U.S. pushes for sweeping protectionism at fourth-round NAFTA talks

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The Trump administration has thrown down all of its major demands in the renegotiation of the North American free-trade agreement, pushing for sweeping protectionist changes that would decisively tilt the playing field in favour of the United States at the expense of Canada and Mexico.

In the fourth and most substantial round of talks so far, at a Washington-area hotel, American negotiators formally presented demands for U.S. content in autos, the gutting of the deal's dispute-resolution system and a sunset clause that would terminate NAFTA in five years unless the three countries agree to keep it. The United States had previously laid out a demand to restrict Canadian and Mexican access to American government contracts.

The United States also privately acknowledged that its deadline for finishing discussions by the end of the year might be unrealistic. One source said U.S. officials floated scheduling negotiations as late as February, 2018, to their Canadian and Mexican counterparts.

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But while the U.S. agenda has been spelled out in detail, Washington's ultimate aim remains murky.

Government officials, members of industry and expert observers could not agree whether the United States' tough demands are designed to extract concessions or provoke the collapse of talks.

One source contended the United States itself does not know and is simply throwing out as many demands as possible while it tries to sort out a plan. Another person, who had been briefed on the American negotiating position, said the United States seems content with either a revised deal or tearing up NAFTA. "It's 'my way or the highway.' Both options would be acceptable," this person said.

Both Canada and Mexico are determined to hold the line against the U.S. onslaught and not walk away from the table, the sources said. The aim is to keep the ball squarely in the United States' court, forcing the Trump administration to decide whether it is willing to bargain down to make a deal or make good on threats to tear up the pact.

On Sunday night, Mexican Economy Secretary Ildefonso Guajardo visited the hotel for a closed-door pep talk with his negotiating team. Loud cheering and applause could be heard from the room as he spoke.

"Mexico will not leave the table," he told reporters after emerging from the session.

For now, the toughest sessions mostly consist of Canadian and Mexican negotiators trying to convince their U.S. counterparts that their positions are bad and would hurt the economies of all three countries, one source said.

The American demands are so protectionist that even the U.S. trade negotiators, mostly career civil servants rather than political staff, often do not seem to agree with them, said two people briefed on the talks. One person said U.S. officials will often simply present the proposals but not make much effort to defend their merits when challenged by Canadian and Mexican counterparts. Another person said some U.S. negotiators have tried to distance themselves from the demands by explaining they are only following the White House's orders.

Flavio Volpe, president of the Automotive Parts Manufacturers Association, said the U.S. demands were designed to knock Canada off its game in hopes of either triggering concessions or the collapse of the talks. He predicted they would not succeed.

"The [American] proposals appear to be geared to sow an emotional response from Canada and Mexico. I was reminded that it's a negotiation, and I think they will learn about us in our response," said Mr. Volpe, who was in Washington to advise the Canadian government.

In an Oval Office meeting with Prime Minister Justin Trudeau on Wednesday, the first day of the current round of negotiations, U.S. President Donald Trump threatened to pull out of NAFTA.

But some stakeholders dismissed much of Mr. Trump's rhetoric as negotiating bluster.

"There's a lot of posturing," Ken Neumann, Canadian director of the United Steelworkers, said in an interview at the union's Washington office as negotiations unfolded across the river. "When you get up in the morning and listen to Twitter, it doesn't quite translate into what the real world's all about."

Congress could also prove a check on Mr. Trump's ability to shred NAFTA: If Mr. Trump pulled out of the deal, legislators would likely have to pass a law repealing its provisions, such as lower tariffs. And members of the House ways and means committee, which handles trade, expressed no interest in blowing up the deal.

"We didn't talk about anything imploding," said Dave Reichert, a Washington State Republican who chairs the trade subcommittee, following a meeting with Mr. Trudeau on Wednesday.

Negotiations continue Monday. On Tuesday, Canadian Foreign Minister Chrystia Freeland, Mr. Guajardo and U.S. trade czar Robert Lighthizer will meet in Washington to conclude this round. The three sides will reconvene in Mexico City later this month.

The top American demand in this round was that vehicles made in Canada and Mexico contain at least 50-per-cent U.S. content in order to qualify for duty-free shipment throughout the NAFTA zone, a requirement that would not apply to vehicles made in the United States, while North American content in all NAFTA zone autos would rise from 62.5 per cent to 85 per cent and every component of a vehicle – down to the steel – would count toward that total.

The United States also formally demanded countries be allowed to opt out of Chapter 11 dispute-resolution panels, which allow corporations to sue governments for political decisions that hurt their business; and that Chapter 20 panels, which adjudicate trade disputes between governments, be demoted to an advisory role, allowing a losing country to disregard their decisions and retaliate against the other country.

In the first round, the U.S. demanded that all of Chapter 19, which governs dispute panels that Canada has successfully used to challenge American tariffs on softwood lumber, be simply struck from the agreement.

In the third round in Ottawa, it demanded that Canada and Mexico be barred from receiving any more in government contracts, dollar-for-dollar, than American companies receive in those two countries.