Chief Canadian NAFTA negotiator not expecting progress on auto content rules

FILE: Logo of NAFTA (Photo By Keepscases – Own workVectorized from http://www.nafta-sec-alena.org/, CC BY-SA 3.0)

OTTAWA — Despite tough talk from the U.S. about the job-killing impact of NAFTA on its automotive sector, Canada’s chief negotiator isn’t expecting to see a detailed American proposal on the matter during the latest round of talks to rewrite the continental trade pact.

Rules of origin will be “a subject for discussion, but we’re not expecting to see anything radically new at this point,” Steve Verheul said Saturday.

Verheul made the comment as he arrived for the start of the third round of negotiations, the first at which Canada is playing host.

Concern has been mounting among trade experts that the year-end deadline for revamping NAFTA will be impossible to meet if negotiators don’t start during this round to confront some of the most contentious issues, rules of origin prime among them.

The agenda for this round, obtained by The Canadian Press, shows rules of origin are to be discussed all day Tuesday and all day and into the evening on Wednesday.

A number of other contentious issues are also on the agenda for those days: agriculture, which will involve Canada’s system of supply management for dairy and poultry, and labour standards.

Also on Wednesday, negotiators will focus on the arm’s length trade dispute settlement mechanism, which Canada and Mexico call essential but the U.S. wants to scrap, and the controversial investor state dispute settlement mechanism, whereby companies can sue a government for allegedly discriminatory practices.

It remains to be seen if the U.S., which triggered the negotiations, will finally table detailed proposals on any of those issues. Canadian officials have said they don’t expect any breakthroughs during the five-day session and suspect the U.S. will wait until closer to the end of negotiations to lay all its cards on the table.

Asked Saturday if he expects to see anything radically different on any file, Verheul said: “We’ll really have to see. It’s too early, I’m just walking in now.”

Under NAFTA’s current rules of origin, vehicles must have at least 62.5 per cent North American content to qualify for duty-free movement between Canada, the U.S. and Mexico.

At the opening round of negotiations in Washington last month, U.

S. Trade Representative Robert Lighthizer pronounced that the North American content requirement must be raised and a specific American content requirement must be added, along with a way to verify that content.

But the U.S. has yet to provide any details.

Reports in the U.S. suggest the Americans are looking at raising the North American content to more than 70 per cent and adding a specific U.S. content requirement of anywhere from 35 to 50 per cent.

They are also looking to add steel and electronics, not currently covered by NAFTA, to the list of auto parts whose origin must be traced and accounted for under the content requirement.

On the eve of the third round, U.S. Commerce Secretary Wilbur Ross published a column in which he blasted NAFTA for allowing outside countries to provide auto parts that aren’t covered by the content requirement _ likely an allusion to the rapidly increasing amount of electronic components that are primarily produced in China, Japan and Germany.

He cited a new study that found the American content of manufactured goods, specifically autos, imported from Canada and Mexico has dropped “significantly” since NAFTA went into effect in 1994.

“If we don’t fix the rules of origin, negotiations on the rest of the agreement will fail to meaningfully shift the trade imbalance,” Ross wrote.

“Our nation’s ballooning trade deficit has gutted American manufacturing, killed jobs and sapped our wealth.”

A spokesman for Foreign Affairs Minister Chrystia Freeland took issue with Ross’s assertions, noting that the U.S. actually ran a small overall trade surplus and a $9-billion surplus specifically on auto trade with Canada.

Alex Lawrence added that Canadian-produced vehicles “have the highest North American content levels among the three NAFTA partners.”

Nevertheless, Canada shares American concerns about the exodus of automotive jobs to low-wage Mexico and officials believe resolution of the problem is the key to staving off U.S. President Donald Trump’s threat to rip up NAFTA.

But while the Americans are focusing on the content requirement to remedy the problem, Canadian officials believe it would be more effective to set more stringent labour and environmental standards, which would raise wages and production costs in Mexico to levels closer to those in Canada and the U.S.

The environment was on the agenda Saturday and will be discussed again Sunday and Monday. But Verheul said it’s “doubtful” negotiators will be able to sign off on the environment chapter during this round, which an American official had earlier suggested was possible.

Among other issues on the agenda Saturday was digital trade, customs, government procurement, anti-corruption and gender, a new chapter on which has been proposed by Canada.