A quick NAFTA renegotiation is best for everyone: report
A new report from professional services firm KPMG and political risk consultancy Eurasia Group finds that a quick resolution to NAFTA talks would be in the best interests of all parties, particularly Trump, who could use a NAFTA win ahead of the U.S. midterm elections in 2018
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TORONTO—A quick agreement in the NAFTA renegotiations is in the interests of all three countries.
This is according to a new report from professional services firm KPMG and political risk consultancy Eurasia Group.
The report finds that Canada, Mexico and the United States all have vested interests in not let the renegotiations drag out past next summer.
“The most likely outcome of the renegotiation is a quick, relatively painless agreement by the first quarter of next year,” said Russ Crawford, partner at KPMG in Canada.
Crawford continued, “All sides have an interest in the status quo, and a quick agreement could give U.S. President Donald Trump a concrete achievement to present ahead of the 2018 midterm elections.”
Crawford adds that for both Canada and Mexico, the ultimate goal will be preservation of NAFTA because the accord has been a boon for both countries. Particularly, Crawford believes Canadian negotiators would like to take the opportunity to resolve disputes over dairy and softwood lumber.
Jonathan Lieber, Eurasia Group United States director, says that a rapid conclusion might require the Trump team to abandon some of its more controversial goals, but believes the benefits of doing so outweigh the costs.
“Renegotiation will be relatively painless, provided U.S. Trade Representative Robert Lighthizer and his team are willing to compromise on the most controversial portions of their agenda,” Lieber said.
He continued, “The U.S. administration is looking to strike a balance, making real changes to an agreement they believe needs to more directly benefit U.S. workers, while not disrupting it in ways that hurt U.S. businesses. To that end, the overarching goal is a new deal that makes notable revisions yet is limited enough to be acceptable to domestic industries and is wrapped up before the end of the first quarter of 2018.”
According to the report, the most important aspects of the talks are:
- Chapter 19 dispute settlement mechanisms: The U.S. wants to eliminate them, but both the Mexican and Canadian governments want to preserve them.
- Rules of origin: The U.S. believes strengthening the rules will help make its manufacturing sector more competitive, but this could be very disruptive for existing value chains.
- Trade deficit reduction: Mexican negotiators will resist overly ambitious and onerous targets.
- Labour standards: The Mexican government is willing in principle to make changes to its labour laws and to raise the minimum wage to satisfy U.S. demands, but recently approved labour reform leaves little room for further movement.
“If these issues have not been settled by the end of this year, that would be a negative sign for the talk,” added Lieber. “Similarly, silence from political leaders—especially President Trump—would be a good sign. If the negotiations can be kept out of the public eye, they are much more likely to succeed.”