NAFTA renegotiations hit impasse, raising doubts about its future

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• HARI SREENIVASAN:

  The U.S., Canada and Mexico are currently engaged in talks to amend the North American Free Trade Agreement, NAFTA, which went into effect 23 years ago. American negotiators are looking for changes that could help lower the U.S. trade deficit with the other two countries. But the talks which reconvene next month in Mexico City are at an impasse. Bloomberg News editor Sarah McGregor joins me now from Washington to discuss this. Sarah, this is kind of one of those stories that just flew under the radar compared to all the other news that's being generated from the White House these days. So what level of talks are we at, and how significant is this going forward?

• SARAH MCGREGOR:

  Yes so we're two months into the renegotiation of the North American Free Trade Agreement. The last round of talks ended last week and that's the round where the U.S. put its hard-line proposals on the table. This is things like rules of origin. They want to increase the amount of regional content that needs to be in a car for it to qualify for duty free access under NAFTA. And they also want to introduce a U.S.-specific specific provision which would be 50 percent.

• HARI SREENIVASAN:

  50 percent of the car has to be U.S. product if it's going to these countries?

• SARAH MCGREGOR:

  Yes, it has to be sourced from from the U.S. And that would be in line with Trump's proposal which as you said is to lower the trade deficit and to bring back, you know, revive manufacturing and bring back manufacturing jobs that he thinks went south of the border, that went to Mexico, under NAFTA. Another pretty contentious proposal is the idea of a sunset clause. That sort of came out of out of nowhere actually, the U.S. administration wants to renegotiate this every five years

• HARI SREENIVASAN:

  Doesn't that kind of add a little uncertainty to the next?

• SARAH MCGREGOR:

  Absolutely. This is the round that we've started to hear a lot from the U.S. business community and something like the sunset clause is something they're very concerned about. And if you're thinking my gosh I don't know if I can depend on these tariffs or this trade regime beyond a five-year horizon how can you make your investments?

• HARI SREENIVASAN:

  And what about Congress's role in this, if this goes forward and let's say these countries don't necessarily reach an agreement? Does the United States or does the president have the ability with, you know, his pen to be able to withdraw us from NAFTA?

• SARAH MCGREGOR:

  Trump has repeatedly threatened to withdraw from out on the campaign trail. He was pulled back from the verge of it in April and since the negotiations began he's repeated this pledge to withdraw from NAFTA. So it's pretty clear he has that idea in his mind. Trump is fully within his power to do that. But that's where things start to get a bit more difficult to read the tea leaves on. Congress actually has a lot of control in the U.S. over trade. It's built into the Constitution, it has a lot of say over tariffs and levies, and it's clear that it would spark a huge political and legal battle if Trump tried to pull out of this deal.

• HARI SREENIVASAN:

  So what happens, let's say just kind of a game out a scenario here if the United States withdraws from withdraw from now after. Are there any existing kind of, do we go to like WTO rules? How do we, how do we continue to keep trading?

• SARAH MCGREGOR:

  Yes so I mean the you know the scenario is hard to imagine right now. But one of them could be Canada and the U.S. actually had an existing free trade arrangement before NAFTA. So some people think they could fall back on on that agreement, whereas the U.S. and Mexico didn't have that same arrangement or actually Canada and Mexico. So perhaps they would fall back on the WTO rules, which would raise tariffs and I guess part of the irony of this is that the U.S. would actually face higher tariffs into Mexico than Mexico would into the U.S. because Mexico is a developing, considered a developing country.

• HARI SREENIVASAN:

  All right, Sarah McGregor of Bloomberg News. We'll try to stay on top of this story as it develops thanks so much.

• SARAH MCGREGOR:

  Thank you.