NAFTA 2.0 – Deathwatch: Counting the days

  • National Newswatch

MEXICO CITY – Ambassador Robert Lighthizer added some spice to an otherwise boring Day 1 of Round Five by filing an updated report to Congress on the Administration's negotiating objectives for NAFTA 2.0.There is not much change from the July 17, 2017 report which we analyzed here.The negotiations on Procurement and Automotive Rules of Origin are buried in fuzz. Congress would not have any real understanding of the issues without access to the leading trade journals.The limited information that is filtering back from the negotiators suggests that the U.S. tactics are very inflexible. Is it really news or strange that Team USA was tough and inflexible? No doubt U.S. negotiators would have similar complaints about Steve Verheul and his team on the difficult issues. Negotiators are not paid to capitulate. The really good ones have a very well-developed sense of self preservation.NAFTA may be on a death watch, not because negotiators are incompetent, but because President Trump considers he must pull the plug to convince his supporters that he has inflicted enough pain on their protectionist scofflaw neighbours. Only then will POTUS believe he has enough leverage to get a “fair” deal.Relaxing the ugly, unpalatable agenda unveiled in Round Four this soon was never an option – any more than expecting Canada and Mexico to try to find middle ground on the poison pills was. The updated U.S. objectives are not relaxed from the initial version, in fact, they are reinforced and tougher – designed to make life worse for Canada and Mexico. Nor are they any more balanced.The deal breaking U.S. demand for a five year sunset on NAFTA 2.0, which was not included in the July 17 objectives, has found its way into the updated objectives near the end as “Provide a mechanism for ensuring that the Parties assess the benefits of the Agreement on a periodic basis”.Arguably this could be done by the NAFTA Commission under Article 2001.2 (e) of NAFTA which mandates the Commission (the three NAFTA Ministers) to:(e) consider any other matter that may affect the operation of this Agreement.NAFTA Article 2001.5 requires that “The Commission shall convene at least once a year in regular session. Regular sessions of the Commission shall be chaired successively by each Party.” What is preventing the U.S from using this option to review NAFTA even without deconstructing it?Lighthizer understands the existing options – or some of his team should. The facts simply interfere with Lighthizer's negotiating strategies.Expanding the envisaged role of the NAFTA Commission to review and improve NAFTA makes far more sense than adopting WTO-type country reviews which the U.S. could use to try to link to sanctions and termination.Agreeing to expand the Commission's role assumes that the Ministers really want to work together. Collegiality and congeniality went into melt down at Round Four. Deciding to avoiding ministerial input at rounds five and six is like parties in a difficult relationship agreeing to date others. And it avoids an exchange of Christmas gifts.There is more detail in the November 17 text and more naming and shaming objectives, for example those aimed at eliminating over quota tariffs on Canada's supply-managed products.The oblique soft and conciliatory references to liberalizing trade in U.S. sensitive (to the U.S.) products certainly does not reflect a balanced approach (Canada is not alone in maintaining tariff rate quotas on farm agricultural products – the U.S. and 40 other countries also have them). Why pussyfoot about? – The U.S. is focused on rebalancing to remedy Canada's evil and discriminatory trade regime. Do the facts support the judgement?Congress and some private sector stakeholders will be pleased to see that there is no change in the Administration's determination to maintain reciprocal duty-free trade in agricultural and manufactured products with its NAFTA partners. Does Ambassador Lighthizer mean only those which are duty Free based on WTO obligations? Or is he focusing on NAFTA rates? Nearly 50% of U.S. tariff lines are WTO duty Free and more than 50% for Canada and Mexico.Has USTR really avoided doing any analysis of what a world without NAFTA would be like? If so, stumbling into this imbalance must be just dumb luck. Dumb like a fox.A great deal of time has been spent on negotiating dispute settlement and trade remedies. The objectives in these chapters appear to be inconsistent with Congressional aspirations in the current U.S Trade Promotion Authority specifically -“to further strengthen the system of international trade... including dispute settlement.”One of the dispute settlement objectives that the U.S. has maintained is to “Establish a dispute settlement mechanism that is effective, timely, and in which panel determinations are based on the provisions of the Agreement and the submissions of the parties and are provided in a reasoned manner” Sounds benign but the proposals actually on the table are far from benign.Lighthizer seems to want a return to the General Agreement on Tariffs and Trade (GATT). In GATT dispute settlement it was too easy and frequent for larger Contracting Parties to block consensus. I would argue that the U.S. proposal fails to meet the stated objective in terms of “effectiveness”.A Dispute Settlement mechanism that can be unilaterally frustrated by one Party cannot possibly be “effective”. Blockage of adverse findings was a serious criticism of GATT dispute settlement – that it was not about being right or wrong. It was a game of big and little.That game is very difficult for Canada or Mexico to win. The real negotiations will begin when Ambassador Lighthizer accepts the need to give as well as take. But his audience of One is unlikely to sanction such real and balanced negotiations.Until Trump's priorities change and he is prepared to recognize the very real risks and potential damages of his dump NAFTA crusade, it is neither extreme nor unreasonable to suggest NAFTA is on a Death Watch. POTUS will be the Grim Reaper. And with Canada and Mexico unwilling either to capitulate or to be first to leave the table, it could be a long, lingering death.Peter Clark, president of Grey, Clark, Shih and Associates, is one of Canada's leading international trade strategists. His clients in Canada and around the world include governments, corporations and trade associations. He is a frequent media commentator and columnist.  Follow him on Twitter at @jpclark14