The United States has confirmed a breakthrough in the NAFTA negotiations unlocking a major irritant involving automobiles, while stressing that a few remaining disagreements need to be settled before a deal is concluded.
A sense of optimism that the unofficial No. 1 issue in the NAFTA talks might be close to resolution lifted the Canadian dollar more than a cent Wednesday, while the U.S. trade czar confirmed the positive developments on autos.
"We're finally starting to converge," Robert Lighthizer said, while delivering a progress report to the U.S. Congress.
"I think we're in a pretty good place."
The U.S. is pushing for a deal within weeks. Otherwise, the process risks being punted into 2019. By mid-spring, it will be too late to complete the legal steps that would allow a ratification vote in the U.S. before midterm elections usher in a new Congress.
Lighthizer summarized the state of the talks this way: "I believe that we have made a great deal of progress, but we still have a ways to go. I have urged our trading partners to recognize that time is short if we are to complete a deal in time for consideration by this Congress."
Prime Minister Justin Trudeau said Wednesday he believes that a deal is "eminently possible."
"There seems to be a certain momentum around the table now that I certainly take as positive," he said at a Toronto news conference.
That said, serious irritants remain.
The blunt-spoken Lighthizer minced no words while listing several of them – he referred specifically to Canadian policies on dairy, culture, wine, and intellectual property. Dispute settlement rules and Buy American issues are also sticking points.
- Of Canada's intellectual-property rules, Lighthizer said: "Canada has Third World intellectual property protection. Getting them to accept First World is not easy." In its annual report on the topic, the U.S. lists its main concerns as Canada's enforcement of counterfeit crimes, and its looser rules for educational exemptions.
- On cultural protections: A lawmaker complained that Canada has abused the exemption on cultural products. He referred to Canada's blocking the QVC shopping network on cultural grounds. Lighthizer replied: "There's a legitimate case for some cultural exceptions. But it's not for this kind of thing. ... The cultural exemption is very often just cultural protectionism." Trudeau, though, tied culture to bilingualism, "which highlights just how incredibly important it is for us to protect our culture, our languages, our creative sectors, our artists."
- Online shopping: The U.S. wants more online purchases of American goods. Lighthizer ridiculed the disparity between what the U.S. allows citizens to import duty-free versus what Canada allows – US$800, versus $20 in Canada: "(That's) just ridiculous... There's no one that can argue that."
- On wine sales, the U.S. is already fighting Canada at the WTO for discriminatory rules on store shelves. Lighthizer said: "It's just rank protectionism at the provincial level in Canada."
- Dairy remains a major problem. Lawmaker Devin Nunes, a third-generation dairy farmer, lamented Canada's limits on imports under supply management. "Canada has been getting away with murder in their dairy industry," he said. "It's causing tremendous problems for farmers here in the United States."
Lighthizer concurred. He said it's also a problem in other supply-managed sectors, poultry and eggs. He expressed some sympathy for Canada's challenges in dismantling the system, but he said he hopes to negotiate reforms.
"It's difficult for them to change their policies in these areas," Lighthizer said.
"Having said that it's a very high priority to make changes in the Canadian dairy programs. ... I'm hopeful that when we put the final deal together it's something we will make real headway on."
Trudeau suggested that will mean a fight: "We're going to continue to defend supply management, because it works."
Lighthizer predicted how the final hours of bargaining will unfold: he said the last issues to be sorted out will include sensitive agricultural areas, such as dairy and wine, as well as intellectual property.
But he said he envisions a new NAFTA with 33 chapters – up from the current 22 – that benefits every country.
He said his primary goal is to steer back some manufacturing from Mexico, through several means: driving up wages in Mexico, new auto rules and weakening the investor-state protections that allow companies to sue foreign governments under Chapter 11.
"The Canadians, to be honest, have a similar objective," Lighthizer said.
He said he wants guarantees that Mexican workers will get to vote by secret ballot on collective bargaining agreements. On dispute resolution, he was pressed by 103 Republican lawmakers who released a letter demanding that he maintain the investor-state system.
Lighthizer pushed back.
If an American company wants to move a plant from Texas to Mexico, and is frightened that, for example, socialist Andres Manuel Lopez Obrador might win the presidential election and discriminate against foreign companies, why, Lighthizer asked, should U.S. trade policy help provide reassurance?