Trade Officials Make Progress at Latest Nafta Talks, but Uncertainty Remains

By Sara Schaefer Muñoz and Paul Vieira Features Dow Jones Newswires

The third round of talks to renegotiate the North American Free Trade Agreement came to an end Wednesday amid growing pessimism that the U.S. and its counterparts remained far apart on important issues such has how to resolve trade disputes, even as some progress was made on rules for small businesses and financial services.

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At a closing event featuring statements from senior officials of the three Nafta countries, they applauded the progress to date, including the conclusion of a chapter addressing small and medium-size businesses. They said they were also close to a finalizing text on a chapter on competition policy.

"Of course there is enormous amount of work to be done, including on some difficult and contentious issues," said U.S. Trade Representative Robert Lighthizer in his statement. "We continue to push for ways to reduce the U.S. trade deficit, and are committed to a substantial renegotiation that reinvigorates U.S. industry and reciprocal market access" for U.S. farmers, ranchers and firms.

Adding tension to the final hours of talks in the Canadian capital was a decision from the International Trade Commission that slapped a preliminary 220% tariff on planes made by Bombardier Inc., one of Canada's biggest industrial companies. The U.S. trade authority ruled in favor of a complaint from Boeing Co., which alleged Bombardier unfairly benefited from state subsidies -- allowing the Montreal company to sell its 100-seat CSeries jets at a deep discount.

Senior politicians in Canada warned of consequences for Boeing, and called on Prime Minister Justin Trudeau to respond forcefully.

"Boeing may have won a battle, but the war is far from over and that we shall win," said Philippe Couillard, premier of Quebec, Bombardier's home base. He urged Mr. Trudeau to take "a very hard line" against Boeing. "Not a bolt, not a part, not a plane from Boeing should enter Canada until this is resolved in a satisfactory way."

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The U.S. trade agency's ruling against Bombardier is likely to strengthen Canada's resolve to maintain dispute-settlement provisions that are presently in Nafta but the Trump administration wants scrapped claiming they pose a threat to U.S. sovereignty.

"Canada will now be more determined than ever to keep" the arbitration panels in Nafta, said Peter Clark, an Ottawa-based trade strategist and former Canadian trade official. He said it's his view Canadian negotiators are prepared to walk away from the Nafta talks over dispute-settlement mechanisms -- in particular Chapter 19, which would allow a firm like Bombardier to challenge tariffs imposed by Washington before an independent panel.

Three people familiar with the talks also said there was deep concern about a proposal tabled by the U.S. on so-called seasonal safeguards for agriculture, which would block Mexican produce imports during certain times of the year.

The U.S. stance on issues such as Chapter 19 and agriculture "are a pretty radical departure from the past and there is a growing worry that [negotiators] might not actually come out of this with a deal," said Eric Miller, a global fellow at the Woodrow Wilson Center's Canada Institute who focuses on trade.

After this round in Ottawa, Nafta talks will recommence in the D.C. area next month.

Mr. Clark said the Nafta rounds to date have lacked any sort of momentum, and attributed that to the Trump administration's inability to get a consensus from Congress, the business community and other stakeholders on ways to improve Nafta. "If they can't sell it at home, then they definitely can't sell it here," said Mr. Clark, who's attended all three rounds of Nafta renegotiations.

Write to Sara Schaefer Muñoz at Sara.Munoz@wsj.com and Paul Vieira at paul.vieira@wsj.com

OTTAWA -- The third round of talks to renegotiate the North American Free Trade Agreement ended amid growing pessimism about the ability of the three countries to reach a consensus over the most contentious parts of the pact.

At a closing event Wednesday afternoon, senior officials from the U.S., Canada and Mexico applauded progress, including the conclusion of a chapter addressing small and midsize businesses.

But in the hallways and at the off-site events, people close to the talks expressed concern that things were moving slowly on some of the most-divisive matters, such as arbitration in trade disputes and U.S. content requirements in automobiles.

"As negotiations move forward, it is important that we have the will to [introduce] positions that encourage constructive discussions on problematic" issues, Mexican Economy Minister Ildefonso Guajardo said in his concluding remarks at the Ottawa round. When negotiators next gather in Washington in early October, "we will have substantial challenges to overcome."

U.S. officials, according to people with knowledge of the talks, have discussed their views on matters such as arbitration panels they see as an erosion of U.S. sovereignty and their desire to see more U.S.-made parts in auto production.

However, the Office of the U.S. Trade Representative hasn't finalized proposals on these topics because the U.S. has faced strong pushback on various points from business groups and lawmakers in Washington.

This could put at risk a successful completion of the renegotiation by the original goal of the end of the year, people involved in the talks said.

U.S. Trade Representative Robert Lighthizer said much work remained on the "difficult and contentious" issues, and the U.S. would push for measures that reduce the trade deficit and provide increased market access to U.S. farmers, ranchers and firms.

He told reporters that wrapping up the talks by the end of the year was still "realistic," but added that "there is a process to clear things, which does take time" and that the U.S. aims to suggest language on issues such as dispute arbitration at the next round, in early October.

One text the U.S. did put forth this week signaled the contentious debates to come. It dealt with so-called seasonal safeguards for agriculture, which could block Mexican produce imports during certain times of the year, two people briefed on the proposal said.

Produce growers in states such as Florida and Georgia have called for protections for their sector, which they say has been badly damaged by an influx of Mexican fruit and vegetables.

The proposal addresses a long-standing complaint about dumping by Mexican producers -- citing artificial set wages and other supposed subsidies -- that have gained no traction in the past, said Juan Carlos Anaya, director-general of Mercados Agricolas in Mexico City, which advises agribusinesses on trade and national markets.

But Mr. Anaya, trade groups and others close to the negotiations say Mexicans are staunchly opposed to it.

"In other words, when Florida is producing tomatoes, Mexico would have to operate under a quota or some other rule," said Mario Andrade, president of Aneberries, a trade group for berry producers in Mexico. "Mexico categorically rejects this proposal."

The U.S. stance on the agriculture issue and matters such arbitration dispute shows the gulf between the U.S. and the other countries, said Eric Miller, a Global Fellow at the Woodrow Wilson Center's Canada Institute who focuses on trade.

"They are a pretty radical departure from the past and there is a growing worry that [negotiators] might not actually come out of this with a deal," he said.

Adding tension to the final hours of talks in the Canadian capital was a decision from the International Trade Commission that slapped a preliminary 220% tariff on planes made by Bombardier Inc., one of Canada's biggest industrial companies. The U.S. trade authority ruled in favor of a complaint from Boeing Co., which alleged Bombardier unfairly benefited from state subsidies -- allowing the Montreal company to sell its 100-seat CSeries jets at a deep discount.

The U.S. trade agency's ruling against Bombardier is likely to strengthen Canada's resolve to maintain dispute-settlement provisions that are presently in Nafta but the Trump administration wants scrapped claiming they pose a threat to U.S. sovereignty.

"Canada will now be more determined than ever to keep" the arbitration panels in Nafta, said Peter Clark, an Ottawa-based trade strategist and former Canadian trade official. He said it is his view Canadian negotiators are prepared to walk away from the Nafta talks over dispute-settlement mechanisms -- in particular Chapter 19, which would allow a firm like Bombardier to challenge tariffs imposed by Washington before an independent panel.

Canadian Foreign Minister Chrystia Freeland said the country's negotiators "have been very clear" to their counterparts about the importance it places on Chapter 19. "Canada is absolutely committed to defending it," she told reporters at a press conference.

--Robbie Whelan, Dudley Althaus and Juan Montes contributed to this article.

Write to Paul Vieira at paul.vieira@wsj.com and Sara Schaefer Muñoz at Sara.Munoz@wsj.com

(END) Dow Jones Newswires

September 27, 2017 19:21 ET (23:21 GMT)