Talks regarding NAFTA (North American Free Trade Agreement) renegotiation are headed for Ottawa on Sept. 23-27, 2017, with the United States, Canada, and Mexico still at an impasse over many key issues.

Media reports have shown that negotiators claimed unspecified progress in the first two rounds of talks in Washington and Mexico City, but have yet to tackle tougher issues, such as a U.S. demand to increase the use of U.S.-made materials in automobiles and other products.

What’s on the Agenda?

A few sticking points will likely be addressed as talks continue:

  • Sunset clause--Canada and Mexico have rejected a U.S. proposal to add a five-year “sunset clause” to NAFTA, which would automatically terminate the agreement unless the member countries agree to let it continue. In addition, concerns about NAFTA’s future have prompted Mexico to step up efforts to diversify its export economy and boost commerce with Asia, South America and Europe.
  • Rules of Origin (RO)--meaning a certain percentage of parts in a product, such as a car, has to originate from North America--have become a principal obstacle to a new agreement. Those rules govern how much of a final product must be of North American origin in order to qualify for reduced tariffs. The levels vary by sector, but on automobiles, Canadian labor groups are pushing for the current 62.5 percent threshold to increase to 70 percent. The new U.S. administration has hinted it could raise the percentage and that it plans to enforce any new standards for RO. Strengthening the rules is something the U.S. thinks would help to make its manufacturing sector more competitive, though doing so could be disruptive for existing value chains. Trade experts also caution that forcing more parts to be made in America would boost car prices.
  • Chapter 19 dispute settlement mechanisms--The U.S. administration would like to eliminate this policy, but Mexican and Canadian governments want to preserve it. When a U.S. industry believes that a Canadian or Mexican competitor is challenging the rules of trade by receiving unfair government subsidies or selling products in other countries at ultra-low prices, it can appeal to a U.S. international trade court to place anti-dumping or countervailing duties on those products.
  • Labor standards--The Mexican government is willing to make changes to its labor laws and to raise the minimum wage to satisfy U.S. demands, but change may be limited due to Mexican elections and politics.

It’s important to note that the U.S. imports more from Mexico than it exports, resulting in an annual trade deficit:  $55.6 billion in 2016. The U.S. had a $12.5 billion trade surplus with Canada in the same year.

The fourth set of NAFTA talks will take place in Washington, D.C. in October. In total, seven rounds are expected through December, although U.S. trade officials have noted that talks could stretch into early 2018.

Preparing for Change

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Additional source: The Globe and Mail