There is still hope for NAFTA negotiations

There is some good news for the North American Free Trade Agreement ( NAFTA ), thanks to the deal reached last Tuesday to extend the ongoing negotiation rounds from seven to eight due to the hurdles to progress in dispute resolution mechanisms, the increased rules of origin in the automotive sector, and the so-called sunset termination clause of the agreement after five years in force.

According to EL UNIVERSAL correspondent in Montreal Ivette Saldaña , Canadian and Mexican sources disclosed that the seventh round will take place in Mexico in February and the last one in Washington on March ; meanwhile in Davos, Switzerland, Mexican Minister of Economy Ildefonso Guajardo said to Bloomberg that they will stay on the negotiating table until an agreement is reached by March or even after the key presidential elections in July .

For his part, the U.S. President declared in the Oval Office that “NAFTA is moving along pretty well”, but he insisted that he “happen to be of the opinion that if it doesn´t work out, we’ll terminate it” as he signed orders imposing tariffs on imported solar panels and washing machines .

In a note to clients, Morgan Stanley , a leading global financial services firm providing investment banking, securities, wealth management, and investment management services, said that the U.S. had motivations to remain engaged in NAFTA. “ We believe it is unlikely that the U.S. will exit the treaty in the months to come”, the firm assured.

It is worth noting, as my fellow columnist Mario Maldonado pointed out, that the eighth round of talks in Washington will coincide with the U.S. President’s request for an extension of the Trade Promotion Authority to the Congress in order to negotiate trade agreements like NAFTA with full support of Capitol Hill and other interested parties, such as the business community. This process will expire on July 1 — General Elections in Mexico —yet its extension should be reported to Congress 90 days before.

In any case, we must bear in mind that no major progress has been made on key issues along the first five rounds. U.S. midterm elections will take place this fall and it will be hard to ratify a new deal in Washington as that vote draws near. Experts have long warned that the U.S. timeline was unrealistic to get a new deal, even with the conflicting President willing to negotiate in good faith.

The lion’s share

Under the current NAFTA , 62% of the spare parts in a car sold in North America must come from the region. It doesn't matter if they come from Canada , Mexico , or the U.S. , yet, the U.S. trade team wants to raise that threshold up to 85% and it is proposing that half of the automotive spare parts sourced from North America come exclusively from the United States while the rest coming from either Mexico or Canada . In other words, it is guiltlessly asking for half of the pie, while Canada and Mexico would each get a quarter, something unacceptable for both countries, according to previous statements made by Guajardo and the Canadian Foreign Minister Chrystia Freeland .

Plus, Mexico would bear the brunt of economic consequences, should the United States decide to retire from NAFTA, according to the consultancy Oxford Economics . With no beneficial trade terms with its biggest partner, “ Mexico’s GDP would be 2% smaller by the end of 2022 ”, assured in a new report.

Precisely, that is the reason why Canada is taking steps to diversify its trade considering it currently sends 75% of its goods export to the U.S. alone . Therefore, earlier on Tuesday Canada and 10 other nations, including Mexico, agreed in Tokyo to sign a reworked Trans-Pacific Partnership ( TPP ) trade pact . After the United States pulled out of an earlier version of that deal, China looms large to fill the void. Also, next month, Canadian Prime Minister Justin Trudeau will spend five days in India , a country which Ottawa keenly sees as a potential bigger trading partner .

At the same time, technical meetings will be held beginning on February 5 between Mexico and the European Union to reach a new free trade deal “within the next few weeks” despite the fact there are still a few difficult areas to agree on, such as designations of origin or geographical indications, according to Mexico’s deputy Economy Minister , Juan Carlos Baker .

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