MONTREAL — North American Free Trade Agreement (NAFTA) renegotiations may take longer than anticipated, as the sixth round of talks concludes and the most contentious issues remain undiscussed.
Originally, renegotiations were expected to be completed sometime in March, well before the Mexican presidential election scheduled this summer. Between that and the U.S. mid-term election in November, negotiations may continue until 2019.
The sixth round of negotiations was the first time some larger issues were addressed, thought not fixed. Some issues being held to the end of the negotiations include the dairy industry in Canada, government procurement and rules of origin, in which U.S. negotiators are demanding every product imported or exported in the trade counties have a larger percentage of U.S.-manufactured items.
In a press conference on the last day of the January negotiations, U.S. Trade Representative Robert Lighthizer said many feel the U.S. is making unfair demands, but trade agreements are about providing preferential treatment among countries while trying to be fair to all parties involved.
In recent years, the U.S. has annually sold about $80 billion more in goods to Canada than Canada sold here. He thinks the NAFTA rules need to be reexamined to make sure the imbalance is not because of the agreement: “We need to modernize and we need to rebalance.”
Progress is being made. The chapter on anti-corruption was closed while other areas are moving forward, Lighthizer said. Negotiators have started discussing the tough issues, but “we owe it to our citizens to move faster.”
Some of the innovative ideas the Canadian representatives suggested would be worse for the U.S. than current rules, he said. “The U.S. views NAFTA as a very important agreement,” he explained. “We will go where these negotiations take us.”
Canadian Foreign Affairs Minister Chrystia Freeland said the innovative ideas from Canada were the result of the unconventional proposals by the U.S. While there are imbalances on imports and exports, depending on the industry, the U.S. exports more to Canada than Canada exports to the U.S.
Agriculture is one of these categories. She said some areas that are not currently covered in NAFTA, like softwood lumber, need to be examined. In the meantime, like any other country, Canada will protect its industry and workers to the best of its ability.
NAFTA has encouraged growth in all three countries, making it the largest free trade area in the world. Freeland said she is not trying to weaken North America’s competitiveness; the point of NAFTA is to strengthen the continent.
“Our goal, and I think it’s our shared goal, is a win-win-win,” she said.
Monica de Bolle, senior fellow with the Peterson Institute for International Economics, said so far most of the conversation seems to revolve around technical details that update NAFTA language. Items like intellectual property rights, labor and the environment have been updated.
“I thought the overall tone (of the conference) was pretty good,” she said. “I think we’re going into the seventh round on a positive note.”
Subtle changes in the language being used make her think everyone is trying to reach an agreement. Previously, the U.S. had called for a five-year sunset clause but now the discussion is about a review every five years. Regarding rules of origin, she thinks parties are still far from an agreement, but moving forward.
“They have been trying to hammer out some compromise,” she said.
Modeling on former TPP
Much of the new language in technical areas seems to be modeled on the old Trans-Pacific Partnership (TPP) trade agreement. During those negotiations, Canada, Mexico and the United States reached agreements on a number of technical issues. De Bolle said the final version of the new NAFTA might be as many as 30 chapters – seven longer than the current agreement.
USDA data indicate U.S. agriculture exports about $140 billion a year. The largest trading partners for the U.S. are Canada and Mexico. “The best trade is the trade with the neighbors. It’s the least costly,” said David Salmonsen, senior director of Congressional Relations for the American Farm Bureau.
He said the tougher issues are being pushed off until the end so the negotiators can work on what they can and get some fundamental agreements in place. Dairy is one of the issues, as it was not included between the U.S. and Canada in the original NAFTA. As a result, Canada limits U.S. access to its dairy market, with high tariffs.
If the former TPP had been signed, Canada would have granted access to 3.2 percent of its market, Salmonsen said. A finalized agreement between the European Union and Canada granted the EU access to the market.
“The U.S. wants to eliminate all dairy tariffs Canada has over the next 10 years. Canada doesn’t want to do that,” he explained.
In addition to market access, globally Canada has flooded the market for powdered skim milk, a byproduct when making some cheeses. With an increase in its exports, U.S. producers of the same product have seen a smaller market share.
Agriculture has had limited input in the trade discussions. President Trump started plans to renegotiate NAFTA before USDA Secretary Sonny Perdue took office. A trade under secretary position was added to the USDA, but not filled until October, and the nomination of Gregg Doud to become the chief agriculture negotiator has stalled.
While Trump continues to say he may withdraw the U.S. from NAFTA, in recent weeks he has commented that the speed with which the agreement is reached is no longer as important as he once indicated.
“The NAFTA situation is critical,” said former Indiana Sen. Richard Lugar, now co-founder of Farmers for Free Trade (FFT). “We have no idea how long negotiations will last, but perhaps it’s encouraging that it’s still going on.” (FFT was started after both major party presidential candidates spoke against trade in 2016, he said.)
While Trump’s comments about NAFTA have softened slightly, Lugar doesn’t think it will help – Canada and Mexico have already started looking for alternative sources of products in case the U.S. withdraws. “I hope we don’t in any way limit the export trends of our farmers.”
An FFT report released Jan. 23 outlined the economic threat to states most reliant on ag trade with Mexico. Without NAFTA, tariffs would be put back in place on U.S.-made goods. As a result of increased prices of goods, including food, in Mexico, fewer purchases would be made of U.S. products.