[CTC] Auto, dispute settlement, sunset clause talks progress as bilateral discussions break out on ISDS

[Arthur Stamoulis]

INSIDE US TRADE

Auto, dispute settlement, sunset clause talks progress as bilateral discussions break out on ISDS

March 04, 2018 

MEXICO CITY – Negotiators have made progress on automotive rules of origin, state-to-state dispute settlement and a review mechanism during the seventh round of North American Free Trade Agreement talks here, though the U.S. continues to refuse to back down from some of its more controversial proposals, according to sources familiar with the negotiations.

The U.S. has, however, agreed to include a stand-alone energy chapter, easing off its insistence that provisions on energy could be addressed in other parts of the agreement.

News that the chief U.S. rules-of-origin negotiator flew back to Washington, DC, last week was described by a source here as “outside noise” that had not impeded talks on ways to tighten auto rules of origin. Negotiators believe U.S. Trade Representative Robert Lighthizer’s recall of the negotiator was not a negative development in the talks, but rather an indication that USTR needed a technical expert in stakeholder meetings in Washington, sources said – some of whom interpreted the move as a sign that USTR was listening to other negotiating positions.

U.S. negotiators all engaged on ideas that Canada put forward on rules of origin in Montreal, sources said. All three parties discussed elements of Canada's approach, which included focused tracking lists, incentives for research and development, investment, and incentives to ensure more regional steel and aluminum was used in vehicles.

The U.S. engagement comes despite Lighthizer's thorough rejection of Canada's ideas at the close of the Montreal round in January, where he said they “may actually lead to less regional content than we have now, fewer jobs in the United States, Canada and likely Mexico.”

Country-specific requirements were not discussed, as they are a non-starter for Canada and Mexico, sources said. The U.S. proposal for auto rules of origin, tabled last year, included a requirement holding that for a car to receive tariff-free treatment under NAFTA, 50 percent of it must be sourced from the U.S. The U.S. has not backed away from this proposal.

Hanging over the auto talks is the broader U.S. goal of reducing its trade deficits. The negotiations have not touched on deficits, these sources said, but that U.S. imperative – driven by the president, who made trade balances a central feature of his campaign – does color the talks. Several close to the talks characterized the U.S. goal as trying to “force” companies to invest in the U.S.

Efforts to fix NAFTA’s state-to-state dispute settlement process have also progressed during this round, sources said. Mexico and Canada are making recommendations to fix the chapter – including, they said, suggestions about how to select panelists and how to describe their decision-making process. NAFTA’s state-to-state dispute settlement mechanism, contained in Chapter 20 of the agreement, has rarely been used because parties can unilaterally block the nomination of a panelist indefinitely.

At the fourth round last October, the U.S. proposed that panel decisions in state-to-state dispute settlement chapters be non-binding. Mexico disagrees with this proposal, as have a litany of business and labor stakeholders. Discussions this week have included talk of a mechanism through which a panel decision could be reviewed in “extraordinary” circumstances, sources said, and the U.S., to date, has not rejected that idea, they added.

Canada and Mexico have also begun bilateral discussions on investor protections during the Mexico City round. A Canadian official said last week that the two parties would seek to include a bilateral investor-state dispute mechanism <https://insidetrade.com/node/162013> if the U.S. position remained unchanged. The U.S. position would be to opt out of ISDS. Canadian and Mexican negotiators here are now in the process of outlining what those bilateral provisions might look like.

Canada has pushed for something akin to the investment court system contained in its agreement with the European Union. Negotiators have not yet determined whether the baseline for the bilateral discussions will be the current ISDS mechanism in NAFTA, the ISDS provision contained in the Trans-Pacific Partnership or the ICS provisions being pushed by Canada, sources familiar with the talks said.

Similarly, Canada and Mexico are engaging in bilateral discussions on government procurement market access <https://insidetrade.com/node/162147>. On ISDS and government procurement, Canada and Mexico would prefer a trilateral route but have been pushed to bilateral talks because of the U.S.’ unwillingness to engage constructively in those areas, sources said.

These sources also speculated that the longer the U.S.’ so-called poison pills remain on the negotiating table, the more difficult it will be for USTR to walk them back as the negotiations progress.

Mexico’s proposal for a sunset clause that established a periodic review process for the agreement, but does not contain a “sudden-death” clause, have also moved forward.

Meanwhile, the U.S. has agreed to a stand-alone energy chapter in NAFTA, and negotiators have made enough progress at this round to suggest that the chapter could be completed by the eighth round, sources close to the talks said. That round is expected to take place in early April in Washington, DC.

The energy chapter will focus on regulatory cooperation and furthering regional integration, sources said. Obligations pertaining to the energy sector will be addressed in ways similar to those agreed to in the Trans-Pacific Partnership, which enshrined such provisions in state-owned enterprises, government procurement, investment and services chapters.

Other NAFTA 2.0 chapters that could be closed soon include those on sanitary and phytosanitary measures, technical barriers to trade, transparency, telecommunications and digital trade, as well as some sectoral annexes, sources said. One said about half of NAFTA’s chapters were “80 to 90 percent complete.” – Brett Fortnam (bfortnam at iwpnews.com <mailto:bfortnam at iwpnews.com>)


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