August 27, 2018 / 5:45 PM / a month ago

Breakingviews - U.S.-Mexico deal is only start of tough NAFTA road

WASHINGTON (Reuters Breakingviews) - A deal between the United States and Mexico is only the start of a tough road to renegotiate the North American Free Trade Agreement. Now Ottawa will rejoin the talks but hurdles like dispute panels remain. President Donald Trump’s fresh outburst at Canada on Monday will also make it hard to close the pact by the end of this week.

U.S. President Donald Trump talks via speakerphone with Mexican President Enrique Pena Nieto as they announce a bilateral deal to replace the North American Free Trade Agreement (NAFTA) at the White House in Washington, U.S., August 27, 2018. REUTERS/Kevin Lamarque

Resolving a contentious auto issue does boost NAFTA’s prospects. The United States and Mexico agreed that 75 percent of content had to be made in their territories to qualify for tariff-free treatment, up from the current 62.5 percent. They also settled on a lower requirement of 40 percent to 45 percent for vehicles made by employees earning at least $16 an hour, about twice the average auto wage in Mexico.

However, Monday’s deal leaves little time to resolve outstanding disagreements with Canada and Mexico. Because of a mandatory 90-day clock for Congress to take up the deal, a NAFTA deal must be wrapped up by Friday if Mexico’s current president, Enrique Peña Nieto, is to sign the pact before left-wing populist Andrés Manuel López Obrador takes over on Dec. 1.

Trump inflamed the situation by saying the deal would be renamed the U.S.-Mexico trade agreement and threatening to impose auto tariffs on Canada if the northern neighbor didn’t capitulate. Canada already wasn’t in a compromising mood after being excluded from the talks for weeks. A spokesperson for Foreign Minister Chrystia Freeland said “Canada’s signature is required.” That’s also technically true for Congress because the administration notified U.S. lawmakers that they were negotiating a “trilateral” agreement.

Canada and Mexico oppose several U.S. demands, like a five-year sunset clause. A senior U.S. administration official said an alternative could be a review of what will be a 16-year deal every six years. The Trump administration also wants to eliminate panels to resolve complaints about anti-dumping and countervailing duties. Canada will also be reluctant to roll back its high tariffs on dairy imports.

If an agreement is reached between the three parties, the push then turns to Congress, where many Democrats remain critical of NAFTA. U.S. rules also require an analysis by the U.S. International Trade Commission, which can take up to 105 days. The leverage wielded by other parties will test Trump’s hardball approach.

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