Negotiators give up hope of rewriting Nafta this year

2017-10-18 15:02
President Donald Trump speaks during a dinner with Latin American leaders at the Palace Hotel during the UN General Assembly in New York. (Evan Vucci, AP

President Donald Trump speaks during a dinner with Latin American leaders at the Palace Hotel during the UN General Assembly in New York. (Evan Vucci, AP

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Washington - Talks to rewrite the North American Free Trade Agreement have stalled over tough American demands, dashing hopes that a deal can be reached this year.

A fourth round of negotiations between the US, Mexico and Canada ended in mutual exasperation on Tuesday. Talks will continue during November in Mexico City and will spill over into 2018.

The negotiators had originally hoped to reach an agreement this year - before Mexico's presidential election and US midterms turn up the political pressure in 2018.

US President Donald Trump, who called Nafta a job-killing "disaster" on the campaign trail, has threatened to withdraw from the 23-year-old pact if he can't get what he wants.

Canada and Mexico are balking at America's demand that a revamped deal does something to reduce America's trade deficits.

"We have seen no indication that our partners are willing to make any changes that will result in a rebalancing and a reduction in these huge trade deficits," US Trade Representative Robert Lighthizer said.

'Unconventional' proposals

Canadian Foreign Minister Chrystia Freeland countered that America's "unconventional" proposals would "turn back the clock" and warned against a "winner-take-all mindset".

Nafta ripped down most trade barriers between the US, Canada and Mexico. Trade surged within the Nafta bloc, benefiting American farmers who export corn and other products.

But many US manufacturers moved production south of the border to take advantage of Mexico's low labour costs, then shipped goods back to the US.

The influx of imports swelled America's trade deficit with Mexico, which came to $62bn in 2016. (The US logged an $8bn trade surplus with Canada in 2016).

To cut the trade deficit with Mexico, the US is demanding that more auto production be made in America before qualifying for Nafta benefits.

But companies have built complicated supply chains that straddle Nafta borders, taking advantage of each country's strengths - such as cheap labour in Mexico and skilled workers and proximity to customers in the US and Canada. Changing the rules, they say, would disrupt their operations.

"These proposed rules would increase the cost of manufacturing and raise prices for consumers," said Ann Wilson, senior vice president for government affairs at the Motor & Equipment Manufacturers Association, which represents auto suppliers.

"It would just make North America less competitive, and it would impose an indirect barrier to trade," said trade lawyer Miguel Noyola, a principal at Baker & McKenzie LLP.

Sunset clause

Lighthizer is also targeting a Nafta provision that now allows companies to appeal to private tribunals when they object to decisions by the government of the country where they're investing - perhaps a costly environmental regulation.

Those tribunals mean companies don't have to worry as much about the political risks - and account for the potential cost - when they invest in less-developed countries.

Effectively, Lighthizer argues, they put "a thumb on the scale" in Mexico's favour. The US wants to limit companies' ability to appeal government decisions under Nafta.

The US is also proposing that the new Nafta expires unless the countries agreed every few years to extend it. Critics say the so-called sunset clause would create too much uncertainty for businesses.

"Who would want to make an investment if they don't know what is going to happen in five years?" said former US Ambassador to Mexico James Jones, now chair of Monarch Global Strategies.

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