NAFTA Talks Off to a Rocky Start

The first round of the North American Free Trade Agreement (NAFTA) meetings began Wednesday, yet as officials from the United States, Canada and Mexico congregated in Washington D.C., they arrived with different ideas of what negotiations should look like.

U.S. Trade Representative Robert Lighthizer said that the U.S. will be focused on reducing the trade deficit by importing less from its neighbors and boosting exports, increasing access to Canadian market for U.S. dairy, wine, and grain, and formulating a stricter system to identify where items come from.

Canada has its sights elsewhere. With hopes to make the pact “more progressive,” the government is looking to strengthen labor safeguards and environmental protections. Ottawa also wants to create new provisions on gender and indigenous rights.

Meanwhile, Mexico has not taken a clear stance. “In my view, Mexico is really reacting to an agenda that is driven by the U.S.,” says Hugo Perezcano Diaz, the former head of international trade for the Ministry of Economy in the Mexican government. “I have not really seen Mexico come forward with an agenda of its own.”

However, both Mexico and Canada have stated that they will not undo what is already in NAFTA, but are willing and optimistic about moving forward and improving what is already there.

So far, not so good, however.

The meetings began Wednesday morning with a dispute over chapter 19, which says that trade disputes are submitted to six expert panels, two from each of the three countries. The panels have the power to sustain or overturn tariffs.

However, the U.S. is pushing to remove the dispute-resolution panels.

“The general principle is that there should be no compromise,” says Dan Ciuriak, senior fellow at the Centre for International Governance Innovation and former chief economist at Canada’s department of Foreign Affairs.

The Trump administration opposes the panels, even though they must rule according to U.S. law. “It’s really a question of whether U.S. law would apply correctly,” Ciuriak says.

But the removal of chapter 19 is a red flag for Canada, which agrees with the economists and trade experts who say that the removal of the panels would be extremely problematic for supply chains that are positioned along the border. It would also create uncertainty in the market — a direct cost for businesses and the economy.

“If there are certain positions where the U.S. is not willing to move, we have to come to a place where we have to call Trump’s bluff and if he wants to walk away from NAFTA, well, so be it,” says Perezcano Diaz, the former Mexican trade official. “In Mexico nobody really wants that scenario but people are conscious that it may happen.”

In the past 23 years of NAFTA’s existence, trade among Mexico, the U.S. and Canada has tripled, according to the BBC. But Trump has criticized NAFTA for killing jobs and causing the trade deficit with Mexico.

It is unlikely that Mexico and Canada will agree to most of Trump’s more radical proposals. Canada even said that the removal of chapter 19 would be a deal breaker.

But an impasse would only renew the possibility of Trump withdrawing from the pact, which will leave all three countries in a worse position. To add even more pressure to the situation, the countries aim to finish the deal before both the U.S. midterm elections in 2018 and the Mexican presidential elections in July 2018.

Trump’s negotiations are staying faithful to the president’s “America First” outlook and endorsing his “Buy American” campaign. However, the summary of objectives, a document that outlines the U.S. position, for the NAFTA renegotiation leaves room for hope.

While the preamble of the summary is heavy with America First jargon, “the rest of the document reads like a standard trade negotiation,” Ciuriak says. “When trade commentators saw the document there was a sigh of relief that we are dealing with business as usual.”

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