Toronto Star | 24 January 2018
NAFTA talks focus on dispute settlement, autos
By Tonda MacCharles
Canada has made a bold offer to accept a controversial U.S. demand at the NAFTA talks about how to resolve commercial trade disputes, the Star has learned.
It involves the current binding trade dispute settlement process used to resolve lawsuits by investor companies against North American governments. Binational tribunals adjudicate complaints, and their rulings are final.
The U.S. wants it to become an “opt-in” system or, as one Canadian official called it, a voluntary system.
Canadian officials say the U.S. has signalled it would “opt out” of the system while expecting its two partners would still “opt in” the binational tribunals that decide complaints by companies who feel harmed by government regulations.
But Canada has effectively said “wait a minute.”
Instead, the Canadian team has proposed that Canada and Mexico would agree to a dispute settlement process between their two countries alone — to be outlined in an annex to the NAFTA, according to a Canadian official who spoke to the Star on a background basis.
In effect, Canadian NAFTA negotiators are taking a gamble on whether the Americans can take “yes” for an answer when it comes to rewriting NAFTA rules.
Canada and Mexico agree there should be a mutually binding arbitration system to resolve disputes between trading partners.
But if the U.S. wants complaints against American companies to be resolved in domestic courts, Canada is saying to the Americans, it’s a two-way street. American corporate complaints against the other two countries would also be decided in their respective courts.
It’s one of three different “creative” suggestions that, according to Canadian officials here, are intended to resolve negotiating impasses at the sixth round of talks to rewrite the 24-year-old agreement.
American chief negotiator John Melle told the Star there was “not a chance” he would comment on the talks here.
Canada’s chief negotiator, Steve Verheul, did not scrum with reporters but on Tuesday said “we’re hoping when we bring flexibility to the table we’ll see that reciprocated on the other side.”
However, Mexico’s chief negotiator Kenneth Smith Ramos told the Star Wednesday afternoon there had been no movement “as of yet” in the discussion on investor-state dispute settlement, which comes under chapter 11 in the current NAFTA.
Rules for how state-to-state disputes involving an industry like softwood lumber or aerospace come under chapters 19 and 20.
“We’re still working on that,” the Mexican lead negotiator said. “We hope” movement is possible, he added.
“I mean, we’ve been very clear in the sense that we want to strengthen the dispute settlement mechanism both on chapter 11, 19 and 20 and we are not looking to dismantle any of the key elements of dispute settlement in the NAFTA. And there are ways to improve the procedures, so that’s what we are looking for . . . not kill them — strengthen them.”
The other two huge areas of contention boil down to this:
- How much is North-American-enough? “Rules of origin” in the NAFTA dictate how much of the things we buy and sell tariff-free on this continent should made in North America — and whether the U.S. demand that half of it be made in the United States should fly.
- And what should be the best-before date on a new NAFTA? A “sunset” clause, proposed by the U.S., would see the agreement expire automatically in five years if it isn’t formally reapproved by all three partners. Canada is open to discussing a periodic review of NAFTA, but not a hard and fast “sunset” clause. Canada has proposed a new requirement for a periodic review that would require “meaningful” public consultations that could identify areas for improvement, but that would not automatically require a formal re-approval, said a Canadian source with knowledge of the closed-door talks.
Canada’s proposals on auto rules of origin and on the sunset clause were discussed Wednesday, according to Canadian officials.
One Canadian official said Canada is trying to find a way to reach a higher North American regional content percentage for autos, by exploring ideas for a modern tracing list that takes into account the new technology in today’s cars.
The “rules of origin” discussion is a high-stakes and complicated one, especially when it comes to the automotive industry.
The U.S. wants the current requirement of 62.5 per cent North American content in cars and trucks be raised to 85 per cent, with a 50-per-cent-made-in-U.S. guarantee.
Canadian officials told the Star Wednesday all three partners at least are open to discussing a higher regional content requirement, but a country-specific requirement is not feasible for highly integrated supply chains, and would damage the auto industry.
Flavio Volpe, of the Canadian Autoparts Manufacturers Association, told reporters here that Canadian negotiators want a new trade pact to look at the kinds of auto jobs and manufacturing that should be protected with an eye not just on jobs in North American steel plants, but on the research, engineering and design of complicated software and sensor development that are inevitably going to be central to automobile manufacturing in the future.
Volpe said the idea of making a list of 29 car parts or components and tracing their origins may have made sense when NAFTA was first signed in 1994 and the technology that went into cars was different, but it no longer does. “A creative idea might be you don’t go with a list,” he said.
He said a new NAFTA needs to recognize the real threat is Chinese car manufacturers, who he said are poised to supply much cheaper — but well-made — cars to the North American market.
Meanwhile, multiple “tables” of negotiations on other issues such as the environment, telecoms, and intellectual property are carrying on at the same time in Montreal’s Hotel Bonaventure.
Yet all eyes are on the talks between chief negotiators which should soon provide a clear idea whether there is room for real progress in Montreal, or whether discussions will bog down in the face of American demands for more concessions.
Overhanging all the discussions is the news that broke a day earlier that Canada and Mexico had reached agreement with eight other Pacific Rim countries on a wide-ranging free trade deal that excludes the U.S.
The Americans withdrew from the Trans-Pacific Partnership (TPP) after Donald Trump became president, prompting the remaining 11 nations to work toward a revised deal without the U.S.
The Comprehensive and Progressive Agreement for Trans-Pacific Partnership contains a 45-per-cent TPP-content rule for autos, and a 35-per-cent rule for auto parts traded within the Pacific zone — a deal that Verheul, Canada’s chief negotiator, said is “entirely separate” from what’s on the table here in Montreal at the NAFTA talks.
Canadian Labour Congress president Hassan Yussuf says the TPP concessions have undermined Canada’s pitch at the NAFTA table on autos and on its goal of enshrining new labour safeguards.
In an interview he said the TPP’s labour provisions contain no real enforceability mechanism, and have allowed Vietnam to escape compliance, however he added many other details haven’t yet been outlined to stakeholders here.
“I think we played right into the Americans’ hands in regards to what we are able to do” at the NAFTA table, he said. “They made even a stronger argument for both Mexico and the United States to stay steadfastly on their positions and not alter it . . . because what they’ve agreed to in the TPP is so weak and ineffective that this is not really going to help.”