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An employee works on the production line at the FCA US Conner Avenue assembly plant, in Detroit, Michigan, on May 8, 2015.

Jeff Kowalsky/bloomberg

The federal government is increasingly optimistic that the renegotiation of the North American free-trade agreement could be finished in April if Canada, the U.S. and Mexico can quickly reach a deal on auto-content rules.

There have even been indications at the bargaining table that the United States will drop its demand to scrap Chapter 19 − a key dispute-resolution provision that Canada has vowed to defend − if it can score a victory on the all-important auto file, one senior Canadian official said.

The insider, who is deeply involved in the three-way negotiations, said a session scheduled for Washington next month could be the deal-maker.

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As long as President Donald Trump can claim a “win win” on autos, the insider said, the U.S. will be flexible in other areas, including Chapter 19. That provision allows Canada to challenge punitive U.S. duties in front of binational trade panels rather than the American court system. In the past year alone, Washington has slapped both Canadian softwood and Bombardier airplanes with such tariffs.

After months of intransigence, the U.S. has suddenly proven willing to seriously negotiate in recent weeks and progress is unfolding much more rapidly than before, Canadian government sources said.

It appears U.S. Trade Representative Robert Lighthizer is eager to get NAFTA out of the way so he can focus on his much larger trade dispute with China, which is vowing retaliation following a slew of new U.S. tariffs, some sources said.

Mr. Trump is also facing increasing pressure from his own Republican congressional caucus − and has been lobbied for months by state governors and business groups such as the U.S. Chamber of Commerce − to back off his protectionist agenda.

One source said NAFTA talks have also improved the more that Commerce Secretary Wilbur Ross has been sidelined. Mr. Ross, who once enjoyed influence on the NAFTA file despite it being in Mr. Lighthizer’s portfolio, has been steadily slipping in Mr. Trump’s estimation in recent months.

Nearly all the negotiation in the past three weeks has focused on autos.

The first major breakthrough came when Mr. Lighthizer backed off his toughest demand, that all vehicles made in Canada and Mexico for export to the United States contain at least 50 per cent American content. Instead, he is now proposing incentives for auto companies that pay workers at least US$15 an hour, a move that would disadvantage Mexico but could win Canadian support for encouraging stronger labour provisions.

Government and industry sources said the U.S. has shown flexibility in other areas, too: The Americans have not rejected a Canadian proposal to write a five-year review process into NAFTA in lieu of a U.S.-demanded sunset clause that would terminate the deal in that timeframe unless all three countries agree to extend it. One U.S. industry source said Washington is also close to dropping its demand that Chapter 20, another dispute resolution provision, be made voluntary.

But the countries remain far apart on some key files. The U.S. is demanding tougher Buy American rules that would place a tight cap on the amount of American government contracts Canadian and Mexican firms could bid on.

Mark Warner, a trade lawyer who practices in Toronto and New York, said the three sides could compromise by Canada and Mexico agreeing to a larger cap than the one Mr. Lighthizer is proposing. But he said Ottawa has taken such a public stand against the U.S. demand − chief negotiator Steve Verheul called it the “worst proposal ever” − that it will be politically difficult to fold.

“If they compromise, how do they defend that publicly?” he said. “But if there is a will by the three countries to say they have an agreement, anything is possible.”

And Mr. Trump on Thursday seemed determined to reinforce questions about his own reliability as a negotiating partner. Just one day after cutting a deal to amend the U.S.’s trade agreement with South Korea, the President mused he would not implement the changes until he also reached a nuclear deal with North Korea.

Lewis Leibowitz, a Washington-based auto industry lawyer, said such presidential unpredictability made it impossible to make predictions on NAFTA.

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“It’s hard for me to tell [if a deal is close] because the sands shift so rapidly,” he said. “The modus operandi of this administration is to keep everybody guessing.”

Prime Minister Justin Trudeau said Wednesday he believes there is a ‘certain momentum’ in the NAFTA negotiations. The U.S. confirmed there has been a breakthrough in the talks over a leading irritant involving the auto-sector. The Canadian Press
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