By Don Lee
Tribune Washington Bureau
WASHINGTON, D.C. — After seven consecutive days of talks fraught with emotion, officials representing the U.S., Canada and Mexico were at seeming loggerheads over several American proposals that observers fear could derail the negotiations and ultimately cause an unraveling of the 23-year-old North American Free Trade Agreement.
President Donald Trump’s top trade official, Robert Lighthizer, along with his counterparts from Canada and Mexico, were scheduled to appear together Tuesday afternoon in Washington to make remarks most likely acknowledging the completion of the fourth round of negotiations. The parties are expected to reconvene in three weeks in Mexico City to work toward an agreement.
But observers briefed by trade negotiators said the mood during the latest session of talks had turned grim and pessimistic, and that most everyone expected Canada and Mexico to roundly reject U.S. efforts to weaken NAFTA’s regional structure with U.S. protectionist measures consistent with Trump’s “America first” agenda.
“Right now, I’m giving it even odds,” said one U.S. observer familiar with the talks, referring to the possibility of their collapse. Speaking on background because of the sensitivity of the talks and his access, he noted that the U.S. had tabled several issues in this latest round where “there is no agreement and where compromise seems elusive.”
Among the most contentious, he and other analysts said, is a proposal that would allow NAFTA to expire after five years unless all three countries agree to renew it. Canadian and Mexican officials have privately panned the so-called sunset provision, as has the U.S. Chamber of Commerce, whose leader called it a “poison pill” proposal that could undo NAFTA because it would insert uncertainty in a pact whose aim is partly to provide certainty in commerce.
The U.S. also is seeking new rules in the way autos are traded among the three countries. Currently, vehicles that are manufactured with at least 62.5 percent of contents from any combination of the three countries can be shipped from one NAFTA nation to another without paying duties. Trump, however, has frequently blamed NAFTA for the decline in American manufacturing and flight of jobs and production to Mexico. The Trump administration has proposed that at least 50 percent of the content in cars must be made in the U.S. for vehicles from Mexico and Canada to enter the U.S. duty-free.
Mexican officials have balked at a country-specific rule of origin, as their nation has attracted many auto parts and assembly operations in recent years that employ hundreds of thousands of workers. U.S. auto executives, meanwhile, worry that such stringent rules of origin would be a bureaucratic nightmare to implement and wreck the sophisticated, integrated North American supply chain that has taken decades to develop.
Other thorny issues that U.S. officials also pushed across the table in the fourth round included a U.S. proposal to weaken Canada’s and Mexico’s access to U.S. government procurement contracts and to eliminate a NAFTA chapter that has allowed Mexico and Canada to contest U.S. anti-dumping and government-subsidy tariff decisions by turning to a special panel of judges.
Trade analysts said they expected Mexican and Canadian officials to take the U.S. demands back to their governments for consultation before the fifth round, when most of the American proposals will be formally rejected. That could set in a period of difficult talks to reach a compromise or, at worse, could open the way for Trump to withdraw from NAFTA, a threat that he has repeatedly made.
“If they react negatively (to U.S. proposals), it may be enough for the U.S. to say, ‘Enough, we’re pulling out,’” said William Reinsch, a veteran Washington trade specialist who is a fellow at the Stimson Center think tank.
In Mexico and Canada, as well as the U.S., many are taking Trump’s threat seriously.
While Mexicans desperately want to keep NAFTA, which has helped transform Mexico into a manufacturing powerhouse and steadily expanded the middle class, they are also making preparations for the possibility of life without it.
Over the last year, Mexico has aggressively pursued new or updated trade deals with other countries, seeking new markets for its exports and new partners for imports.
Mexican President Enrique Pena Nieto traveled to China last month in part to discuss trade, and met with German Chancellor Angela Merkel in June about significantly broadening an existing trade agreement with the European Union.
Trade with the U.S. could continue without NAFTA. Instead of entering the U.S. duty free, Mexican imports would be subject to tax rates set by the World Trade Organization. That increase would likely be passed onto American consumers at first, but over time could make Mexico a much less desirable place to build factories, experts say.
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Mexican Economy Minister Ildefonso Guajardo Villarreal insists his country’s economy be able to “adapt” if NAFTA is scrapped. But leaders from his ruling Institutional Revolutionary Party are worried that the end of the deal could provoke nationalist sentiment ahead of next year’s presidential election, giving an added boost to far-left front-runner Andres Manuel Lopez Obrador.
Mexican economist and financial analyst Luis Rubio said the greatest danger to Mexico if NAFTA is scrapped is loss of confidence in the nation as a place for investment.
“The importance of NAFTA (to Mexico) is that it’s been an anchor of stability,” said Rubio, who is based at Mexico’s Center for Research for Development, an independent think tank, and Washington’s Wilson Center. “The risk if NAFTA is ended won’t be seen, at least initially, in foreign trade but in the ability of Mexico to attract foreign investment, and in the preservation of domestic confidence in the economy. NAFTA is the only source of confidence that the Mexican economic world can count on.”
