Dive Brief:
- The fifth round of talks to renegotiate the North American Free Trade Agreement (NAFTA) officially kicked off Friday in Mexico City, with nearly 30 negotiating groups arriving from the U.S., Mexico and Canada. The talks will last until Nov. 21, although a few groups arrived as early as Wednesday to get a head start.
- Each country's top minister will not be present at this round of talks, citing "substantive discussions held" at the Asia Pacific Economic Cooperation (APEC) Leaders Meetings in Vietnam. Instead, chief negotiators will report on the countries' progress at the end of the round.
- Prior to the APEC meeting, however, Canada and Mexico partook in a ministerial meeting among the nations that were formerly part of the Trans-Pacific Partnership (TPP). The so-called TPP-11 on Saturday officially revealed they would negotiate a new deal — without the U.S. — called the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).
Dive Insight:
If you thought NAFTA talks could not get more complicated amid high political posturing, an accelerated timeline and the 30-or-so working groups working at once to satisfy three countries' economic needs here's some bad news for you: it just did.
Whether negotiators like it or not, they are now playing a multi-level game when it comes to negotiating clauses related to global supply chains. To a certain extent, a point of free trade is to encourage exchange between two (or three) countries. In emphasizing the importance of bilateral deals, and seeking to renegotiate NAFTA, the Trump Administration sough to increase U.S. manufacturing and therefore exports to these countries (reducing bilateral trade deficits).
But now, each negotiation of rules of origin must also be made with the CPTPP in mind. If NAFTA countries raise their rules of origin but CPTPP countries lower them, it may be end up being cheaper to produce the car in a combination of Japan, Mexico, Canada and Chile then pay a tariff than comply with NAFTA rules.
Each company will have to make these choices on a case-by-case basis, but it provides a disincentive for radically changing a few clauses in NAFTA.
Despite the new complexity, the fifth round of talks promises to be productive albeit not ground-breaking. The lack of ministers at the meeting suggests the negotiations will be extremely technical, seeking to compromise on specific figures and rules to set up the sixth round for real progress, according to CNN-affiliated Mexican outlet Expansión.
Already, various reports suggest Mexico is bringing to the table a few counter-offers to negotiate red lines with the U.S.
This week, Mexico's Economy Secretary Ildefonso Guajardo suggested replacing the "sunset clause" — where NAFTA is renegotiated every five years — with a review clause to analyze the trade deal's effects. Sources told Reuters Canada is open to discussing such a compromise.
In addition, sources also leaked Mexico would bring forward a counter-proposal to the U.S. demand NAFTA countriesscrap tariff preference levels (TPLs) for foreign imports of textiles. Instead, Mexico will suggest increasing U.S. import quotas for raw textiles, allowing NAFTA apparel companies to export at higher volumes, according to El Universal.
Meanwhile, Canada is on the offensive. The U.S.' northern neighbor initiated a trade dispute over U.S. tariffs on Canadian lumber, using NAFTA's controversial dispute settlement mechanism. In the U.S., too, the administration is facing pressure from industry associations and lawmakers alike to ensure NAFTA talks succeed.
Much is going on behind the scenes to influence the result, or a result, of NAFTA renegotiations. So much, it can be tough to keep up. But one thing is certain: With two new trade deals being negotiated on the horizon, supply chain managers' jobs are about to get even more complex. If either or both succeed, supply networks are certain to shift in the coming years.
