Ratification of overhauled NAFTA agreement delayed until fall

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Ratification of the overhauled North American free-trade agreement will be delayed at least until fall as the U.S. Congress breaks for a month with no deal between the Trump administration and Democratic leaders to approve the pact.

The two sides, however, are making slow progress toward a bargain. Talks are focused on Democratic demands for tougher measures to ensure Mexico protects workers’ rights and makes it easier for them to form unions.

In one idea under discussion, Canada and the United States would help Mexico pay the costs of implementing new labour and environmental provisions, such as setting up labour tribunals or stopping the dumping of waste into waters near the border.

Earl Blumenauer, the Democratic chair of the House of Representatives’ trade subcommittee, said Friday that his staff would spend the August congressional recess working on the details of a potential deal with the office of Robert Lighthizer, U.S. President Donald Trump’s trade chief.

“We have seen significant progress,” he told reporters in a Capitol Hill briefing on the last day before the break. “There are some very specific differences, but they are not ones that cannot be bridged.”

The three countries concluded United States-Mexico-Canada Agreement (USMCA) talks last year, but the pact must be approved by Congress to take effect. Because Democrats hold a majority in the House of Representatives, Mr. Trump needs their help to ratify the deal.

The Democrats want the deal’s labour and environmental provisions strengthened. They also want measures meant to increase patent protections for pharmaceuticals rolled back in order to lower prescription-drug prices.

Negotiations most recently have focused on strengthening enforcement of USMCA’s labour provisions to ensure Mexico follows them. Mexican President Andres Manuel Lopez Obrador pushed through labour reforms this year meant to make it easier for workers to unionize and negotiate for better wages and working conditions.

Jesus Seade Kuri, Mexico’s chief trade negotiator for North America, said he is prepared to work with the United States to assuage Democratic demands. But he said he does not want to change the text of the USMCA, which Mexico has already ratified, for fear that reopening it would lead to a wholesale renegotiation.

Mr. Seade, who, along with Mr. Lopez Obrador, met last weekend with an American congressional delegation, said he was “optimistic” that the Democrats would reach a deal with Mr. Lighthizer. The two sides have not yet gone into much detail, however.

“I don’t think they have started to send text. They are continuing to discuss in general terms,” he told The Globe and Mail.

Both Mr. Seade and Mr. Blumenauer said they have been in contact with Canadian officials. Mr. Blumenauer said he had discussed the U.S. and Canada helping Mexico pay the costs of implementing USMCA. This could be done through the North American Development Bank, a financial institution set up under NAFTA to pay for environmental cleanup projects along the U.S.-Mexico border, he said.

As an example of a problem Mexico must fix, Mr. Blumenauer cited factories that dump waste water into the Pacific Ocean near the California border. “We might be able to have some resources to be able to help what is a threat to both the United States and Mexico, and also talked with the Canadian ambassador,” he said.

Adam Austen, a spokesman for Foreign Affairs Minister Chrystia Freeland, said Canada is “pleased to lend its expertise” to help Mexico carry out its “ambitious labour reforms.”

Mr. Austen would not say what exact help Ottawa is offering and whether it includes financial assistance to Mexico.

Other potential policies floated by Mr. Blumenauer and his fellow Democrats include provisions that would bar companies in Mexico from selling goods to the U.S. if they violate the new labour standards, or allowing American inspectors to visit Mexican factories and ensure they are complying with the laws.

One basic change would be to strengthen USMCA’s dispute settlement mechanisms by making sure no country can thwart the process by refusing to appoint arbiters to the deal’s trade tribunals. This move, however, could be difficult for the Trump administration to agree to: Mr. Lighthizer has long wanted weaker dispute settlement mechanisms because he argues they dilute national sovereignty.

“He’s probably going to try to trade off keeping enforcement as it is, while giving Democrats everything else they want,” said Inu Manak, a trade expert at the Cato Institute think-tank in Washington.

She pointed to pharmaceutical patents as an easier concession for Mr. Lighthizer to make. Both Canada and Mexico fought unsuccessfully against U.S. demands to increase the patent protections, and should have no trouble agreeing to roll them back. Such a move would also fit with Mr. Trump’s promises to lower drug prices.

Daniel Ujczo, an international trade lawyer at Dickinson Wright, said it could take so long to reach a deal that the ratification vote is postponed until late 2020 to avoid having the deal become an issue in Mr. Trump’s re-election campaign.

“As much as they’re working constructively, there is tonnes more work to do,” he said.

American businesses, however, are hoping things move faster than that.

Tom Donohue, chief executive officer of the U.S. Chamber of Commerce, this week announced a lobbying campaign over the August recess to pressure members of Congress to pass USMCA.

“We’re going to ramp things up in a major way,” he told reporters at the chamber’s Washington headquarters. “It’s much more effective to catch these guys and gals at home.”