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NAFTA negotiations at a standstill

NAFTA negotiations at a standstill

Insight

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07 December 2017

Key point:

The fifth round of renegotiations regarding the modernisation of the North Atlantic Free Trade Agreement (NAFTA), which brought together nearly thirty groups, was held in Mexico City on 17-21 November. While all involved parties reaffirmed their commitment to moving the negotiations forward, no progress was made on the major points of contention and as a result significant conceptual gaps remain. 

Little progress on major disagreements

The three major areas of disagreement include; the rules of origin, the sunset clause on the duration of the agreement and whether or not to continue the arbitration of antidumping and countervailing duty cases.

  • The rules of origin assess how much of a product must be sourced within the NAFTA region in order to get the trade pact’s benefits. For example, the automobile industry indicates that 62.5% of vehicle content and 60% of auto parts content must originate in North America in order to be exported duty free. The US administration intends to specify a local US content, at 50% for the auto industry, while increasing the NAFTA content to 85%. As such, it would be the first trade agreement to include such a unilateral clause. Mexico opposes the proposal, and is backed by many US companies already present in the country – together they are lobbying to protect their profitability and competitive advantages, as tighter restrictions could push manufacturing out of North America altogether.
  • The US aim to limit the lifespan of any new trade deal to five years by including a sunset clause in the new agreement. Such a rule would create a permanent source of uncertainty as the agreement would need to be renegotiated much more frequently than is currently the case and as a result it would make long-term investments more challenging.
  • The US intends to modify Chapter 19 of the agreement which currently stipulates that trade dispute resolutions should be handled outside the US court system. Canada made a showcase of this clause at the signature of the deal back in 1990s.

All of these points have been strongly opposed by Mexico and Canada but no counter proposal has yet been forthcoming. 

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