NAFTA In Play-The State Of Play Following The Sixth Round Of Negotiations

We summarized the key issues discussed at the sixth round of the NAFTA 2.0 negotiations which was concluded on January 29 in Montreal.

The sixth round of the NAFTA 2.0 negotiations concluded on January 29 in Montreal. Some of the key areas covered in this round are summarized below.

Auto rules of origin continued to be a major topic of discussion. The standing US proposal - to increase regional content from 62.5% to 85% and establish a new 50% US content requirement - has seemingly gotten no traction with Mexico and Canada. The Canadian team proposed new, purportedly US-favorable rules for the calculation of regional content (e.g., including in the content calculation costs such as research and development and software development). At the close of the round US Trade Representative Lighthizer rejected this new idea.

Also remaining in the spotlight was the US push for the elimination of Investor-State Dispute Settlement ("ISDS," which US businesses have used with great success in challenging Mexican and Canadian regulations), or at least for an amendment that would allow a country to "opt-out" of ISDS. The report from the sixth round is that rather than accept an ISDS opt-out right (that would, in effect, require Mexican and Canadian investors to pursue their claims in the US judicial system rather than in arbitration), Mexico and Canada would prefer to simply remove ISDS altogether. In that case, Mexico and Canada suggested, they might establish ISDS on a bilateral basis.

Related to the ISDS issue, shortly before the sixth round began, Mexico provided dispute resolution comfort to foreign investors by signing the International Centre for Settlement of Investment Disputes (ICSID) Convention. Once the signature is ratified by the Mexican senate, investors will be able to have their claims resolved under the standard ICSID rules. Foreign investors prefer to invest in countries that allow them to challenge the host government via the ICSID dispute resolution system and avoid local courts. The ICSID Convention is particularly strong in prohibiting local court proceedings that often are initiated to delay or resist recognition of international arbitral awards. The importance of Mexico's ratification of the Convention will increase in the event ISDS under NAFTA is effectively eliminated.

Some major sticking points that do not seem to have progressed significantly during the sixth round include: (i) the US "sunset" proposal, under which every five...