October 12, 2017 / 10:56 PM / in 10 days

Factbox: Major points of friction as NAFTA talks sour

(Reuters) - U.S. demands for more favorable treatment under the North American Free Trade Agreement, and a proposal that any new deal be allowed to expire after five years, heightened tensions as negotiators held another round of talks to renew the pact this week.

A staff member moves flags at the close of the third round of NAFTA talks involving the United States, Mexico and Canada in Ottawa, Ontario, Canada, September 27, 2017. REUTERS/Chris Wattie

NAFTA, long opposed by U.S. President Donald Trump, was first implemented in 1994. It eliminates most tariffs on trade between the United States, Canada and Mexico and underpins $1 trillion of trade.

Key issues facing negotiators include:

“SUNSET CLAUSE”

U.S. Commerce Secretary Wilbur Ross says the United States is seeking to add a so-called sunset clause to NAFTA to provide a regular, “systematic re-examination” of the trade pact.

The provision, causing NAFTA to expire after five years unless all three countries decide to renew it, has been met with disbelief by Canada, Mexico and the U.S. Chamber of Commerce. They say a major reason for having a trade deal is to provide investors with certainty about the future.

RULES OF ORIGIN

The United States wants U.S. parts to be make up at least 50 percent of the content of autos made in North America, and parts from the region to make up at least 85 percent of the vehicles.

At present cars must contain at least 62.5 percent American, Canadian or Mexican content. Canada, Mexico and the auto industry warn that such strict rules will drive automakers to make their vehicles elsewhere, or buy cheap Asian parts and pay the tariffs.

DISPUTE RESOLUTION

The United States has sought to ditch the so-called Chapter 19 tool, under which binational panels hear complaints about illegal subsidies and dumping and then issue binding decisions.

Washington argues that Chapter 19 infringes on the sovereignty of its domestic laws. Canada has said Chapter 19 can be updated, but that a dispute settlement mechanism has to be part of any updated NAFTA. Mexico also says dispute settlement mechanisms are a vital part of the deal and give investors security.

SUPPLY MANAGEMENT

Quotas are already a feature of NAFTA in several agricultural commodities including dairy and sugar, but Washington is seeking to eliminate non-tariff barriers to U.S. agricultural exports.

Dairy was excluded from the original 1994 NAFTA deal, and U.S. President Donald Trump has called Canada’s restrictions on dairy imports a “disgrace.”

“DOLLAR FOR DOLLAR.”

The United States is pushing for the Canadian and Mexican governments to open up their tender processes to U.S.-made products, but at the same time it is defending existing “Buy American” procurement laws under a proposal dubbed “Dollar for Dollar.”

The Buy American provisions have blocked the use of Canadian steel to build U.S. bridges, and Canada is pushing for a freer market for government procurement.

FRESH PRODUCE

The United States is exploring ways to protect fresh fruit and vegetable farmers in Florida and Georgia by giving small growers easier access to anti-dumping measures, a move Mexico sees as anti-free trade. It is also opposed by larger U.S. farm outfits that use their Mexican fields to sell cheap berries and tomatoes to U.S. consumer all year round under NAFTA.

INVESTOR-STATE DISPUTE SETTLEMENT

The United States has proposed a minor tweaking of the NAFTA Chapter 11 provisions, designed to ensure that firms that invest abroad receive “fair and equitable” treatment by foreign governments.

Opponents of the provisions argue they infringe on sovereignty and benefit multinational corporations. Canada wants to update the mechanism to allow governments to regulate in the interest of the environment or labor, as in the Comprehensive Economic and Trade Agreement that Canada recently negotiated with the European Union.

MEXICAN ENERGY

Mexico’s Economy Minister Ildefonso Guajardo last week criticized a U.S. proposal he said was aimed at putting new restrictions on companies that do deals with Mexico’s state-run energy companies. In 2014, Mexico opened its energy sector to private investment and says it has since raised at least $60 billion in investment commitments.

Compiled by Frank Jack Daniel in Mexico City; Editing by Tom Brown

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