November 28, 2017
By Janet Ireland

NAFTA renegotiations: three different perspectives

You have probably read articles in the newspapers about the NAFTA renegotiations currently in process between the United States, Canada and Mexico. The first round of renegotiations of this commercial free trade agreement, which had been uniting the three countries since 1994, started in Washington in the middle of August. Since the middle of November, the fifth round has been ongoing in Mexico. According to the most recent information, the discussions – which originally had been scheduled to be concluded by the end of 2017 – will instead continue into the start of the year 2018. But why is it so hard to reach the agreement the three countries long for? In the following article, we will present an overview of the demands raised by each of the three NAFTA members.

What are the United States looking for?

From the very start of his victorious electoral campaign, Donald Trump had never stopped saying that NAFTA was the “worst trade deal ever made”. And during the first negotiation rounds, he mentioned that he would likely withdraw from the agreement eventually if a satisfactory deal was not reached.

Trump’s declarations aside, there are indeed several points on which US negotiators refuse to back off, complicating the conclusion of a new agreement. For instance, Americans demand to put an end to the Canadian milk, eggs and poultry supply management system, which protects Canadian farmers by imposing duties on American products. Canada adamantly refuses to abolish the system, and will firmly defend its point of view at the negotiating table.

In addition to the dairy and poultry supply management situation, US negotiators also want all automotive vehicles traded without duties and taxes to be built using at least 85% North American content, and at least 50% US-originating parts specifically. Automobile manufacturers would have only one year to comply, a deadline that Canadian manufacturers consider to be unrealistic. It should be noted that multiple US-based automaker groups find the new demands to be excessive, believing that NAFTA has mostly had a positive impact on their business.

As of lately, the United States have decided to lower the trade barriers for e-commerce with Canada and to increase the duty-free purchase limit for Canadian customers shopping US products online from $20 US to $800 US. While some Canadian consumers have responded positively to the possibility, Canadian retailers are worried.

The United States’ demands have been widely criticized by various Canadian groups that would be impacted by them. They are often seen as remnants of American protectionism which serve only to sabotage the renegotiations. Still, according to the latest statistics published by the US Department of Commerce, the share of US-produced content went from 26% in 1995 to 16% in 2011 in manufactured goods imported by the United States from Mexico, and from 20.9% to 14.7% in manufactured goods imported from Canada. This may be a reason why the United States are so uncompromising in their demands.

What does Canada want out of this agreement?

Given that renegotiating NAFTA was the United States’ initiative, Canada is mostly just trying to find common ground with its Southern neighbors. Nevertheless, Canada intends to bring its own demands to the table.

The top priorities for Canada have been established by Minister of Foreign Affairs Chrystia Freeland from the very start of the negotiations. Among other things, Canadian negotiators are asking to create new chapters on labor and environmental standards, to change chapter 11 on the settlement of disputes between investors and governments, and to keep chapter 19 on the settlement of antidumping and countervailing duty disputes between companies (which the US want to abolish). Procurement expansion to NAFTA partner companies and the free movement of professionals are also among Canada’s demands.

NAFTA negotiations aside, Canada has also recently concluded a free trade agreement with the European Union: the Comprehensive Economic and Trade Agreement (CETA). On top of that, Canada is also trying to renegotiate the Trans-Pacific Partnership (TPP) with its eleven signing countries, with the goal of integrating Asia-Pacific and American economy. Should the three NAFTA countries fail to come to an agreement, Canada is open to the possibility of signing a bilateral agreement with the States.

And what about Mexico?

Mexico is also trying to keep the United States’ demands in check. However, the States are not particularly receptive, feeling that NAFTA is to blame for their 64 billion trade deficit with Mexico. If the United States were to break the agreement or to impose duties and taxes on Mexican-imported products, there could be repercussions on the Mexican economy. Between 1993 and 2016, Mexican exportations into the States have increased seven-fold.

Nevertheless, Mexico remains certain that the three countries can come to a satisfactory agreement. Given the latest developments, it does not seem like Canada is intending to leave Mexico behind if the United States were to terminate NAFTA. On its own end, Mexico is also signing agreements with multiple other countries (including Central and South American countries and the European Union) to diversify its commercial exchanges.

Can it even be done?

And so, these renegotiations that should have ended in 2017 will now drag into 2018. Only one thing is for sure: the negotiation rounds to come will not be easy for any of the three countries. Despite having brought the trade amount between the three countries from 297 billion to 1.10 trillion, it seems like NAFTA is no longer a universal fit. Could the United States pull out of NAFTA once and for all? Could Canada and the United States come to a bilateral agreement? If so, what will happen to Mexico? Time alone will tell.

NAFTA renegotiations: three different perspectives

What are the United States looking for?

What does Canada want out of this agreement?

And what about Mexico?

Can it even be done?

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