The tone of negotiations has soured since the last instalment of this blog series. The NAFTA negotiations are now being dominated by talk of “poison pills” and a potential end to the agreement being nigh. The United States tabled a list of “poison pills” (positions so untenable there is no hope of negotiating them into the deal) during the last round of negotiations in Washington, including: reductions in government procurement access; a sunset clause that would kill NAFTA based on U.S. trade deficit triggers; automotive rules of origin; and a dispute settlement system that allows participants to opt out at will. Since then, the United States has accused Canada and Mexico of not wanting a fair deal, and Canada and Mexico have accused them of deliberately trying to sabotage NAFTA. The rhetoric from all sides remains rampant, but the reality got a little foggier.
Doom and Gloom
While the threat of NAFTA being doomed has become more real, the parties have also signaled their willingness to stay at the negotiating table by extending the timeline for talks into 2018. Although this extension may seem like a goodwill gesture, it is also meant to add some oxygen to the negotiations by spreading out the negotiating rounds and allowing each party additional time to develop their positions and responses.
Canada staying at the table
For its part, Canada has stated that they will remain at the negotiating table. At the same time, it is become clearer that Canada would rather the deal die than to take a bad deal. Staying at the table makes sense on numerous fronts for Canada. It puts the ball in the United States’ court to withdraw. If they don’t, negotiations continue. If they do trigger their withdrawal, it remains very unclear how exactly that would work under the U.S political system. There is a very real chance that Congress stalls a U.S withdrawal through a possible standoff with the President. Questions remain whether the President even has the ability to unilaterally withdraw or whether he requires the support of Congress. In either case, while withdrawal is debated in the U.S. political system, the current NAFTA would remain in force, something Canada is perfectly comfortable with. Therefore, staying at the table is a solid strategy for Canada.
The TPP Effect
The revival of the Trans-Pacific Partnership (TPP) has also made headlines recently, albeit now with 11 members (TPP-11) since the withdrawal of the United States. However, the United States continues to push for matters that were in the original TPP to be included in a modernized NAFTA. Canada and Mexico have stated that if the United States had wanted the TPP, they could have stayed in. A tri-lateral NAFTA should consider the relationship of only its three partners. It will be interesting to see how the TPP-11 continues to influence Canada’s position vis-à-vis the NAFTA negotiations as we move forward.
The Path Forward
Baby steps. Those poison pills will remain on the backburner for now while the parties try and work out some less contentious issues. It remains to be seen whether the United States will continue to signal that the agreement cannot be salvaged, or if Round 5 will be able to right the ship.
You can reach Noah via everydaytrade.ca