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Future NAFTA talks face uphill battle as Mexico, Canada grapple with tariffs

Chances of striking any deal on NAFTA have "just fallen through the floor," one official says


June 4, 2018
The Canadian Press
The Canadian Press

WASHINGTON—Any chance of a quick deal on a renegotiated NAFTA has been scuppered by U.S. President Donald Trump’s decision to end an exemption for Canada and Mexico from crippling tariffs on steel and aluminum exports, Canadian government insiders say.

Indeed, one well-placed, senior official said the chances of striking any deal on NAFTA, ever, have “just fallen through the floor.”

Trump, meanwhile, resurrected Friday an idea he’s floated before—negotiating separate bilateral trade pacts with Canada and Mexico if no deal can be reached on modernizing the trilateral North American Free Trade Agreement.

But coming one day after Trump antagonized both countries by using national security concerns to justify imposing tariffs of 25 per cent on steel and 10 per cent on aluminum on the U.S.’s NAFTA partners, Canadian officials said the renewed pitch for bilateral deals is a non-starter.

“The government commitment remains NAFTA,” said one of several officials, all of whom spoke on condition of anonymity because of the sensitivity of negotiations and efforts to manage deteriorating relations with the United States.

While Mexican negotiators are scheduled to return to Washington next week to resume talks on the pivotal NAFTA issue of autos, Canadian officials say the round-the-clock phase of negotiations of the past few weeks is over. Talks will continue in a slower, less urgent fashion, with the next potential window for more intensive negotiations likely not coming until after the July 1 Mexican presidential election.

Even then, one senior official predicted the chances of striking a deal are slim. That’s because the Trump administration has, in Canada’s view, made a “massive, massive strategic blunder” in thinking it will be able to drive a harder bargain with a new Mexican president.

It’s compounded that miscalculation by lifting the steel and aluminum tariff exemption on Mexico, the official said, predicting the move will compel presidential contenders to take an even harder line against U.S. trade practices during the campaign and, thus, limit the eventual winner’s room to manoeuvre on NAFTA.

That could mean no deal will ultimately prove possible, which could provoke Trump to follow through on his oft-repeated threat to tear up NAFTA. However, Canadian officials contend such a unilateral move is likely illegal under U.S. law and, in any event, they expect a backlash from Congress, American business leaders and—most importantly for Trump—Republican fundraisers, who would probably force the president to back down.

Still, Trump reiterated his preference for two separate trade deals with Canada and Mexico, rather than the continental pact.

“To be honest with you, I wouldn’t mind seeing NAFTA where you’d go by a different name, where you’d make a separate deal with Canada and a separate deal with Mexico,” he said after a meeting with North Korean officials. “You’re talking about a very different two countries. I wouldn’t mind seeing a separate deal with Canada where you have one type of product … and a separate deal with Mexico.”

NAFTA, Trump repeated, has been “a lousy deal for the United States from day one.

“We lose a lot of money with Canada and we lose a fortune with Mexico. But it’s not going to happen like that anymore,” he said.

However, Prime Minister Justin Trudeau and Mexican President Enrique Pena Nieto are showing no sign of breaking up the united front they’ve demonstrated so far.

“The leaders expressed their strong concerns and deep disappointment with the imposition of U.S. tariffs on Canadian and Mexican steel and aluminum exports,” Trudeau’s office said in a summary of a phone call with the Mexican leader. “They also discussed the North American Free Trade negotiations and agreed to continue working toward a mutually beneficial outcome.”

In retaliation for the tariffs imposed on Canadian steel and aluminum, Trudeau announced that Canada will impose $16.6 billion worth of “countermeasures” that hit a range of U.S. products, from flat-rolled steel to playing cards. Mexico also plans tariffs on a variety of U.S. products, including flat steel.

In the wake of the burgeoning trade war, some trade experts also question whether there might actually be a NAFTA negotiating table to return to given the reality of the political calendar. Mexico’s presidential election is one month away and the U.S. congressional midterms follow in the fall.

Trump’s latest move amounts to “blackmail” in the NAFTA renegotiation, although it doesn’t kill chances of carving out a deal, said Perrin Beatty, president of the Canadian Chamber of Commerce and a veteran of Canada’s free trade battles.

Beatty said Canada should not walk away from the NAFTA table.

“We should not ever agree to blackmail of the nature that was proposed here,” said Beatty, who was a federal cabinet minister at the time of the original Canada-U.S. free trade negotiation that produced NAFTA’s precursor.

“We should remain at the table as long as there is a table to remain at, and look for a deal in which everyone wins.”

Beatty said future negotiations have been altered by Trump’s “classic bully techniques” which are designed “to extort the conditions that Donald Trump wants to see in NAFTA.”

Eric Miller, of the Washington-based Rideau Potomac Strategy Group, said it is possible to move forward with NAFTA on a separate track from the tariff dispute. That’s not unprecedented because when the original Canada-U.S. free trade talks were happening, the two countries were mired in the softwood lumber dispute.

But this time it’s different, he said.

The key is for Canada to move forward with NAFTA while keeping the “damage done” in steel and aluminum contained in its own separate lane. After parsing the statements of Foreign Affairs Minister Chrystia Freeland and U.S. Commerce Secretary Wilbur Ross, Miller said it is clear the two countries want to do that.

“If the U.S. thinks this, in some way, will soften up Canada’s position or make it want to give concessions to resolve the NAFTA, they are misunderstanding the situation,” he said. “Canada knows this is the big ball game and they have said from the very beginning they’re not going to yield to pressure tactics.”

A leading American trade lawyer said the window for serious NAFTA negotiations has simply closed for the year because it has been overtaken by the political calendar.

“I believe the real challenge on NAFTA will be Mexico. I do not believe we can proceed in any significant way on NAFTA before the July 1 election,” said Dan Ujczo, of the firm Dickinson Wright PLLC.

Others said there’s no way NAFTA’s negotiators can look each other in the eye. “It’s hard to imagine how you negotiate with a knife to your throat,” said Jean Simard, president of the Aluminum Association of Canada. “I would break it off. That’s not good faith.”