Economic Analysis - NAFTA Update: Deadlock To Result In Few Treaty Changes - DEC 2017

BMI View: An abbreviated timetable, slow progress, and entrenched negotiation positions on key issues such as dispute resolution mechanisms make it increasingly likely that the North American Free Trade Agreement renegotiation process will result in little more than a middle-of-the-road agreement by the end o f 2017 or early 2018. While there is the looming threat of the US unilaterally withdrawing from the agreement, we believe that political, economic, and legal constraints will preclude this.

Renegotiations of the North American Free Trade Agreement (NAFTA) look increasingly unlikely to conclude by the end of 2017 with anything but minor changes. There are only three months to go in what would normally be a much longer process (the US, Canada, and Mexico agreed to a remarkably abbreviated schedule compared to the multi-year timetables that trade deals usually require), and the third round of talks of a planned seven in total ended on September 27 with little tangible progress to show for six weeks of negotiations. This is important since the first two rounds were seen as being fairly straightforward, with the more contentious issues only beginning to be introduced in round three, and more to come in the final four.

Our core view remains that only a fairly modest set of changes to NAFTA will be agreed upon by the end of 2017 or very early in 2018, reflecting a ' modernisation ' of the treaty rather than a substantial renegotiation, with none of the bigger demands of the US in particular being met ( see ' NAFTA Renegotiation: Fears Likely Overblown ' , 4 August). The US is the most interested party in shaking up the status quo in the negotiations, but Canada and Mexico have accused Washington's representatives of being slow to put forward proposals on core issues that are specific enough for the other parties to evaluate. Much uncertainty has centred around the US's key objective to increase the proportion of North American content in autos, as Washington has so far been unspecific about what targets to set. Without such details, it is hard to see how negotiations can proceed swiftly.

US Least Favourable Towards NAFTA
Survey - "The North American Free Trade Agreement, or NAFTA, has been a ___ thing for our country."
Source: Pew Research Center Spring 2017 Global Attitudes Survey, BMI

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