Trump NAFTA threat mostly bluff

Pres­i­dent can’t just with­draw from pact; ploy called harm­ful

Sun Sentinel Palm Beach Edition - - MONEY - By Don Lee Wash­ing­ton Bureau

WASH­ING­TON — As the United States, Canada and Mex­ico head for a sec­ond round of talks this week­end to rene­go­ti­ate the North Amer­i­can Free Trade Agree­ment, Pres­i­dent Don­ald Trump is ramp­ing up his blus­ter about sim­ply ter­mi­nat­ing the pact in­stead.

But many for­mer trade ne­go­tia­tors and ex­perts agree that the pres­i­dent’s threat to can­cel NAFTA is es­sen­tially an empty one, more likely in­tended as a bar­gain­ing ploy.

For one thing, Trump lacks the le­gal author­ity to uni­lat­er­ally end all U.S. obli­ga­tions un­der the 23-year-old agree­ment with Canada and Mex­ico. Some of that power rests with Congress.

And even if the pres­i­dent moved for a with­drawal, he would al­most cer­tainly face le­gal chal­lenges and come un­der enor­mous pres­sure be­cause of do­mes­tic eco­nomic and po­lit­i­cal con­sid­er­a­tions. His base in ru­ral Amer­ica, in par­tic­u­lar, would be slammed by a U.S. pull­out.

“I don’t think it’s a cred­i­ble threat,” said War­ren Maruyama, a part­ner at the Wash­ing­ton law firm Ho­gan Lovells who worked on NAFTA and other trade issues in both Bush ad­min­is­tra­tions. “Trump would do se­ri­ous po­lit­i­cal dam­age and split the coali­tion that got him into the White House. While his win is often cred­ited to anti-trade, blue-col­lar vot­ers, he won just about ev­ery ru­ral county, and Mex­ico is a huge mar­ket for Amer­ica farm prod­ucts.”

Un­der NAFTA, the U.S., Canada or Mex­ico could with­draw from the agree­ment by giv­ing six months’ writ­ten no­tice — which Trump has not yet done.

But there is a sep­a­rate U.S. act that put NAFTA into ef­fect. This law states that only a few sec­tions of the ac­cord would cease to

ap­ply upon with­drawal, and even then it’s un­clear what the prac­ti­cal ef­fects would be. Many pro­vi­sions could be left in limbo and pre­sum­ably would have to be re­pealed by Congress.

Much of the agree­ment — in­clud­ing key chap­ters on North Amer­i­can con­tent re­quire­ments, ac­cess to gov­ern­ment pro­cure­ment, on in­vest­ment and ser­vices trade — would not be in­val­i­dated merely by Trump’s ac­tion, ac­cord­ing to le­gal schol­ars.

Cana­dian and Mex­i­can of­fi­cials were ini­tially per­turbed by Trump’s threats, but more re­cently seemed to be giv­ing little cre­dence to them.

“Trade ne­go­ti­a­tions often have mo­ments of heated rhetoric,” said Adam Austen, a spokesman for Canada’s min­is­ter of for­eign af­fairs.

Said Manuel Molano, an analyst at the Mex­i­can In­sti­tute for Com­pet­i­tive­ness think tank: “His rhetoric is so de­tached from what’s hap­pen­ing at the ne­go­ti­at­ing ta­ble. It’s a far-fetched threat.”

Dur­ing a press con­fer­ence Mon­day with Fin­land’s pres­i­dent, Sauli Ni­in­isto, Trump all but ac­knowl­edged that his threats were a ne­go­ti­at­ing tac­tic.

“I be­lieve that you will prob­a­bly have to at least start the ter­mi­na­tion process be­fore a fair deal can be ar­rived at, be­cause it’s been a one-sided deal,” Trump said.

One of the realms within Trump’s con­gres­sion­ally au­tho­rized power is to dis­solve NAFTA’s zero tar­iffs, which kicked in for most goods traded among the three na­tions when the agree­ment took ef­fect in 1994.

But even if Trump took such ac­tion, tar­iff rates on thou­sands of items would then au­to­mat­i­cally re­vert to du­ties un­der the World Trade Or­ga­ni­za­tion, the in­ter­na­tional trad­ing sys­tem in which all three na­tions, along with some 160 oth­ers, are mem­bers. And by those rules, the U.S. stands to lose more than Canada or Mex­ico if Trump were to walk away from NAFTA.

That is be­cause Amer­i­can tar­iffs on im­ports av­er­age 3.5 per­cent, com­pared with 4.2 per­cent for Canada and 7.5 per­cent for Mex­ico, ac­cord­ing to Chad Bown, a se­nior fel­low at the Peter­son In­sti­tute for In­ter­na­tional Eco­nom­ics. That means U.S.-made prod­ucts cross­ing the bor­der into Mex­ico, on av­er­age, would be hit with dou­ble the tar­iffs.

And in many ways, those fig­ures un­der­state what may ac­tu­ally hap­pen. As a de­vel­op­ing coun­try, Mex­ico can charge sig­nif­i­cantly higher tar­iffs with­out break­ing WTO rules — on av­er­age above 30 per­cent for more than 90 per­cent of U.S. im­ports, ac­cord­ing to a re­cent pa­per by the Fed­eral Re­serve Bank of New York.

Newspapers in English

Newspapers from USA

© PressReader. All rights reserved.