Divisions among NAFTA negotiators on complex and controversial issues are driving a stake through the heart of President Donald Trump’s goal of signing a new agreement into law this year.
After nine months of intense negotiating rounds in all three countries, officials remain as far apart as ever on some of the biggest changes the administration has put forward, including ones related to auto manufacturing and Canada and Mexico‘s access to the U.S. government procurement market.
And without major concessions from Canada and Mexico, or a willingness from the U.S. to drop its most difficult demands, top negotiators will be unable this week to wrap up weighty issues that remain unresolved, those close to the talks say.
House Speaker Paul Ryan reiterated Wednesday that the administration would need to notify Congress this week if it wants the current Republican-controlled U.S. Congress to vote on the deal by end of the year under so-called fast-track legislation.
“It involves a lot of moving parts, which requires certain timelines,” Ryan said during his news conference. “Point is, we can’t work a bill unless we have an agreement that’s in writing that we can work [with], and that hasn’t occurred yet.”
The law, which is known as the Trade Promotion Authority, will then make it impossible, by most accounts, for things to wrap up in the current Congress — forcing U.S. Trade Representative Robert Lighthizer and his team to abandon their tactic of using deadline pressure to elicit concessions from their counterparts and instead to begin working more strategically through the policy issues.
“What this really is, first and foremost, is a significant strategic and managerial failure on the part of the U.S. side of the negotiation,” said Eric Miller, president of the consulting firm Rideau Potomac Strategy Group, which focuses on trade issues. "This is now the beginning of a process of reassessment, particularly on the U.S. side, of what is a pathway to take this forward.”
But with most issues remaining intractable, Lighthizer himself has in recent days said that the U.S. is not going to be bound by an arbitrary clock in negotiations, sources close to the talks say. Others note that recent administration-wide discussions have ended with officials focused on reaching a deal that fulfills core Trump goals of reducing the country’s trade deficits and curbing the offshoring of jobs, regardless of how long it takes.
This isn’t the first time that the difficult negotiation points made for blown deadlines. Negotiators had initially planned to wrap up talks by the end of last year, and then the end of March. After that, they had looked to wrap up by the Summit of the Americas, which began April 13. The latest possible clock was always ambitious: Wrapping up in the next few weeks would still make these talks one of the fastest trade negotiations in history.
Two more stumbling blocks have also complicated talks. For one, Trump decided in March to impose new tariffs on steel and aluminum and said that he would exempt countries only if they worked out side deals — which meant, for Canada and Mexico, wrapping up NAFTA.
Now, the Trump administration has a little more than two weeks to either extend a June 1 deadline for the tariffs to take effect on imports from Canada and Mexico — which would markedly disrupt U.S. supply chains and incite retaliatory tariffs — or come up with another justification to exempt them.
“Depending where we are with NAFTA on June 1, the president will decide whether or not to extend their situation,” Commerce Secretary Wilbur Ross said earlier this week when asked what will happen. “It’s unforecastable at the moment.”
The second factor is the complexities of the rules under the law known as Trade Promotion Authority. The law allows for the renegotiated deal to pass through both chambers of Congress for a straight up-or-down vote, without amendments being attached. But it also has a convoluted set of overlapping deadlines for presidential and congressional actions that must be followed in order for the bill to be fast-tracked on Capitol Hill — and GOP leaders have said that clock needed to start this week in order for the bill to come up for a vote this year.
Some officials and trade experts have begun to speculate that if negotiators wanted any chance of reaching a deal anytime soon, it would have to be centered on primarily one chapter: automotive rules. Negotiators have spent the majority of the past six straight weeks in Washington focused on so-called rules of origin, which govern how much of a car must be sourced from NAFTA countries in order to qualify for reduced duties under the agreement.
The U.S. has sought to raise that threshold in the updated deal and to tie it to employee wages, saying that a certain percentage of a car must be produced by workers earning at least $15 an hour — a bid to drive more production into the U.S. rather than Mexico, where average wages are far lower.
The issue is also tied directly to Trump’s chief promise to his base: that he would bring manufacturing jobs back.
One emerging viewpoint is that officials were aiming to wrap up a so-called skinny NAFTA agreement that would package changes to automotive rules with some modernization aspects, while dropping what had been poison pill proposals and leaving other aspects largely unchanged.
Perhaps to that end, sources say there has been little to no work done at the political level to seek compromises on any of the other controversial U.S. proposals — a five-year sunset provision, for example, or a bid to significantly limit Canadian and Mexican access to the U.S. government procurement market — underscoring the belief that if there is any deal to be done, it would be centered on autos.
But while it’s potentially still possible for negotiators to reach an autos-only deal this week, the opposing view is that Trump himself would be loath to accept such a narrow agreement — even if it would allow him to claim victory and tout on the midterm campaign trail later this year that he had succeeded in producing an updated NAFTA.
"Skinny NAFTA may sound good to members that want to avoid NAFTA in 2018 and trade associations arguing for ‘do no harm,’ but it’s political gold for Democrats in 2018" elections, said Dan Ujczo, an international trade lawyer who specializes in Canada-United States matters. "Democrats will point to a skinny NAFTA and say [Trump] did not fulfill his campaign promises to dairy farmers, tomatoes growers, and labor — all in key battleground states of Wisconsin, Michigan, Ohio and Florida."
Plus, the strategy of pressing on only one issue has made it difficult for Canada and Mexico to agree to concessions on that aspect when it remains unclear what they will be facing when another issue comes up. It’s impossible to agree to wage demands on autos, for example, when the U.S. is not yet offering any compromises on the other chapters.
“You’re playing a multi-level game as if it’s a single-level game,” Miller said. “NAFTA is eminently solvable, but part of the issue when you get into the phase of major concessions is everything has to be on the table.”