Photographer: John Moore/Getty Images

Nafta Countries Gather With ‘Narrow Path’ to Getting Quick Deal

  • Talks will focus mostly on where countries agree, Canada says
  • Mexico says certain subjects remain elephants in the room

North American trading partners are downplaying expectations for major progress from talks to update the free-trade agreement that resume in Ottawa on Saturday, even as the clock runs down on their goal of getting a quick deal.

Talks to rewrite the 1994 trade accord were spurred in August by U.S. President Donald Trump, who has regularly threatened to withdraw if he can’t wring out better terms for American workers and industries. While complex negotiations for a pact that underpins more than $1.2 trillion in annual trade typically could take years, the countries are pushing to wrap up talks on modernizing the North American Free Trade Agreement by December.

“We are focusing for a start on identifying the areas where we have some agreement,” Canadian Foreign Minister Chrystia Freeland said on Sept. 12, when asked about expectations for the Ottawa talks. “I think the situation is as it was when we left Mexico City” at the last round three weeks ago.

A series of major barriers remain. They include a U.S. push to shrink its $63 billion trade deficit in goods with Mexico and do away with dispute panels favored by Canada; Canada’s drive to add “progressive” elements on gender, environment and labor rights; and Mexico and Canada’s opposition to a U.S. idea for a five-year sunset clause to renew or terminate the accord.

U.S. Trade Representative Robert Lighthizer on Sept. 18 said the parties are moving at “warp speed, but we don’t know whether we’re going to get to a conclusion, that’s the problem.”

‘Narrow Path’

“They have a narrow path and a narrow window to get it right,” Philip English, a former Republican lawmaker who is now co-chair of government relations at law firm Arent Fox in Washington, said by phone. “This will be very hard to do.”

The U.S. proposal to ditch the Chapter 19 tool -- which allows binational panels to hear subsidies and dumping cases -- and to tighten rules of origin determining what share of a product must be Nafta-produced to receive its tariff-free benefits, are particularly thorny, English said. “Whatever we do will involve some pain,” he said. “I see a minefield ahead that’s mind-numbing in its complexity.”

Freeland, Lighthizer and Mexican Economy Minister Ildefonso Guajardo on Sept. 5 wrapped up the second round of talks in Mexico City by expressing optimism that things were proceeding as fast as possible, and portraying the mood as cordial despite Trump’s repeated withdrawal threats.

Guajardo said this week that three or four out of seven Nafta chapters have large areas of agreement. Another dozen or so chapters will be more difficult to deal with, including any changes to provisions on Chapter 11 investor-state disputes. In addition, there are other “elephants in the room,” such as auto-content rules, and a U.S. push to cut its trade deficit, he said.

Big Balance

“This challenge of balancing two or three non-traditional issues within the negotiations is what will define if at the end of the day we will have an agreement or we will not have an agreement,” Guajardo said in Mexico City.

One government official from the Nafta region, speaking on the condition of anonymity, acknowledged there’s little hope of a major breakthrough in Ottawa and said most discussions will focus on finding areas of agreement, rather than working through disagreements.

Progress was made in the second round on provisions related to telecommunications, the digital economy and small business, the official said.

The biggest points of contention are expected to only surface near the end of overall Nafta negotiations and at a high level, the official said.

As the talks progress, “things will either really get moving or come to a halt,” said Nate Herman, who oversees government relations at the American Apparel and Footwear Association, which represents companies including Levi Strauss & Co. and Asics America Corp., in an interview. “We think at the very least you should do no harm. We’ve set up supply chains over the last 20 plus years that use this yarn forward rule.”

— With assistance by Greg Quinn

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