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Fifth Round of the NAFTA Renegotiation Ends in Deadlock Over U.S. Demands

Posted November 22, 2017

The fifth round of discussions to modernize the North American Free Trade Agreement ended yesterday with negotiators in Mexico City making only limited progress over the past five days on a number of low profile technical files without resolving any of the contentious hot-button issues such as dairy, automotive content, dispute panels, and a sunset clause.

A brief trilateral statement reported no substantive developments, aside from an agreement reached previously allowing more time between rounds in order to give negotiators the ability to thoroughly analyze all the proposals that have been tabled so far and to conduct the appropriate domestic consultations. A revised NAFTA was originally hoped to be reached by the end of this year, but the talks have been pushed back until March, as negotiators work on bridging the divide on rules of origin and other crucial issues.

U.S. Trade Representative Robert Lighthizer wasted no time attacking his Canadian and Mexican counterparts at the end of the round, saying “thus far, we have seen no evidence that Canada or Mexico are willing to seriously engage on provisions that will lead to a re-balanced agreement” and warning that “absent re-balancing, we will not reach a satisfactory result.”

In discussions on automotive rules of origin, government procurement and the five-year sunset review, during the latest round Canada repeatedly challenged the Trump administration’s highly contentious proposals with its own data, while asking for explanations of the rationale behind the need for change.

The USTR’s statement acknowledged that some progress had been made to modernize NAFTA in the latest round, but expressed lingering concern “about the lack of headway.” Lighthizer said he hoped that at an upcoming meeting in Washington “our partners will come to the table in a serious way so we can see meaningful progress before the end of the year.”

Back in Ottawa, Foreign Affairs Minister Chrystia Freeland defended Canada’s negotiating stance in the face of U.S. complaints that it is not offering any counter proposals. Canada always negotiates in good faith, but there are some “proposals that we simply cannot agree to,” such as the U.S. plan to dramatically revamp the auto rules of origin, Freeland said.

“We really feel that a fact-based approach is the way to get a good result,” Freeland said. “One of the things that we tried to do in this round is flesh out those proposals and say, ‘It seems to us that if this were to happen the net result would be negative for both of our countries.’ [And then ask the U.S. side,] ‘Do you agree with our facts, or do you disagree with our facts?’”

In Mexico City, a senior U.S. official bristled at the suggestion that the Trump administration had not done its homework on how its proposed changes to NAFTA auto rules would affect North American auto production and jobs.

“We have looked at how those rules are structured. How they’ve operated. How the content or makeup of autos has changed over the years since the NAFTA first went into effect. And what flexibility or options we have to change those rules going forward. So I think we’ve done the analysis we need to do to make a rule of origin proposal that takes all of that into account,” the official said.

For reasons most economists think are ridiculous, the Trump administration has made reducing its trade deficit with Canada and Mexico the main objective of  “modernizing” NAFTA, so a failure of the participants to agree on the auto sector proposal could threaten the trade pact as a whole. It should be noted that the automotive sector accounted for $63.7 billion of the $83.3 billion trade deficit that the U.S. had with Canada and Mexico combined.

Negotiating teams from the three countries are scheduled to meet again in private next month in Washington, D.C. to continue hashing out various technical issues, before a high-stakes and politically fraught Round 6 kicks off in Montreal on January 23. Speaking to reporters at the conclusion of the talks, a senior U.S. official said “there’s a good argument that we are on schedule” and that meeting the March deadline, “is not out of the question at this point.”