Here’s where NAFTA talks stand after the Montreal round
By Alexander PanettaEconomy Industry Government Manufacturing autos Chapter 11 dairy government manufacturing NAFTA sunset
Future talks are slated for late February in Mexico, then for Washington a month later.
MONTREAL — Here’s a summary of where the NAFTA talks stand after a week-long round in Montreal. The round officially concludes Jan. 29 with meetings between the political ministers leading the negotiations for Canada, Mexico and the US.
Chapters: A chapter on anti-corruption measures was concluded in Montreal. Officials from one country say chapters on telecommunications and digital trade are also more than 90% done.
Autos: The countries have begun a real dialogue. Previous rounds saw acrimony over a U.S. demand that 85% of a car’s parts be North American – a major increase from the current 62.5 per cent requirement – and 50% be American to avoid a tariff. Some in the auto sector called that idea so unworkable it would induce companies to move to Asia and simply pay the import tariff. At this round, Canada proposed a major overhaul: include the value of intellectual property in the calculation, instead of just parts, thereby inflating US numbers while being less disruptive to the industry. The countries are now analyzing how such formulas could work, and the idea has been turned over to political decision-makers in the US and Mexico for their input.
Chapter 11: The Americans want it to be voluntary for countries to participate in the investor-state system, which allows companies to sue countries for discriminatory treatment. The US has suggested it might want to opt out of the system, arguing that it provides assurance for investors outsourcing operations to Mexico. This is not to be confused with the Chapter 19 system, which handles fights over punitive duties, on cases such as softwood lumber – the Americans want that gone entirely. At this round, the Chapter 19 irritant was largely avoided. But the Canadians and Mexicans worked out a proposal on Chapter 11. Their idea would essentially sideline the Americans, creating a new investor-state system that applies only to them. Under the Canadian proposal, backed by Mexico, the US would be prevented from participating in or developing the rules of the new system: “We basically said to them, ‘If you want to opt out that’s fine, you’re gone,”’ one non-American said.
Sunset clause: The US has proposed a clause that would automatically terminate NAFTA every five years, unless renewed by all three countries. The other countries called that unworkable, and a constant chill on investment, akin to placing an automatic-divorce clause in a marriage license. In November, the Mexicans proposed turning this termination clause into a review clause – meaning it would force regular reviews of how the agreement is working, but not threaten automatic termination. They pointed out that NAFTA already has a termination clause, which countries are free to use. The Canadians offered new ideas at this round for how the review clause might work. One suggestion is for NAFTA’s central body, the Free Trade Commission, to produce regular updates on how the agreement is working.
Dairy: The US wants to end, within a decade, Canada’s supply-management system, which limits imports on milk, cheese and poultry, and sets minimum prices. The US also wants to end a special program, known as Class 7, which lets Canadian producers sell certain cheese-making proteins at lower worldwide prices, squeezing out some imports from Americans who have an excess supply. This politically sensitive file, which touches rural ridings especially in central Canada, tends to get pushed down to the wire in trade negotiations. Sources say Canada has not made any counter-offers in Montreal.
Labour: No dramatic developments. In the US, Democrats have just published a letter urging their country to demand far higher labour standards from Mexico. While calling this week’s discussions excellent in general, a Democratic congressman in Montreal, Bill Pascrell, said his enthusiasm has been dampened by a lack of progress on labour, and by what he views as Mexican nonchalance. “I don’t think they get it,” he said. But Mexico says it agrees with higher standards; new labour and environmental chapters in NAFTA; new worker protections; tougher enforcement of existing laws; and combating imports tied to child labour. It disputes the suggestion that it’s avoiding the issue. It also says that NAFTA is an inappropriate place to push for wage guarantees, as wages are a function of myriad domestic economic conditions. Canada has also proposed ending right-to-work laws in the US, which is viewed as a non-starter by the Americans.
Buy American: The US wants limits on how many public contracts can be won by its free-trade neighbours. In October, it proposed limiting Canada and Mexico to one dollar of contracts for every dollar in contracts granted by Canada and Mexico to American companies. The other countries declared this a non-starter. Sources say there was no major engagement on this at the Montreal round.
What’s next: Future talks are slated for late February in Mexico, then for Washington a month later. It’s unclear what happens next. Mexico has a presidential election in July and the next president gets sworn in in December, while the US will have national congressional elections in the fall. US President Donald Trump has a decision to make by about March: start cancelling NAFTA, keep negotiating, or pause until the fall. The new engagement at this round has some insiders hoping he might avoid cancelling the deal. Officials from one country speculated this week that talks might continue through 2018, despite the elections.