U.S., Canada, Mexico: The Work Begins On Possible NAFTA Reform

3 MINS READAug 16, 2017 | 19:15 GMT

Canada, the United States and Mexico are taking the first step toward negotiating changes to the North American Free Trade Agreement (NAFTA). The trade bloc's talks to renegotiate aspects of NAFTA begin Aug. 16 in Washington, D.C. and will last until Aug. 20. This first round of negotiations will most likely be used to present each side's proposals and demands for updating the agreement. Concrete changes to the trade agreement will not come until several months from now, when the talks are more advanced.

The U.S. administration has made reducing the overall trade deficit with Mexico a rhetorical centerpiece of its demands for the NAFTA negotiations. But the talks will also focus on a series of other specific objectives laid out last month by the Office of the U.S. Trade Representative. Among these objectives are the following: strengthening the rules of origin for products manufactured within the bloc to qualify for tariff-free export to the United States, expanding market opportunities for agricultural goods in NAFTA member countries, expanding market opportunities for telecommunications and financial services providers in the bloc, and strengthening labor standards in member states to eliminate unfair advantages. The United States would also like to eliminate a dispute resolution mechanism in the original agreement that allows foreign investors to challenge anti-dumping/countervailing duty rulings through a trilateral arbitration commission.

The elimination of this dispute resolution mechanism could be a deal breaker for Canada, which wants to keep it. Ottawa has already threatened to pull out of the negotiations if it is abolished. However, Canada and the United States appear to agree on other points of discussion, such as negotiating new chapters on labor standards and environmental standards. Canada also intends to negotiate for the freer movement of labor, simplification of the bloc's requirements on rules of origin, and liberalization procedures for participation in government procurement.  

Mexico would like to keep the agreement as close to its present form as possible. The Mexican negotiating team would prefer any negotiation to end with updates to specific sectors such as energy trade and digital commerce as well as simplified customs procedures. This is preferable to the imposition of new tariff or non-tariff barriers. Mexico will retain tools to shape the negotiation, from which it could benefit at the expense of the United States if the deal falls apart. These include the threat of tariffs on U.S. agricultural goods, the expansion of South American agricultural imports at the expense of U.S. exporters, and the threat of sourcing more manufacturing inputs from outside the bloc, which would harm U.S. manufacturers in Mexico-linked supply chains.

The United States' position in these new NAFTA discussions appears far more moderate than campaign trail rhetoric or statements early in the Trump administration suggested. The three governments of NAFTA's member states appear willing to move forward to adopt a relatively quick process of modernizing aspects of the trade agreement. Still, the final outcome of the talks remains uncertain, as sticking points between the three governments may arise as negotiations delve further into trade details. Regardless, the intent of the United States remains to move forward promptly with renegotiating NAFTA. 

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