As “Significant Conceptual Gaps” Persist, NAFTA Talks Extended to 2018

On October 17, 2017, trade representatives from the United States, Canada, and Mexico wrapped up the fourth round of negotiations concerning the North American Free-Trade Agreement (NAFTA) in Washington D.C. The latest round of negotiations were openly contentious, and a trilateral statement issued by the nations’ respective trade representatives noted that the “[n]ew proposals have created challenges” and that “significant conceptual gaps” exist amongst the current NAFTA parties. After four rounds and 22 days of negotiations, U.S. Trade Representative Robert Lighthizer stated that he was “[s]urprised and disappointed by the resistance to change from our negotiating partners.” In fact, at least five U.S. proposals have reportedly drawn pushback from our North American neighbors, leaving the parties far apart heading into the fifth round of negotiations scheduled for November in Mexico City.

  1. The first point of contention is the demand for a U.S. content requirement in the auto industry. Currently under NAFTA, vehicles require at least 62.5 percent North American content in order to meet the threshold for duty-free movement between NAFTA member states. Media reports indicate that the U.S. is proposing to increase the North American content requirement to 85 percent, along with a United States content requirement increase to 50 percent. The ultimate goal of such a requirement is the reduction of the current $64 billion U.S. trade deficit with Mexico.
  2. The second U.S. proposal met with backlash is a termination “sunset” clause that would formally end NAFTA after five years, unless all parties agreed to re-authorize and extend the agreement.
  3. Third, the U.S. is seeking to amend the dispute-resolution framework currently outlined in NAFTA’s Chapter 11, 19 and 20, and wants to either eliminate the arbitration panels entirely, make them non-binding, or make them voluntary.
  4. Fourth, NAFTA currently ensures that there is a roughly proportional amount of its parties’ government procurement budget available to other NAFTA member countries. While Canada and Mexico want even more access to U.S. government contracts, both Lighthizer and U.S. Commerce Secretary Wilbur Ross have proposed that the current process is inherently unfair, and now seek a system that limits U.S. procurement from companies in Canada and Mexico while granting greater access to U.S. companies seeking to sell goods and services to those governments.
  5. Finally, the U.S. seeks to end the current “supply management” system for dairy, chicken, eggs, and turkey; a proposal the Canadian government has referred to as a non-starter. The current protections have been in place since the 1970’s and set prices that protect Canadian farmers from competition. However, the system’s detractors view it as government overreach that runs counter to free-market principles.

The U.S. is also pursuing updates that reflect the economic and technological changes that have affected international commerce in the 23 years since NAFTA’s entry into force, including proposed changes that were included in the 2016 Trans-Pacific Partnership regarding digital trade, telecommunications, and anticorruption.

It will be critical to stay up to date on the upcoming fifth and sixth rounds of NAFTA negotiations, which were initially scheduled to conclude by the end of this year but have now been extended into the first quarter of 2018. This signals the large divide currently separating the NAFTA parties, and ultimately does not bode well for the future of negotiations. As key trade representatives from all three nations express frustration at the dearth of unifying policy goals on display to date, the hardline rhetoric from the current U.S. administration will continue to render trade talks difficult.

Have a good week.

Doreen