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Gauging the practical significance of various Administration comments can be difficult. It is hard to read the statement Ambassador Lighthizer delivered yesterday, however, without feeling the chill of NAFTA's end. In part, that is because it was so very calm and measured. He began by paying tribute to the people of Mexico for their recovery from last September's earthquake, a quake that toppled 40 buildings and killed some 370 people. He then complemented his negotiating partners - Mexico's Secretary of Economy
Ildefonso Guajardo and Canada Foreign Minister
Chrystia Freeland - for the hard word that they and their staffs have put into the negotiations for a NAFTA 2.0.
The Calendar. Then came the hard truths. The first dealt with the calendar. He said:
Now our time is running very short. On July 1, as everyone here knows, Mexico will choose a new president. That campaign as I understand it begins in earnest just next month. But Mexico is not the only NAFTA country in the midst of elections. Both Ontario and Quebec have elections scheduled later this year. Finally, the United States has mid-term elections coming up in November. All of this complicates our work. I fear that the longer we proceed, the more political headwinds we will feel.
On the Pace of Progress, he said:
To complete NAFTA 2.O, we will need agreement on roughly 30 chapters. So far, after seven months we have completed just six.
The Really Hard Part, Rebalancing. Ambassador Lighthizer reminded his listeners that America has two main objectives in the current NAFTA negotiations, modernizing the agreement and rebalancing it. All agree on the need for updating NAFTA but rebalancing it, we suspect, is a purely American objective. So that is the really hard part.
The NAFTA Talks Could Fail. This was the clear message of the concluding portion of his statement, namely:
We hope for a successful conclusion of these talks, and we would prefer a three-way, tripartite agreement. If that proves impossible, we are prepared to move on a bilateral basis, if agreement can be made.
The 232 Tariffs. Last Thursday, March 1,
President Trump announced that the United States plans to impose tariffs on imports of steel and aluminum, a decision which would significantly affect both Canada and Mexico. The rationale for this action is that the affected industries - steel and aluminum - are critical to U.S. national security, and the authority for the new tariffs will be Section 232 of the Trade Expansion Act of 1962. Ambassador Lighthizer made no reference to those tariffs in his closing statement. He did, however, say to reporters in Mexico City that the tariffs were an incentive to get a deal. "The President's view," he said, "was that it makes sense that,
if we get a successful agreement, to have them [Canada and Mexico] excluded."
Chrystia Freeland, Canada's foreign minister, did raise the issue of the threatened tariffs in her closing statement. She did so quite pointedly, saying:
Should restrictions be imposed on Canadian steel and aluminum products, Canada will take appropriate, responsive measures to defend our trade interests and our workers.
Mexico's Ildefonso Guajardo has also spoken critically of the injection of these Section 232 tariffs into the NAFTA negotiations. It is worth bearing in mind that, at this point, the Administration has yet to make a formal announcement on which products will be subject to the new tariffs and from which countries. That announcement is expected this week.
Closing Note. We shall be returning to the issue of the 232 tariffs soon. As for NAFTA, it seems to us that all three countries - and all of the interested actors in each - are confronted with the following two-part dilemma:
However foolish it might be for the United States to withdraw from NAFTA, the logical position for any party in any negotiation is that his counterpart must be convinced of his willingness to walk away. The phrase "No deal is better than a bad deal," has a rich history. As we read his statement from yesterday's closing ceremony in Mexico City, Ambassador Lighthizer has strongly restated that position. That's the first part.
On the other hand, each of the three North American countries has an enormous stake in reaching an agreement on NAFTA 2.0. That's the second part.
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