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Nafta Stalemate Persists as 5th Round of Talks Concludes At Nafta Talks, a Clash and Little Progress
(about 5 hours later)
WASHINGTON — The fifth round of talks among the United States, Mexico and Canada over the North American Free Trade Agreement drew to a close on Tuesday with negotiators still at odds. WASHINGTON — United States officials have tried in recent weeks to cool tensions over the North American Free Trade Agreement by extending the timetable for renegotiating the pact and asking top officials to sit out the current round of talks in Mexico City.
Over a week of meetings in Mexico City, officials hammered out more technical details of the trade agreement, but barely broached the yawning gaps among the three countries on the most contentious issues. Those include rules for manufacturing automobiles, resolving trade disputes and issuing government contracts, as well as a proposed “sunset clause” that would require Nafta to automatically expire every five years unless the parties voted to continue it. But as the fifth round of talks concluded in the Mexican capital on Tuesday, tensions were still simmering, with Canada and Mexico telling the United States that it would make little headway with its current approach and Mexico firing its first warning shot with a tough counterproposal.
The lack of substantial progress was not unexpected. The top officials for each country, including United States Trade Representative Robert Lighthizer, sat out this round of talks, deciding instead to let staff members work out some of the more granular details before returning to the hot-button issues that have threatened to derail the pact. Robert Lighthizer, the United States trade representative, took aim at his Canadian and Mexican counterparts on Tuesday, saying “thus far, we have seen no evidence that Canada or Mexico are willing to seriously engage on provisions that will lead to a rebalanced agreement. Absent rebalancing, we will not reach a satisfactory result.”
At the last round of negotiations, in Washington in October, proposals introduced by the United States on the main areas of contention raised tensions and provoked fears of Nafta’s demise. At the conclusion of the round, the United States called for a monthlong hiatus and extended talks into the first quarter of next year to defuse tensions and keep lawmakers in Washington focused on a tax overhaul. Mr. Lighthizer said while some progress has been made to modernize Nafta, “I remain concerned about the lack of headway. Our teams will be meeting again next month in Washington. I hope our partners will come to the table in a serious way so we can see meaningful progress before the end of the year.”
Nafta negotiators have come close to finalizing agreement on topics including state-owned enterprises and customs procedures. But the Mexico City round did not elicit much progress on issues like so-called “rules of origin,” which governs the amount of a good that needs to be manufactured in North America in order to qualify for zero tariffs under Nafta. In an indication of how far the talks have to go, Mr. Lighthizer will not meet again with his Canadian and Mexican counterparts until late January in Montreal, while lower-level negotiators will continue to hash out details in Washington next month.
Canada and Mexico have not yet made specific counterproposals to the United States requests, including on automobiles, people familiar with the talks said. The United States had called for raising the auto production threshold to 85 percent, up from 62.5 percent previously, to qualify for the tariff-free treatment. And it had asked for a new requirement that half of a car be manufactured solely in the United States — a provision at odds with American automakers, who fear it will drive up their costs and make them less competitive globally. During a week of meetings in Mexico City, negotiators hammered out more technical details of the sweeping trade agreement, including those that govern digital trade, telecommunications, anti-corruption, customs procedures and health and safety standards for food.
Instead of countering the proposal, Canadian and Mexican officials presented data that shows the harm the United States provisions would inflict on the North American auto sector. But the parties continued to clash on the most contentious issues, including mechanisms to resolve trade disputes and award government contracts, as well as so-called rules of origin, which govern the amount of a good that needs to be manufactured in North America in order to qualify for zero tariffs under Nafta.
On another thorny topic, government procurement, Mexico made a proposal that a person familiar with the talks said would effectively block United States companies from supplying goods and services to the Mexican government. The United States has called for raising that threshold for the automobile industry to 85 percent, up from 62.5 percent previously. And it has asked for a new requirement that half of a car be manufactured solely in the United States — a provision at odds with the wishes of American automakers, who fear it will drive up their costs and make them less competitive globally.
The United States has proposed limiting the amount of American government contracts that Canadian and Mexican companies are able to win, capping the level dollar-for-dollar to the total size of Canada and Mexico’s much smaller markets. Canadian and Mexican officials did not make specific counterproposals to these requests. Instead, they presented data showing the harm the proposition would inflict on the auto sector and pressed the United States to explain its reasoning.
In return, Mexico proposed linking its government contracts to the size of deals that Mexican companies have actually won under Nafta, a person familiar with the negotiations said. Since Mexican companies have won few, if any contracts, in recent years, that would largely prevent American companies from winning Mexican government contracts. That response frustrated the United States. A senior American official pushed back against the idea that the United States proposals were unworkable, saying the failure of Canada and Mexico to offer counterproposals had halted progress.
On the topic of government procurement, Mexico answered a tough American proposal with one of its own — the first tit-for-tat exchange in the talks so far.
The United States had proposed limiting the amount of American government contracts it offers to Canadian and Mexican companies by capping the level dollar-for-dollar to the total size of Canada and Mexico’s much smaller markets.
In response, Mexico floated the possibility of linking its government contracts to the size of deals that Mexican companies win in the United States, people familiar with the negotiations said. Since Mexican companies win few American contracts — less than half a million dollars in 2016, according to government data compiled by FTI Consulting — that would significantly restrict the goods and services American companies supply to the Mexican government.
Moisés Kalach, a textile executive who represents Mexico’s private sector in the talks, said that while progress was made on some technical issues, including telecommunications, the controversial issues remain.Moisés Kalach, a textile executive who represents Mexico’s private sector in the talks, said that while progress was made on some technical issues, including telecommunications, the controversial issues remain.
Speaking to reporters in Mexico City, Mr. Kalach said Mexico did present a counterproposal to the American “sunset clause,” under which Nafta would expire every five years unless the three countries agree to renew it. Speaking to reporters in Mexico City, Mr. Kalach said Mexico did present a counterproposal to the American request for a “sunset clause,” under which Nafta would expire every five years unless the three countries agree to renew it. Mexican negotiators, supported by Canada, suggested that Nafta be reviewed every five years, but not automatically expire.
Mexican negotiators, supported by Canada, have suggested that Nafta be reviewed every five years, but not expire automatically. The United States trade representative has not yet responded, Mr. Kalach said. Mr. Kalach added that Mexico has also rejected an American demand that would allow new seasonal restrictions on imports of Mexican produce, like tomatoes and avocados.
“There is a feeling that the positions of the U.S.T.R. are a little unmovable and this is slowing the process,” he said. At the last round of negotiations, in Washington in October, tough proposals introduced by the United States raised tensions and provoked fears of Nafta’s demise, prompting business groups and lawmakers to raise concerns about the Trump administration’s approach.
He added that Mexico has also rejected an American demand that would allow new seasonal restrictions on imports of Mexican produce. More than 70 bipartisan members of Congress sent a letter to the administration on Nov. 15 saying the United States proposal for the automobile sector would diminish America’s competitiveness globally.
Mexican and Canadian officials, as well as American industries that depend on the pact, are hoping that concerns within the United States about the Trump administration’s Nafta proposals will help shift the debate. Canada and Mexico are hedging against the potential collapse of Nafta by pushing for trade agreements with new partners, including China. Negotiating partners and industries that depend on the pact have been hoping the mounting concern would shift the debate and encourage the administration to roll back some of its proposals.
At a hearing on the modernization of Nafta in San Antonio on Monday, Senator John Cornyn, a Republican from Texas, emphasized that Nafta had been “overwhelmingly positive” for the Texas economy. “The data is staggering, and the verdict is clear: Nafta worked as intended,” he said. In comments before the Canadian parliament Tuesday, the foreign minister, Chrystia Freeland, said she was “heartened” to see dozens of members of Congress sign a letter about the benefits of Nafta.
Speaking from the hearing, Stephen P. Vaughn, general counsel for the United States trade representative, reiterated that the administration believes that the current version of Nafta is a bad deal for the United States. “This is a trading relationship that works for both sides,” she said. “I think we’re starting to see a recognition of that among many Americans.”
“Of course, there are Americans who benefit from Nafta, and we want to avoid harming them,” he said. “The U.S.T.R. must look at trade deals from that perspective of the country as a whole, and from that perspective there are serious problems with Nafta.” Still, Canada and Mexico are hedging against the potential collapse of Nafta by pushing for trade agreements with new partners, including China. And during the president’s recent trip to Asia, both countries indicated their willingness to move forward with an 11-country trade pact called the Trans-Pacific Partnership, from which Mr. Trump withdrew the United States this year.
President Trump has often threatened to withdraw from Nafta if the United States does not secure a better deal. He has come to the brink of doing so on numerous occasions, only to have his advisers dissuade him.
A move by Mr. Trump to withdraw from Nafta would set off a six-month process to terminate America’s membership in the pact. Mr. Trump has described this action as a potential negotiating tool for persuading Canada and Mexico to accede to American demands.
But it’s unclear whether that tactic would work. People close to the discussions say Mexican officials would instead use those months to conclude trade negotiations with Brazil and the European Union.
While Mr. Trump has said that no deal is preferable to the current one, economists argue abandoning Nafta could damage the United States.
In a study published last week, researchers at the Peterson Institute for International Economics found that withdrawing from the North American pact would directly cost the United States 187,000 jobs over a one- to three-year period — not accounting for further indirect damage to the economy.In a study published last week, researchers at the Peterson Institute for International Economics found that withdrawing from the North American pact would directly cost the United States 187,000 jobs over a one- to three-year period — not accounting for further indirect damage to the economy.
Sherman Robinson, who led the research, said that withdrawing from Nafta alone is unlikely to cause a recession, but that it would do serious damage to manufacturing value chains, including for automobiles and agriculture.
Mark Zandi, chief economist at Moody’s, agreed that simply withdrawing from Nafta would probably not push the United States into a recession. However, the decision would have deeper ramifications by disrupting faith among businesses and foreign officials about the United States as a place to do business.
“If we can’t get it together with our biggest trading partners, what does that mean for China, Korea, Germany? I think it would make industries very nervous, and financial markets very upset,” he said.
The failure of Nafta would reverberate even more significantly in Mexico. Standard & Poor’s has estimated that a collapse of Nafta would slow Mexican growth to 1.8 percent a year through 2020, from an average of 2.4 percent if Nafta remains in place.