Update: Third Round of NAFTA Negotiations Concludes - Compromise Possible?

by Brett W. Johnson, Sarah E. Delaney and Sarah S. Anand

The third round of the North American Free Trade Agreement (NAFTA) negotiations among the United States, Canada, and Mexico concluded at the end of September. Similar to the position taken after the second round of negotiations, all three countries officially state that progress has been made. In fact, a treaty chapter addressing small and medium-sized enterprises was substantively completed. However, an undercurrent of “pessimism” grows over the ability to reach a compromise regarding the most difficult aspects of the agreement.¹ For example, changes related to rules of origin, as well as the Chapter 19 dispute settlement mechanism, the authority under which binational panels make binding decisions on complaints regarding illegal subsidies and dumping, have yet to be raised, let alone resolved.² As discussed in our prior article addressing the second round of NAFTA negotiations, these topics are significant points of conflict for the three countries.

Two issues further complicate the future of the talks. First, the United States recently put forth text dealing with seasonal safeguards for American agriculture. Such safeguards would block Mexican produce imports during certain times of the year. This proposal is in response to a long-standing complaint that the influx of Mexican fruits and vegetables, i.e. dumping by Mexican produce growers, badly damages the American farming sector. Unsurprisingly, Mexican trade groups view this safeguard as a quota system for their country and “categorically reject” it.³ 

Second, as the third round of negotiations was coming to an end, the United States International Trade Commission (USITC) levied a preliminary 220 percent tariff on planes made by Bombardier Inc., one of Canada's biggest industrial companies. The USITC ruled in favor of a complaint brought by Boeing Co., which had accused Canada of unfairly subsidizing Bombardier Inc.’s CSeries jets. Commentators believe that Canada will now be “more determined than ever” to keep the Chapter 19 dispute settlement mechanism, as it would allow a company like Bombardier to challenge U.S. tariffs like these before an independent panel.⁴ 

The fourth round of NAFTA negotiations is set to begin on October 11, 2017, in Washington D.C. In advance of these discussions, the United States presented draft text on NAFTA labor standards and submitted proposals on investment and intellectual property. The draft language on labor standards does not address wage levels, but U.S. trade envoy Robert Lighthizer explained that all three countries want to address wage specifics to help Mexican workers.⁵ 

The three countries are attempting to expedite negotiations. Companies should pay close attention to this coming round of negotiations to determine whether the United States’ latest trade actions will negatively affect discussions. Changes to required wage standards in Mexico could also significantly affect Arizona businesses, many of which are either competing with foreign counterparts or increasing trade to develop Mexican manufacturing and distribution operations.