Worldwide: A Closer Look At Round Six Of The NAFTA Negotiations

Round six of the NAFTA negotiations concluded in Montreal on January 29, 2018. Trade ministers from Canada, the United States and Mexico rejoined the talks this round with the aim of creating movement on contentious chapters. Speaking from Davos before the commencement of negotiations, Canadian Foreign Affairs Minister Chrystia Freeland and Mexican Secretary of the Economy Ildefonso Guajardo said they would be approaching this round with creative proposals for the highly disputed chapters.1 The round was noteworthy in that a bi-partisan delegation from the United States House of Representatives Ways & Means committee attended as well; a useful development since Congress will have to approve whatever newly negotiated agreement is presented.

Notwithstanding Congressional interest in advancing a modernized NAFTA, the Montreal round was characterized by the deep differences in approach between the parties that has pervaded the negotiations in the previous rounds. For example, in their closing statements, both United States Trade Representative Robert Lighthizer and Freeland provided contrasting trade deficit numbers.2 Lighthizer also took the opportunity to discuss Canada's World Trade Organization filing against Washington's use of anti-dumping and anti-subsidy duties, calling the filing "unprecedented" and a "massive attack on all of our trade laws."3 Freeland responded by saying that the WTO challenge was a separate issue from the negotiations.4 She has subsequently offered to stand down on the WTO challenge in exchange for a deal on the long simmering Canada/US softwood lumber dispute.5

Despite some pointed rhetoric, the talks ultimately concluded with cautious optimism.6 In his closing statements, Lighthizer commented on the progress made this round. He stated to reporters in Montreal, "[W]e finally began to discuss some of the core issues. So this round was a step forward, but we are progressing very slowly." This sentiment was echoed by Guajardo, who stated, "For the next round, we will still have substantial challenges to overcome. Yet the progress made so far puts us on the right track to create landing zones to conclude the negotiation soon."7 Significant advances were made in less contentious areas, and the parties announced that a chapter on anti-corruption was closed, and chapters on digital trade and telecommunications are more than 90 per cent complete at this time.8

With respect to rules of origin, significant dialogue took place in round six. In previous rounds, the United States demanded stricter content requirements for North American made cars. Specifically, the United States proposed a raise in the requirement of regional content in cars and trucks from 62.5 percent to 85 percent. Coming into this round, Canadian officials commented that all three partners were open to discussing higher regional content requirements, but that a country specific requirement would damage the auto industry.9

In this vein, Canada proposed a new formula for determining which cars count as American. The formula included the value of intellectual property and research in calculating regional content.10 The proposed formula would inflate US content numbers without disrupting integrated supply chains. In his concluding statements, Lighthizer rejected this approach, stating "when analyzed, [the proposal] may actually lead to less regional content than we have now and fewer jobs in the United States, Canada, and likely Mexico. So this is the opposite of what we are trying to do."11

With respect to Chapter 11, the Canadian and Mexican delegations jointly proposed a new investor-state dispute settlement mechanism. Responding to the US proposal for an opt-in system for international investor disputes, Canada and Mexico have proposed a bilateral dispute settlement process for investor disputes that would exclude the US.12 Canada and Mexico are exploring alternatives to a trilateral investor dispute settlement system, including an "investment court system" similar to the one established between Canada and the European Union in the Comprehensive Economic and Trade Agreement (CETA). Legally, this avenue could be pursued through a "side-letter" or "annex" to NAFTA or through the two countries relying on investor-state dispute settlement provisions in the Trans Pacific Partnership (TPP) (if entered into force) or provisions in other, future, international agreements that address investor-state dispute settlement and investor protections.13

With regards to the sunset clause, Canada has signed on to Mexico's proposal for periodic reviews of the agreement, suggesting that NAFTA's central body, the Free Trade Commission, create regular progress reports. The US has not officially responded to this proposal and consequently the issue remains live into the seventh round of negotiations. Chapters 19 and 20 were given little to no public attention this round and little movement was made on chapters involving government procurement, labour and agriculture. Given the progress of the talks, it is unclear whether negotiations will conclude before the informal March 31st deadline.14 All three countries and key stakeholders are considering the impact that impending US and Mexican elections will have on the negotiations should they continue past the deadline. The frontrunner in the Mexican presidential campaign, Andreas Manual Lopez Obrador, has called for negotiations to pause until after the election.

The countries remain optimistic heading into the seventh round of negotiations that are set to take place in Mexico City from February 26th to March 6th.15 Lighthizer emphasized his still positive outlook in his closing remarks, stating, "The United States views NAFTA as a very important agreement. We are committed to moving forward. I am hopeful progress will accelerate soon."16 Although the US has also floated the notion of pursuing two bilateral deals - one with Mexico and one with Canada if progress is not made on NAFTA.17

Our Dentons NAFTA team is tracking developments and involved in various ways in the discussions in all three countries. We are happy to be able to assist clients in developing customized tools to assist them in assessing and mitigating risks associated with the termination or amendment of the NAFTA. Please reach out to any of our key contacts for more information.

With assistance from Emily Quail, Articling Student at Dentons Canada LLP.

Footnotes

1. "At Davos, Canada and Mexico upbeat on NAFTA talks", Reuters (January, 25, 2018), online: https://www.reuters.com.

2. "'A step forward': NAFTA Round 6 talks wrap up in Montreal with some progress", CBC News (January 29, 2018), online: http://www.cbc.ca/news/politics/nafta-lighthizer-montreal-round-6-1.4508325 [A step forward].

3. Robert Lighthizer, "Closing Statement of USTR Robert Lighthizer at the Sixth Round of NAFTA Renegotiations", US Embassy & Consulates in Canada (January 29, 2018) online: https://ca.usembassy.gov [Lighthizer].

4. A step forward, supra note 2.

5. Sean Kilpatrick, The Canadian Press, "Canada suggests a deal on softwood lumber may lead it to drop WTO case against U.S.", Financial Post (February 7, 2018) online: http://business.financialpost.com/news/economy/canada-to-u-s-give-us-a-softwood-deal-and-we-may-drop-wto-case.

6. Alexander Panetta, "Cautious optimism as NAFTA round in Montreal ends Monday", The Toronto Star (January 28, 2018) online: https://www.thestar.com.

7. David Lawder, Anthony Esposito, "US rejects proposals to unblock NAFTA will seek 'breakthroughs'" Reuters (January 29, 2018) online: https://ca.reuters.com

8. Alexander Panetta, "NAFTA: A summary of where talks stand" The Financial Post (January 228, 2018) online: http://business.financialpost.com.

9. Ibid.

10. Ibid.

11. Lighthizer, supra note 3.

12. The Canadian Press, "Canada, Mexico tell US: Decide whether you want a NAFTA dispute settlement process" CBC News (January 28, 2016) online: http://www.cbc.ca.

13. Ibid. See also: Trans Pacific Partnership, Chapter 9 Investment, Section B: Investor-State Dispute Settlement, online: http://www.international.gc.ca/trade-commerce/trade-agreements-accords-commerciaux/agr-acc/tpp-ptp/text-texte/09.aspx?lang=eng.

14. Doug Palmer and Adam Behsudi, "Trump's trade chief clashes with Canada, Mexico in NAFTA talks" Politico.com (January 29, 2018) online: https://www.politico.com.

15. "Mexico City round of NAFTA talks planned for February 26 to March 6" Reuters (January 29, 2018) online: https://www.reuters.com.

16. Lighthizer, supra note 3.

17. Alexander Panetta, The Canadian Press, "Annoyed with Canada, US trade czar floats idea of separate NAFTA deals: lawmaker" CTV News (February 7, 2018) online: https://www.ctvnews.ca/politics/annoyed-with-canada-us-trade-czar-floats-idea-of-separate-nafta-deals-lawmaker-1.3793626.

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