By Eric Kulisch, Crain News Service
WASHINGTON — The fifth round of meetings to renegotiate the North American Free Trade Agreement (NAFTA) ended in late November in Mexico City, and it didn't go any better than the ones before that.
Technocrats made progress on many chapters, including digital trade and labor standards. But tensions are increasing over the core U.S. demands, including greater North American and U.S. content in automobiles, and an automatic five-year expiration unless all parties agree to renew.
Mexican and Canadian officials continue to bristle at the U.S. demands, while U.S. Trade Representative Robert Lighthizer blames his counterparts for being inflexible.
“Thus far, we have seen no evidence that Canada or Mexico are willing to seriously engage on provisions that will lead to a rebalanced agreement,” he said in a statement following the Mexico City round. “Absent rebalancing, we will not reach a satisfactory result.”
Negotiators have extended talks into the first quarter of 2018, but the hard-line U.S. positions — primarily aimed at addressing the narrow issue of trade deficits with Mexico — continue to feed fears that the 23-year-old trading bloc could be scuttled.
Trump administration officials may believe leaving NAFTA is better for the U.S. economy than staying in, but it's not clear they've thought through all the knock-on effects, including targeted retaliation by Canada and Mexico if the U.S. exits.
Clearly, we remain in a period of heightened uncertainty. But, one thing does seem certain: There's an equal chance that U.S. President Donald Trump will trigger a withdrawal from NAFTA in the spring or that the parties will decide to pause for the Mexican elections and then resume negotiations without artificial deadlines, said Eric Miller, a well-connected trade consultant and president of Rideau Potomac Strategy Group.
The least likely scenario is that negotiators strike a deal early next year.
All sides are still fully invested in reaching an agreement because NAFTA on balance has been a net positive for all three nations and especially beneficial to industries such as automotive and agriculture.
But prudent companies and governments are already developing contingency plans.
Canada's biggest insurance policy is diversification, with Prime Minister Justin Trudeau heading to China in December to discuss a possible trade alliance and talks on track for the 11 remaining Trans-Pacific Partnership countries — the Trump Administration withdrew the U.S. from the pact — to cement a multilateral trade deal in the spring.
In the case of U.S.-Canada trade, governments and industry should begin thinking about how a resurrected U.S.-Canada free trade agreement would look.
Many legal experts note that the pre-existing U.S.-Canada FTA was suspended when NAFTA went into effect and that bilateral trade relations will automatically default to it. But Mr. Miller, a former policy executive at the Business Council of Canada, said Congress will likely have to vote on renewal and will want to modernize the pact.