NAFTA Round Two to Focus on Common Ground

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By Rossella Brevetti

North American Free Trade Agreement negotiators meeting Sept. 1-5 in Mexico City likely will focus on moving positions closer on issues where they have common ground such as small and medium-sized enterprises and regulatory cooperation, sources said.

Stickier issues such as investment disputes, market access, currency manipulation, and automobile rules of origin, will be raised in round three, according to private sector sources who spoke to Bloomberg BNA on condition of anonymity. “At the next two rounds it’s how much can they knock out that they agree on,” one source said.

U.S. Trade Representative Robert Lighthizer will be in Mexico City for the round’s conclusion.

Common ground also exists on technical barriers to trade, a private sector source close to the talks said. The sides differ on dispute settlement, labor mobility, and rules of origin for autos, the source added.

Negotiators during the upcoming round will likely try to find more areas of agreement among the proposals offered so far, the source said. The U.S. is pushing to get all the proposals on the table by the third round, according to the source.

In areas such as small and medium sized enterprises, e-commerce, competition policy, regulatory cooperation, technical barriers to trade, and sanitary and phytosanitary measures, the U.S. wants higher standards than what it obtained in the Trans-Pacific Partnership (TPP), another business source said. “Those are areas where there is a common understanding among the governments that modernization will benefit all three countries,” he said.

“The real focus is the third round. The second round is really a continuation of the first round,” he said. With only about 10 days between rounds, there is not much space for developing new proposals, he said. The U.S. is still working through its positions on market access, investment, and auto rules of origin, he said. On the issue of investment disputes, Canada has proposed provisions very similar to the Comprehensive Economic and Trade Agreement (CETA) while Mexico offered a proposal in line with provisions that currently exists in other U.S. free trade agreements, the source said.

U.S. text in the areas that are more challenging—such as market access in government procurement—probably won’t be offered until the third round, according to the source. Those tougher issues don’t usually get resolved until the last three months of negotiations, he said. But NAFTA talks are unique because the parties are already inching towards the last three months of talks with the goal of wrapping up in early 2018, he added.

ISDS Idea Panned

USTR has been discussing a novel approach to investor-state dispute settlement (ISDS) that would allow NAFTA parties to “opt-in” to the system. “U.S. government officials received a solid unified response from both the U.S. private sector and [lawmakers] that the idea of an ‘opt-in’ strategy is really a non-starter,” one private sector source said. Whether the administration plans to move forward with the idea is unclear but “we are certainly making our concerns known,” he added.

Dispute settlement emerged as a sticking point for the parties at the end of the first round on Aug. 20, with Lighthizer weighing in as “very strong” on nixing NAFTA Chapter 19 and revising Chapters 11 and 20, according to one private sector source. “Those [positions] are show stoppers for Canada and Mexico,” she said.

Chapters 11, 19, and 20 are NAFTA’s three major dispute settlement systems. Chapter 19 sets up a system for binational panel review of dumping and countervailing duty determinations made by NAFTA countries. Dumping refers to sales made at less than fair value while countervailing duties are applied when a country is found to be unfairly subsidizing its industry to the detriment of U.S. producers. Chapter 11 contains investor-state dispute settlement provisions, and Chapter 20 contains NAFTA’s state-to-state dispute settlement procedures.

NAFTA parties signaled during the first round that they would try to wrap up negotiations by early 2018, but some trade analysts don’t see this as feasible given the extensive changes the U.S. is seeking. The scope of the talks has yet to be “clearly defined,” said Scott Miller, senior adviser and Scholl Chair in International Business at the Center for Strategic and International Studies. “The issues of scope are paramount, particularly if you want something done before the Mexicans enter their election season,” he said. Mexico’s presidential election is in July 2018. “Usually questions of scope take precedence because you don’t let the time line determine the scope. The scope determines the time line,” he told Bloomberg BNA.

Concluding the talks by early 2018 might be workable if the parties were just trying to update NAFTA, according to Greg Husisian, chairman of the Export Controls & National Security Group at Foley & Lardner LLP. Updates can be pulled from the TPP because it addresses modern day trade issues, such as e-commerce, he said. However, “there is too big a difference among the parties” to address all the issues the administration has laid out in the aggressive time frame suggested, he said. “They can either get it done quickly or get it done in depth, I don’t think they can do both of those at the same time.”

President Donald Trump told a campaign-style rally in Phoenix, several days after the inaugural talks concluded, that he didn’t think a deal could be struck and the U.S. “probably” would exit the agreement. Trump renewed his termination threat Aug. 27, tweeting that NAFTA is “worst trade deal ever made” and that Mexico and Canada were both being “very difficult.”

Trump can pull the U.S. out of the agreement, under NAFTA Article 2205, by giving the other parties six months notice. If a party withdraws, the agreement would remain in force for the remaining parties.

According to one private sector source, the Trump attacks on NAFTA are not affecting the “incredibly capable negotiators” who are leading the talks. “The negotiators are focused on the negotiation itself,” he said, noting that Mexico’s lead technical negotiator was part of the original NAFTA team and Canada’s chief negotiator helped clinch Canada’s massive trade deal with the EU. “We have unbelievably capable negotiators,” he said.

LEAD NAFTA NEGOTIATORS

  • United States. John Melle is leading the U.S. negotiating team, charged with overseeing the nitty gritty back and forth at the negotiating table. As assistant USTR for the Western Hemisphere, Melle is responsible for developing, coordinating and implementing the U.S. trade policy for the region. Melle’s portfolio includes oversight of trade agreements with Canada and Mexico, Chile, Central America and the Dominican Republic, Peru, Colombia, and Panama, as well as bilateral trade issues with Brazil, Argentina and the remainder of South America and the Caribbean. Melle brings some three decades of experience to the table, having joined USTR in 1988.
  • Mexico. Kenneth Smith Ramos is Mexico’s chief technical negotiator. He heads the Trade and NAFTA Office of the Ministry of the Economy of Mexico, in Washington. The office promotes the trade relationship between Mexico and the U.S. and seeks to ensure NAFTA’s proper implementation. Smith previously was coordinator general for International Affairs at the Mexican Ministry of Agriculture, Livestock, Rural Development, Fisheries and Food, where he was responsible for agricultural trade negotiations and international cooperation. He is a long-time NAFTA hand, having served om Mexico’s original NAFTA negotiating team.
  • Canada. Steve Verheul is leading Canada’s negotiating team after his success as lead negotiator for the massive Canada-EU trade deal, known as the Comprehensive Economic and Trade Agreement. Verheul’s NAFTA experience dates back to his stint in international trade policy at Agriculture and Agri-Food Canada from 1989 to 2009, where he worked on the NAFTA negotiations as well as the Uruguay Round and the Doha Round of World Trade Organization negotiations. From 2003 to 2009, Verheul lead Canada’s involvement in international trade negotiations on agriculture, including the WTO.

TEAM USA: POTENTIAL PLAYERS BEHIND THE SCENES

  • Environment. Assistant U.S. Trade Representative for Environment and Natural Resources Jennifer Y. Prescott has held this position since January 2013. She is responsible for overseeing all trade and environment issues for USTR, including those related to free trade agreement negotiation and implementation, work in the World Trade Organization (WTO) on trade and environment issues, and trade-related activities under multilateral environmental agreements. Prescott played a key role in negotiating the environmental chapters of U.S. free trade agreements with Morocco, Bahrain and Oman.
  • Investment. Daniel Bahar, assistant USTR for services and investment, is charged with developing and implementation of U.S. services, investment, and digital trade policy. Bahar has been with USTR since 2006 when joined as director of investment affairs, leading interagency and intra-agency teams in investment negotiations and on related policy issues. Bahar holds a J.D. from Harvard Law School, an M.A. from the College of Europe, where he studied as a Fulbright Fellow, and a B.S. from Drexel University.
  • Agriculture. Sharon Bomer Lauritsen, as assistant USTR for agriculture, is responsible for negotiations and policy coordination regarding agriculture. Before joining USTR, Bomer served as executive vice president of the food and agriculture section at the Biotechnology Industry Organization (BIO) where she led BIO’s Food and Agriculture Section on public policy activities, including overseeing relationships with international, federal, state and local entities. Prior positions also included serving as director of government affairs for United Fresh Fruit and Vegetable Association.
  • Labor. Assistant USTR for Labor Lewis Karesh assumed this position in 2005, overseeing trade and labor issues for USTR, including negotiation of labor provisions in multilateral, regional, and bilateral free trade agreements. Karesh is another old NAFTA hand, having begun his work on trade and labor issues in 1994 with the negotiation and implementation of the North American Agreement on Labor Cooperation—NAFTA’s side agreement on labor.

To contact the reporter on this story: Rossella Brevetti in Washington at rbrevetti@bna.com

To contact the editor responsible for this story: Jerome Ashton at jashton@bna.com

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