New NAFTA talks aim to clear pathway to toughest issues

Above, NAFTA banners are pictured during the seventh round of NAFTA talks involving the US, Mexico and Canada in Mexico City. Talks are running behind schedule and some officials believe the longer they last, the less likely it is that US President Donald Trump will dump NAFTA. (Reuters)
Updated 26 February 2018

New NAFTA talks aim to clear pathway to toughest issues

MEXICO CITY: Mexico and Canada aim to finish reworking less contentious chapters of the NAFTA trade deal with the US in new talks that began on Sunday, hoping to clear the path for a breakthrough on the toughest issues before upcoming elections.
In six months, negotiators have made progress on the technical details of a revamped North American Free Trade Agreement, but made little advance on strong demands for change made by the administration of US President Donald Trump.
Ranging from calls for major changes to automotive content rules and dispute resolution mechanisms, to imposing a clause that could automatically kill NAFTA after five years, the chief stumbling blocks laid by the White House look unlikely to be removed in the latest Mexico City round, officials said.
Trump frequently threatens to walk away from NAFTA unless big changes are made to a pact he blames for US manufacturing job losses.
“I think there’s going to be major progress on the technical issues and major obstacles on the critical issues,” Bosco de la Vega, head of the Mexico’s National Agricultural Council farm lobby, said of the talks running until March 5.
Once agreement is reached on technical chapters such as state-owned enterprises, barriers to trade and e-commerce, about 10 percent of the modernized accord would eventually be left over for political leaders to work out, de la Vega estimated.
A schedule for the latest round showed that the discussions for the first three days would include rules of origin, an issue at the heart of the Trump administration’s demand to raise the amount of auto content sourced from the NAFTA region.
Under NAFTA, at least 62.5 percent of the net cost of a passenger car or light truck must originate in the region to avoid tariffs. Trump wants the threshold raised to 85 percent.
“You can’t have a successful negotiation if there’s no change to the rules of origin,” said a Mexican official, speaking on condition of anonymity, adding: “It won’t be 85 percent. We’re not sure what the number is going to be.”
Mexican Economy Minister Ildefonso Guajardo has said his negotiating team aims to present a proposal on rules of origin, although he has not provided details.
On Sunday evening, the Mexican official told Reuters: “We don’t have a counterproposal yet.”
Any final agreement would need to be reached between Trump and auto-sector leaders in the US who oversee the NAFTA region, an industry source close to the process said.
The North American auto industry has pushed back against Trump’s demands, arguing they would damage competitiveness and regional supply chains.
Mexico aims to build on the previous round in Montreal, when Canada floated proposals to address US demands, including one to include costs for engineering, research and development and other items in the total value of an auto.
The schedule showed that several chapters that negotiators have signaled are close to concluding, including e-commerce, telecommunications and energy, are up for discussion toward the end of the round. Financial services will last for three days.
The latest round comes amid flare-ups between Washington and Ottawa and growing, if cautious, optimism in Mexico that the trade agreement will remain.
Talks are running behind schedule and some officials believe the longer they last, the less likely it is that Trump will dump NAFTA.
Negotiators had wanted to wrap up talks by March to avoid them being politicized by Mexico’s July presidential election. US congressional elections in November could also complicate the talks.
But officials have raised the possibility that they will run past Mexico’s vote, and some said they could continue at a technical level for several months if necessary.
A US official said: “There has never been a hard deadline,” and belief is growing among Mexicans following the process that lobbying efforts by US business leaders and politicians to preserve NAFTA have been gaining traction.
The office of Minnesota Governor Mark Dayton on Friday published a letter sent this month to US Trade Representative Robert Lighthizer in which he urged him to “preserve and expand market access” under NAFTA, and build on existing ties.
While pledging to stay in the talks, Canada’s chief negotiator, Steve Verheul, struck a downbeat tone last week, telling a business audience: “There are large gaps between what we’re trying to achieve and what the US is trying to achieve.”


Gulf economies to take coronavirus exports hit says S&P

Updated 17 February 2020

Gulf economies to take coronavirus exports hit says S&P

  • S&P expects oil prices to remain at $60 per barrel in 2020 and decline to $55 from 2021
  • The ratings agency expects the impact on the banking sector to be low, with little direct exposure to Chinese companies

LONDON: Gulf states already hurt by a weak oil price could reap further economic pain from the impact of the coronavirus on their exports, S&P Global Ratings warned on Monday.

The ratings agency believes there is a risk that the economic impact of the virus could increase unpredictably with implications for overall economic growth, the oil price and the creditworthiness of some companies. Still, its base case scenario anticipates a limited impact for now.

“Given the importance of the Chinese economy to global economic activity, S&P Global Ratings expects recent developments could weigh on growth prospects in the GCC, already affected by low oil prices and geopolitical uncertainty,” it said in a report.

Although the rate of spread and timing of the peak of the new coronavirus is still uncertain, S&P said that modeling by epidemiologists indicated a likely range for the peak of between late-February and June.

Notwithstanding the spread of the virus, S&P expects oil prices to remain at $60 per barrel in 2020 and decline to $55 from 2021.

It sees the biggest potential impact on regional economies to be felt in terms of export volumes. S&P estimates that GCC countries send between 4 percent and 45 percent of their exported goods to China, with Oman being the most exposed (45.1 percent) and the UAE the least exposed (4.2 percent).

Beyond the trade of goods, the Gulf’s hospitality sector could also feel the effect of reduced tourist arrivals with hotels and shopping malls likely to suffer. The impact could be further amplified because of the high-spending nature of Chinese tourists.

On-location spending by Chinese tourists is the fourth largest in the world at $3,064 per person, according to Nielsen data. About 1.4 million Chinese tourists visited the GCC in 2018 with expectations of that figure rising to 2.2 million in 2023, and with the UAE as the main destination.

Chinese passengers also accounted for 3.9 percent of passengers passing through Dubai International Airport in 2018.

S&P said that if the effect of the new coronavirus is felt beyond March, the number of visitors to Expo 2020 in Dubai could be lower than expected.

The ratings agency expects the impact on the banking sector to be low, with little direct exposure to Chinese companies.