NAFTA round 3 talks get underway; Canada’s chief negotiator not hopeful for progress on auto rules

NAFTA: A West Block Primer
In this West Block primer - what is on the table for NAFTA as negotiators head into round three later this month in Ottawa.

OTTAWA – Despite tough talk from the U.S. about the job-killing impact of NAFTA on its automotive sector, Canada’s chief negotiator isn’t expecting to see a detailed American proposal on the matter during the latest round of talks to rewrite the continental trade pact.

Rules of origin will be “a subject for discussion but we’re not expecting to see anything radically new at this point,” Steve Verheul said Saturday.

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Verheul made the comment as he arrived for the start of the third round of negotiations, the first at which Canada is playing host.

Concern has been mounting among trade experts that the year-end deadline for revamping NAFTA will be impossible to meet if negotiators don’t start during this round to confront some of the most contentious issues, rules of origin prime among them.

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Asked if he expects anything radically different on any file, Verheul said: “We’ll really have to see. It’s too early, I’m just walking in now.”

Under NAFTA’s current rules of origin, vehicles must have at least 62.5 per cent North American content to qualify for duty-free movement between Canada, the U.S. and Mexico.

At the opening round of negotiations in Washington last month, U.S. Trade Representative Robert Lighthizer pronounced that the North American content requirement must be raised and a specific American content requirement must be added, along with a way to verify that content.

But the U.S. has yet to provide any details.

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Reports in the U.S. suggest the Americans are looking at raising the North American content to more than 70 per cent and adding a specific U.S. content requirement of anywhere from 35 to 50 per cent.

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They are also looking to add steel and electronics, not currently covered by NAFTA, to the list of auto parts whose origin must be traced and accounted for under the content requirement.

On the eve of the third round, U.S. Commerce Secretary Wilbur Ross published a column in which he blasted NAFTA for allowing outside countries to provide parts for vehicles that aren’t covered by the content requirement – likely an allusion to the rapidly increasing amount of electronic components which are primarily produced in China, Japan and Germany.

He cited a new study which found the American content of manufactured goods, specifically autos, imported from Canada and Mexico has dropped “significantly” since NAFTA went into effect in 1994.

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“If we don’t fix the rules of origin, negotiations on the rest of the agreement will fail to meaningfully shift the trade imbalance,” Ross wrote.

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“Our nation’s ballooning trade deficit has gutted American manufacturing, killed jobs and sapped our wealth.”

For all that, Verheul’s comments suggest the Americans still aren’t ready to show their hand.

Canadian officials believe resolving American concerns about the exodus of automotive jobs to low-wage Mexico is the key to staving off U.S. President Donald Trump’s threat to rip up NAFTA.

But while the Americans are focusing on the content requirement to remedy the problem, Canadian officials believe it would be more effective to set more stringent labour and environmental standards, which would raise wages and production costs in Mexico to levels closer to those in Canada and the U.S.

Verheul said it’s “doubtful” negotiators will be able to sign off on the environment chapter during this round, which an American official had earlier suggested was possible.