Negotiation In Business
NAFTA Renegotiations Research Paper
March 20th, 2017
BADM 4360 W18
Introduction to NAFTA Renegotiation
NAFTA also known as the North American Free Trade Agreement is a trade agreement that sets the guidelines of trade and investment between Canada, The United States of America and Mexico that was put into effect in the year 1994. The main goals of this trade agreement is to increase strong economic growth, job creation and better prices and varieties in consumer goods. Who benefits from this trade agreement is everyone in North America that owns a business, consumers, families, workers and farmer.
In early 2017, The Trump administration sent congress an official message regarding the North American Free Trade Agreement on their plans of renegotiating the trade deal. Donald Trump, The president of the United States has said previously and has taken a strong dislike to the trade deal with statements such as thinking it is the worst trade deal ever. The Trump Administration’s goal is aimed towards supporting the economic growth and having higher income jobs through the progress that could be made on NAFTA that would recreate the 23-year old agreement. Donald Trump’s promise when he first got elected to be president is to fix NAFTA. “After 119 days later he sent congress a two page letter proposal that fails to include any real plan to fix a deal that has undermined environmental protections, eliminated jobs, undercut wages, polluted our air and water, and fueled climate change” Stated Sierra Club, Executive direct of an environmental group. Mr. Robert Lighthizer, The United States Trade Representative stated that “NAFTA was negotiated 25 years ago, and while our economy and businesses have changed considerable over that period, NAFTA has not. Donald Trump had already made the decision to withdraw from the agreement until the leaders of Canada and Mexico, which are the other parties of the deal, got in contacted and asked him to renegotiate instead. The republicans and democrats welcomed Trump’s efforts at renegotiating the deal, while Mexico’s economy ministry released a statement welcoming the good news stating “Mexico reaffirms its willingness to update NAFTA to face the challenges of the 21st century, the countries of North America deserve a modern instrument to regulate their trade relations. Also Canada’s prime minister, Justin Trudeau said Canada would take on the opportunity to renegotiate NAFTA. The Minister of foreign affairs of Canada has stated “we are at an important juncture that offer us an opportunity to determine how we can best align NAFTA to new realities, and integrate progressive, free and fair approaches to trade and investment”. The renegotiation started on August 16th 2017 in Washing D.C, and so far there was 7 rounds of renegotiating.
The Industry, The Parties Involved and The Apparent Issues
The Industry the NAFTA renegotiation is taking a place in the Politics industry. This Industry is made up of mainly politicians, and world leaders and anyone official in government. This negotiation more importantly focuses on the trade industry, exchange and imports of goods between the countries of United States, Canada and Mexico. The main purpose in this industry is to reduce trade berries in different service sectors belonging to Canada, The US and Mexico to bid on government contracts.
The Parties involved in the negotiation are the three nations, United States of America, Canada and Mexico. More descriptively, Representative of The United States such as Robert Lighthizer who is the US trade representative, Representative of Canada, Chrystia Freeland who is Canada’s minister of foreign affairs and Mexico’s representative Illdefonso Guajardo Villarreal, who is the secretary of the economy.
The apparent issues around this renegotiation are based around the rules of origin, dispute resolution, supply management and government procurement. The issue around the rules of origin is that in the original NAFTA contract it states that “in order for a good to be traded duty-free within three countries, it needs to have a certain percentage of North American Content, which can be many various products”. Where the rules of origin affects this negotiation the most is in the auto industry because vehicles must include at least 62.5 percent American, Canada or Mexican content. This is an issue because the United States has a wish to increase the content standard for NAFTA goods in a bid to claim manufacturing jobs to the united states even though the auto industry has agreed that the rules can be updated for the auto components that did not during the original signing of the deal happened. Canada agreed but only with the condition of applying the new rules equally to all three countries, but Mexico is willing to take a change but warns that going too far will make the region less competitive. On the topic of dispute resolution, the United States has thought about taking out Chapter 19 from the contract which are dispute settlement mechanisms whereas Canada disagrees and thinks it can be updates and should be part of any updated NAFTA contract while Mexico also agrees that it is an important part of the deal to give investors safety nets. In the topic of supply management, which is heavily focused on between only the U.S. and Canada, Where President Donald Trump has called Canada’s restrictions on dairy imports as a “disgrace”, a feature of NAFTA are quotas within several agriculture commodities that include sugar and daily but the US’s goal is to dismiss non-tariff barriers to U.S. agriculture exports. Lastly the last issue is based on government procurement, where the united states is ambitious for governments in Mexico and Canada to take in tender processes to US made products but at the same time the U.S defending the current procurement laws of “Buy American. These same American provisions have stopped the consuming of Canadian steel to build U.S. bridges, where Canada is thriving for more freedom in the market for government procurement. Mexico on the other hand already expects government procurement to already be included since it already exists in NAFTA and wants it part of the renegotiation happing later in August.
What is at stake at this renegotiation is the future of the existing North American Free Trade Agreement which is associated in the sectors of agriculture, automobiles, and energy would be heavily affected by the outcomes of the trade deal. Another thing that is at stake at the renegotiation is the economy and its growth within the three nations, The U.S., Mexico and Canada. Since one another highly depend on each other for exports and imports, if there is any disturbance, their trade deal would affect millions of workers and business owners in those three nations, and possibly worldwide.
What Each Party is Asking for
The main goal for Trump’s administration was for trade deficits to be reduced making sure that the United States is not importing as much as they export. When it comes to the numbers, The U.S has a small trade surplus with Canada which as approximately 12.5 billion dollars which shows it is not really a problem, the issue is more with Mexico because in 2016 the U.S. had 59 billion dollars of trade deficit with Mexico. This resulted in Mexico being responsible for ultimately negatively affecting U.S. factory workers. Their other objectives during the renegotiation is to improve the trade balance in goods, include transparency to custom laws, strengthen the guidelines of origin, and secure promises not to have customers duties on digital products. The biggest challenge the U.S. will face during the renegotiation is negotiated on topics of labour and environment, health and safety standards, where Canada and the U.S. having a more advanced position than Mexico.
Mexico’s main goal is making sure that the U.S. does not try to impose tariffs on their products, or have an easier way of doing so in the upcoming years. This is their goal because they think the whole purpose of NAFTA is to have all three countries to export and import without including extra costs. Where Mexico has a disadvantage is the fact that the United States buys around 80 % of Mexico’s exports which means their economy highly depends on The U.S. Their other objectives are to strengthen the competitiveness of North America, adopt more regional trade, and update the provisions of energy, digital and telecommunications.
Canada’s main goal is just like Mexico, to avoid the U.S. from imposing any tariffs on the goods they have been trading with no extra costs for about 24 years. Again, just like Mexico, the Canadian lumber and energy industry depends solely on the free trade with the U.S. Canada also concerned about the Trump administration’s goals of taking out chapter 19 from NAFTA. More of their goals include making adjustments to Chapter 11 of NAFTA, strengthening labour and environmental standards, encouraging more gender right provisions, expanding procurement and challenging the “Buy American” rules.
Negotiations that took place
The first round of negotiations took place from August 16th to the 20th 2017 in Washington, D.C. during the renegotiation the main objective for Canada and Mexico was to modernize NAFTA meaning building on what NAFTA is already is and upgrading some of the outdated guidelines to fit 21st century issues and improvements. Meanwhile the United States’ desire is to eliminate the parts of NAFTA they disapprove of, to make sure they have a say in the deal. Canada and Mexico wants to focus on increasing trade and having NAFTA become more welcoming to others by recreating it to be more inclusive and become more of a solution to society’s evolving problems whereas the Trump Administration was ready to scrap the parts of NAFTA they do not agree with. There were no issues resolved, nor were the big important issues were mentioned, they all agreed to meet again for round two to negotiate in Mexico City, between September 1st to 5th 2017.
In the second round of the NAFTA renegotiation there was progress but nothing ground-breaking happened. All three countries came to a mutual agreement that this is something that needs to get done by hopefully by march of 2018. The important issue of rules of origin came up during the negotiation specifically for the auto industry. The Trump administration has been leaning towards increasing the percentage of auto parts that must include North American content is order for the products to be discharged from tariffs. The United States also decided to demand that they would like it to be in NAFTA if it had a U.S. made minimum which resulted in Mexico and Canada disagreeing disclosing the fact that any bad moves could possibly increase vehicle prices.
The next four NAFTA renegotiation took place in Ottawa from September 23rd to 27th 2017, Washington D.C. from October 11th to 15th 2017, Mexico City from November 17th to 21st 2017, and Montreal, Canada from January 23rd to 28th of 2018. In these rounds of negotiations, they focused on the intense topics including the rewrite or termination of Chapter 19, the rules of origin, the dispute resolution, technology and future digital trade, and the provisions of “Buy American”. Within these 4 rounds of negotiating, the result of dispute resolution on chapter 11, 19 and 20 were that they will be an attempt to recreate a carved out bilateral discussion on this mechanism under NAFTA but the United States has been completely eliminated from the chapter. On Auto rules of origin, the U.S. has agreed on bringing solutions to the negotiation but in the end they agreed to continue this conversation in the next upcoming rounds. Progresses also happened in telecommunications, customers and trade facilitations.
The 7th and most recent round was located in Mexico City from February 25th to March 5th 2018. The three negotiators realized that their time is running out since their goal is to have a new deal by the end of march 2018. On the issue of the rules of original, Mexico and Canada disagree with The U.S. proposal of increasing the north American contents of a vehicle from 62% to 80%. There was not much progress made during this round, so the future of NAFTA remains mixed. They agree to meet on April 8th in Washington D.C. which surpasses their one agreed goal of coming up with a settlement by the end of March extending it into march.
Strategies, Tactics, and Techniques used
Within the 7 rounds of negotiation, Canada and Mexico wants an everybody-wins result which is also know as integrative bargaining, they want everyone to get what they want so they can all be satisfied, this way all three parties part with a positive experience and their trade relationship is not in Jeopardy. Although Canada and Mexico might be on the same page, The U.S. took a different bargaining approach called the distributive bargaining, this is where a negotiators use a win-lose strategy, they think to get the best outcome in their favour, one party has to lose while the other wins. Since the whole renegotiation idea came from the Trump administration, their demands seem more important than the others because Donald Trump himself said he would terminate the NAFTA contract, this is what is called an Ultimatum where a party states its their way or no way. Because Canada and Mexico have a lot more to lose than the U.S. if the trade agreement was to be terminate which gave The U.S. the upper hand since day one of the renegotiation. In round one, the negotiators from Mexico also used a tactic called apparent withdrawal where they said they were prepared to completely throw out NAFTA than agree to the demands that they consider will harm their economy. A couple of other effective techniques that were heavily used was setting limits and an attempt to secure an agreement-in-principle. Setting limits is when a party states that they will only negotiate under certain conditions, this was the Trump administration main way to negotiate, they kept making sure the other parties knew that they have the upper hand and they could throw in the towel at any time. As the rounds of negotiation went on, Canada and Mexico started to set more limits for themselves especially Mexico stating that they will agree to scrap the whole NAFTA instead of having negative consequences on their economy. The other technique all three parties used when it benefited them was mutual goals such as when they all agreed that they will come up with a decision on the issues they’ll discuss by the end of March 2018. This also created a deadline for them, which forced all parties to be more open towards other parties’ objectives. One thing they kept doing for each round of the negotiation was they kept changing locations, from Washington D.C to New Mexico to places in Canada. They also didn’t have all the rounds of negotiation at once, they took a couple of weeks of break between each round, which gave all parties to confine and discuss with their own party about what their next move will be. They also kept bringing up future needs that includes digital trade and adjusting NAFTA for the 21st problems and solutions, which meant they kept thinking about the effects of their negotiating with one party to another. Other techniques they used was discussing good association, they realized that they are co-dependant with each other’s countries and they have a lot at stake. The three parties used a collaborative strategies around the end of round 6 because they realized that they need to come up with decisions soon and they were not progressing any faster if they were only trying to get what they want out of this trade deal.
In the seven rounds of negotiation that took place the parties of Canada, the United States and Mexico did not result in an outcome of the issues they were discussing other than on the government procurements on the result of dispute resolution on chapter 11, 19 and 20. Which resulted in having an attempt to recreated a carved out bilateral discussion on this mechanism under NAFTA but having the United States eliminated from that part of the chapter. The results of the rest of the discussed issues has yet to be determined. Although they have not come up with final settlements on NAFTA, they have made progress, and have become more lenient towards other parties’ s goals because they have realized that they need to work together as a team if they want to come to an agreement, especially before Mexico’s upcoming presidential campaign. Their next negotiation date in on April 8th 2017 located in Washington D.C.
Barrie, L. (2017). NAFTA renegotiation – Key issues for textiles and apparel. online Available at: http://go.galegroup.com.subzero.lib.uoguelph.ca/ps/i.do?&id=GALE|A498967996&v=2.1&u=guel77241&it=r&p=AONE&sw=w&authCount=1 Accessed 10 Mar. 2018
Davis, J. (2018). Congress Gets Nafta Renegotiation Notice, With Few Details. online Go.galegroup.com.subzero.lib.uoguelph.ca. Available at: http://go.galegroup.com.subzero.lib.uoguelph.ca/ps/i.do?&id=GALE|A491960642&v=2.1&u=guel77241&it=r&p=AONE&sw=w&authCount=1 Accessed 10 Mar. 2018.
Affairs, C. (2017, August 14). Pro-Trade Views on the Rise, Partisan Divisions on NAFTA Widen | Chicago Council on Global Affairs. online Thechicagocouncil.org. Available at: https://www.thechicagocouncil.org/publication/pro-trade-views-rise-partisan-divisions-nafta-widen?utm_source=ion&utm_campaign=rpt18&utm_medium=link&utm_term=nafta-public-opinion&utm_content=pdf Accessed 10 Mar. 2018..
Campbell, A. F. (2017, September 05). The US, Canada, and Mexico are renegotiating NAFTA – here’s what each country wants. Retrieved from https://www.vox.com/policy-and-politics/2017/9/5/16156924/nafta-negotiations Soergel, A. (2017, August 17). What the U.S., Canada and Mexico want from a new NAFTA. Retrieved from https://www.usnews.com/news/articles/2017-08-16/what-the-us-canada-and-mexico-want-from-a-new-naftaStaff, Reuters. (2017, September 01). Factbox: Key issues in the NAFTA renegotiations. Retrieved from https://www.reuters.com/article/us-trade-nafta-factbox/factbox-key-issues-in-the-nafta-renegotiations-idUSKCN1BC5H6Clark, P. (2017, August 21). NAFTA round one is over- and we’re getting to the trading-threats stage. Retrieved from https://ipolitics.ca/2017/08/21/nafta-round-one-is-over-and-were-getting-to-the-trading-threats-stage/Good, K. (2017, September 06). NAFTA Renegotiations: Round Two Complete; While concerts surface on Korean Trade Pact. Retrieved from https://farmpolicynews.illinois.edu/2017/09/nafta-renegotiation-round-two-complete-concerns-surface-korean-trade-pact/BDO Canada. (2017, October 10). Summary of NAFTA round 3 negotiations. Retrieved from
https://www.bdo.ca/en-ca/insights/tax/international-tax/summary-of-nafta-round-3-negotiations/Proulx, S (2017, September 28). NAFTA round 3: Negotiations crawl forward & new chapter for SMEs.
Retrieved from http://www.cme-mec.ca/?lid=JCKNC-E742G-1W6JA&comaction=show&cid=9S4FJ-KQMPS-VXQMSBDO Canada. (2017, November 14). Renegotiating NAFTA: ROUND 4. Retrieved from https://www.bdo.ca/en-ca/insights/tax/international-tax/renegotiating-nafta-round-4/Dentons. (2017, December 04). A closer look at round five of the NAFTA negotiations. Retrieved from https://www.dentons.com/en/insights/articles/2017/december/4/a-closer-look-at-round-five-of-the-nafta-negotiationsBDO Canada. (2018, February 12). Renegotiating NAFTA: Round 6. Retrieved from https://www.bdo.ca/en-ca/insights/tax/international-tax/nafta-round-6-renegotiations/Insights. (2018, January 21). NAFTA Round 6: Shaping a deal. Retrieved from https://earnscliffe.ca/en/news-and-insight/shaping-a-deal/
BDO Canada. (2018, March 16). Renegotiating NAFTA: Round 7. Retrieved from https://www.bdo.ca/en-ca/insights/tax/international-tax/nafta-round-7-renegotiations/NAFTANOW. Frequently Asked Questions. Retrieved from http://www.naftanow.org/faq_en.asp#faq-1Lewicki, R. J., Saunders, D. M., & Barry, B. (2014). Negotiation: Readings, exercises, and cases. New York: McGraw-Hill Irwin.