By Jacob M. Schlesinger in Washington, Robbie Whelan in Mexico City, Paul Vieira in Ottawa and Jacob Bunge in Chicago
WASHINGTON -- President Donald Trump's trade team this week will
begin the complicated task of rewriting the sprawling North
American Free Trade Agreement, the 23-year-old pact he has branded
a "disaster" for U.S. factory workers. The negotiators' challenge:
finding a way to address workers' concerns while keeping the
promise to "do no harm" to the large number of industries and
communities that have benefited.
The negotiations with Mexico and Canada, starting Wednesday in
Washington, mark Mr. Trump's first concrete attempt to translate
his strong protectionist campaign rhetoric into policy.
Early signs have been largely reassuring to business leaders and
trade partners, who have worried that the president's demands would
uproot rules that are by now embedded in the continent's commercial
ecosystem. They say there is much they all can embrace in the Trump
proposals, some of which borrow from the Obama-era Pacific trade
deal that Mr. Trump killed on his first full day in office.
"While there are tough issues here for the other countries, I
don't see any obvious poison pills," William Reinsch, a former
Clinton administration trade official who has run a free-trade
advocacy group for 15 years, wrote in a recent essay.
The question is whether U.S. negotiators can extract enough
concessions from Mexico and Canada so that Mr. Trump can declare
victory to his factory-worker base without upsetting his business
backers, who have lobbied intensively to preserve the
agreement.
Few think that will be an easy needle to thread. The U.S. has
floated some proposals tinged with Mr. Trump's "America First"
philosophy that the two Nafta partners and many U.S. multinationals
say they can't accept. Those include a demand to give the U.S. more
freedom to unilaterally restrict cross-border trade if it thinks
foreign firms are cheating, and to tighten barriers against cheap
imports from outside the region.
And while Mr. Trump has agreed to renegotiate Nafta rather than
pull out -- as he came close to doing in April -- he repeatedly
says he is keeping that option open if he's unhappy with how the
talks unfold.
"Nafta's a horrible deal for the United States," the president
told The Wall Street Journal in a July 25 interview. "We're in the
midst of a renegotiation right now so we'll see," he added. "Maybe
we'll have to terminate it."
Mexico and Canada are entering the negotiations mainly playing
defense, making few demands other than to try to protect and
modernize an agreement that has generally been more popular in
those countries than in the U.S.
"Our first goal is to keep the deal in place," said Moisés
Kalach, a textile businessman who leads a Mexican private-sector
campaign to defend Nafta in the U.S. "Our second goal is, don't
destroy the value chains that have led to so much growth over the
last two decades."
The partners have set an ambitious timetable, saying they hope
to wrap up talks by early next year, ahead of Mexican and U.S.
elections that could complicate ratification of a new agreement.
That would be an unusually rapid pace: The original Nafta took
three years to complete. This week's opening round of negotiations
runs through Sunday; the second round kicks off in Mexico in early
September.
Many businesses across the continent are hoping for a quick
resolution, complaining that uncertainty over Nafta's future has
disrupted commerce this year.
"Just the mention of Nafta and renegotiating in the same
sentence has had an impact," said Daniel Winkowitsch, who oversees
international sales for Tri-States Grain Conditioning, a Spirit
Lake, Iowa, maker of temperature-monitoring devices for crop silos.
Tri-States' sales to Mexico, which grew as U.S. food companies
expanded there, fell by nearly 75% over the first six months of
2017 versus last year because of questions over U.S. trade policy,
Mr. Winkowitsch said.
In seeking to overhaul Nafta, the Trump administration wants to
remake a pact that has done much to transform a region covering
one-fourth of the world economy and, according to backers, made the
hemisphere more competitive against rivals in Asia and Europe.
Since the agreement took effect in 1994, trade and investment
between the countries has soared. The auto industry and other
manufacturers have created intricate supply chains stretching
across all three countries.
"Mexico and the U.S. are like a scrambled egg: There is no way
anymore you can separate the white and the yolk," said Juan Pablo
del Valle, chairman of petrochemical giant Mexichem, one of
Mexico's largest public companies. It exports fluorspar and other
raw materials from Mexico to its U.S. manufacturing plant in
Louisiana, where it produces refrigerants used in the auto
industry. The company, in turn, imports ethylene gas from the U.S.
to feed its Mexico plants.
Yet making North American multinationals more efficient has cost
U.S. workers their jobs, according to many labor unions, by making
it easier for manufacturers to shift production to lower-cost
Mexico. Mr. Trump picked up that complaint in his 2016 campaign and
made Nafta the focus of his attacks on a quarter-century of
bipartisan establishment support for globalization -- an era that
began with Nafta as the first major trade pact between developed
and developing countries.
But in his first months in office, the president has struggled
to translate these messages into policy. In April, he ordered a
study of how to curb steel and aluminum imports, giving aides a
June deadline to craft a plan. That is now on hold.
In late April, the president was on the verge of dropping out of
Nafta and celebrating the move at a Pennsylvania rally as one of
the chief accomplishments of his first 100 days in office. He
pulled back at the last minute, after cabinet members argued the
abrupt move could cause severe economic disruptions, and pleas from
his Mexican and Canadian counterparts. Instead, the three countries
agreed to the renegotiation that begins this week.
President Trump's election and his Nafta-withdrawal threats have
also chastened free traders in the business community and
highlighted a political problem of their cause: their failure to
make free trade, and Nafta specifically, work better for average
Americans -- or at least persuade them that it does.
The Nafta talks are a chance to fix it. In the past six months,
a frenzy of public relations and lobbying among Nafta defenders has
sought to recast the debate -- inside the Trump administration, on
Capitol Hill and among the American electorate.
Mexico's main trade group has had more than 120 meetings with
U.S. policy makers over the past nine months, including 20
governors and more than 50 members of Congress. Canadian officials
established a war-room-like operation and assigned specific cabinet
ministers to business leaders, mayors and lawmakers in different
U.S. states, with a focus on local regions where U.S. jobs are
dependent on trade with Canada and Canadian investment.
Influential U.S. lawmakers have weighed in, especially from
border states and agricultural districts that were big Nafta
winners, demanding the Trump administration tread gently in the
talks. At a June congressional hearing, Rep. Kenny Marchant (R.,
Texas) cited booming Canadian traffic at the Dallas-Fort Worth
airport and told Mr. Trump's chief trade negotiator, Robert
Lighthizer, that those gaining from it "are uneasy about the
upcoming negotiations."
All of that pressure has persuaded Trump aides, if not the
president himself, to acknowledge Nafta's benefits and the
disruptions that could result for continent-wide supply chains
built around Nafta's rules. In response to Mr. Marchant, Mr.
Lighthizer said, "Our objective is to, first of all, do no harm," a
phrase he repeated three times in the hearing.
When the administration released its official negotiating
objectives, Canada, Mexico and big business said there was much
they could accept. Indeed, they already had accepted many of the
objectives last year, as part of the 12-nation Trans-Pacific
Partnership spearheaded by President Barack Obama and killed by
President Trump. Those provisions covered digital commerce, which
didn't exist when Nafta was created, and stricter labor and
environmental standards.
But the Trump objectives also include nods to the president's
"America First" goals, drawing concern from the other countries.
Those include proposals to scrap a special panel for settling
tariff disputes among Nafta members and to tighten rules on how
much of a manufactured product needs to come from inside Nafta to
qualify for duty-free trade.
A key question is how hard Mr. Trump will push his team's first
objective: to "improve the trade balance and reduce the trade
deficit with the Nafta countries." Mr. Trump complains that the
U.S. has gone from running a small goods surplus with Mexico before
Nafta of about $2 billion, to a $63.2 billion deficit last
year.
Free-trade advocates say it would be impossible to reverse that
trend -- driven by economic factors as much as by trade policies --
in the talks, and it could be destructive to the region's economy
to try.
"The potential for a breakdown in talks derives chiefly from the
frequently expressed desire of President Trump and some of his
associates to use the Nafta renegotiation to reduce the bilateral
U.S. trade deficit with Mexico," the Peterson Institute for
International Economics, an influential pro-globalization think
tank, wrote in a recent report.
Write to Jacob M. Schlesinger at jacob.schlesinger@wsj.com,
Robbie Whelan at robbie.whelan@wsj.com, Paul Vieira at
paul.vieira@wsj.com and Jacob Bunge at jacob.bunge@wsj.com
(END) Dow Jones Newswires
August 13, 2017 07:14 ET (11:14 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.