WASHINGTON -- Talks to renegotiate the North American Free Trade Agreement have bogged down over controversial U.S. proposals, with Canada and Mexico blaming the U.S. for trying to protect its market at the expense of the regional economy and the U.S. pointing the finger at its partners for unwillingness to correct a large trade imbalance.
The acrimony between the sides was evident during a formal event for trade ministers to update the press about progress made so far. Typically during such ceremonies, officials play down differences and use diplomatic language to characterize their partners and the status of the talks. Instead, the ministers took shots at each side for what they saw as intransigence.
"We have seen a series of unconventional proposals in critical areas that make our work much more challenging," Canadian Foreign Affairs Minister Chrystia Freeland said. "We have seen proposals that would turn back the clock on 23 years of predictability, openness and collaboration. In some cases, these proposals run counter to World Trade Organization rules. This is troubling."
Talking into 2018
As the differences widened, the parties announced that the talks will extend into the first quarter of 2018. Earlier, they insisted they could conclude a deal by year end to avoid political complications from elections next year in Mexico and the U.S. that could make compromise more difficult. Many believed the original timetable was unrealistic given that trade deals are enormously complicated processes and that several major disagreements would not be resolved quickly.
Canadian and Mexican officials characterized NAFTA as setting a stable framework for trade and investment over the past 23 years, while the U.S. administration says the benefits haven't been equitably shared.
U.S. proposals that are causing anxiety for Canada, Mexico and much of the business community would significantly raise regional content requirements for autos and auto parts, with a separate requirement for domestic U.S. content; eliminate a dispute settlement mechanism for unfair trade practices; limit Canadian and Mexican companies' ability to bid for U.S. government contracts; and institute a sunset provision that would subject the agreement to a renewal process every five years.
President Donald Trump has castigated NAFTA for encouraging U.S. manufacturers to outsource production to Mexico to save on labor costs, at the expense of U.S. workers. The administration says it wants to reverse a $60 billion trade deficit with Mexico, but supporters say NAFTA has integrated the three economies in ways that make North America a competitive manufacturing platform relative to Asia and Europe.
Winner take all
Freeland accused the U.S. of a "winner-take-all mindset" that "seeks to undermine NAFTA," adding that U.S. proposals on rules of origin would be especially harmful to the auto industry.
"The proposed U.S. national content requirements would severely disrupt these supply chains, making North American producers and manufacturers less competitive relative to imports from outside the region," she said.
She noted that trade deficits aren't a good way to measure the benefits of trade deals, but noted that the U.S. enjoys an $8 billion trade surplus with Canada and a $36 billion surplus in manufacturing in a relationship that generates $634 billion in two-way annual trade.
In a separate briefing, Mexican Economy Secretary Ildefonso Guajardo said, "It is a waste of time trying to design policy tools that will try to move 1,000 jobs from here to there." All sides would be better off creating a system that addresses how automation will change the work force of the future, he said.
He also declared that the sunset provision is "completely unacceptable, because that establishes a sudden death every five years in which no investor would risk his or her capital."
Trade deficit hurdles
Negotiators said they have reached agreement on chapters involving competition while also making progress on customs streamlining and other areas. But U.S. Trade Representative Robert Lighthizer criticized Canada and Mexico for foot-dragging and not accepting the U.S. position on reversing its trade deficit.
“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. Now I understand that after many years of one-sided benefits, their companies have become reliant on special preferences and not just comparative advantage,” he said.
“Continuing to design a national manufacturing policy that is largely dependent on exports to the United States without balance cannot long continue. It is important also to remember that to some extent, NAFTA is an investment agreement, and it is unreasonable to expect that the United States will continue to encourage and guarantee U.S. companies to invest in Mexico and Canada primarily for export to the United States.
“All parties must understand this and be reasonable if there is any chance for these negotiations to be successful,” Lighthizer said.
He also complained that more progress had not been made on subjects such as digital trade and telecommunications, saying that Mexico and Canada are rejecting proposals that they already agreed to as part of the 12-nation Trans-Pacific Partnership agreement that President Trump scuttled in January.