U.S.: Trump Announces a Trade Deal, but With Whom?

4 MINS READAug 31, 2018 | 22:01 GMT

After three days of marathon meetings, the United States and Canada failed to reach a preliminary understanding on a renegotiated North American Free Trade Agreement. Their talks concluded Aug. 31, a soft deadline imposed by the United States, which wanted to wrap up NAFTA talks this week after a deal was made with Mexico on Aug. 27. Washington wants to sign a revamped trade deal before Mexican President-elect Andres Manuel Lopez Obrador takes office on Dec. 1. However, after Canada's more than monthlong absence from NAFTA talks, three days was not enough time for Ottawa and Washington to resolve their differences.

Still, the U.S. Congress has been notified that U.S. President Donald Trump intends to sign a trade deal with Mexico — and "Canada if willing" — 90 days from now. That 90-day requirement is a result of U.S. fast-track trade rules that make it easier for Congress to approve any trade deal the president signs. U.S. Trade Representative Robert Lighthizer also said that talks with Canada would resume Sept. 5. And while there's no guarantee that progress will be made, it appears as if the United States hasn't entirely ruptured the process, despite Trump's harsh rhetoric slamming Ottawa.

What Happens Next?

Where the deal goes from here depends on how talks between the United States and Canada progress. The U.S. Congress is adamant that any new NAFTA deal must involve both Mexico and Canada and that a deal with Mexico alone may violate fast-track rules. When Congress received notification that the White House was beginning trade negotiations, the Trump administration specified trilateral talks — not bilateral. Moreover, given that 36 U.S. states rely on Canada as their largest export destination, domestic pressure and congressional checks on Trump's ability to actually boot Canada from NAFTA will come into effect.

The congressional notification started the 90-day clock, giving the White House a narrow window to finalize the deal in time to sign it before Lopez Obrador takes office. That means the deal must be signed either on Nov. 29 — 90 days after Aug. 30 — or Nov. 30. According to U.S. fast-track rules, the United States must make public the text of an agreement at least 60 days before it is signed. Thus, to meet its deadline, the White House must release the text of the agreement by Sept. 30. This effectively means that the United States, Mexico and Canada will only have the remainder of September to reach final agreements on all points in the finalized text. (The agreement with Mexico was only preliminary, not a final deal.)

As talks between Canada and the United States continue, it is increasingly clear what the sticking points are.

If talks between Canada and the United States fail to make progress, the Trump administration then has a choice to make. Does it delay the signing date to after Lopez Obrador's takes office, or does it try to get creative with Congress and Canada and push through a smaller deal with Mexico while talks with Canada continue? It's unlikely that Trump, despite all his rhetoric, would attempt to even try to break off talks with Ottawa entirely, but that would result in a very uncertain situation politically.

What to Watch For?

As talks between Canada and the United States continue, it is increasingly clear what the sticking points are. There are two key areas that Ottawa is trying to protect. First, it wants to ensure that some form of the Chapter 19 state-to-state dispute mechanism will remain in place. Chapter 19 allows Canada to challenge U.S. anti-dumping and countervailing duty determinations in binational dispute panels instead of U.S. courts. Canada has used this mechanism several times, for example, to win cases against the United States on tariffs on Canadian softwood lumber. The key issue that Ottawa is likely concerned with is the so-called "zeroing policy" of the United States, which makes it even easier for Washington to make affirmative decisions in investigations.

The second key issue is keeping the original NAFTA protections for cultural industries — radio, television, music, etc. — and not forcing Canada to open those up to American cultural competition. The United States has continued to claim that Canada's offer on opening up its dairy sector — which Canada is trying to "trade" for cultural exemptions through Chapter 19 — is not good enough.

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