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May 14, 2018

Little Progress Made During Last Week’s NAFTA Negotiations

Negotiators from Canada, Mexico, and the United States met in Washington, D.C. last week to continue their discussions about updating the North American Free Trade Agreement (NAFTA). By most accounts, little progress was made, particularly on the issue of auto content requirements.

As Connecting the Dots reported previously, the United States softened its position on this matter and now wants to require that 75 percent of all autos be made of North American materials before they’re eligible for duty free status. The United States also wants to require that 40 percent of auto components be built by workers with an hourly wage of at least $15 in order to qualify for duty free status. The United States would allow four years to implement these rules. The U.S.’s wage requirement would be a blow to Mexico’s low-cost auto industry since, on average, Mexican automobile assembly workers earned less than $8 an hour in 2017. As such, Mexican negotiators have rejected the U.S.’s offer. Mexico wants to require that 70 percent of all autos be made of North American materials before they’re eligible for duty free status; doesn’t want a wage floor; and would like a 10-year window for implementing these rules.

The Trump administration also wants to remove the investor-state dispute settlement (ISDS) clause despite opposition from Republicans on Capitol Hill and from major U.S. business groups, including the U.S. Chamber of Commerce and the American Council for Capital Formation, which has launched an ad campaign on ISDS. In a letter, a group of state lawmakers argued against removing the ISDS clause. The letter said, “NAFTA without ISDS could result in biased foreign courts treating American businesses unjustly and making U.S. investments vulnerable to potential seizure or other unlawful mistreatment.”

Canada supports the ISDS mechanism, despite the fact that the ISDS clause is often used against Canada. Many Canadians believe the process gives businesses too much power. Canada originally wanted to alter the ISDS process so that there would be a set roster of judges appointed by NAFTA countries. Canadian trade officials responded to the U.S. proposal to opt out with a proposal to create a bilateral investor dispute mechanism with Mexico. Mexican officials, while a supporter of dispute resolution mechanisms, are less invested in ISDS preservation.

Eliminating ISDS could help garner Democratic support of the renegotiated trade deal, as they tend to oppose the dispute mechanism. That might be important if discussions extend past the next few weeks. Negotiators don’t have much time left to work if they want a new NAFTA in place by the time U.S. voters go to the polls in November. U.S. House Speaker Paul Ryan (R-Wis.) said last week that, because of deadlines imposed by the Bipartisan Congressional Trade Priorities and Accountability Act of 2015, Congress must receive formal notice of the Trump administration’s intent to sign a new NAFTA agreement by May 17 if the current Congress is going to be able to vote on it. That deadline is unlikely to be met since negotiators are not meeting this week.

The Metals Service Center Institute (MSCI) continues to encourage its members to discuss their opinions about NAFTA reauthorization with lawmakers. The Canadian government has established a webpage for stakeholders to submit their views. Companies also may submit comments by email (NAFTA-Consultations-ALENA@international.gc.ca) or by mail to: NAFTA Consultations, Global Affairs Canada, Trade Negotiations – North America (TNP), Lester B. Pearson Building, 125 Sussex Drive, Ottawa, ON K1A 0G2. MSCI members in the United States who are interested in weighing in on NAFTA deliberations should contact their representatives in the U.S. House and Senate to let them know how altering or eliminating NAFTA would affect their businesses, employees, and customers. Click here for contact information for every member of the House and here for senators.

MSCI’s comments to the Office of the U.S. Trade Representative regarding NAFTA reauthorization are here and a National Association of Manufacturers’ report outlining NAFTA impact on each U.S. state is available here.