There are up to 30 different negotiating tables and chapters under discussion. In practical terms, however, there are two tracks and two speeds in these talks.
Track 1: The North American modernization agenda
This is the faster track for issues where all three countries agree on the need to update North American trade rules. Some topics exist under NAFTA 1.0, from the 1990s, such as food safety standards and customs procedures.
There are new additions brought about by technological change and increased globalization, like e-commerce and international regulatory coherence. Other adjustments are conscious efforts to make trade policy more inclusive, like provisions to increase participation of small and medium-size enterprises in global trade.
Accomplishing these modernization objectives is technical. But for the most part, they’re not controversial. In fact, there is a precedent. The original Trans-Pacific Partnership (TPP) negotiations, which the U.S. was party to in 2016, is a recent attempt by North American countries to update these very trade rules. The TPP groundwork paves a smoother path for discussions based on a common set of assumptions and aims.
After seven rounds of NAFTA negotiations, the six chapters that have been completed are all in the modernization areas. While these issues represent important “win-win-win” opportunities, they’re not show stoppers.
Track 2: The American rebalancing agenda
A second negotiating train is on a different track. It was delayed leaving the station and is moving slowly. Everyone is watching this train. Until it crosses the finish line, talks will continue because there will be no agreement-in-principle on NAFTA 2.0 until compromises are found on the American rebalancing agenda.
This agenda includes controversial issues where the U.S. administration believes existing NAFTA rules aren’t working in their favour. The American negotiating team is seeking a “rebalancing” in the following areas — in ways that would benefit the U.S., but may not be wins for Canada and Mexico
1. Dispute settlement procedures
Among others, this includes how to resolve disputes about the use of trade remedies, which have increased under the Trump Administration. Actions to guard against dumping and subsidies fall here.
2. Auto content rules
The U.S. would like to increase American content required to qualify for tariff reductions under NAFTA.
3. Government procurement
This is reportedly to limit market access to “equivalent dollar amounts”, regardless of each country’s market size.
4. Agriculture
Some in the U.S. would like to see an end to Canada’s supply management program for dairy, poultry and eggs.
5. The addition of a “sunset clause”
This would see NAFTA expire unless all three countries periodically agree for it to continue.
In addition to these concerns, the U.S. has a stated objective to reduce its trade deficit with NAFTA countries.
Despite encouraging media reports of recent progress, there still appear to be large negotiating gaps. There’s no crystal ball on how these talks will turn out. For those outside the process, like me, there are several possible scenarios, ranging from a quick successful resolution to long drawn out talks, or even a withdrawal by one of the parties.
EDC Economics continues to expect that a NAFTA 2.0 agreement will be reached. The big question is when and in what form.
Given the outstanding issues that need to be resolved, it will be a tall order to achieve a quick compromise. The current consensus among Canadian trade commentators seems to be that a deal will ultimately be reached, but it may not be in the next few months.
