NAFTA do or die? Pivotal round of talks begins in Montreal

North American Free Trade Agreement (NAFTA) discussions are set to resume in Montreal on Tuesday, the sixth round of talks, which could be pivotal for the future of the tri-lateral trade deal.

“This is the game, what happens in Montreal is going to decide whether we continue on this process or whether the U.S. issues a notice to withdraw,” Dan Ujczo, international trade and customs lawyer with cross-border firm Dickinson Wright, told FOX Business.

Ujczo said a commonly held belief was that if things didn’t go well during this round, U.S. President Donald Trump could announce his decision to withdraw from the pact at the State of the Union address on Jan. 30. Ujczo would have put the odds of U.S. withdrawal at 70% around New Year’s Eve, he said, but with recent lobbying efforts, particularly on behalf of the U.S. farming industry, he believes they have slightly declined over the past few weeks.

The White House has not, however, wavered on its stance that it will pull out from the deal if it cannot be renegotiated on terms more favorable for the U.S. Trump has infamously called the agreement “the worst trade deal” the U.S. has ever approved.

While some progress has been made toward a new agreement, the three sides have been stuck on some key issues that have proved difficult to navigate, known as “poison pills,” which include auto rules, agricultural trade and the addition of a sunset clause.

The United States has been insistent on implementing a rules of origin section for the automotive sector, which would stipulate that as much as half of regional auto parts come from the U.S. Mexico is resistant to the change, though the country's leaders have more recently indicated a willingness to come to the table on the issue.

Bryan Riley, director of the National Taxpayers Union Free Trade Initiative, told FOX Business that even the U.S. automotive industry itself is against this provision.

According to the White House, since the implementation of NAFTA in 1994, the U.S. trade balance with Mexico has shifted from a surplus of $1.3 billion to a $64 billion deficit in 2016.

The U.S. has some disagreement over agricultural priorities with Canada, U.S. Secretary of Agriculture Sonny Perdue told FOX Business in October.

“The irritants that we have are primarily with Canada over their dairy management supply program they are over producing creating depressing world prices for milk solids. There is also a wine issue in British Columbia where they are not letting our wines out front where their customers can choose. There is also poultry access issues. So some of the things left out of NAFTA from a Canadian access perspective is not fair for the U.S.,” he said.

The United States is also receiving pushback over its desire to include a sunset clause, which would cause the deal to automatically expire after five years unless it is renegotiated.

The three countries have made progress in other areas, including telecom, customs and food safety, Ujczo said, but further headway is now dependent on the divisive issues.

“My working assumption is about 70% of the text of the new agreement is done, but [it’s] largely on the non-controversial issues … we’re not going to make progress on the other issues until we resolve the trickier issues,” he said.

Riley believes it’s time for the U.S. to let go of some of the more contentious issues in order to modernize and update the trade treaty.

“What this round will show is [whether] the U.S. is going to be serious and pursue practical negotiations to improve NAFTA; or are we going to continue pushing an agenda that doesn’t seem likely to point to a successful conclusion this week, or next week, or next year?” he said.

Even if Trump does decide to withdraw, the terms of the pact require each country to give six months’ notice, so experts believe there is the potential for a little leeway during that timeframe.

However, failure to reach any deal on NAFTA could not only cause economic disruptions, it could also have wider repercussions on the global stage.

“The lack of a working trade agreement in North America will erode U.S. competitiveness as we try to compete with China and elsewhere,” Ujczo said. “It also sends the wrong message to the rest of the world, if we can’t do a trade agreement with our two closest trading partners … who are we going to be able to do a trade deal with?”

The current round of talks is scheduled to end on Jan. 28, the sixth of seven scheduled rounds of renegotiation discussions.