Summary of NAFTA Round 1 Negotiations

August 30, 2017

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Round 1 negotiations: August 16-20

Canada, Mexico and the United States wrapped up round 1 of NAFTA negotiations in Washington, and though few details were given surrounding topics of discussion, all countries have made it clear they intend to expedite talks to avoid potential complications caused by Mexico’s presidential vote next summer and the U.S. midterm elections in the fall. All three countries have also agreed there is an immediate need to modernize and update NAFTA, given the dramatic advancements in technology we have seen since NAFTA’s inception in 1994.

“The scope and volume of proposals during the first round of the negotiation reflects a commitment from all three countries to an ambitious outcome and reaffirms the importance of updating the rules governing the world’s largest free trade area,” a joint statement said.

“Whether negotiators will be able to stick with the expedited schedule remains unclear, as there are some big issues at play, and currently some differing – and in some cases conflicting – viewpoints,” said Dean Elliott, Managing Partner, Central Group and Markets Strategic Lead. President Trump has also stated multiple times at recent rallies that he would likely terminate NAFTA altogether if a deal can’t be reached, though these statements have been met with little reaction from both Canada and Mexico. 

NAFTA Fast Facts

  • NAFTA came into effect on January 1, 1994 after being signed by Prime Minister Brian Mulroney, Mexican President Carlos Salinas de Gortari and U.S. President George H.W. Bush

  • In 2016, trilateral trade among the countries reached nearly US$1 trillion—more than a threefold increase since 1993

  • Approximately 400,000 people and over $2.4 billion worth of goods and services cross the Canada-United States border daily

  • Approximately 1.9 million Canadian jobs are related to Canadian exports to the United States

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What we know

Round 1 of negotiations featured a number of ‘detailed conceptual presentations’ from each country along with discussions on approximately 24 topics, though few details have been made available surrounding the specifics of these topics.

This lack of information leaves a number of question marks surrounding future negotiations and how an updated NAFTA could impact small and medium-sized business (SMB) owners in particular. All three countries have agreed to focus on improving trade opportunities and modernizing agreements to benefit SMBs, though what this will look like remains to be seen.

To date, there has been much speculation surrounding what changes will be implemented in two key areas: procurement and Chapter 19.

Potential Impacts

Procurement

Both Canada and Mexico want to reduce the U.S. ‘Buy American’ mentality and expand procurement obligations to give their companies more opportunities to bid on U.S. government contracts. The Canadian government is reportedly “working on a number of fronts to improve and secure government procurement market access for Canadian suppliers.” Similarly, the Trump administration wants to provide U.S. companies with expanded opportunities to bid on government contracts in Canada, however, they are firm in their intent to maintain protectionist policies that would prevent Canada from doing the same.

Carrie Gallo, Partner and National Public Sector Leader believes that in addition to the issue above, governments may also be looking to reshape and regulate the procurement process. For example, the government's ability to request that a select number of vendors be able to bid on public sector contracts for goods and services valued under the NAFTA dollar limit, may change. "Increasing the NAFTA limit to account for such things as inflation will streamline the RFP process, reduce the cost of sale and ultimately reduce the costs to governments," said Gallo.

She also believes data privacy and cloud storage could be a potential source of conflict during negotiations. As more and more organizations and governments transition to cloud storage technologies, the question of how and where that data is stored – and who has the right to access it – has come into play. Currently, Canada has stringent rules and regulations surrounding the storage of personal data and have made it clear this is an area they would like to continue protecting. The U.S. would like to see fewer regulations, and in a list of NAFTA objectives, are urging Canada and Mexico to “refrain from imposing measures in the financial services sector that restrict cross-border data flows or that require the use or installation of local computing facilities.”

Chapter 19

Chapter 19 has been at the centre of a heated debate between Canada and the U.S. for years – and has once again sparked conflict between the two countries. Similar to free-trade agreement negotiations in 1987 that nearly broke down over the dispute-settlement provision, Canada has remained steadfast in its desire to uphold Chapter 19, a stance strongly supported by the country’s manufacturing sector, however, the U.S. has been adamant about getting rid of the clause.

“For manufacturers, it is clear Chapter 19, the dispute-settlement mechanism that decides the rights and wrongs of trade disagreements, cannot be eliminated as the U.S. requested. In the past, the government has said it is a potential deal breaker, and our members tend to agree,” said Dennis Darby, President and CEO of the Canadian Manufacturers & Exporters.

Foreign Affairs Minister Chrystia Freeland has also said publicly that if Chapter 19 remains a sticking point, Canada is willing to walk away from negotiations. Her statement was supported by Mexico, who agree it is vitally important to uphold impartiality in trade dispute settlements.

What is Chapter 19?

Chapter 19 is a dispute-resolution mechanism that is integral to how countries settle trade disputes. If an industry in Country A believes that competitors in Country B are selling products at below-market prices, they can appeal to an independent panel of trade experts from both countries, rather than appealing only to the courts in Country A or Country B, which would likely result in a biased decision. The U.S. government has argued that Chapter 19 is unfair to Americans – while the Canadian government sees it as a vital defense against protectionism.

What’s next?

NAFTA negotiations resume September 1 in Mexico City. "We will continue to watch the negotiation process with great interest to get a deeper insight into what the ramifications might be for our clients,” Elliot said. “Our countries are deeply integrated and vital as trading partners and it will definitely be interesting to see where future negotiations lead.”

Round 2: Talks reconvene September 1-5 in Mexico City
Round 3: Scheduled for late September in Ottawa
Round 4: Scheduled for October in Washington

In total, it is anticipated there will be seven rounds of negotiations.

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For more information on NAFTA, contact us today or read our other NAFTA insights:
NAFTA 2.0: Key Issues and Next Steps
Summary of NAFTA Round 2 Negotiations (Mexico City, September 1-5)
Summary of NAFTA Round 3 Negotiations (Ottawa, September 23-27)
Summary of NAFTA Round 4 Negotiations (Washington, October 11-15)
NAFTA Renegotiation Impact on Immigration
NAFTA Renegotiation Impact on the Retail Industry
NAFTA Renegotiation Impact on Government Procurement

Have your say

To ensure the needs of Canadian businesses and business owners are properly represented, the Canadian government will continue holding public forums to discuss NAFTA with Canadians, industry stakeholders and business representatives from key sectors that are vital to our country’s prosperity.

Learn more.