NAFTA Negotiations Developments as of February 26. 2018

After the sixth round of talks in Montreal and with the seventh round of talks starting in Mexico City today, an update on where the negotiations of the North American Free Trade Agreement (NAFTA) now stand is welcome. Leaders from Canada, Mexico and The United States held talks in Montreal, Quebec to continue their negotiations on NAFTA from January 23-29, 2018. While this is the sixth round of negotiations, it is the first to be held outside of one of the three nation’s capitals. Montreal was chosen by Canadian officials because of Quebec’s dependence on free trade.

Coming into these meetings was tough language against NAFTA from the Trump administration in the United States. Many fear that NAFTA is in jeopardy because of these attacks. President Trump primarily blames the loss of U.S. manufacturing jobs on NAFTA and he is demanding drastic changes in order to keep the United States a part of the agreement. In one of President Trump’s many tweets on NAFTA, he calls it the, “worst trade deal ever made”.

So far there have been many technical details revised but not much progress made in relation to the demands of the United States. President Trump’s primary goals with NAFTA are to reduce the trade deficit and bring manufacturing jobs back to the United States.

At the meetings that took place in Montreal, negotiators primarily looked at five parts of the agreement: automobiles, the sunset clause, dairy, labor, and Chapter 11.

In the negotiations focusing on the automotive industry, the U.S. has wanted to raise the requirements for auto parts in a car originate from North America to 85 percent from the current 62.5 percent. While Canada and Mexico oppose this, they are willing to raise the requirement or include intellectual property as an origination factor. However, they are not willing to raise the requirement as high as the U.S. is demanding.

Negotiators also looked at the proposed “sunset clause” which would require that the countries renew the agreements every 5 years. This was proposed by the United States as a way to update the agreement but it has largely been rejected by Mexico and Canada.

The Dairy industry was also under review by negotiators, specifically in the U.S. The U.S. wants to do away with Canada’s dairy supply-management system and the Class 7 program. These programs help Canada keep the domestic prices of dairy products stable and help exporters compete on the global market. Both programs have been rejected by the U.S. who claim they hurt the American dairy industry.

Chapter 11 was also a big topic of discussion at these meetings. Chapter 11 covers the rights and protections for both investors and their investments in Canada, Mexico and the U.S. The U.S. wants entry into Chapter 11 to be voluntary because they believe it gives more protection and financial security to companies who outsource their products to Mexico. But Mexico and Canada have decided to continue negotiations on this section of NAFTA without the U.S.

Where does NAFTA go from here? Starting today, the seventh round of negotiations begins in Mexico City and will run until March 5, 2018. As talks continue, they tend to focus more on the U.S. demands that NAFTA negotiators say can only be resolved at the highest political levels. There is definitely a sense of urgency in negotiations as the next Mexican presidential election takes place this July. With new leadership, this means new negotiators and new negotiators means negotiations practically start over again.

Article written by Matthew Guzak of the World Trade Center Arkansas for the Western Hemisphere Trade Desk.