August 21, 2017

NAFTA Negotiations Begin As Section 232 Investigation Continues To Move Forward

In Washington, D.C. last week, top trade officials from the United States, Canada, and Mexico held their first official meetings regarding NAFTA renegotiation.

U.S. Trade Representative Robert Lighthizer, Canadian Foreign Affairs Minister Chrystia Freeland, and Mexican Economy Minister Ildefonso Guajardo began the four-day talks with a press conference on Wednesday. At the event, Ambassador Lighthizer said, “The views of the president about NAFTA, which I completely share, are well known. I want to be clear that he is not interested in a mere tweaking of a few provisions and a couple of updated chapters. We feel that NAFTA has fundamentally failed many, many Americans and needs major improvement.” (In their opening statements, Canadian and Mexican officials focused on NAFTA’s positive track record.)

Lighthizer also outlined four broad objectives for the talks:

  • Reduce The Trade Deficit. The United States runs a goods trade deficit with both Canada ($12.1 billion in 2016) and Mexico ($55.6 billion in 2016).  
  • Address Currency Manipulation. Although Canada and Mexico are unlikely currency manipulators, other U.S. trade partners, namely China, have employed the tactic to benefit their commercial interests. It’s likely that the administration added this goal in order to alert other countries that the U.S. will standardize this demand.
  • Enhance Services Trade Regulation. The Trump administration wants new rules surrounding the trade of services, such as telecommunications and financial advice, as well as digital goods like e-books, which were not included in the original 1994 agreement.
  • Eliminate Chapter 19. Chapter 19 functions as a dispute mechanism, allowing companies to appeal decisions by domestic courts on trade remedies in an alternative panel. Some private U.S. firms have argued this provision inhibits and undermines U.S. enforcement of trade law. (As The Wall Street Journal) noted last week, this issue is one on which the U.S. and Canadian and Mexican governments strongly disagree.)

Ambassador Lighthizer also said the negotiations should result in “provisions to guard against market-distorting practices of other countries, including third-party dumping and state-owned enterprises.” (On a related note: Commerce Department officials said last week that its Section 232 steel report is in the “final stages” of development. According to Reuters, most analysts still expect the administration to take strong action to counter China’s market-distorting policies, which have led to an overcapacity of steel.)

The next round of NAFTA negotiations is scheduled for Sept. 1-5 in Mexico City. The third round will occur in Canada—likely Ottawa—from Sept. 23-27. According to Politico’s “Morning Trade,” “The quick turnarounds—just 11 days will pass between the close of the first round and the start of the second—reflect the aggressive pace that all three countries have expressed interest in pursuing.” Politico notes that, “while officials have publicly said they are working toward a soft deadline of later this year or early next, in an attempt to finalize the deal before the Mexican presidential election ramps up in early 2018, they have privately been much more firm on the idea of concluding talks by December.”