Negotiations to remake the North American Free Trade Agreement resumed Wednesday amid increasing concerns of a breakdown, with President Trump continuing to threaten to withdraw from the pact and the administration planning to push several contentious proposals across the table over the next few days.
Concerns were apparent as Canadian Prime Minister Justin Trudeau met with Trump in Washington while trade negotiators from the U.S., Canada and Mexico gathered here on the other side of the Potomac River. As Trump talked about the possibility of not reaching an agreement on NAFTA — saying he could see the U.S. and Canada doing a bilateral deal to replace the pact — Trudeau maintained a straight face.
Asked whether he would be ready to sign a deal only with the U.S., Trudeau answered in French: “We’re negotiating at the moment.”
In three earlier rounds of NAFTA talks, negotiators found common ground on customs and trade facilitation, e-commerce rules and other less-controversial matters that would update the 23-year-old agreement.
But with a goal of wrapping up negotiations by the end of the year, U.S. officials are now expected to get to the crux of the talks with proposals that they see as central to advancing Trump’s “America first” agenda, even though some of those ideas are fiercely opposed by not only Mexico and Canada, but by U.S. business interests as well.
One proposal would allow NAFTA to expire after five years unless all three countries agree to renew it, according to persons who have been briefed by U.S. trade officials.
The so-called sunset provision is ostensibly aimed at giving the administration a way out, or at least greater leverage, should there be little or no improvement in the U.S. trade deficit with Mexico or Canada — something that Trump has persistently regarded as the measuring stick of whether trade agreements are working, despite widespread criticism from economists who say such thinking is flawed.
Critics of a sunset clause include the U.S. Chamber of Commerce, whose leader, Thomas Donohue, described it as one of “several poison pill proposals … that could doom the entire deal.”
“We all know that certainty and stability are crucial to successful trade relationships — and necessary to foster a pro-investment environment that drives economic growth and job creation,” he said in a particularly forceful speech Tuesday in Mexico City. “This clause would achieve the opposite effect.”
“We’ve reached a critical moment,” Donohue added. “The chamber has had no choice but to ring the alarm bells.”
The U.S. auto industry, in particular, has ramped up lobbying efforts in recent days. While Trump has cast himself as a champion of U.S. manufacturing, the domestic car industry fears that the administration’s overhaul of NAFTA could wreck the complex, integrated North American supply chain that has taken decades to develop.
Under current NAFTA rules, vehicles that are manufactured with at least 62.5% of contents from any combination of the three countries can be shipped from one NAFTA nation to another without paying duties.
Trump’s trade officials want to raise that origin-of-content requirement to as much as 85%, which would make it more costly for U.S. car firms to source parts from non-NAFTA countries. But, more significantly, U.S. negotiators are expected to seek a new requirement that 50% of the contents of autos are made in the U.S. before those goods can be shipped across North American borders without duties.
Opponents of a U.S.-specific content clause argue that such a provision is contrary to a trade agreement whose basis is the North American regional economy, not any individual country. On top of that, U.S. auto executives say that carrying out that mandate would be a bureaucratic nightmare and costly, ultimately making cars more expensive for consumers.
Mexican officials, in particular, have recoiled at a country-specific rule of origin as their nation has attracted many auto parts and assembly operations in recent years that employ hundreds of thousands of workers.
Other thorny issues that are likely to come up in this fourth round of talks include a U.S. proposal to weaken the right of private investors and companies to sue governments — a proposal that has strong backing from organized labor and civil society groups. The Trump administration also wants to eliminate a NAFTA chapter that has allowed Mexico and Canada, in particular, to contest U.S. anti-dumping and government-subsidy tariff decisions by turning to a NAFTA panel of judges.
U.S. trade officials have told outside advisors that they are planning seven rounds of talks before Christmas. Their hope is to have a deal in principle in place by the end of the year, or early 2018 at the latest, to avoid political complications in Mexico’s presidential vote in the summer and the U.S. midterm elections later in the fall.
But most trade experts doubt they can meet such an aggressive timetable. And in a signal anticipating the challenges ahead, U.S. Trade Representative Robert Lighthizer said Wednesday that this latest round would be extended through next Tuesday, two more days than originally planned.
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