Feb 9, 2018

Signs of Progress in Nafta Talks but Countries Remain Deeply Divided

By ANA SWANSON - JAN. 29, 2018

MONTREAL — Discussions to revamp the North American Free Trade Agreement moved from stalemate to actual negotiation during the sixth round of talks that concluded on Monday, but a deal was still far from guaranteed as Mexico, Canada and the United States continue to squabble over how to reshape the 24-year-old pact.

Government officials and trade analysts described the mood around the talks as “cautiously optimistic” as Canada, in particular, joined Mexico in offering counterproposals to America’s requests for drastic changes, an outcome that seemed likely to dissuade the United States from imminent withdrawal.

Yet more than six months into the talks, a conclusion still appeared elusive. And tensions between the countries grew as the United States criticized Canada’s suggested changes to the pact on areas including automobile manufacturing and investment.

Robert Lighthizer, the United States trade representative, suggested that Canada had been responsible for the stalled talks. He said discussions were now progressing as the nation recognized the need to protect its trading relationships, though he added that talks were not moving fast enough.

“The reality is some of the participants weren’t willing to talk about anything,” Mr. Lighthizer said in remarks to the media. “Now, they’re starting to realize that we have to begin to talk. I think that’s a reason for guarded optimism. But you know, I’m never really very optimistic,” he added.

Officials from Canada and Mexico sounded more positive about the prospects for a deal. Ildefonso Guajardo Villarreal, the Mexican economic secretary, said that the three countries were at “a better moment in this negotiation process,” and that progress made so far had put the countries “on the right track to create landing zones to conclude the negotiation soon.”

Chrystia Freeland, the Canadian foreign minister, said that Canada had come to the table “with creative ideas we believed could move us forward.” She also emphasized the benefits of trade with Canada for the United States.

The Nafta pact, negotiated by President George H.W. Bush and signed into law by President Bill Clinton, spurred trade between the three countries by reducing Mexico’s high tariffs on goods from Canada and the United States. But, as President Trump has often highlighted, it also incentivized companies to shift labor-intensive manufacturing to Mexico.

Mr. Trump has repeatedly threatened to walk away from the trade pact if it cannot be renegotiated in the United States’ favor, a position that has put him at odds with many in the business community and Congress, who see trade with Mexico and Canada as integral to industries as varied as manufacturing, agriculture and energy. The auto industry, in particular, has arranged its North American supply chains around the deal’s terms.

With talks now reaching into their seventh month, negotiators are about to butt up against several political events that could make an agreement even more difficult, including the Mexican general election on July 1.

The election could usher in a leftist political party that may be less willing to make concessions. The front-runner, Andres Manuel Lopez Obrador, has advocated a more combative approach to the Trump administration.

“Doing this before the Mexican election is critical, because you don’t know who is going to be leading afterward,” said Representative Will Hurd, a Texas Republican who attended the talks.

The negotiations have faced a series of collapsing deadlines. Last year, officials insisted that the deal must be largely concluded by the end of 2017. Then in October, they decided to extend the talks into the first quarter of 2018, with March widely cited as a deadline.

Negotiators did not specify a new target for concluding the talks. In remarks on Monday, Ms. Freeland said that Canada looked forward to continuing its work at the next round in Mexico City in late February, and in Washington in April.

Officials from all three countries say they would rather have a good deal than a rushed one. But the delay is not without risks — some trade analysts fear that an extended process could cause Mr. Trump to lose patience, and spur an American withdrawal.

Midterm elections in the United States on Nov. 6 could also complicate the deal. The administration will need a simple majority in both the House and Senate to approve their revised trade agreement, which could prove difficult if Democrats win control of either chamber.

Mr. Lighthizer reiterated in his remarks on Monday that he hoped to win the support of some Democratic lawmakers. That may hinge on the administration’s efforts to improve labor standards. Last Tuesday, more than 180 Democrats and one Republican lawmaker sent a letter to Mr. Lighthizer urging the administration to propose stronger measures to improve Mexican labor conditions.

Representative Sander Levin, a Michigan Democrat and one of the signatories, said the Trump administration’s current labor proposals just “mask maintaining the status quo.” Mr. Levin said “the traditional view of these issues is that they’ll work out in the wash, but workers have been taking a bath.”

Negotiators said they reached agreement on a Nafta chapter focusing on anti-corruption, and were nearing completion on several other sections. But the ideas Canada brought forward to counter the Trump administration’s proposals were proving a source of contention.

The United States has proposed significantly raising the so-called rules of origin, which govern how much of a car needs to be manufactured within the free-trade area to be exempt from tariffs.

The Canadians last week discussed changing the way the figures were calculated to include design, investment and parts of an automobile like high-tech software and sensors that are common in cars today but not measured under Nafta.

The change is likely to raise the proportion of a car’s value produced by the United States, because many high-tech industries are centered there. But it also appeared unlikely to address Mr. Trump’s primary reason for renegotiating Nafta: strengthening American manufacturing.

Mr. Lighthizer criticized the idea, saying that it “may actually lead to less regional content than we have now” and said “this is the opposite of what we’re trying to do.”

Mr. Lighthizer also used his remarks to criticize a recent case Canada brought to the World Trade Organization, in which it claimed that the United States system for policing dumping and subsidies was unfair. “It is imprudent, and my suspicion is, spiteful,” he told reporters.


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