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Canada “Struggling” to Figure Out What U.S. Considers a “Win” in NAFTA Talks

Posted December 06, 2017

The Trudeau government is “struggling” to identify what the Trump administration considers a “win” in the renegotiation of the North American Free Trade Agreement, according to Steve Verheul, Canada’s chief negotiator in the talks.

Appearing before the House of Commons Standing Committee on International Trade earlier this week, Verheaul told lawmakers that Canada has yet to make a counter-proposal on what he described as “entirely unworkable” U.S. demands regarding contentious issues such as a five-year “sunset clause,” aggressive changes to the pact’s regional rules of origin, and scrapping of Canada’s supply management system.

Verheul said that while it was certainly possible to “bring a lot of creativity to the table in developing outcomes that could certainly be characterized as a U.S. win or a North American win,” such an approach to modernizing the deal wasn’t feasible as long as the U.S. operates with an “overriding objective” of making gains in the talks at the expense of its NAFTA partners.

Regarding the U.S. proposals many consider “poison pills,” Verheul said that Canada spent a significant amount of time at the last round of NAFTA talks explaining that a key demand calling for the regional content threshold to be raised to 85% from the current 62.5%, with a 50% minimum U.S. content level in addition to a requirement that all parts be traced, would harm all three countries. This unusual step was necessary, according to Verheul, because the Trump administration hadn’t analyzed the impact its proposal would have on the auto industry.

U.S. Commerce Secretary Wilbur Ross has long railed against NAFTA’s “job killing” rules of origin as being a flawed arrangement that unfairly advantages Canada and Mexico and has cited a deeply problematic study to support the administration’s position, which has been roundly panned by economists. Brushing off widespread criticism that radical changes proposed by the administration might do little more than disrupt highly intricate, multinational supply chains for some automakers and raise prices for consumers, Ross told a conference in October that “I don’t think it’s that hard at all,” glibly adding, “I think you’ll find the car companies will adapt themselves to it.”

Another “unworkable” U.S. demand for a dollar-to-dollar government procurement scheme would effectively “eliminate” Canadian access to the U.S. procurement market under NAFTA and Canada “will not engage on the basis of that kind of approach,” Verheul told the committee.

The chief negotiator also slammed the Americans stance on dispute settlement, characterizing its state-to-state dispute settlement proposal as “an attempt by the U.S. to return to a pre-WTO era where the biggest economies win over smaller economies.”

On investor-state dispute settlement, he said Mexico and Canada responded to the U.S. proposal to allow NAFTA countries to opt in or out by stating that all three countries would opt out, which would eliminate ISDS between NAFTA partners. Canada has offered its own proposal for a system similar to the investment court regime included in the Comprehensive Economic and Trade Agreement with the European Union, Verheul said. However, that proposal is opposed by both Mexico and the U.S., he added.

Verheul said he was obviously unable to provide lawmakers with “concrete assurances” that the U.S. would stay in NAFTA. If it decides not to, however, he said the government was already working on contingency plans, “to make sure that the impact is as modest as it can possibly be,” although he did not offer any specifics. “We’re doing some internal thinking on that. We’re not really ready to talk about the details of what that would be. That’s still under consideration,” he said.