Beyond the already visible differences, a problem for Mexico is that while it might be willing to accede to several points, it needs Canada by its side. It can't sign a bilateral agreement—despite Trump's frequent prodding—without losing political face and providing damning proof to critics and potential voters that the government has sold out to the Yankees.

And the Canadians are maintaining their harder line. Although they may bend on getting rid of NAFTA's investment dispute settlement mechanism, they are likely to insist on limiting the U.S. use of anti-dumping and countervailing tariffs against its neighbors. This was a must-have for the Canadians in both their initial 1988 bilateral agreement and in NAFTA; the tariffs that the United States has recently imposed on Canadian lumber and paper, and tried to impose on passenger jets, give the Trudeau government even more reason to hang tough.

Yet even if the three countries can bridge their current deep divides, upcoming elections pose a profound challenge. On July 1, Mexican citizens will elect a new president and more than 3,000 officials, including every member of the House of Representatives, a third of the senators, and eight governors. In this highly contested set of races, the economic model of the last 30 years, of which NAFTA is an integral part, is in effect on trial.

That makes the timing of any announced compromise on NAFTA tricky. A resolution before the election opens the ruling Institutional Revolutionary Party and its presidential candidate Jose Antonio Meade (lagging third in the polls) to broadsides from every direction, with every other aspirant sure to boast they could have gotten a better deal. Trump will aid these critiques, undoubtedly crowing about his huge win over Mexico, a country that until he came along was “killing us on jobs and trade.”

Yet waiting until after the election has huge risks on both sides of the border. Even if today's Mexican negotiating team approves a new NAFTA, tomorrow's Mexican Congress may not. A July announcement all but pushes the ratification in Mexico to this new body, which will take its seats Sept. 1 (followed by the president's inauguration three months later). A victory by current front-runner Andres Manuel Lopez Obrador, a leftist who has already called on the government to stop negotiations and wait for (presumably his) new administration, could make the new legislature less likely to rubber-stamp any agreement reached by the preceding administration.

A July announcement also runs into the U.S. electoral calendar. Under current Trade Promotion Authority (which needs to be renewed in July), after reaching an accord, U.S. negotiators need to wait least 90 days before officially signing. This waiting period is extended to 180 days if negotiators have made changes to how trade remedies work (which is likely). Then, before bringing it to a vote in the Congress, they need to wait up to another 105 days for an International Trade Commission study on the effects on the U.S. economy. That would put passage in the hands of a new Congress—which could be Democratic, at least in the House.

If the original NAFTA fights are any guide, a Democratic-led House would require significant changes before approving a Trump-led bill, pushing passage deep into 2019. And in the face of Democratic opposition, Trump himself might want to keep the NAFTA drama going, using it as a platform for his 2020 re-election campaign.

In the end, after at least seven rounds of ministerial talks, dozens of working groups, and thousands of hours, a modernized NAFTA may fail on the drawing board or in the legislatures. But what all the talks and tensions have done is to rally NAFTA's once-passive beneficiaries to its cause. Which means that NAFTA, whether old or new, will likely continue.

From: Bloomberg

Copyright 2018 Bloomberg. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.