The US administration today pledged to use negotiations to revise the North American Free Trade Agreement (Nafta) to cut US trade deficits with Canada and Mexico.
"Nafta has fundamentally failed many, many Americans and needs major improvements," US trade representative Robert Lighthizer said as the first round of talks started in Washington. "We need to assure that huge trade deficits do not continue and that we have balance and reciprocity."
The US' negotiating partners instead called for focusing on modernizing the 23-year-old agreement to reflect new areas of trade and on preserving the competitive advantage for North American manufacturers and service providers.
"Trade is not a zero sum game, and deficits are not a measure of whether trade works," Canada's foreign minister Chrystia Freeland said.
"The objective [of talks] is not to tear apart what works, but how to make it better," Mexico's economy minister Ildefonso Guajardo said. "Nafta has been a resounding success for all parties."
The three countries are at least in agreement on the need to insulate energy trade during the negotiations. The US will work to improve Nafta's energy provisions, Lighthizer said. Mexican officials are seeking to put energy at the forefront of the negotiations, while Canada is making the case that its exports of oil and natural gas are helping to power US economic growth.
The US ran a $10.5bn deficit in trade of goods with Canada in January-June, and an even wider deficit in energy trade, at $26.7bn, US government data show. Canada is the largest source of crude imports for the US, at an average of 3.5mn b/d in January-May, Energy Information Administration data show.
The US has an even larger overall trade deficit with Mexico, at $36.3bn in January-June. But US energy exports to Mexico — mostly natural gas and products — exceeded imports — mostly crude — by $3bn in January-June.
North American energy companies want an updated Nafta to maintain tariff-free trade for all energy commodities and to protect investor-state dispute settlement provisions. On the latter, both Canada and the US are pushing for revisions to the existing text to make it more difficult for companies to challenge tariffs and duties imposed by a government in that country's courts.
The US administration complained that Nafta's current text gives foreign companies too much power to force a legal review of trade penalties imposed by the US administration.
And Canada says it wants revisions to "ensure that governments have an unassailable right to regulate in the public interest."
US energy companies want to preserve that dispute settlement provision out of concern that Mexico's legal system is yet to catch up to the liberalization of Mexico's energy sector.
Oil industry groups also asked the negotiators to address a long-standing concern over the classification of Canadian heavy oil imports into the US. It is unclear under the existing agreement whether blending Canadian heavy oil with imported diluents qualifies for duty-free treatment.
Mexico will host the next round of talks next month, following the conclusion of the first round in Washington on 16-20 August. US negotiators are pressing for an early conclusion to talks, before Mexico holds a presidential election in July 2018 and before midterm congressional elections in the US in November 2018.
