Trade Cases

Tension Ramps Up in NAFTA Negotiations

Written by Sandy Williams

The fifth round of NAFTA negotiations will be Nov. 17-21 in Mexico City, but contentious U.S. proposals are making a compromise between the three trading partners problematic.

The U.S. has proposed a sunset clause, rules of origin tipped in favor of the U.S., restrictions on government procurement and elimination of dispute settlement mechanisms, none of which Canada and Mexico endorse. In fact, very few U.S. industries back the proposals as currently outlined.

“A number of the proposals that the United States has put on the table have little or no support from the U.S. business and agriculture community. It isn’t clear who they’re intended to benefit,” said John Murphy, Senior Vice President for International Policy, U.S. Chamber of Commerce, at a pro-NAFTA event Oct. 31. The proposals would increase costs for business, add to uncertainty and depress investment, he said.

“These proposals threaten the negotiations and NAFTA itself, risking U.S. access to our two largest export markets — with huge economic, political and national security costs for the U.S,” said Murphy, in a recent op-ed for the U.S. Chamber of Commerce.

“However, they are also having a big impact globally,” he added. “The world is watching — and responding by clinching new agreements that reroute trade flows to bypass the United States.”

U.S. Trade Representative Robert Lighthizer has been frustrated with talks and said at the closing of the fourth round of negotiations, “Frankly, I am surprised and disappointed by the resistance to change from our negotiating partners on both fronts.”

Lighthizer added, “We have seen no indication that our partners are willing to make any changes that will result in a rebalancing and a reduction in these huge trade deficits.”

“Canada is not seeking to block a meaningful negotiation. We’re not seeking to be in any way slowing things down,” said Martin Moen, director general of the North American and investment division at Global Affairs and recent senior trade official in the Canadian embassy in Washington. “But there are areas where we just don’t see how an effective, rules-based agreement that’s going to help our three economies can be built with these kinds of problematic approaches to the fundamental issues.”

President Trump reportedly told senators at a meeting last week that calling for a NAFTA withdrawal was a “negotiating tactic” meant to panic Canada and Mexico into concessions. “Trust me” he told the senators.

“The president said there was no way to get the changes we need unless we get out, then have six months to negotiate,” said one GOP senator attending the meeting.

In an interview at Fox News, Trump reiterated his belief that NAFTA should be terminated in order to create a better pact, adding that the U.S. needs to “get back a lot” in a NAFTA 2.0. He also took aim at the World Trade Organization, complaining that “it was set up for the benefit of everybody but us. They have taken advantage of this country like you wouldn’t believe.”

The idea of withdrawing from NAFTA is so abhorrent to some that the possibility of legislative action to protect the agreement was suggested at a recent event hosted by the U.S. Chamber of Commerce. Sen. Pat Roberts (R-KS), chairman of the Senate Agriculture Committee, conceded that legislation was an option, but it was premature to consider it now.

The view that the U.S. economy has not benefited from NAFTA is untrue, said Roberts. “The path that he [Lighthizer] may take, and that of the president, is a path that I think is fraught with a lot of danger. I did mention to the president it’s like Humpty Dumpty: You can’t push him off the wall; putting that back together is very difficult.”

“The same thing is true of foreign policy, by the way,” he added.

The proposal to put a five-year expiration date on the NAFTA agreement is one of the issues meeting heavy resistance. A sunset clause would push countries to “buy on that fifth year thinking it might not be extended,” said Lighthizer, adding that all new trade agreements should have such a clause. Roberts countered that the farm economy needs people to buy now, noting that Mexico has already begun buying wheat from Brazil.

“The rhetoric surrounding NAFTA has made our trading partners very anxious,” said Gordon Stoner, President of the National Wheat Growers Association. Traders are looking to other regions to source wheat such as Argentina, Germany, and Baltic Sea countries, he said.

The insistence on adding a five-year sunset clause to the NAFTA agreement is a barrier to negotiating new bilateral deals, said Stoner, bilateral deals that were promised by Trump but not made. “I can only think people on the other side of the table are looking at the U.S. right now and saying ‘Why bother? They’re going to tear it up in five years, they’re going to say it’s a terrible deal, they’re going to walk away from it — why even invest in the negotiation?'”

The potential dismantling of the NAFTA agreement has a Canadian trade lawyer advising industries to start preparing for the worst.

“The first step is for companies to understand this is very real and that they need to start contingency planning,” said Dan Ujczo, an international trade lawyer at Dickinson-Wright specializing in Canada-U.S. matters.

For a Canadian company with U.S. customers, it may be a good time to speed up any plans to expand or relocate to the United States, he advised. Businesses should be looking at supply chains and how stricter rules of origin in manufacturing would affect business, and at keeping scrupulous records for review by clients and customs officials.

“Keep in mind, NAFTA is not the only thing the Trump administration is doing. It’s targeting Asia,” said Ujczo, referring to the increase in trade cases from the U.S. “The only way the Trump trade strategy works is as a one-two punch: tightening up North America, while also targeting goods coming in from overseas.”

The sixth round of NAFTA negotiations are tentatively scheduled for December in Washington, D.C., but are not likely to be attended by Trade Representative Lighthizer. A possible conflict for the December negotiations is the World Trade Organization ministerial, scheduled for Dec. 10-13 in Buenos Aires, Argentina.

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