Difficult NAFTA round three set to start in Canada

AFP: The third round of talks on revamping NAFTA, which start today in Ottawa, are expected to be punishing as diplomatic tensions mount.

Over the course of a week, negotiators will hammer out details of the broad proposals submitted by some 20 working groups during the previous round of talks on the North American Free Trade Agreement (NAFTA) in Mexico City.  US Trade Representative Robert Lighthizer along with Canadian Foreign Minister Chrystia Freeland and Mexican Economy Secretary Ildefonso Guajardo Villarreal had said “significant progress” was made at the end of the last round of talks, but no details were released.
In the meantime, President Donald Trump’s protectionist vitriol and separate trade rows over accusations of softwood lumber and aircraft dumping in the US have deadened many Canadians’ goodwill.

“We won’t do business with a company that’s busy trying to sue us,” said Prime Minister Justin Trudeau, threatening to nix a purchase of warplanes from US manufacturer Boeing after it launched a trade complaint against Canada’s Bombardier. 

Canada’s economy, along with Mexico’s, has been bound tightly with the United States through NAFTA for the past 23 years.

An Ekos Research poll published this week, however, found that 77 percent of Canadians want their government to walk away from the talks if a “good deal” cannot be secured for Canada.

At the same time, with no substantive progress having been announced on key issues, consulting firms KPMG and Eurasia Group are urging businesses to “start working on backup plans.”

At the start of talks in August, Lighthizer said NAFTA must undergo wholesale revision to fulfill Trump’s goal of reducing bilateral trade imbalances and protecting American jobs.

But his Canadian and Mexican counterparts made clear they view the free trade deal as a success and only want to see it modernized and improved.

All of the parties said they hoped to get an accord by year’s end.

But if they do not show progress in this upcoming round the prospects of reaching a deal could be threatened by campaigning for Mexico’s July 2018 presidential elections and the November 2018 US midterms.

“It will be very difficult for the Mexican authorities to negotiate when the elections are in full swing,” explained Daniel Kerner, head of Eurasia’s Latin America group.

Carlo Dade, a senior fellow in global studies at the University of Ottawa, commented: “Because the NAFTA partners know each other, we all expected negotiations to be accelerated.”

“But the (proposed) timeline was never going to work,” he said, predicting negotiations will drag into 2019.
“You can either do it quickly or do it deeply. You can’t do both, unless the other trading partners simply roll over. And nobody thinks Canada and Mexico aren’t going to push back.”

There are numerous touchy subjects on the table at the NAFTA talks, including America’s demands to scrap its dispute resolution mechanism and change the rules of origin for the auto sector to require a certain percentage of cars’ components be built in the US to remain duty-free.
Canada is also facing pressure over its dairy and poultry supply management.

“The battle is partially at the negotiating table but also out in the congressional districts,” said Dade, noting that both Canada and Mexico lobbied the US Congress hard in advance.

Congress will have the last say on NAFTA, which covers a market of nearly 500 million people.
In the end, if a deal cannot be reached, it would not mean an end to continental trade.

“The strong divisions across the three countries on the key issues is increasing the risk that a deal can’t be reached in the near term,” said KPMG partner Russ Crawford.

“But geography and size of the respective markets -- and inertia -- will ensure trade flows within North America remain an attractive proposition,” he said.

The end of preferential access to the US market would instead push Canada and Mexico to diversify their export markets -- including looking to the EU, Asia and BRIC nations.