Could Canada, the United States and Mexico reach a renegotiated North American free-trade deal by the end of this week? If only it were true.
It’s certainly the wish of the Trump administration. On Monday, U.S. President Donald Trump announced that U.S. and Mexican negotiators had reached an agreement on key NAFTA sticking points related to car manufacturing, and had also tackled contentious issues over labour provisions and the removal of a five-year sunset clause.
His hope is that Canada will now rejoin the talks and that a trilateral deal can be reached before the end of August. The deadline is key because it would allow Mexican President Enrique Pena Nieto to sign the agreement before he leaves office on Dec. 1, and would also give Mr. Trump something to boast about during midterm elections in November.
As is his way, Mr. Trump muddied the waters on Monday by claiming the deal with Mexico could stand on its own as a bilateral agreement, leaving Canada in the lurch. That’s not what U.S. negotiators have been working on, and it’s not how Mexico or Canada see it. This is a side deal – and a preliminary one, at that.
But it does mean that trilateral talks can go ahead again, and that Mexico and the United States have put the ball in Ottawa’s court. Canada’s negotiators, chief among them Foreign Minister Chrystia Freeland, will have a lot to chew on in a short time.
For instance, Canada was always willing to look at auto-content rules, while Mexico originally said it wasn’t interested. In the side deal reached over the weekend, Mexico and the United States agreed that 75 per cent of the content of North American vehicles must come from NAFTA countries in order to be tariff-free, up from 62.5 per cent. That’s a big breakthrough that Canada will have to examine closely.
Mexico also agreed that 40 per cent to 45 per cent of the content of vehicles made in North America must come from factories where workers earn at least US$16 an hour. Along with another Mexican agreement to guarantee secret-ballot voting in union certifications, that measure could dramatically improve the lot of Mexican auto workers.
Even bigger is the U.S. decision to end its demand for a clause that would automatically kill NAFTA after five years unless all three countries agreed to keep it going. Sunset clauses are self-defeating in free-trade deals, as they create uncertainty and discourage investment.
But now the United States and Mexico have agreed to a 16-year sunset clause, one that contains a mechanism that allows the three countries to meet after six years and extend the deal another 16 years after that. Theoretically, NAFTA could live on in tranches of 16 years forever.
Can Canada’s negotiators live with this compromise? It will be hard for them to say no, as two of the three parties have already said yes to it. And if Mr. Trump has proven anything, it’s that NAFTA can be threatened at any time, if one party puts its foot down. Some degree of uncertainty is a fact of life in a trilateral trade arrangement, unfortunately.
The United States also moderated its demand to kill Chapter 11, the section of NAFTA that lets corporations sue member governments that impose regulations that amount to a trade barrier. Both Mexico and Canada wanted to keep it, and it is included in the U.S.-Mexico side deal, with some modifications.
There are still major sticking points, of course. Those include American demands to gut key dispute-resolution provisions, and to restrict Canadian and Mexican companies from bidding on U.S. government contracts. And Mr. Trump wants to see movement on American access to Canada’s walled-off dairy industry, a point he made again on Monday.
But Monday’s development means two things: that the United States and Mexico have shown themselves willing to make concessions on key issues; and that if Ottawa can see its way to joining in that spirit, a deal is possible.
It will be tempting for Ottawa to get it over with. The Trudeau government has politically motivated reasons for wanting this done now, the most pressing being the general election next year. And the momentum created by the unexpected deal between the United States and Mexico will be hard to push back against.
Ottawa will have to balance that temptation against its need to demonstrate that it won’t compromise on critical issues. It could be an interesting week.