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4 challenges NAFTA negotiations are facing as deadline looms

U.S. President Donald Trump and Prime Minister Justin Trudeau chatted over the phone this week, discussing whether the North American Free Trade Agreement (NAFTA) negotiations could be wrapped up in the coming days.

But on Tuesday, Mexico’s economy minister said he doubts a deal will actually go through in time for Thursday.

“It is not easy. We don’t believe we’ll have it by Thursday,” Ildefonoso Guajardo said.

Those are troubling words, as the U.S. Congress has said May 17 is the latest possible date to get a deal in order to have time to vote on it this year.

The countries have also been meeting frequently in an effort to get an agreement before national elections in Mexico.

Here are the biggest challenges Canada, U.S. and Mexico are facing: 

1. Shortage of time

Nathan Janzen, a senior economist at RBC, explained that time is one of the biggest challenges now facing the talks.

“We’re starting to run out of time,” he told Global News.

“Trade negotiations are complicated and it’s tough to rush them. That’s what they’re bumping up against now.”

And even if a NAFTA deal goes through in the coming days, it will be very bare bones — meaning the details will need to be decided over several more meetings.

“What they’re talking about signing even right now is to get a preliminary agreement in place. I think that’s essentially an agreement to agree. So basically, they’re trying to make enough progress that they can be pretty confident they’re going to be able to make a deal in the long run.”

2. Auto sector

Janzen explained that there has been movement on issues related to the auto industry, but many factors are still up in the air.

Any potential agreement hinges on the ability of Mexico and the U.S. to bridge a key ideological gap: in an effort to steer manufacturing north, the U.S.’s latest demand is that 40 per cent of every car be produced in high-wage jurisdictions, with some credit for spending on research.

“That’s pretty obviously taking a jab at the Mexican auto industry, where the wages are a lot lower than Canada and the U.S.,” Janzen noted.

3. Sunset clause

Talks still face the hurdle of U.S. demands for a sunset clause, which allows NAFTA to expire if it is not renegotiated every five years.

Canada has maintained that it does not want one.

Janzen says a sunset clause would not only cause a lot of work for officials every five years, it would also maintain a sense of uncertainty within industries that rely on the trade deal.

“That just means every five years, you will have to go through another politically-charged renegotiation of NAFTA,” he said. “It’s very hard for industries to invest in integration if they don’t know whether the deal is going to be there in five years.”

Foreign Affairs Minister Chrystia Freeland has said that NAFTA already includes a provision that allows countries to leave, making such a clause unnecessary.

4. Unaddressed issues

Some issues have barely been discussed, or have been only touched on by officials.

Pharmaceuticals is one example. Last week, the U.S. signalled its desire to use trade deals to change the way drug prices are set abroad, in an effort to have other countries shoulder more of the costs of pharma research.

The U.S. has specifically complained about Canadian pricing policies. But it’s unclear exactly how that issue will play out.

There’s also dairy, which U.S. Congressional leader Paul Ryan recently said was an issue relatively untouched in NAFTA talks so far.

What’s next in the negotiations?

While NAFTA being completely shut down by the U.S. seemed to be a real possibility earlier this year, Janzen says that now chances are the trade agreement will live on.

“We’ve seen the U.S. backing away from some of the more extreme positions they were talking even earlier this year,” he said.

But he explains that there is still a lot more work to be done, and delays with the U.S. midterm and Mexico elections are likely, so the talks will stretch into 2019.

Hanging over the talks, there are also the steel and aluminum tariffs that Trump has spared Mexico and Canada from so far.

If talks freeze up, or Trump grows frustrated, there is a possibility that Canada’s exemption from steel and aluminum tariffs may be eliminated.

Source: Global News Canada

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