Dive Brief:
- The seventh round of talks to renegotiate the North American Free Trade Agreement (NAFTA) kicked off Sunday in Mexico City.
- Set to last until March 5, the seven days of talks will tackle some of the most contentious issues, as negotiators purportedly race to reach a deal by the end of March.
- Analysts are hopeful consistent lobbying by businesses will save the deal, avoiding withdrawal by any country. Slow progress in the last round adds to that hope. But the electoral politics the negotiators sought to avoid through an "accelerated timeline" are beginning to muddy the waters.
Dive Insight:
It would take exceptional negotiating skills and a minor miracle to sign a new deal by the end of March, as politics and business activities continue to interfere with a simple conclusion to this six-month deal.
The stakes are too high to reach "any old deal," as Canadian Prime Minister Justin Trudeau told a town hall in British Columbia at the start of February.
The dissolution of NAFTA could cost the world an estimated $80 billion in trade value, more than a China-US trade war, Brexit, or the gains from a successful transpacific trade deal, according to one estimate. Politically, a "bad deal" would be humiliating for any country's ruling party, which will face key elections in 2018 (U.S. and Mexico) and 2019 (Canada).
Such a turn of events has, in a way, taken rhetoric back to square one.
Not long after President Donald Trump's inauguration last year, he got into a Twitter war with Mexican President Enrique Peña Nieto over payment for a proposed border wall. Not long after, the U.S. began talks to renegotiate NAFTA.This almost exact disagreement happened again last week, this time via a phone call. Meanwhile, news continues to surface that Canada may have come to terms with exiting NAFTA itself.
All of the above may be described as mere politics and posturing, yet appears to be materially affecting progress.
Canada's CBC News reported skepticism prevails in regards to how much influence negotiators have over the final policies being proposed. For example, was the sunset clause a technocrat's solution, or a policy proposal passed down from the top? The more politics interferes, the further away compromise appears.
Recent reports also suggest supply chain managers — and even Canada and Mexico's global affairs ministries — are not waiting for the effects of a new NAFTA, either.
Faced with the potential of a NAFTA-exit coming within six months, companies are diversifying their supply sources. Reuters reports Mexican buyers bought 970% more Brazilian corn in 2017 than the previous year in a market typically dominated by U.S. suppliers. The article notes buyers were "testing" how competitive the South American corn market can be, in case of higher tariffs from the U.S.
Meanwhile, all three countries appear to be bolstering their trade relations with other countries concurrent to the renegotiations.
At the start of the sixth round of talks, there are three plausible options for NAFTA's future:
- A deal by the end of March
- A withdrawal
- An extension to 2019
The first two options are still possible but increasingly unlikely thanks to a lack of compromise on the tough issues, such as rules of origin, labor practices and a clear business desire to keep the deal. (Note, signs of hope remain, such as the likely-to-be-scrapped investor dispute settlement mechanism).
A U.S. official told Reuters "there has never been a hard deadline." It's time to get ready for the long-haul or start praying for divine intervention. If a miracle does happen, it will be announced in Mexico City on March 5, 2017.
