Busi­ness groups pes­simistic that new talks can save NAFTA

The Washington Post - - ECONOMY & BUSINESS - BY DAVID J. LYNCH Joshua Part­low and Gabriela Martinez in Mex­ico City con­trib­uted to this re­port.

U.S. busi­ness groups are pin­balling be­tween de­spair and panic as ne­go­ti­a­tions over a new North Amer­i­can Free Trade Agree­ment re­sume, with the Trump ad­min­is­tra­tion’s hard-line de­mands risk­ing a wors­en­ing standoff and per­haps the even­tual col­lapse of the talks.

Cor­po­rate con­cerns were only in­flamed by Pres­i­dent Trump’s Asia trip, which show­cased his “Amer­ica first” trade pol­icy and left the United States iso­lated as 11 other na­tions agreed to new trade lib­er­al­iza­tion mea­sures.

On the eve of this week’s NAFTA talks, the fifth of seven sched­uled rounds, the un­com­pro­mis­ing U.S. stance now risks scup­per­ing a 23-year-old treaty that helped knit to­gether a colos­sal con­ti­nen­tal econ­omy, busi­ness groups said.

“Everybody I talk to is very gloomy,” said Bill Rein­sch, a dis­tin­guished fel­low with the Stim­son Cen­ter and a for­mer head of the Na­tional For­eign Trade Coun­cil. “Peo­ple are ex­pect­ing very lit­tle out of this round.”

In a be­lated mo­bi­liza­tion to save the deal, the U.S. Cham­ber of Com­merce in re­cent weeks flooded Capi­tol Hill with ex­ec­u­tives from com­pa­nies that stand to lose lu­cra­tive trade pref­er­ences if Trump ful­fills his threat to with­draw from the treaty.

The Trade Lead­er­ship Coali­tion, a sep­a­rate in­dus­try-funded group headed by a for­mer Cater­pil­lar lob­by­ist, last week be­gan air­ing pro-NAFTA ad­ver­tise­ments in nine states that Trump won in 2016.

The 60-sec­ond tele­vi­sion ads — run­ning in Texas, Ten­nessee, Ne­braska, South Dakota, Mis­sis­sippi, Michi­gan, Ohio, Iowa and In­di­ana — high­light eco­nomic gains in man­u­fac­tur­ing and agri­cul­ture be­fore con­clud­ing: “The United States is stronger than ever be­fore . . . NAFTA works, but Pres­i­dent Trump is threat­en­ing to with­draw from NAFTA.”

The con­junc­tion of the NAFTA talks in Mex­ico City this week and the pres­i­dent’s re­turn from his five-na­tion Asia swing have un­der­scored Trump’s con­tin­ued dif­fi­culty trans­lat­ing his pop­ulist trade in­stincts into tan­gi­ble achieve­ments.

The last NAFTA round, in Wash­ing­ton, ended on a sour note with Mex­ico, Canada and U.S. busi­ness groups ex­press­ing alarm over sev­eral U.S. pro­pos­als.

“NAFTA is in a very dif­fi­cult place be­cause the U.S. has put a se­ries of de­mands on the ta­ble that are un­like de­mands that have been seen in any other trade agree­ment,” said Robert Hol­ley­man, deputy U.S. trade rep­re­sen­ta­tive un­der Pres­i­dent Barack Obama. “Canada and Mex­ico are com­pletely un­clear about how to re­spond.”

Still, both Mex­ico and Canada are un­der pres­sure to re­ply to the U.S. de­mands, how­ever un­con­ven­tional, in the next round. “If there are not coun­ter­pro­pos­als, then NAFTA dis­ap­pears,” said Ro­ge­lio Ramírez de la O, an econ­o­mist and di­rec­tor of the con­sult­ing firm Ecanal.

Key stum­bling blocks in­clude the ad­min­is­tra­tion’s bid to re­write the“rules of ori­gin” to re­quire more of a prod­uct to be made within North Amer­ica — and within the United States — to qual­ify for the treaty’s lower tar­iffs. Robert E. Lighthizer, the U.S. trade rep­re­sen­ta­tive, also is seek­ing a new “sun­set clause” that would re­quire the treaty to be re­newed ev­ery five years, a fea­ture that busi­ness groups say would in­tro­duce ex­ces­sive un­cer­tainty in their planning.

“I can’t imag­ine Mex­ico or Canada agree­ing to any of these ‘King Trump’ de­mands. Even if they did, I can’t imag­ine Congress ap­prov­ing them,” said Scott Miller, for­mer di­rec­tor of global trade pol­icy for Proc­ter & Gam­ble.

The pro­pos­als, aimed at shrink­ing the bi­lat­eral trade deficits that vex the pres­i­dent, are de­signed to set the stage for the walk­out that Trump has threat­ened, says Miller, a se­nior ad­viser at the Cen­ter for Strate­gic and In­ter­na­tional Stud­ies.

Such a move prob­a­bly would trig­ger an up­roar on Capi­tol Hill, as well as le­gal chal­lenges.

The po­lit­i­cal cal­en­dar in Wash­ing­ton — where Repub­li­cans are oc­cu­pied with a make-or-break de­bate over tax leg­is­la­tion — means there is lit­tle prospect of a dra­matic break­through or an­gry walk­out in Mex­ico City this week.

“There’s a recog­ni­tion that they’ve now hit se­ri­ous re­sis­tance, and with tax re­form mov­ing they need to be a lit­tle more care­ful about things blow­ing up,” one busi­ness rep­re­sen­ta­tive said.

But the slow­down is nar­row­ing a tight win­dow for agree­ment. Ne­go­tia­tors last month agreed to ex­tend the talks through March, painfully close to Mex­ico’s July 1 pres­i­den­tial elec­tion, which could in­flame na­tion­al­ist sen­ti­ments.

“The out­look is ex­tremely neg­a­tive,” said Ed­ward Alden, a trade ex­pert at the Coun­cil on For­eign Re­la­tions. “The is­sues the U.S. tabled are tremen­dously con­tentious, and none of them have an ob­vi­ous path to com­pro­mise.”

Eco­nomic fall­out from an even­tual NAFTA col­lapse would land hard­est on Mex­ico, which would lose nearly 1 mil­lion jobs, ac­cord­ing to Im­pactECON, a Boul­der, Colo.-based con­sul­tancy.

Mex­i­can of­fi­cials have been court­ing trade part­ners else­where. Pres­i­dent En­rique Peña Ni­eto was in Viet­nam last week for talks that pro­duced agree­ment on the “core prin­ci­ples” of an 11-na­tion trade ac­cord with­out the United States.

De­spite the per­va­sive gloom, some busi­ness ex­ec­u­tives find so­lace in the fact that Trump of­ten blus­ters be­fore tak­ing a more mod­er­ate path. The po­ten­tial eco­nomic con­se­quences of the talks fail­ing also should con­cen­trate ne­go­tia­tors’ minds.

“I con­tinue to think this can be done,” Hol­ley­man said. “It’s clearly in the in­ter­est of all three coun­tries to find a win-win-win out­come. But we’re a long way from that.”

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