Difficult NAFTA round three set to start in Canada

US Trade Representative Robert Lighthizer, above, along with Canadian Foreign Minister Chrystia Freeland and Mexican Economy Secretary Ildefonso Guajardo Villarreal had said “significant progress” was made at the end of the last round of talks, but no details were released. (AFP)
Updated 22 September 2017
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Difficult NAFTA round three set to start in Canada

OTTAWA: The third round of talks on revamping NAFTA, which start Saturday in Ottawa, are expected to be punishing as diplomatic tensions mount.
Over the course of a week, negotiators will hammer out details of the broad proposals submitted by some 20 working groups during the previous round of talks on the North American Free Trade Agreement (NAFTA) in Mexico City.
US Trade Representative Robert Lighthizer along with Canadian Foreign Minister Chrystia Freeland and Mexican Economy Secretary Ildefonso Guajardo Villarreal had said “significant progress” was made at the end of the last round of talks, but no details were released.
In the meantime, President Donald Trump’s protectionist vitriol and separate trade rows over accusations of softwood lumber and aircraft dumping in the US have deadened many Canadians’ goodwill.
“We won’t do business with a company that’s busy trying to sue us,” said Prime Minister Justin Trudeau, threatening to nix a purchase of warplanes from US manufacturer Boeing after it launched a trade complaint against Canada’s Bombardier.
Canada’s economy, along with Mexico’s, has been bound tightly with the US through NAFTA for the past 23 years.
An Ekos Research poll published this week, however, found that 77 percent of Canadians want their government to walk away from the talks if a “good deal” cannot be secured for Canada.
At the same time, with no substantive progress having been announced on key issues, consulting firms KPMG and Eurasia Group are urging businesses to “start working on backup plans.”
At the start of talks in August, Lighthizer said NAFTA must undergo wholesale revision to fulfill Trump’s goal of reducing bilateral trade imbalances and protecting American jobs.
But his Canadian and Mexican counterparts made clear they view the free trade deal as a success and only want to see it modernized and improved.
All of the parties said they hoped to get an accord by year’s end.
But if they do not show progress in this upcoming round the prospects of reaching a deal could be threatened by campaigning for Mexico’s July 2018 presidential elections and the November 2018 US midterms.
“It will be very difficult for the Mexican authorities to negotiate when the elections are in full swing,” explained Daniel Kerner, head of Eurasia’s Latin America group.
Carlo Dade, a senior fellow in global studies at the University of Ottawa, commented: “Because the NAFTA partners know each other, we all expected negotiations to be accelerated.”
“But the (proposed) timeline was never going to work,” he said, predicting negotiations will drag into 2019.
“You can either do it quickly or do it deeply. You can’t do both, unless the other trading partners simply roll over. And nobody thinks Canada and Mexico aren’t going to push back.”
There are numerous touchy subjects on the table at the NAFTA talks, including America’s demands to scrap its dispute resolution mechanism and change the rules of origin for the auto sector to require a certain percentage of cars’ components be built in the US to remain duty-free.
Canada is also facing pressure over its dairy and poultry supply management.
“The battle is partially at the negotiating table but also out in the congressional districts,” said Dade, noting that both Canada and Mexico lobbied the US Congress hard in advance.
Congress will have the last say on NAFTA, which covers a market of nearly 500 million people.
In the end, if a deal cannot be reached, it would not mean an end to continental trade.
“The strong divisions across the three countries on the key issues is increasing the risk that a deal can’t be reached in the near term,” said KPMG partner Russ Crawford.
“But geography and size of the respective markets — and inertia — will ensure trade flows within North America remain an attractive proposition,” he said.
The end of preferential access to the US market would instead push Canada and Mexico to diversify their export markets — including looking to the EU, Asia and BRIC nations.


Iran looms large over OPEC summit

Updated 22 September 2018
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Iran looms large over OPEC summit

  • Saudi Arabia only country in Mideast, and perhaps world, with enough capacity to keep market supplied, say experts
  • At Algiers, Opec and leading non-Opec countries are expected to discuss how to allocate supply increases to offset a shortage of Iran supplies

LONDON: The Opec summit in Algiers on Sunday meets amid widespread fears of a supply crunch when a forecast 1.4 million barrels a day of crude is lost from Iran in November when US sanctions kick in.
If, on top of that, more supply shocks hit the market in worse-than-expected disruption from Libya and Iraq, the price of crude could surge, said Andy Critchlow, head of energy news at S&P Global Platts. “At the moment, the market looks finely balanced,” he said.
There isn’t a lot of slack in the system. As Critchlow points out: “Upstream investment in infrastructure and new wells is historically low and it will take a long time to turn that around.”
At Algiers, Opec and leading non-Opec countries are expected to discuss how to allocate supply increases to offset a shortage of Iran supplies. The gathering comes after a tweet by President Trump on Sept. 20 calling on Opec to lower prices. He said on Twitter that “they would not be safe for very long without us, and yet they continue to push for a higher and higher oil price.”
Critchlow reckoned KSA still had spare capacity of about 2 million bpd. And KSA would get oil back as they go into winter as it had needed 800,000m bpd merely to generate electricity for the home market to meet heightened demand for air conditioning in the summer.
But there is uncertainty about what will come out of Algiers. For a start, the Iranians say they will not attend. That could be tricky in terms of an Opec communique at the end of the meeting as statements need unanimous support from member nations. And Iran has indicated it will veto any move that would affect Iran’s position, ie, one where other countries absorb its market share as sanctions bite.
Jason Gammel, energy analyst at London broker Jefferies, said: “The magnitude of the drop in Iranian exports is likely to be higher than any hit in demand as a result of problems linked to emerging market currencies, or trade wars. That’s why we expect oil prices to continue to strengthen. The Saudis and their partners will keep the market well supplied, and I think the issue is that the level of spare capacity in the system will be extremely low. Any threat or interruption will mean price spikes. Possibly by the end of the year demand will exceed supply; for now, the market remains in balance, but threats of supply disruption will bring volatility.”
Under the spotlight in Algiers is a production cuts accord forged by Opec and 11 other countries in 2016 which has been extended to the end of this year. The agreement helped reboot prices and obliterate inventory stockpiles that led to the crash in crude prices nearly three years ago. But how long will the agreement last? Algiers may kick that one into the long grass.
Thomson Reuters analysts Ehsan Ul-Haq and Tom Kenison told Arab News: “OPEC members would like to maintain cohesion within the group around supply ahead of Iran sanctions and declining Venezuela production, However, they are expected be in favor of maintaining stability in prices while doing so. On the other hand, they need to find a consensus around how their market share would be affected by a decision to pump more oil in the market. Any decision around production will likely be offset until the November meeting.”
Critchlow said that it is what KSA and Russia say and do that matters. “They speak for a fifth of the global oil market, producing a combined total of 22m bpd.” Together, they are the swing producers when it comes to crude production and supply.
Another factor about Algiers is that it is a meeting of the Joint Ministerial Monitoring Committee, which is not a policy-making forum. Big policy statements may have to wait for the main Opec summit in Vienna at the end of year. That said, there will be some very high-level delegations in Algiers, including the Saudi oil minister and his Russian counterpart.
A statement about the demand picture could emerge, especially as there are fears about the impact on the global economy from the US-China tariff war.
Looking to the future, Critchlow thought the Opec production cuts accord would carry on into 2019. “Oil priced between $70/bbl and $80/bbl is a sweet spot for Middle East producers. Its’s good for Saudi as it helps stop further drainage of their foreign reserves and moves the budget back toward balance. Do they want (the price) to go higher? I think that would cause a lot of political problems for them.”