Summary of NAFTA Round 2 Negotiations

September 2017

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Round 2: September 1-5, Mexico City

Representatives from Canada, Mexico and the United States completed round 2 of NAFTA negotiations in Mexico City, and once again, details surrounding the discussions have been limited.

According to a joint statement published on the United States Trade Representative website following the negotiations, more than two dozen working groups consisting of trade experts and technical officials worked diligently to further discussions and exchange information and proposals. “Important progress was achieved in many disciplines and the Parties expect more in the coming weeks,” the statement said.

Juan Pablo Castañón, president of Mexico’s Business Coordinating Council, said there had been progress made on topics including small and medium businesses, trade facilitation and telecommunications, while others, including autos and labour, were less advanced. “The next talks, expected for Ottawa later this month, will be key to knowing if a deal can be reached this year,” Castañón said.

“Because they have yet to start tackling the really serious issues, many doubts remain over whether a deal can be reached this year,” said Dean Elliott, Managing Partner, Central Group and Markets Strategic Lead. “However, all countries remain adamant about sticking to the expedited timeline, so we will have to wait and see.”

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What we know

During round 2 of negotiations, countries tabled approximately two dozen texts which they say will form the backbone of a modernized NAFTA.

“I am pleased to report that we have found mutual agreement on many important issues,” U.S. Trade Representative Robert Lighthizer told reporters following the negotiations.

Chrystia Freeland, Canada’s Foreign Affairs Minister added: “All three partners are absolutely committed to getting this done and are working constructively together in that aim. Canada’s goal is, and will remain, to modernize NAFTA in a way that upholds Canadian interests and values.”

Despite such declarations of progress, it appears that similar to round 1, talks continue to stall the moment a sensitive topic is broached. This lack of real action thus far is raising red flags among some analysts and business groups who feel that a refusal to start tackling the big issues now could mean discussions are headed for a stalemate later in the year.

What information has leaked out from round 2 discussions has cited some conflict surrounding multiple issues, most notably employee mobility/visas and rules of origin.

Sticking points

Employee Mobility/Visas

When NAFTA was originally negotiated more than 20 years ago, many jobs – most notably digital jobs – didn’t exist at the levels they do today. Modernizing the agreement to account for today’s digital workforce has been a clear priority for Canada and has been supported by Mexico, but has been met with pushback from the United States, largely due to the country’s current protectionist policies.

“The employee mobility aspect of NAFTA renegotiations has been deliberately left out of the discussion, and, as of now, we’re uncertain as to whether that is a good thing or a bad thing,” said Doreen Buksner, Senior Manager, Immigration Services. “There is definitely room for improvement and modernization; Canada and Mexico have proclaimed their commitment to making it happen. However, ‘Buy American, Hire American’ policies have us wondering if President Trump will simply back out of the agreement altogether. It remains to be seen if the three countries will join forces once again with a stronger and more efficient NAFTA; or if the treaties will break down into bilateral agreements.”

NAFTA and job mobility

NAFTA was intended to ease the flow of worker mobility between Canada, Mexico and the U.S. In some cases, it eliminates the need for work permits; but generally, it exempts companies from having to test their local labour markets and prove that a foreign worker is not displacing an equally qualified domestic worker.

Currently, most of the IT industry is left out of the 60+ professions that make up the list of NAFTA-eligible occupations (systems analyst is the single computer-dependent profession). Canada and Mexico view a modernized NAFTA as a tool for job creation, skills transfer and knowledge sharing – however, the current U.S. administration views it largely as a vehicle for job loss.

Rules of origin

Another tense topic raised during round 2 of negotiations involved rules of origin, particularly pertaining to auto manufacturing. The Trump administration has been pushing to increase the percentage of cars and auto parts that must be manufactured in North America in order for the products to be exempt from tariffs, however, U.S. negotiators took that ask a step further, insinuating they would like NAFTA to include a U.S.-made minimum. Both Canada and Mexico opposed the idea of country-specific quotas, and manufacturing industry insiders seem to agree, warning that any wrong moves made during negotiations could increase vehicle prices.

In an interview with Supply Chain 24/7, BDO USA’s Eskander Yavar added, “The manufacturing industry is split on the proposal to strengthen NAFTA’s rules of origin, which stipulates what must happen to inputs from non-NAFTA countries for the final, exported product to qualify for NAFTA benefits. NAFTA’s tariff elimination has been instrumental to the growth of automobile trade between all three countries. If the way in which regional content is calculated changes, this could have significant repercussions for automakers’ supply chains, particularly in non-NAFTA countries. Steel manufacturers, on the other hand, are largely in favour of increasing the minimum content requirements for steel-containing goods.”

Other trade news

While NAFTA negotiations move ahead, the Liberal government has been continuing their efforts to increase trade in Asia and hope to cement a free-trade deal with China this fall.

What’s next?

Round 3 of negotiations will take place in Ottawa from Sept 23-27.

For more information about NAFTA, sign up to receive the latest NAFTA updates or read our other NAFTA insights:
NAFTA 2.0: Key Issues and Next Steps
Summary of NAFTA Round 1 Negotiations (Washington, August 16-20)
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