Trump administration nearing deal with Mexico on revised NAFTA — but issues with Canada remain
The Trump administration is close to striking a deal with Mexico on a revamped North American Free Trade Agreement, analysts said, but thorny issues are yet to be resolved with Canada, the third party in the trilateral pact.
Reaching an agreement with Mexico would mark a breakthrough for the administration after a year of roller-coaster talks and tension with its longtime North American trading partners. President Trump has frequently threatened to withdraw from NAFTA, linked the renegotiations to his call for a wall along the U.S.-Mexican border and slapped tariffs on Mexican and Canadian steel to apply pressure to make concessions.
But both Mexico and the U.S. have strong incentives to push through a deal quickly. Mexico wants to lock in an agreement before its new leftist president takes office, and the White House is keen on achieving a win on trade ahead of the midterm elections.
Canada, meanwhile, has shown less urgency to complete a revision of the 24-year-old pact, but is expected to return to the bargaining table once the U.S. and Mexico settle their differences.
And then the question will be “whether Canada is finally willing to reengage in the process, sign off on what has been agreed and quickly resolve any key outstanding issues of concern to Canada,” said Lori Wallach, director of Public Citizen’s Global Trade Watch.
Trump’s trade negotiators this week have been meeting with senior Mexican officials in Washington, and sources familiar with the discussions say the two sides have largely agreed to new rules on auto trade — a top priority for the White House — that could boost investment in the U.S. and curb a flight of domestic production and jobs to Mexico.
In exchange, the United States trade representative, Robert Lighthizer, appears to be showing flexibility on an earlier demand for an automatic five-year termination of NAFTA and a proposal to make it easier for the U.S. to press anti-dumping claims against seasonal produce like tomatoes from Mexico.
Multilateral trade negotiations typically include bilateral talks between nations, but the administration’s strategy to close a deal first with Mexico — without parallel discussions with Canadian officials — is unusual and could backfire.
“I think the Trump administration is playing a risky game if you have a final deal with Mexico and you present it [to Canada] as a fait accompli,” said Daniel Ujczo, an international trade lawyer who specializes in Canada-U.S. affairs at the law firm Dickinson Wright.
It’s all the more risky because of the short time frame in which Mexico and the U.S. are looking to seal a trilateral agreement.
U.S. congressional rules on trade require that there be a 90-day period between the administration’s notification of a deal and the actual signing of an agreement. Mexico’s new president, Andrés Manuel López Obrador, was elected in July and takes the oath of office Dec. 1. That means a NAFTA agreement would need to be announced by the end of August to allow for the 90 days to pass and for the current Mexican president, Enrique Peña Nieto, to sign the pact before López Obrador takes office.
But that leaves only about two weeks for Lighthizer and his team to reach an accord with their Canadian counterparts. And by most accounts, that will be tough to do.
Even if Canada signs on by month’s end and there’s a three-way preliminary agreement, in the U.S., that would only begin a lengthy process that includes a period of public review and economic assessment by the U.S. International Trade Commission. A revised NAFTA wouldn’t be voted on by lawmakers until next year at the earliest, when a new Congress is seated.
Canada isn’t likely to have a major issue on the new auto rules, but is expected to go to the mat on at least two U.S. demands. Trump administration officials want to pry open Canada’s restricted dairy market and do away with an existing NAFTA provision that allows Canada to challenge U.S. anti-dumping claims through an independent panel.
U.S.-Canada negotiations will have to overcome the recent deterioration in bilateral relations following Trump’s refusal to give Canada an exemption from steel and aluminum tariffs, and harsh criticisms directed at Canadian Prime Minister Justin Trudeau by Trump and his trade advisor, Peter Navarro.
Trudeau faces considerable domestic political pressure to stand up to Trump — unpopular in Canada — and his strong-arm tactics to extract trade concessions. At the same time, Lighthizer and his negotiating team have shown they are not going to take a deal that maintains the status quo, said Stephen Orava, a trade lawyer at King & Spalding in Washington.
Regardless of whether one agrees with Trump’s negotiating tactics, Orava said, if the administration can land a good agreement on a new NAFTA, “it will validate their approach to U.S. trade policy is effective and generating results and worthwhile.”
Analysts who have been closely monitoring the talks say that U.S. and Mexican trade officials are working out details and that a deal still could unravel. No issue has occupied as much time as NAFTA’s auto rules. Cars account for the biggest trade among the three countries, and Trump and other critics blame NAFTA for the U.S. trade deficit with Mexico and the loss of domestic manufacturing jobs.
NAFTA’s current rules specify that at least 62.5% of the content of cars come from North America to qualify for zero tariffs; anything lower than that threshold subjects a vehicle to a 2.5% duty for cars and 25% for trucks and sport utility vehicles.
The understanding with Mexico would raise the regional-content level to 70% or higher and set a similar rule of origin for steel and aluminum in vehicles. The new rules also would include language aimed at having more cars and parts produced by workers who make wages well above the average low rates in Mexico. The hope is that more jobs would stay in the U.S. and that European and Japanese automakers would source more parts in the U.S. to avoid the tariffs.
Lawyer Ujczo said those changes and a broader deal on NAFTA will play very well to Trump’s base. “It would be political gold going into the midterms,” he said.
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