NAFTA Dead? Canada Left in the Cold?

Below is an article from World Trade Online regarding the move by the US to establish a bi-lateral trade agreement with Mexico to replace NAFTA. The Canadian Government has been put on notice that unless they act quickly they will be left out of this new agreement and risk the loss of duty-free treatment that currently enjoy under NAFTA.

The impact of the death of NAFTA could be huge considering the US and Canada enjoy over $700 billion in annual trade between the two countries. Stay tuned!

USTR plans to notify Congress of Mexico bilateral if Canada doesn't join

U.S. Trade Representative Robert Lighthizer will notify Congress on Friday of a plan to strike a bilateral trade agreement with Mexico -- or inform lawmakers of a trilateral pact that includes Canada if Ottawa comes back to the table and reaches a deal in time, a senior administration official said on Monday.

"What we will do is -- ideally Canada will be in and we'll be able to notify that. If Canada's not in then we'll notify that we have an agreement with Mexico and that we're open to Canada joining it," a senior administration official said on a conference call with reporters. The call followed President Trump's announcement of a bilateral agreement with Mexico and claims that he would terminate the existing deal, though Mexican President Enrique Pe?a Nieto -- during a televised conference call with Trump -- repeatedly emphasized his preference for Canada to be a part of the deal.

Freeland returned to Washington, DC, on Tuesday to resume negotiations with the U.S. She was originally scheduled to spend the week in Europe.

"As we have said all along, progress between Mexico and the United States is a necessary requirement for any renewed NAFTA agreement," Adam Austen said, a spokesman with Freeland's office said on Monday. "We will only sign a new NAFTA that is good for Canada and good for the middle class. Canada's signature is required."

A senior official said on the call that he believed Mexico was in a position to move forward bilaterally and added that he hoped Mexico will "do what's right."

"I think we're at a position where we're going to have discussions with ... Canada this week, see where we get to," the official said on the conference call. "But I think at the end of the day, Mexico's in a position where they want to protect their markets and they'll hopefully do what's right for Mexico."

Mexico and Canada, the official added, are part of the Trans-Pacific Partnership, "so it wouldn't hurt their trading relationship, but again I think we all have a preference to see it come together. But if we're not able to do that then we'll move on bilaterally."

President Trump said Canada would have the opportunity to join a U.S.-Mexico pact, but the U.S. could also reach a separate deal with Ottawa.

"I think we'll give them a chance to probably have a separate deal," he said in the Oval Office on Monday. "We will see whether or not we decide to put up Canada or just do a separate deal with Canada, if they want to make the deal. The simplest deal is more or less already made. It would be very easy to do and execute."

According to Trump, the NAFTA moniker is dead whether or not Canada joins the deal. "I like to call this deal the United States-Mexico Trade Agreement," Trump said. "I think it's an elegant name. I think NAFTA has a lot of bad connotations for the United States because it was a rip-off. It was a deal that was a horrible deal for our country, and I think it's got a lot of bad connotations to a lot of people. And so we will probably -- you and I will agree to the name."

An administration official said he believed notifying Congress of a bilateral deal with Mexico was in line with USTR's commitments under the 2015 Trade Promotion Authority law despite a May 2017 notification to Congress saying the NAFTA renegotiation would be trilateral.

"We think that satisfies our requirements," the official said of a potential notification of a bilateral deal.

In the May 2017 notification, Lighthizer said "I am pleased to notify the Congress that the President intends to initiate negotiations with Canada and Mexico regarding the modernization of the North American Free Trade Agreement."

The announcement of a bilateral arrangement with Mexico was not intended to pressure Canada, the official said. Instead, he contended that concluding a bilateral with Mexico was the logical way to eventually ensure a trilateral deal.

"This wasn't designed to put pressure on anyone or anything like that," the official said. "We're in a position where we had a negotiation that went on for close to a year. The last few months -- several weeks I guess I'd say more accurately -- we decided we were better off to try to get a deal with one party and then hopefully the other. It tends to be the way these things work in any event. It's hard to have three people all just have the lightbulb go on at the same time. So this is not part of a negotiating strategy or anything."

"We did it in what I think to be the sensible way," the administration official added. "We worked with one party, we got through, we worked it out. And now we're bringing the other party in -- the other party is coming in for the talks."

In a statement to Inside U.S. Trade, a spokesman from Freeland's office said Canada was encouraged by the progress in the NAFTA talks, but that Canada would have to sign a final deal.

The administration official said Trump's promise to terminate NAFTA was a necessary part of the process of implementing a new trade pact. "It's impossible to have two agreements at the same time. Whenever you have an agreement that supplants another agreement, you have to pause or get rid of the prior agreement," he said. "'How do you do that?' is something we're still in the process of looking at. At a minimum the new agreement will supplant the old agreement.... Notionally what the president is saying is you can't have two agreements like this, and when you get a new agreement you're not going to have NAFTA anymore."

The new agreement includes "an alternative to sunset" that "protects the interests of investors," the official said. The U.S. had long pushed for a five-year sunset pact that would terminate the deal unless the three parties agreed to renew it, an idea that alarmed Congress and the business community. Canada and Mexico refused to go along.

That alternative, he said, is a 16-year sunset period with a review every six years, at which time the parties can renew the deal for another 16 years.

The deal also includes an investor-state dispute settlement provision, but with some alterations from the original NAFTA for some sectors. The oil and gas, infrastructure, energy generation and telecommunications sectors will have "classic ISDS," the official said. Inside U.S. Trade reported earlier this month that ISDS would have a sector-specific component that would ease concerns from those in the energy sector.

ISDS for all other sectors, however, will be limited to expropriation or failure to give national treatment or most-favored nation treatment.

Congress and the U.S. business community have called for the inclusion of ISDS and for the U.S. to pull back its proposal for a five-year sunset citing the need for certainty in a renegotiated NAFTA. -- Brett Fortnam