Talks aimed at renegotiating the North American Free Trade Agreement (NAFTA) began in Washington DC last week. Two further multi-day rounds are planned for September (in Mexico City and then Ottawa), with a similar pace set to continue for the rest of the year. Both the US and Mexico face elections in 2018 (Congressional mid-terms and Presidential, respectively), and so would like to wrap up the process by the end of this year, if at all possible.
The US negotiators set the tone with a toughly-worded opening statement, making it clear that President Trump wants major changes to the existing deal, not just minor tweaks here and there. The US position was laid out in some detail in a consultative document several weeks ago. Canada has declined to follow suit -- "we don't negotiate in public" -- but Foreign Minister Chrystia Freeland did issue a statement of general principles a few days before the talks began.
And a very odd thing it was. Inter alia, Canada wants to insert new chapters into NAFTA guaranteeing the rights of women and indigenous people. These are perfectly worthy objectives, but surely matters for national governments and not subjects to be shoehorned into a trade deal. Some media commentators interpreted Freeland's statement as an indication that the Canadian government does not believe a deal can be achieved. This seems improbable, but this type of grandstanding on the part of the Trudeau government is becoming distressingly frequent.
After these first few days of talks, some of the potential sticking points can already be identified:
Buy America rules. All three countries favour domestic businesses when it comes to public procurement, often with catastrophic results (see: Bombardier transit deals with various Ontario municipalities). Tougher Buy America rules were part of Trump's election platform, and US negotiators have made it clear that the subject is not even up for discussion at the NAFTA talks. Yet the US wants its companies to have greater access to Canadian and Mexican public projects. This prompted one Canadian observer, union leader Jerry Dias, to remark that "we are a polite country, but we're not stupid".
Autos. Current rules require 62.5 percent of a vehicle to be manufactured within the NAFTA countries in order for it to be considered domestic. The US would like to increase this percentage, which both Canada and Mexico could support. However, the US also wants a separate percentage purely for US manufacture, in order to stem the continued seepage of auto assembly work to Mexico. This cannot be palatable to either Mexico or Canada.
Dispute resolution. There are various dispute resolution provisions in the current deal, including Chapter 11, which allows companies to sue governments if public policy measure affect their profitability, and Chapter 19, which covers government-to-government disputes. The US wants to abolish Chapter 19 altogether, but as this would leave Canada and Mexico at the mercy of the regular US court system in any future dispute, this is unacceptable to either country. As for Chapter 11, Canada has come out on the short end of a number of disputes with US corporations, at considerable cost to taxpayers. Canadian nationalists would love to see it removed, but the US would never agree.
Plenty to be going on with there, and we haven't even mentioned Canada's supply management regime, duty-free shopping limits, bank ownership restrictions and a whole host of other niggles. Getting all of this sorted out by the end of the year seems a tall order indeed, even under ideal circumstances -- which these are not. After the chaos of the past few months, Donald Trump needs a win. Assuming that he has now been persuaded that a war with North Korea is not the kind of win he needs, he may well feel that sticking it to his northern and southern neighbours is an ideal way to rally support. A successful end to the NAFTA talks is far from being a sure thing.
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