5 things to watch as U.S. reveals its NAFTA objectives

Monday marks an important milestone on the road to renegotiating the North American Free Trade Agreement. 

Thirty days before formal talks begin, United States Trade Representative Robert Lighthizer’s office must publish his negotiating objectives, laying out the Trump administration’s plan for reaching a beneficial deal.

Under the terms of Congress’s 2015 trade promotion authority (TPA) legislation (also called the fast track), the USTR negotiates agreements. But before doing so, he must consult extensively with Congress for three months. This process began in May.

What should Canadians expect?

1. ‘Trade deficits’?

When U.S. President Donald Trump talks about “balanced” trade, he seems fixated on America’s ”deficit”: the U.S. bringing in more than it ships out.

Negotiation aimed at reducing bilateral trade deficits is “a ridiculous objective. It won’t work,” said Fred Bergsten, a member of the president’s advisory committee on trade and a founding director of the Washington-based Peterson Institute for International Economics.

Will Trump stick to it? That’s an ”overwhelming and pivotal question” heading in.

“If the administration does go down that path, particularly with Mexico, then there’s a chance the whole NAFTA could blow up,” Bergsten said.

Yes, the U.S. has a big bilateral deficit with Mexico. But: “even if you could find a way to get your bilateral deficit with Mexico down, it would just shuffle it elsewhere.”

Trade talks don’t focus on balances. They focus on reciprocity: equivalent gains for each side that they can sell politically.

“No country can come to its parliament and say, ‘Well yes, we gave up three times what we got in this one to help the other country,’” he said.

“The whole thing is just crazy.”

2. ‘Modernization’

“My instinct is that digital technology will receive a featured place, if not top of the list in Monday’s letter,” said international trade lawyer Dan Ujczo, who specializes in Canada–U.S. disputes.

He represented several clients during three days of NAFTA stakeholder hearings in Washington in late June.

“There was a strong emphasis on digital and intellectual property issues,” he said. “That’s consistent with [the Trump administration's stated goal of] ‘modernization’ … There’s very little opposition.”

In other words: low-hanging fruit.

Trade NAFTA

U.S. Trade Representative Robert Lighthizer’s messaging was vague as he kicked off 90 days of consultations ahead of the formal start of NAFTA renegotiations in August. On Monday, his office is expected to publish more specific bargaining objectives. (Evan Vucci/Associated Press)

Everyone wants to get tech workers and other 21st-century careers onto NAFTA’s outdated list of professions with cross-border mobility rights.

Easy win, especially for the small- and medium-sized businesses that benefit. And helping the little guy, not just corporations, is a big priority.

Similarly straightforward: adding language on e-commerce already agreed upon by all three countries in the Trans-Pacific Partnership talks, even if it does hoist the White House on its own petard by acknowledging the value of the 12-country agreement Trump bailed on.

3. Tricky auto talks 

Few expect a deal that doesn’t take a run at regional content rules, particularly for automotive products.

The Trump administration wants to tighten country-of-origin requirements to protect jobs threatened by cheap imports. But the car companies push back, fearing disruption in an industry where components come from all over the place.

“The U.S. and Canadian and Mexican industries are saying, ‘Don’t rock the boat,’” Bergsten said, calling this a “bone of contention.”

An analysis from his institute suggests that if rules tighten too much, businesses may just ignore them: is it cheaper to pay tariffs than comply with complicated requirements?

Ujczo sees things “falling in line with a tweak,” not an overhaul.

The auto industry made its case on integration, he said, while Mexico “has done a great job of proving it’s not a back door for Chinese and other Asian-made goods.”

Canadian and American unions have another demand: strengthen NAFTA’s labour rules.

“Poor labour standards [in Mexico] have a real economic impact as companies relocate to take advantage of workers who lack basic rights and are underpaid,” a joint statement from Unifor and the United Auto Workers said Tuesday.

4. Farm fear

Ujczo said Monday’s language on agriculture may be a bellwether. Trump’s tone on Canada’s supply-managed dairy, poultry and egg sectors has changed dramatically.

Calls for dismantling the system have diminished. The focus now is stopping Canada from spilling excess supply into competitive global markets, as the U.S. contends happens with skim milk.

“The U.S. doesn’t have much to give Canada in return for dismantling supply management,” he said. A tough negotiation like that would take more time than Trump’s got.

Bergsten said his USTR advisory committee advised that going after supply management wouldn’t be worth the adverse Canadian reaction.

Mexico US NAFTA

Commerce Secretary Wilbur Ross, often seen as the senior voice on trade in the Trump administration, credited Trump earlier this year with ‘softening up’ America’s trading partners with his tough talk, so the other side knows they have to make concessions. (Evan Vucci/Associated Press)

Meanwhile, the U.S. farm community is “really, really nervous,” Bergsten said. “They were very unhappy when Trump dropped out of the TPP,” which would secure new markets for American farmers.

Bergsten said it was Trump’s agriculture secretary, Sonny Perdue, who changed Trump’s mind about pulling out of NAFTA.

“U.S. agriculture would be apoplectic,” he said, and agriculture is the No. 1 or 2 industry in 26 of the 30 states Trump won in the 2016 presidential election.

“They supported him, but they’ve also said they’re ready to dump him,” Bergsten said.

5. Trump not in charge?

This White House can’t work alone.

In an analysis last week for the C.D. Howe Institute, Christopher Sands explained how the TPA has redefined trade negotiations dramatically. This time, it’s Congress across the table.

While this unprecedented consultation is cumbersome, Canadians get more transparency, as Congress exerts its right to be informed and shape positions.

Lighthizer may prefer not to disclose much Monday, similar to his short letter starting consultations in May.

“Congress kind of let the USTR skate with a vague 90-day letter,” Ujczo said. But “there were a lot of statements on both sides of the aisle saying you better not do that on the 30-day letter.”

“They may try to keep their powder dry for a while, but I don’t think Congress will permit that,” Bergsten agrees. 

A House subcommittee meets Tuesday to start reviewing what’s published.

“Even if the administration comes up with a bunch of specifics … that’s going to get modified by the Congress,” Bergsten said.

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