Nafta Flashpoints: Issues to Watch as the Talks Unfold
August 13 2017 - 7:29AM
Dow Jones News
By William Mauldin and Jacob M. Schlesinger
The first round of negotiations over the North American Free
Trade Agreement is scheduled to start Wednesday in Washington, D.C.
President Donald Trump has called the pact, which took effect in
1994, a disaster for U.S. workers, a message that resonated in
manufacturing states during his campaign. But businesses that have
benefited from open trade with Canada and Mexico are urging the
administration not to jeopardize the complex system of commerce
among the three countries that has taken root under the agreement.
Here are some issues to watch.
Timing
Trump aides say the president wants to move quickly, aiming to
wrap up negotiations by early next year, to avoid having the talks
getting caught up in the 2018 election campaigns in Mexico and the
U.S. But that is an unusually rapid timetable, as major trade
negotiations are usually measured in years, not months. Trade
experts say the quick deadline might be feasible if the countries
were only looking at minor tweaks, but Mr. Trump's desire for a
major overhaul makes it particularly challenging.
Trade deficits
President Trump wants to stem, and possibly reverse, the shift
of manufacturing from the U.S. to Mexico, and to reduce the
bilateral trade deficit. He hasn't defined how he hopes to achieve
those objectives, nor how hard he would push for them. Mexico and
Canada are likely to resist language that defines success by
individual countries rather than the bloc as a whole. Nafta backers
say the pact has been successful in its original goals of
integrating the continental economy, boosting trade and investment
among the three countries, and making North American-based
businesses more efficient and competitive against rivals in Asia
and Europe. They say the talks should focus on ways to advance
those goals.
Solving international disputes
Two systems of solving disputes through Nafta are already
provoking fights. One, known as investor-state dispute settlement,
is a process that allows an investor from one country to challenge
a foreign government and win damages through an arbitration
tribunal if the government is found to have violated the investor's
basic rights. Many left-leaning groups and some conservatives want
the arbitration provision removed from Nafta, but the Trump
administration hasn't made its position clear. The second is a
dispute system contained in Chapter 19 of Nafta that allows one
country in the bloc to challenge tariffs imposed by another due to
alleged dumping or subsidies. U.S. officials have proposed
scrapping Chapter 19, but Canadian officials insist on keeping
it.
Labor and the environment
Rules on labor and the environment were added almost as an
afterthought in the original Nafta talks. More recent trade
agreements have fully enforceable rules in the core of the deals to
prevent companies from moving production offshore to cut corners.
Trump administration officials say the U.S. and its neighbors are
on the same page in boosting environmental and labor rules south of
the border, and Mexico City has recently enacted labor reforms. But
the issue could flare up if a revised Nafta is brought to Congress
for ratification, since many Democrats want the highest level of
international labor and environmental standards, while some
business groups and allied Republicans would object to rules that
add significant costs to companies.
Farm and forestry issues
The big U.S. agricultural industries -- corn, beef, pork -- are
happy with the current version of Nafta and are focused mainly on
preserving their duty-free, quota-free access to Mexico and Canada.
But disagreements over agriculture can quickly turn bitter in trade
talks. When Mr. Trump threatened to pull out of Nafta in April,
some Mexican politicians warned that their nation could import more
food from other Latin American nations instead of the U.S.
Meanwhile, U.S. dairy farmers want Canada, which tightly controls
dairy prices and imports, to open up its market. And separate,
acrimonious talks on whether Canada's lumber exports should face
tariffs or quotas could get lumped into Nafta if not solved
separately.
Rules of origin
Free-trade agreements such as Nafta eliminate duties on products
made in the trade bloc, but only if they are produced according to
certain rules. To avoid cheating, products have to have a certain
amount of content originating in the trade bloc to be shipped duty
free to other members of the pact. Trump administration officials
have said they want to tighten the rules of origin for the auto
industry to bring back assembly and supplier jobs to North America.
But leading auto makers and international suppliers say the Nafta
rules are tight enough and that stricter rules could hurt profits
or backfire by sending production abroad. Nafta talks may also
address rules of origin for apparel and other industries.
Currency manipulation
Many economists say China and other countries appear to have
derived trade benefits in the past by artificially holding down
their exchange rates, effectively making exports cheaper and
imports relatively more expensive. Lawmakers and some U.S.
exporters support inserting enforceable rules into trade agreements
to punish such behavior, but critics warn the rules could constrain
a nation's monetary policy choices. The Trump administration is
seeking to negotiate some sort of currency rules but hasn't spelled
out its approach. Mexico and Canada haven't faced serious charges
of currency manipulation, but the rules could serve as a template
for future trade deals.
Immigration
A high priority for Mr. Trump has been reducing legal and
illegal immigration, especially from Mexico. But Mexico would like
to use the Nafta talks to further ease the free flow of workers
between the two countries, seeking to expand the categories for
professional visas granted to business people and executives.
Write to William Mauldin at william.mauldin@wsj.com and Jacob M.
Schlesinger at jacob.schlesinger@wsj.com
(END) Dow Jones Newswires
August 13, 2017 07:14 ET (11:14 GMT)
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