NAFTA negotiations a "race against the clock": KPMG Report

Striking a quick deal important to all countries

TORONTO, Aug. 17, 2017 /CNW/ - A quick agreement in the NAFTA renegotiations is in the interests of all three countries, finds a new report from the professionals at KPMG's member firms and Eurasia Group.  The report notes that Canada, Mexico and the United States all have vested reasons to not let the renegotiations drag out past next summer.

"The most likely outcome of the renegotiation is a quick, relatively painless agreement by the first quarter of next year," says Russ Crawford, partner at KPMG in Canada. "All sides have an interest in the status quo, and a quick agreement could give U.S. President Donald Trump a concrete achievement to present ahead of the 2018 midterm elections."

Jonathan Lieber, Eurasia Group United States Director, says that a rapid conclusion might require the Trump team to abandon some of its more controversial goals, but believes the benefits of doing so outweigh the costs. "Renegotiation will be relatively painless, provided U.S. Trade Representative Robert Lighthizer and his team are willing to compromise on the most controversial portions of their agenda.

"The U.S. administration is looking to strike a balance, making real changes to an agreement they believe needs to more directly benefit U.S. workers, while not disrupting it in ways that hurt U.S. businesses. To that end, the overarching goal is a new deal that makes notable revisions yet is limited enough to be acceptable to domestic industries and is wrapped up before the end of the first quarter of 2018."

Crawford adds that for both Canada and Mexico, the ultimate goal will be preservation of NAFTA. "The accord has been a boon for both countries, particularly for Mexico, where it has catalyzed years of growth. Both countries have matters they would like to see resolved in the talks, such as disputes over dairy and softwood lumber for Canada and the continued opening of the energy sector for Mexico. That said, NAFTA's survival as the bedrock of an integrated North American market will be their primary goal."

The most important aspects of the talks:

• Chapter 19 dispute settlement mechanisms - The U.S. wants to eliminate them, but both the Mexican and Canadian governments want to preserve them;
• Rules of origin - The U.S. believes strengthening the rules will help make its manufacturing sector more competitive but could be very disruptive for existing value chains;
• Trade deficit reduction - Mexican negotiators will resist overly ambitious and onerous targets;
• Labour standards - The Mexican government is willing in principle to make changes to its labour laws and to raise the minimum wage to satisfy U.S. demands, but recently approved labour reform leaves little room for further movement.

"If these issues have not been settled by the end of this year, that would be a negative sign for the talk," adds Lieber. "Similarly, silence from political leaders—especially President Trump—would be a good sign. If the negotiations can be kept out of the public eye, they are much more likely to succeed."

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KPMG LLP, an Audit, Tax and Advisory firm (kpmg.ca) and a Canadian limited liability partnership established under the laws of Ontario, is the Canadian member firm of KPMG International Cooperative ("KPMG International"). KPMG member firms around the world have 189,000 professionals, in 152 countries.

The independent member firms of the KPMG network are affiliated with KPMG International, a Swiss entity. Each KPMG firm is a legally distinct and separate entity, and describes itself as such.

SOURCE KPMG LLP

For further information: Kevin Dove, Director, Corporate Communications, KPMG in Canada, 416.777.8026, [e-mail]; Alexsandra Sanford, Director, Communications, Eurasia Group, [e-mail]

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