NAFTA agreement possible as auto irritant nearly solved

Prime Minister Justin Trudeau sees a NAFTA deal as “eminently” possible.

WASHINGTON — The US confirmed there has been a breakthrough over a leading irritant in the NAFTA negotiations.

It says the US, Canada and Mexico have converged around common ideas for autos and that those negotiations are in a good place.

Prime Minister Justin Trudeau said he believed a deal is “eminently possible.”

The prime minister made the comments on his way into a caucus meeting upon news of a potential breakthrough over US demands about auto-parts rules. If the Americans back down on their demands for strict American-made content requirements in every car, it would alleviate a source of friction with Canada and Mexico.

The auto impasse hasn’t been completely sorted out, but hints of a compromise along with a general thawing in the tone of talks has injected a renewed sense of optimism in the talks.

“We are there working very, very hard and moving forward on trying to get a good deal,” Trudeau said on his way into a caucus meeting.

“We know that there is a good deal eminently possible for Canada, for the US and for Mexican citizen and workers.”

That being said, serious irritants remain.

US trade czar Robert Lighthizer provided a progress report to Congress, amid a US effort to get a deal within weeks, before the Mexican election.

The blunt-spoken Lighthizer minced no words while listing several of the irritants – he referred specifically to Canadian policies on dairy, culture, wine, and intellectual property. Dispute settlement rules and Buy American issues are also sticking points.

• Of Canada’s intellectual-property rules, Lighthizer said: “Canada has Third World intellectual property protection. Getting them to accept First World is not easy.” In its annual report on the topic, the US lists its main concerns as Canada’s enforcement of counterfeit crimes, and its looser rules for educational exemptions.

• On cultural protections: A lawmaker complained that Canada has abused the exemption on cultural products. He referred to Canada’s blocking the QVC shopping network on cultural grounds. Lighthizer replied: “There’s a legitimate case for some cultural exceptions. But it’s not for this kind of thing. … The cultural exemption is very often just cultural protectionism.”

Trudeau, though, tied culture to bilingualism, “which highlights just how incredibly important it is for us to protect our culture, our languages, our creative sectors, our artists.”

• Online shopping: The US wants more online purchases of American goods. Lighthizer ridiculed the disparity between what the US allows citizens to import duty-free versus what Canada allows – US$800, versus $20 in Canada: “(That’s) just ridiculous… There’s no one that can argue that.”

•  On wine sales, the USis already fighting Canada at the WTO for discriminatory rules on store shelves. Lighthizer said: “It’s just rank protectionism at the provincial level in Canada.”

• Dairy remains a major problem. Lawmaker Devin Nunes, a third-generation dairy farmer, lamented Canada’s limits on imports under supply management. “Canada has been getting away with murder in their dairy industry,” he said. “It’s causing tremendous problems for farmers here in the United States.”

Lighthizer concurred. He said it’s also a problem in other supply-managed sectors, poultry and eggs. He expressed some sympathy for Canada’s challenges in dismantling the system, but he said he hopes to negotiate reforms.

“It’s difficult for them to change their policies in these areas,” Lighthizer said.

“Having said that it’s a very high priority to make changes in the Canadian dairy programs. … I’m hopeful that when we put the final deal together it’s something we will make real headway on.”

Trudeau suggested that will mean a fight: “We’re going to continue to defend supply management, because it works.’

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Lighthizer predicted how the final hours of bargaining will unfold: he said the last issues to be sorted out will include sensitive agricultural areas, such as dairy and wine, as well as intellectual property.

But he said he envisions a new NAFTA with 33 chapters – up from the current 22 – that benefits every country.

He said his primary goal is to steer back some manufacturing from Mexico, through several means: driving up wages in Mexico, new auto rules and weakening the investor-state protections that allow companies to sue foreign governments under Chapter 11.

“The Canadians, to be honest, have a similar objective,” Lighthizer said.

He said he wants guarantees that Mexican workers will get to vote by secret ballot on collective bargaining agreements. On dispute resolution, he was pressed by 103 Republican lawmakers who released a letter demanding that he maintain the investor-state system.

Lighthizer pushed back.

If an American company wants to move a plant from Texas to Mexico, and is frightened that, for example, socialist Andres Manuel Lopez Obrador might win the presidential election and discriminate against foreign companies, why, Lighthizer asked, should US trade policy help provide reassurance?

David MacNaughton, Canada’s top diplomat in Washington is suggesting a deal could be in place by next month, reflecting increasing U.S. interest in finalizing an agreement to avoid putting negotiations on hold for July elections in Mexico, followed by November mid-term elections in the United States.

Trudeau said his government is very aware of the time pressures imposed by both votes and is working hard to get a good deal.

There is significant interest on all sides to signing a deal that helps all three countries and Canada will continue to negotiate towards that, Trudeau says.

“We are working very hard to get to a deal. We know that there is significant interest on all sides in getting to a win-win-win, and we’re going to continue negotiating on that,” he said.