NAFTA renegotiation off to rocky start

Keith Laing
Detroit News Washington Bureau

Washington — U.S. officials pushed for major changes to the North American Free Trade Agreement during initial negotiations with their counterparts from Canada and Mexico that wrapped up on Sunday. But trade experts doubt whether the U.S. strategy will be effective in producing the results that President Donald Trump’s administration desires.

U.S. Trade Representative Robert Lighthizer said in opening remarks of the five-day negotiation in Washington that the president is looking for wholesale changes to the trade agreement that has been blamed for lost jobs in the U.S. auto industry.

“The views of the president about NAFTA, which I completely share, are well-known,” Lighthizer said Wednesday. “I want to be clear that he is not interested in a mere tweaking of few provisions and a couple of updated chapters. We feel that NAFTA has fundamentally failed many, many Americans and needs major improvement.”

Canadian and Mexican officials pushed back in public comments of their own, defending their countries positions on the benefit of the original agreement.

Observers said the harsh tone of the public remarks that kicked off the first round of NAFTA re-negotiations could backfire on U.S. negotiators who are seeking big concessions from Canada and Mexico. But Alan Deardorff, professor of public policy and economics at the University of Michigan, said a renegotiation of an existing trade deal is an unusual circumstance that could produce surprising results.

“Trade negotiations never start with a hostile tone, but trade negotiations don’t usually start with a renegotiation of something that is already in place,” Deardorff said.

“The basis for what our side is negotiating is to threaten them with the possibility of pulling out of NAFTA altogether,” he continued. “They’re hoping that no matter how bad the deal we insist on is for Canada and Mexico, it will be better for them than it is to let it go completely. The gains from NAFTA are such that they can probably push them quite a ways.”

The next round of NAFTA talks have been scheduled for Sept. 1-5 in Mexico, with a following round set for Canada in late September and a return to the U.S. scheduled for October. All three countries pledged at the end of Sunday’s negotiations to continue working together to “modernize” the trade deal, even as they staked out starkly different positions on the legacy of the agreement in the initial talks.

“The scope and volume of proposals during the first round of the negotiation reflects a commitment from all three countries to an ambitious outcome and reaffirms the importance of updating the rules governing the world’s largest free trade area,” United States Trade Representative Robert Lighthizer, Canadian Foreign Affairs Minister Chrystia Freeland and Mexican Secretary of the Economy Ildefonso Guajardo said in a joint statement.

“While a great deal of effort and negotiation will be required in the coming months, Canada, Mexico and the United States are committed to an accelerated and comprehensive negotiation process that will upgrade our agreement and establish 21st-century standards to the benefit of our citizens,” they continued.

Renegotiating NAFTA was a central tenet of Trump’s campaign as he promised voters that he would take steps to improve economic conditions, especially in auto-dependent states in the Midwest. NAFTA was enacted in 1994 to create a free-trade zone between the U.S., Mexico and Canada. The trade deal has been blamed for auto companies moving production of smaller cars to Mexico.

Some made-in-America hawks have pushed the Trump administration to advocate for a toughening of requirements for parts made in the U.S., Canada or Mexico to qualify for duty-free treatment. The current threshold is 62.5 percent of parts; some have called for that to be raised to as much as 90 percent, or moving to a system involving nation-specific requirements.

Deardorff said moving from a regional requirement for rules of origin to a national one would likely be a bridge too far for Canada and Mexico. “I can’t imagine Canada and Mexico would be convinced to go along with that, but who knows,” he said.

He said increasing the regional requirement would not guarantee more jobs in the U.S. “For imports that are coming from China, the cheapest place in North America to get them would probably be Mexico,” Deardorff said.

Automakers have tried to stave off changes to rules of origin, arguing such changes would likely increase the price of vehicles in U.S. showrooms.

Linda Lim, professor emeritus of strategy at the University of Michigan’s Ross School of Business, said the tough talk from the Trump administration at the outside of the NAFTA negotiations was not surprising to her.

“I’m not surprised, because that seems to be the tone this administration takes with everything,” she said. “You have to realize that’s their view of negotiating. It’s not diplomatic. The question is whether the other two parties already know this and already expect this.”

Lim noted that the Trump administration may feel compelled to push for a big win in the NAFTA talks because of its struggles in other areas of domestic policy.

“Because the administration has so few wins in the domestic arena, it might be very tempting for them to play hardball on NAFTA,” she said. “They might feel they have to take a strong stand because this was such a big part of the president’s campaign. You can’t not deliver on everything. They didn’t deliver on Obamacare, so they might think they have to deliver on this.”

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Twitter: @Keith_Laing