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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.
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.
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