The fifth round of NAFTA renegotiation, held for the first time without participation by the NAFTA trade ministers, took place in Mexico City from November 17-21. The negotiators made progress at the technical level on some NAFTA chapters, including on digital trade, sanitary and phytosanitary measures (SPS), customs, and regulatory cooperation.
Little progress was made on the most politically sensitive issues. At the close of the round, U.S. Trade Representative (USTR), Robert Lighthizer issued a statement outlining his concerns that the U.S. has “seen no evidence that Canada or Mexico are willing to seriously engage on provisions that will lead to a rebalanced agreement.”
Canada and Mexico did not submit substantive responses to several contentious U.S. proposals, in particular on rules of origin for automobiles. Neither party made a counteroffer to the U.S. proposal to increase the regional content requirement to 85 percent and establish a national content requirement of 50 percent for U.S.-origin content. Canada and Mexico are holding back on making a response—at least for the moment—in hopes that USTR will give in to pressure by U.S. industry and Congress to withdraw or soften its proposal. The two parties did ask for clarification of the U.S. analysis used to formulate the regional value and local content proposal.
Meanwhile, the Trump administration continues to signal that if deadlock on these issues continues through early next year, the President may announce an intention to withdraw the U.S. from the agreement, triggering a 180-day waiting period mandated by Article 2205 of NAFTA. The threat of such a move could create negotiating leverage, particularly with Mexico, though triggering withdrawal would be strongly opposed by agricultural groups, most U.S. industries, as well as likely a majority of Congress. U.S. agriculture groups have been vocal in recent weeks about their opposition to the Trump administration threatening withdrawal from the agreement, noting that it will cause enormous economic disruption in agriculture-dependent states that are important suppliers to Canada and Mexico.
A set of updated negotiating objectives released by USTR on November 17 reflect many of the U.S. proposals thus far, but also leave enough room for the U.S. to negotiate key outcomes. They include the following:
- Sunset clause: An updated objective is to “provide a mechanism for ensuring that the Parties assess the benefits of the agreement on a periodic basis.” This is aligned with the U.S. proposal to automatically terminate NAFTA after five years unless renewed. Notably, Mexico proposed during the fifth round that NAFTA parties conduct a review of the agreement every five years—without the threat of automatic termination—which would also be aligned with the updated U.S. objective.
- Investor-State Dispute Settlement: The updated U.S. objective is to seek “meaningful procedures for resolving investment disputes, while ensuring the protection of U.S. sovereignty and the maintenance of strong U.S. domestic industries.” While the objective reflects USTR Lighthizer’s skepticism regarding the benefits of ISDS, it does not necessarily commit the Administration to its proposal to establish an “opt-in” ISDS system.
- Digital Trade: A new U.S. objective is to “establish rules that limit non-IPR civil liability of online platforms for third party content, subject to NAFTA countries’ rights to adopt non-discriminatory measures for legitimate public policy objectives.” The U.S. at the latest round proposed including legal protections against civil liability for 3rd party online platforms, aimed at protecting major U.S. Internet companies such as Google or Facebook.
- Intellectual Property: The updated U.S. objective adds language to include “as an appropriate, exceptions and limitations” to protections for copyright and related rights as a part of the agreement. The new objective could suggest that the U.S. will continue to favor inclusion of copyright “safe harbor” limitations for Internet providers and intermediaries consistent with a series of recent U.S. trade agreements, and new provisions recognizing “balance” in the area of copyright similar to provisions on “exceptions and limitations” as first negotiated in the TPP.
The next formal negotiating round is set for January 23-28 in Montreal, Canada, though NAFTA negotiators will also meet in December to work on technical issues. The significant break between rounds will permit the Trump administration and Congress to focus on tax reform through the end of the year, the success or failure of which could have an impact on the political pressure to conclude a favorable NAFTA renegotiation in early 2018.
NAFTA negotiators have given themselves until March 31, 2018, to seek agreement on updating the regional trade agreement.