Imagine you’re at a dealership buying a new car. You get to the stage where the salesperson calls in the manager to okay a deal. You initial the offer.
The problem is that the agreement covers only the down payment and trade-in on your old car. The boxes with the purchase price and interest rate are conspicuously blank.
That’s pretty much where we are at with the renegotiation of the North American free-trade agreement.
There has been a flurry of hopeful talk in recent days that a NAFTA deal could be reached as early as next week when Prime Minister Justin Trudeau is slated to meet U.S. President Donald Trump and Mexican President Enrique Pena Nieto at the Summit of the Americas in Lima.
But a deal on what? It appears that what’s in the works is a rough agreement with many of the essential elements still undecided.
U.S. Trade Representative Robert Lighthizer has spoken about “getting something done in principle.” Mr. Trump insisted on Thursday, “we’ll have something, I think, very soon.”
Canadian officials have characterized the possible deal as “a symbolic agreement in principle . . . on five or six key issues,” including the important issue of minimum North American content requirements for vehicles, according to Reuters.
Well, yes, getting a car dealership to pay you $2,000 for your 10-year-old clunker would be very symbolic. You love that old car, and getting something for it will make you less grumpy about spending so much on a new one.
But that is still a long way from driving off the lot in a shiny new vehicle with a big smile on your face.
And so it is with the NAFTA talks. Work has apparently been completed on only six of the new agreement’s planned 33 chapters. And with the exception of a possible agreement on autos, they’re the least contentious sections. Other chapters are in various stages of completion, presumably with disputed elements yet to be settled.
At best, what’s shaping up now is a commitment to strike a final NAFTA deal at some later date.
There are many reasons why all three countries would want a quick deal now. Elections are coming in Ontario (June 7), Mexico (July 1) and the United States (Nov. 6). All sides want to show progress before these votes put negotiations on ice for several months, or change the political landscape so that a deal becomes impossible.
There is also the U.S. tariff showdown with China, which has stirred up fears of a global trade war. Announcing a NAFTA deal would reinforce the impression that Mr. Trump can turn his tough talk on trade into substance at the negotiating table.
Perhaps most important in the short-term: there is an important deadline looming. The United States recently spared Canada and Mexico from 25-per-cent duties on steel and aluminum imports – but only until the end of this month, pending a successful outcome on NAFTA talks. Mr. Trump would lose credibility if he lets the deadline slip without having something to show for it.
But even if the three countries can agree on new auto rules – somewhere between the current 62.5-per-cent North American content minimum and Mr. Trump’s insistence on 85-per-cent – there is so much still to do.
Mr. Trump has set sky-high expectations, and will need a deal that somehow meshes with his inflammatory rhetoric about how bad the current deal is. Just this week, he called NAFTA a “horrible, horrible, embarrassing deal for the United States.”
Even more problematic are the other demands put on the table by the United States. Mr. Trump wants to further limit access to U.S. government contracts, phase out the tariff wall that protects Canada’s dairy and poultry farmers, reopen NAFTA every five years and scrap a dispute-settlement system that allows member countries to challenge anti-dumping and subsidy duties.
Canadian officials have characterized all of these demands as potential deal breakers.
Canada and Mexico are more than willing to give Mr. Trump a symbolic win next week. And moving forward is clearly better than killing NAFTA altogether – as Mr. Trump repeatedly threatens to do.
But there’s a lot hard bargaining ahead before a real NAFTA deal can be reached.
Haggling over the final price is just getting started.