Mexico-United States deal: Is this the end of the NAFTA?

From now on, the ball is on Canada’s pitch regarding the future of the North American Free Trade Agreement and only time will tell if the 24-year-old deal survives

Mexico-United States deal: Is this the end of the NAFTA?
Flags are pictured during NAFTA talks involving the United States, Mexico and Canada – Photo: Edgard Garrido/REUTERS
English 31/08/2018 15:14 Gabriel Moyssen Mexico City Actualizada 16:12
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From now on, the ball is on Canada’s pitch regarding the future of the North American Free Trade Agreement (NAFTA) and only time will tell if the 24-year-old deal survives as a regional mechanism or it is replaced with new bilateral pacts, just like the one hastily announced on Monday by the United States and Mexico.

According to U.S.President Donald Trump, Ottawa should agree today to the new commercial terms established by his country and Mexico after one year of negotiations, otherwise, its automotive exports will be subject to tariffs pending congressional approval.

“I think with Canada, frankly, the easiest we can do is to tariff their cars coming in. It’s a tremendous amount of money and it’s a very simple negotiation. It could end in one day and we take in a lot of money the following day,” Trump said in the Oval Office after speaking with the outgoing Mexican President Enrique Peña Nieto.

However, things are not so simple, unless Prime Minister Justin Trudeau’s government, having been absent from the trilateral table for the last five weeks due to profound differences, is decided to give in to the virtual ultimatum of the Trump administration.

Although Canada’s Foreign Affairs Minister Chrystia Freeland arrived in Washington on Tuesday for the talks, she is facing several provisions on automotive trade, dispute settlement, and intellectual property that Ottawa opposes.

For starters, Mexico agreed to eliminate the Chapter 19 dispute resolution mechanism that hinders the U.S. from pursuing anti-dumping and anti-subsidy cases.

Canada has used Chapter 19 to successfully challenge American duties on softwood lumber and other products, yet Washington thinks its independent panels are a violation of U.S. sovereignty and it wants U.S. courts to handle trade disputes.

A U.S.-Mexico agreement is not viable for the automotive industry, experts highlighted, as without Canada signing on, the rule of origin provision will be hard to meet, and even with Canada signing on, some manufacturers who get core parts from Europe might not be able to comply.

They would have to probably go ahead and pay the tariffs and may choose to absorb it or pass the extra cost along to the consumer.

Other hurdles

Other hurdles include Canadian softwood lumber exports, the 10-year data exclusivity for biologic drug makers, and extensions of copyright protections to 75 years from 50, all higher thresholds than Ottawa has previously supported.

Still, an emboldened Trump warned that he expected concessions on Canada’s dairy industry, which operates under a system that manages supplies and prices, and imposes high tariffs to limit imports.

Washington demands have ranged from ending those tariffs to scrapping a pricing system for milk ingredients that hurt U.S. exports of milk proteins.

“It seems like a pretty steep challenge to now resolve these issues in three days,” declared to the press David Wiens, Vice-President of Industry Group Dairy Farmers of Canada.

Nevertheless, a Globe and Mail newspaper report, which cited unnamed sources, said Ottawa is prepared to make concessions on its dairy market, as part of the effort to save NAFTA dispute-settlement system, maintain safeguards for cultural industries, and avert tougher pharmaceutical patent protections.

Freeland said Mexico has made some “significant concessions” in labor rules as well as in the rules of origins of cars, both of which should help Canada in the negotiations.

In the same vein, Trudeau, who previously remarked his country “will not, cannot” sign on to an auto-terminating deal, which business leaders say would generate uncertainty, declared that “there’s been some very positive progress particularly on autos and we’re glad to be engaging as we have been.”

If talks with Canada are not wrapped up by this Friday, Trump plans to notify Congress that he intends to sign a deal with Mexico in 90 days, but would be open to Canada joining, expressed U.S. Trade Representative Robert Lighthizer, yet there is no legal basis for the deadline, as the incoming Mexican Economy Minister Graciela Márquez Colín acknowledged, stressing that the deadline “responds to political times in the U.S.”

Ahead of the crucial U.S. midterm elections on November, Trump is under pressure from Republican lawmakers, Republican-leaning farmers, and business groups to show positive results of his protectionist policies and Canada is not the only problem.

Senate Democratic leader Chuck Schumer said a U.S.-Mexico deal raises “serious legal concerns” because the “fast tracknegotiating authority used for NAFTAmodernization” requires a trilateral deal.

In their brief telephone conversation on Monday, Trump said he would “get rid of the name NAFTA,” which has a “bad connotation,” while Peña Nieto insisted in the importance of a three-country agreement.

Given the stakes involved—USD$1.2 trillion in annual trade, the economic integration of the three partners, and the unpredictable nature of the Trump White House—it is possible that Trudeau will have to swallow the bitter pill and, in order to save face, extend for several days the negotiations.

Another big question is when, if ever, Washington will lift tariffs on Mexican aluminum and steel. The same tariffs were applied to Canada, the top foreign source of both metals to the U.S.

In light of this situation, there is no doubt that Canada will find new incentives to undertake a real diversification of its trade.

After the construction of the Keystone XL oil pipeline between the Alberta tar sands and the Texan coast in the Gulf of Mexico was suspended by the Obama administration due to environmental concerns, former Prime Minister Stephen Harper pledged to strengthen commercial ties with China and the Pacific basin.

For the moment, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership—without the U.S.—as well as the Comprehensive Economic and Trade Agreement between Canada and the European Union are waiting for its respective parliamentary ratifications.

Editing by Sofía Danis
More by Gabriel Moyssen

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