Trump is pushing hard to reach NAFTA agreement, both with trading partners and with Congress

Source: By Don Lee, Los Angeles Times • Posted: Wednesday, April 25, 2018

Trump is pushing hard to reach NAFTA agreement, both with trading partners and with Congress
Mexican Economy Secretary Ildefonso Guajardo, left, shakes hands with U.S. Trade Representative Robert Lighthizer after a negotiating round in January. In the middle is Canadian Foreign Affairs Minister Chrystia Freeland. (Graham Hughes / Associated Press)

With critical political deadlines fast approaching, the Trump administration is racing to strike a deal on a revamped North American Free Trade Agreement by early May — with an eye toward forcing a congressional vote on a new pact by the end of the year.

After months of making little progress, recent statements from high-level trade officials meeting in Washington indicate that negotiations have been gaining momentum and that there’s a fair chance of reaching an agreement in principle in weeks or even days.

But as Trump’s chief trade negotiator, Robert Lighthizer, resumed talks Tuesday with his Canadian and Mexican counterparts, analysts say the three sides have yet to close the gap on several key issues, leaving many wondering whether there’s enough time. Canada and Mexico, rather than make politically unpopular concessions, may decide it better to prolong the talks, even at the risk of a U.S. withdrawal from NAFTA, as Trump has repeatedly threatened.

Moreover, Trump’s practice of lumping different issues together for bargaining leverage has increased uncertainties about the fate of negotiations. Last month, Trump gave an exemption to Canada and Mexico on hefty steel and aluminum tariffs, but only until May 1, saying what happens afterward would depend on how rewriting NAFTA comes along.

And on Monday, Trump suggested that a NAFTA overhaul should include another one of his goals, tighter control of people entering from the southern border. “Mexico, whose laws on immigration are very tough, must stop people from going through Mexico and into the U.S.,” the president said on Twitter. “We may make this a condition of the new NAFTA Agreement.”

The Trump administration has good political reason to wrap up NAFTA talks in the coming weeks. It wants to lock in a deal ahead of Mexico’s presidential election on July 1. Trump and his Republican backers also have their sights on the U.S. midterm elections. A successful conclusion to NAFTA talks could give a lift to the GOP and soften an expected loss of seats and possibly control of the House.

To meet that goal under congressional trade rules, Lighthizer would need to reach an agreement in principle in a matter of days to have a realistic chance for lawmakers to pass it in December. That is because the parties need time to write a text, give a mandated 90-day notice to Congress and have an economic impact report completed before Congress can vote it up or down. Trump is betting that his best shot for approval would come during the lame-duck session, when many lawmakers may be willing to take more difficult votes.

As part of the administration’s legislative strategy, Trump could give the required six months’ notice of withdrawal from NAFTA about the time a text is ready, essentially forcing Congress to accept the new accord or risk the end of the 24-year-old pact, according to trade experts.

“The status quo, which most members of Congress probably prefer, would not be an option,” wrote William Reinsch, a senior advisor at the Center for Strategic and International Studies, although he questioned the wisdom of employing such hardball tactics.

Such a move could inflame lawmakers. Nor is it clear whether Trump has the legal authority to pull out of NAFTA without congressional support. And many on Capitol Hill and Wall Street fear the potential political and economic fallout of termination. An end to NAFTA would cause tariffs to rise and create other barriers that would almost certainly hurt trade, production and investments throughout North America.

Settling the NAFTA talks would also allow the Trump administration to focus on another, more-fraught trade front with America’s biggest trading partner, China.

Already the tight political calendar has spurred Lighthizer to soften his demands to overhaul NAFTA rules on cars to increase auto and parts production in the United States.

Lighthizer dropped his initial push for a new 50% minimum of U.S.-local content before a vehicle can get NAFTA’s tariff-free treatment, and instead is looking at a different formula that could provide more work for American facilities. He has also shown a willingness to bend somewhat on his original proposal to raise the overall North American portion of the value of vehicles to 85% from the current 62.5%, meant largely to reduce reliance of parts from Asia in the assembly of cars and trucks.

But at the same time, Lighthizer has given little indication that he will make a broad retreat on major negotiating objectives, including eliminating or weakening certain NAFTA dispute-resolution mechanisms, revising government procurement rules in favor of American firms, and inserting a new, so-called sunset provision that would allow the U.S. to reopen NAFTA after a period of time.

Trump has repeatedly blasted NAFTA as a bad deal for America, blaming it for destroying domestic jobs and factories. But many economists point to factors such as automation for displacing U.S. workers and doubt that a revamped NAFTA would lead to a big renaissance in manufacturing jobs.

Lighthizer gave notice of renegotiating the agreement last spring in one of the administration’s first trade acts.

“This is where he sees creating a new American trade agreement model, and so he’s not going to just drop all those rebalancing and restructuring issues,” said Lori Wallach, director of Public Citizen’s Global Trade Watch, which has been a vocal critic of NAFTA. She added that it’s also an opportunity for Lighthizer to get a trade deal that can pass Congress, unlike the Trans-Pacific Partnership that languished without enough support.

Wallach, a lawyer and veteran trade analyst who has been monitoring the developments since talks began last August, said it was hard to assess the odds that Lighthizer and Canadian Foreign Affairs Minister Chrystia Freeland and Mexican Economy Secretary Ildefonso Guajardo will reach an agreement in principle in the next couple of weeks.

For Mexico, the political calculus includes a desire by the current government to enshrine certain rules on privatizing energy industries through NAFTA before a potentially new president takes office and makes that impossible. The opposition leftist candidate Andrés Manuel López Obrador has a big lead in the polls and is considered to be more nationalistic and protectionist than the current president, Enrique Peña Nieto.

Yet Mexican negotiators will be hard-pressed to accept U.S. demands aimed at pushing up Mexican wages, as well as restrictive rules on textiles and perishable produce, among other changes.

Congressional Democrats have urged Lighthizer to address Mexican workers’ rights to organize and bargain for higher pay — something that Rep. Sander M. Levin (D-Mich.), a key proponent for tougher labor standards, says will be important if the Trump administration hopes to win Democratic votes for passage of a new NAFTA.

“They have been slowly, incrementally beefing up their proposal,” said Celeste Drake, a trade policy specialist at the AFL-CIO, referring to the Trump trade team’s labor demands. But Drake, one of several hundred business and other stakeholders with whom U.S. trade officials have shared specific negotiating proposals, said she has not yet seen the administration’s consolidated chapter on labor.

On balance, Mexican negotiators would prefer to make a deal and sign a NAFTA agreement before a new government is seated, analysts in Mexico said. But if the terms are too costly, they said, Mexican officials may decide it’s worth the risk to delay and call Trump’s bluff. Some analysts believe Trump will find it hard to act on his threat to withdraw given the intensity of internal political pressures that are likely to build.

“The U.S. administration is in some conundrum,” said Manuel Molano, an economist at the Mexican Institute for Competitiveness in Mexico City. “It is on the verge of a trade war with China, and if it also decides to cancel the agreement with Mexico and Canada, this could spell trouble for the U.S. economy.”

Canada’s prime minister, Justin Trudeau, isn’t up for election until the fall of 2019, and as such, may have more reason to try to extend negotiations in an effort to lessen any givebacks. Canadian officials have pushed back on, among other things, the Trump administration’s push to erase a legal mechanism to challenge U.S. dumping duties and to have Canada open up its sensitive dairy market to American producers.

“Canada is experiencing uncertainty from a NAFTA up-in-the-air that may be having an impact on investment and production decisions,” said Laura Dawson, director of the Wilson Center’s Canada Institute, a think tank.

“But overall, Canada is much more inclined to stay at the negotiations in order to get a good deal rather than accepting some sort of politically expedient turnoff.”