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NAFTA Standoff Doesn’t Bode Well for the Future of the Trade Deal

NAFTA could end up being a bilateral trade agreement that doesn’t include the United States at all.

Things did not go well in the fourth and latest round of talks, which wrapped in Washington on Tuesday, and prospects for a positive—and speedy—renegotiation seem to be dwindling.

In fact, the three parties are so far apart in their positions, that the next round of talks, which were set to take place later this month, have been put off until Nov. 17-20 in Mexico City, and a trilateral statement following the close of the fourth round noted that additional rounds would be scheduled through the first quarter of 2018, despite hopes of settling on something before years end.

“Frankly, I am surprised and disappointed by the resistance to change from our negotiating partners on both fronts,” U.S. Trade Rep Robert Lighthizer said in a closing statement Tuesday.

The U.S. has had two objectives in the NAFTA renegotiations, Lighthizer reiterated: updating the 23-year old agreement to reflect the modern economy, and reducing the “huge” trade deficit that has cost the U.S. “tens of thousands of manufacturing jobs.”

“We have made some headway on the first objective, but even here we have sometimes seen a refusal to accept what is clearly the best text available in spite of the countries having agreed to it in the past,” Lighthizer said.

Because text from the discarded Trans-Pacific Partnership has been used to inform the NAFTA negotiations, Lighthizer seemed to express frustration that the partners who had agreed to the TPP are rejecting its text under NAFTA. Things like digital trade, telecommunications and anticorruption still haven’t been agreed upon.

“As difficult as this has been, we have seen no indication that our partners are willing to make any changes that will result in a rebalancing and a reduction in these huge trade deficits,” Lighthizer said. “Now I understand that after many years of one-sided benefits, their companies have become reliant on special preferences and not just comparative advantage. Countries are reluctant to give up unfair advantage.”

President Trump has been clear that the U.S. will wash its hands of the deal if things don’t go the way he wants and Lighthizer reinforced that this week.

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“Continuing to design a national manufacturing policy that is largely dependent on exports to the United States without balance cannot long continue,” Lighthizer said. “It is also important to remember that to some extent, NAFTA is an investment agreement, and it is unreasonable to expect that the United States will continue to encourage and guarantee U.S. companies to invest in Mexico and Canada primarily for export to the United States.”

What’s Mexico saying?

Mexico has been clear that it’s willing to work on updating the NAFTA trade deal, but it’s also been clear that it won’t be bullied into accepting terms it doesn’t agree with.

Earlier in this latest round of talks Mexican foreign minister Luis Videgaray warned that a discarded NAFTA would hurt relations between the U.S. and Mexico, noting that it might even affect cooperation on things like drug trafficking and illegal immigration.

In Mexico’s own statement Tuesday, the country’s secretary of the economy, Ildefonso Guajardo Villarreal said some progress has been made but there’s still “a lot of work to do” to keep NAFTA talks moving forward.

“In order for the efforts of Mexico, the United States and Canada to be fruitful, we must understand that we all have limits,” Villarreal said. “Without a doubt, there might be proposals in which we do not coincide.”

The NAFTA that Mexico wants, according to the statement, provides certainty for investments by strengthening the legal protection for the creation of jobs, trade rules that will allow it to take advantage of the new digital economy, and perhaps most importantly, keeps the trading relationship updating by “cooperating under the NAFTA umbrella, not by eliminating it completely.”

“None of us want to end this process empty-handed; and there is no reason for that,” Villarreal said.

Mexico also has one trump card that Canada and the U.S. do not: as a developing nation, it has the ability under World Trade Organization rules to impose higher import tariffs if there were no NAFTA. So if the U.S. decided to slap anti-dumping tariffs on Mexican imports, Mexico could hit back with tariffs that are even higher.

What’s Canada saying?

During a joint news conference Tuesday, Canada’s foreign affairs minister Chrystia Freeland said the U.S. is deliberately trying to undermine the NAFTA deal with proposals she called “unconventional” and “troubling,” according to Canada’s CBC News.

“In rounds three and four, we have seen proposals that turn back the clock on 23 years of predictability, openness and collaboration under NAFTA,” CBC reported Freeland as saying. “In some cases, these proposals run counter to World Trade Organization rules. This is troubling.”

Freeland said now that negotiations will run through March of next year at least, and there will be a bit more breathing room between rounds, she’s hoping for the best.

“We need to be prepared in a very sensible, pragmatic, dare I say it, a no fuss Canadian way, for the worst possible outcome,” she said. “And we certainly are.”

What are experts saying?

There’s little telling what the next round of negotiations will bring, but Jeff Rubin, senior fellow at the Centre for International Governance Innovation (CIGI) said Lighthizer’s comments might be a nod to a brewing new U.S. strategy.

“Lighthizer pointed to difficulties in resolving a lopsided and unbalanced trade agreement,” Rubin said. “While a new round of negotiations are scheduled, there is a growing possibility that the U.S. will walk away from the agreement and seek separate bilateral trade deals with Canada and Mexico.”

When prompted by the press during a meeting with Canadian prime minister Justin Trudeau in the Oval Office last week, Trump said he would consider a bilateral trade deal with Canada if things didn’t work out with Mexico for NAFTA.

In the interim, a lack of confidence in what’s to come of trade in North America is giving businesses more than anxiety.

As Dan Ciuriak, another senior fellow at CIGI said, “Extending talks on a negotiation with no obvious ‘landing zone’ due to poison pill brinkmanship is irresponsible; it imposes costs on business making decisions in real time.”