NAFTA Talks Reeling After Aggressive U.S. Proposals

The potential dealbreakers are tempered by the trade agreement's support in Congress.

After laying out the Trump administration’s most aggressive NAFTA demands to date, chief U.S. negotiator John Melle was asked on Sunday how things are progressing. “Fabulous,” he said, smiling and shrugging before entering a negotiating room once more.

The fourth round of negotiations is nearing an end amid rising tensions after the U.S. presented proposals that could be politically unfeasible for Canada and Mexico. U.S. industry and Congress, meanwhile, are mounting a more vocal defense for preserving regional trade ties as they sense the discussions could be in trouble.

U.S. negotiators in recent days put forth a string of bold proposals—on auto rules of origin, a sunset clause, government procurement, and gutting dispute panels seen by the other nations as core to the pact. The moves were long-signaled, as was Canadian and Mexican opposition to them.

The proposals have spurred public warnings from prominent U.S. lawmakers and the private sector about the perils of scuttling a deal that over more than two decades has broken down trade barriers, including tariffs, for industries like manufacturing and agriculture.

Nafta’s fate may now hang on how flexible the U.S. is about its demands heading into the fifth round of talks, scheduled for Mexico City around the first week of November. While the parties had wanted to reach a deal by December, officials familiar with the negotiations say the talks are likely to drag on for months.

Hanging over negotiations are Donald Trump’s regular threats to walk away. One official familiar with the proceedings, who wasn’t authorized to speak publicly, said on Sunday that it seems more likely Trump will give the mandatory six months’ notice required to leave Nafta, though not necessarily end up backing out. Others were less sure.

“He’s unpredictable, so I don’t know,” said Stephen Moore, a senior economic adviser during Trump’s campaign and chief economist at the Heritage Foundation. “I do feel, though, that his bark has been worse than his bite on trade. That doesn’t mean that he’s retreating. But I think we’re going to see a NAFTA 2.0 that will find areas that will give the U.S. even greater benefits, while protecting American workers.”

Mexico has signaled that it won’t negotiate during the six-month window if Trump announces he’ll walk away, and it’s unclear what the next steps would be were that to happen. Congress and others are vowing legal and political fights if the president tries to pull out. If Trump manages to, though, Canada could still fall back on an existing bilateral deal with the U.S.; Mexico has no such previous deal.

Warnings are growing from Congress. Richard Neal of Massachusetts, the top Democrat on the House Ways and Means committee, said he prefers a Nafta renewal to a pullout, which he said Congress would probably block.

If Trump “even suggests that the United States should leave Nafta, to undo that relationship, you would have to go back to Congress. And that would be a much more difficult task for him,” Neal said in a Canadian TV interview with The West Block that aired on Sunday.

The U.S. Chamber of Commerce has issued its own warning. Last week, CEO Tom Donohue visited Mexico City and pledged to fight “like hell” to preserve Nafta. The largest American business lobbying group plans to send an “army” of representatives to Capitol Hill to demonstrate support for the deal, Donohue said.

The Canadians were sounding the alarm to the chamber. Canada’s chief negotiator, Steve Verheul, told stakeholders during an earlier negotiating session that he’d warned the U.S. business group to brace for the possibility of life after Nafta, according to two officials familiar with the meeting. A Canadian government spokesman declined to comment.

Who’s In Charge?

The fourth round of Nafta talks will continue Monday at a Washington-area hotel, before a ministerial-level meeting on Tuesday. People familiar with the proceedings describe essentially a two-track process: legitimate progress being made to modernize the pact in less contentious areas, including topics like regulations and services, with essentially no progress on the most divisive U.S. proposals.

The proceedings also raise questions of which Trump administration official is in charge. U.S. officials, preparing for an Oval Office meeting with Canadian Prime Minister Justin Trudeau last week, added Commerce Secretary Wilbur Ross to their delegation while removing Trade Representative Robert Lighthizer, who officially is the top negotiator, one government official said.

As talks proceeded, U.S. negotiators told their counterparts that Ross played a key role in developing the autos proposal, two officials said. A spokeswoman for Lighthizer declined to comment. A Ross spokesman didn’t immediately respond to a request for comment outside regular business hours.

Mexico’s negotiators said they’re still optimistic a deal can be reached because they expect pushback from the U.S. private sector, according to two people familiar with the talks, who asked not to be identified.

Canadian Foreign Minister Chrystia Freeland has been increasingly downbeat in her public comments on Nafta. Still, she knows first-hand that a walkout doesn’t necessarily kill a deal—last year, she walked out of Canada-EU trade talks saying an agreement looked impossible. A deal was made in the end, though, and the pact entered provisional force last month.

 

Bloomberg News

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