by Delphine TOUITOU/AFP
3 minute read
18 Oct 2017
8:38 pm

NAFTA talks deadlock: the main sticking points

by Delphine TOUITOU/AFP

Trade talks deadlocked Tuesday between the United States, Mexico and Canada.

Officials extended negotiations into 2018, putting the future of the North American Free Trade Agreement in doubt.

Canadian and Mexican officials have rejected major proposals from Washington.

Here are the main sticking points:

– The sunset clause –

The Trump administration has proposed a NAFTA clause that would allow the treaty to expire after five years, effectively requiring the three governments to reauthorize it.

The proposal has met stiff opposition from Ottawa and Mexico City, as well as from US industry.

As the fourth round of talks concluded in Washington on Tuesday, Mexican Finance Minister Ildefonso Villareal said the proposal was “destructive” because “a new NAFTA must create the certainty necessary for job creation.”

The US Chamber of Commerce has described the proposal as “dangerous” and said it was opposed by the “vast majority” of US business and agriculture, as well as key US lawmakers.

– Automotive content –

NAFTA requires that at least 62.5 percent of the components of a vehicle be made in one of the three member countries, in order that customs duties don’t apply.

The Trump administration wants that figure increased to 85 percent, with 50 percent of those components made exclusively in the United States. The US also wants steel, aluminum, copper and plastic used in those components to be made part of the calculation, according to US and Canadian media.

The auto industry itself opposes the suggested new requirements for US content.

– Arbitration under Chapter 19 –

This little-used provision of the agreement allows arbitration by private legal experts to resolve disputes over countervailing duties and dumping.

The Trump administration has branded the provision as unfair to US businesses and workers, since a Chapter 19 process can overrule decisions made by US agencies.

But Canada has successfully used Chapter 19 arbitration to rebut US accusations that Canadian exporters sold lumber at below-cost prices.

“An effective, transparent and enforceable dispute settlement mechanism is essential to NAFTA,” Canadian Foreign Minister Chrystia Freeland said Tuesday.

“Just as good fences make good neighbors, good dispute settlement systems make good trading partners.”

In July, Mexican lawmakers also called on their government to reject any proposal during NAFTA talks to scrap Chapter 19 arbitration.

– Investor-State disputes –

Under NAFTA’s Chapter 11, investors may take legal action directly against governments for claims of discriminatory practices.

Known as the Investor-State Dispute Settlement mechanism, such clauses have been attacked for allowing arbitration panels to overrule the findings of local courts and allegedly undermining national sovereignty.

The Trump administration appears opposed to the provisions, again raising the ire of the US Chamber.

“Far from infringing on anyone’s sovereignty, it ensures that investors are treated fairly and compensated in the event of expropriation,” US Chamber President Tom Donahue said last week.

– Canadian ‘supply management’ –

Dating to the 1970s, this system protects Canada’s farmers and consumers from price swings for dairy and poultry goods but also keeps out foreign competition.

The US has reportedly asked for the system to be phased out within a decade, allowing for US exports of milk and poultry to Canada to begin.

Canada argues that American producers also benefit from state subsidies in the sector.

– Procurement –

Freeland said Washington had proposed limiting its NAFTA partners’ access to US government procurement contracts.

“The United States has put forward a proposal that according to our calculations would give Canada and Mexico less access to the US government procurement market than Bahrain currently enjoys,” she said.