proposals reflect its newly re-discovered attachment to the TPP — in some cases TPP plus. Canada and Mexico apparently believe that it’s better to start from the existing NAFTA text. Canada is partial to changes which will reflect CETA.

Negotiations will resume in Mexico City September 1-5. Mexican Secretary of Economy Ildefonso Guajardo Villarreal must travel to China with President Peña Nieto on September 2. This is likely to delay the ministerial meeting until September 6 or 7.

Real engagement cannot begin before the Mexico City round — the texts cannot be ready. Canada and Mexico need to consult stakeholders about specifics and discuss political implications of the U.S. conceptualizations.

This environment is ripe for spreading misinformation and casting blame. President Trump has already tried to tear up NAFTA once. Bad timing. How credible will the next effort be? Maybe he can blame Canada for daring to be different and favouring progress over backsliding.

Canada has been pushing back on unwarranted U.S. demands on dairy and Chapter 19. Attempts to tighten automotive rules of origin will be fought tooth and nail by both Canada and Mexico.

It is said that Lighthizer only talks about NAFTA to the president and to Chairman of the Senate Finance Committee Orrin Hatch. Senator Hatch is key to Congressional approval of the end result.

Data protection of pharmaceutical products is Senator Hatch’s issue. It is an important reason TPP was not approved by Congress. Canada is now at eight years’ data protection. How difficult will it be to move to 12 years? Is it possible at all? This would affect every Canadian, as well as federal and provincial budgets. Making Senator Hatch happy could well be the “go no go” issue for the deal.

The really tough issues have not been discussed in detail yet. But Ambassador Lighthizer’s opening speech set the tone. Canada and Mexico did not much like that tone, and U.S. conceptualizations did not reduce their concerns. If the environment had improved since, there would have been high fives and talk of early harvests.

The talks in Mexico City, followed by a third round in September in Canada, will determine whether or not a deal can be done early in 2018.

I have grave doubts about whether this schedule is realistic. President Trump will end up with several options. He can reduce his ambition to fit a practical timeframe and result, or extend the deadline (very difficult with the impending elections) — or he can announce he intends to terminate NAFTA.

Even announcing the intention to terminate would court serious pushback in the U.S. Lighthizer will be determined to win — but at that stage, what would a win look like?

I doubt that NAFTA 2.0 will be concluded without a confrontation involving someone walking away or threatening termination.

The rest of the world is watching these talks closely. Who knows which country will be the next to be hit with demands for re-negotiation? Korea is already on the list and is trying to get more preparation time.

Successful negotiations reflect a balance of rights and obligations. NAFTA is a good example. Lighthizer is trying to rebalance NAFTA by enhancing U.S. rights and increasing Canadian and Mexican obligations.

Will it work, or is bullying out of fashion in international trade relations? It should be.

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