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Reaching a quick deal is less likely with each passing day.

Bloomberg, Content provider

November 21, 2017

4 Min Read

by Andrew Mayeda, Josh Wingrove and Eric Martin

The quest to renew NAFTA is slowing to a crawl as Canada and Mexico tiptoe around America’s most controversial proposals, throwing into doubt the ability of the three nations to reach a quick deal.

The U.S. is frustrated with the reluctance of Canada and Mexico to present counter-proposals on key issues such as regional content rules for cars, which could make or break a deal. Mexico and Canada continue to portray key U.S. demands as unworkable, and are holding out hope the Trump administration will bow to pressure from U.S. lawmakers and corporations to keep core elements of the deal alive.

There has been an air of technocratic calm to the talks this week in Mexico City as bureaucrats plug away at less explosive issues. Trade chiefs from the three countries aren’t attending this round, which has dialed down rhetoric on the ground, but also left a political void for overcoming some of the sticking points. The sprint for a U.S. tax overhaul this year has overtaken the agenda in Washington, diverting some attention from NAFTA.

Yet there’s still no clear path to a deal on a successor to the North American Free Trade Agreement, which governs more than $1 trillion in trade and underpins the supply chains of companies from General Motors Co. to Caterpillar Inc. President Donald Trump has repeatedly threatened to pull out of the deal if the U.S. doesn’t get what it wants, and American officials want to get an agreement by next March, before a general election in Mexico and congressional midterms in the U.S. inject even more politics.

Unique Thinking

“The U.S. has put some extremely unique proposals on the table and many of those are and will remain problematic for Canada and Mexico,” said Robert Holleyman, who was a deputy U.S. Trade Representative in the Obama administration. “We have a long way to go before we’re able to say there are insurmountable barriers, although it’s very choppy waters.”

The fifth round of talks, which wraps up Tuesday, has largely avoided the most divisive U.S. proposals on dairy, automotive content, dispute panels, government procurement, and a sunset clause. Negotiators plan to meet next month in the U.S., before convening again in Canada in late January. 

U.S. companies and business groups, led by the U.S. Chamber of Commerce, have been mounting a campaign to mobilize Congress and convince the White House to back down from proposals they see as damaging to corporate interests. The Chamber on Friday warned that an American pullout would hit hardest some of the states that Trump took on his road to power.

One of those states is Texas. At a Senate hearing in San Antonio on Monday, business leaders from energy to farming countered Trump’s argument that NAFTA has been a disaster, saying it has bolstered trade and that the pact’s demise would cost jobs and hit the state’s economy.

Negotiators also spent much of their time in the fifth round on rules of origin, which govern how much of a product must be produced in North America to trade without tariffs, though discussions on that centered on mundane details such as paperwork requirements.

Big Ideas

The White House has proposed major changes to NAFTA’s auto requirements, introducing a stipulation that 50% of parts or vehicles be U.S.-made, and increasing the minimum amount of regional content needed to 85% from 62.5%. 

Sensing danger, the auto industry has stepped up its lobbying to preserve NAFTA. A coalition of industry associations called Driving American Jobs traveled to Mexico City to make its case. The Alliance of Automobile Manufacturers, which represents automakers including Ford Motor Co. and Daimler AG, warned on Tuesday that the U.S. proposals would increase costs for automakers and fail to reduce U.S. trade deficits with Mexico, which is a key objective for Trump.

Mexican Economy Minister Ildefonso Guajardo said last week that Mexican negotiators planned to ask the U.S. for a more detailed explanation of the autos proposal and the reasons for it, but didn’t yet plan to present a counteroffer. A person familiar with discussions said Mexico views the U.S. position as completely unworkable.

Canada was expected to respond to the U.S. auto proposal this round by detailing why it thinks implementing the plans would harm the sector, without formally proposing a counteroffer, one Canadian official said.

To contact the reporters on this story: Andrew Mayeda in Washington at [email protected]; Josh Wingrove in Ottawa at [email protected]; Eric Martin in Mexico City at [email protected]

To contact the editors responsible for this story: Sarah McGregor at [email protected]; Vivianne Rodrigues at [email protected]; Theophilos Argitis at [email protected]

Randall Woods

© 2017 Bloomberg L.P

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