Doubts about NAFTA talks grow

Trump al­ludes to U.S. with­drawal from pact, plans tough pro­pos­als.

Los Angeles Times - - BUSINESS - By Don Lee

AR­LING­TON, Va. — Ne­go­ti­a­tions to re­make the North Amer­i­can Free Trade Agree­ment re­sumed Wednesday amid in­creas­ing con­cerns of a break­down, with Pres­i­dent Trump con­tin­u­ing to threaten to with­draw from the pact and the ad­min­is­tra­tion plan­ning to push sev­eral con­tentious pro­pos­als across the ta­ble over the next few days.

Con­cerns were ap­par­ent as Cana­dian Prime Min­is­ter Justin Trudeau met with Trump in Washington while trade ne­go­tia­tors from the U.S., Canada and Mex­ico gath­ered here on the other side of the Po­tomac River. As Trump talked about the pos­si­bil­ity of not reach­ing an agree­ment on NAFTA — say­ing he could see the U.S. and Canada do­ing a bi­lat­eral deal to re­place the pact — Trudeau main­tained a straight face.

Asked whether he would be ready to sign a deal only with the U.S., Trudeau an­swered in French: “We’re ne­go­ti­at­ing at the mo­ment.”

In three ear­lier rounds of NAFTA talks, ne­go­tia­tors found com­mon ground on cus­toms and trade fa­cil­i­ta­tion, e-com­merce rules and other less-con­tro­ver­sial mat­ters that would up­date the 23-year-old agree­ment.

But with a goal of wrap­ping up ne­go­ti­a­tions by the end of the year, U.S. of­fi­cials are now ex­pected to get to the crux of the talks with pro­pos­als that they see as cen­tral to ad­vanc­ing Trump’s “Amer­ica first” agenda, even though some of those ideas are fiercely op­posed by not only Mex­ico and Canada, but also by U.S. busi­ness in­ter­ests.

One pro­posal would al­low NAFTA to ex­pire after five years un­less all three coun­tries agree to re­new it, ac­cord­ing to peo­ple who have been briefed by U.S. trade of­fi­cials.

The so-called sun­set pro­vi­sion is osten­si­bly aimed at giv­ing the ad­min­is­tra­tion a way out, or at least greater lever­age, should there be lit­tle or no im­prove­ment in the U.S. trade deficit with Mex­ico or Canada — some­thing

that Trump has per­sis­tently re­garded as the mea­sur­ing stick of whether trade agree­ments are work­ing, de­spite wide­spread crit­i­cism from econ­o­mists who say such think­ing is flawed.

Crit­ics of a sun­set clause in­clude the U.S. Cham­ber of Com­merce, whose leader, Thomas Dono­hue, de­scribed it as one of “sev­eral poi­son pill pro­pos­als ... that could doom the en­tire deal.”

“We all know that cer­tainty and sta­bil­ity are cru­cial to suc­cess­ful trade re­la­tion­ships — and nec­es­sary to foster a pro-in­vest­ment en­vi­ron­ment that drives eco­nomic growth and job cre­ation,” Dono­hue said in a par­tic­u­larly force­ful speech Tues­day in Mex­ico City. “This clause would achieve the op­po­site ef­fect.”

“We’ve reached a crit­i­cal mo­ment,” he added. “The cham­ber has had no choice but to ring the alarm bells.”

The U.S. auto in­dus­try, in par­tic­u­lar, has ramped up lob­by­ing ef­forts in re­cent days. While Trump has cast him­self as a cham­pion of U.S. man­u­fac­tur­ing, the do­mes­tic car in­dus­try fears that the ad­min­is­tra­tion’s over­haul of NAFTA could wreck the com­plex, in­te­grated North Amer­i­can sup­ply chain that has taken decades to de­velop.

Un­der cur­rent NAFTA rules, ve­hi­cles that are man­u­fac­tured with at least 62.5% of con­tents from any com­bi­na­tion of the three coun­tries can be shipped from one NAFTA na­tion to an­other with­out pay­ing du­ties.

Trump’s trade of­fi­cials want to raise that ori­gin-of-con­tent re­quire­ment to as much as 85%, which would make it more costly for U.S. car firms to source parts from non-NAFTA coun­tries. But, more sig­nif­i­cantly, U.S. ne­go­tia­tors are ex­pected to seek a new re­quire­ment that 50% of the con­tents of au­tos are made in the U.S. be­fore those goods can be shipped across North Amer­i­can bor­ders with­out du­ties.

Op­po­nents of a U.S.-spe­cific con­tent clause ar­gue that such a pro­vi­sion is con­trary to a trade agree­ment whose ba­sis is the North Amer­i­can regional econ­omy, not any in­di­vid­ual coun­try. On top of that, U.S. auto ex­ec­u­tives say that car­ry­ing out that man­date would be a bu­reau­cratic night­mare and costly, ul­ti­mately mak­ing cars more ex­pen­sive for con­sumers.

Mex­i­can of­fi­cials, in par­tic­u­lar, have re­coiled at a coun­try-spe­cific rule of ori­gin as their na­tion has at­tracted many auto parts and assem­bly op­er­a­tions in re­cent years that em­ploy hun­dreds of thou­sands of work­ers. Other thorny is­sues that are likely to come up in this fourth round of talks in­clude a U.S. pro­posal to weaken the right of pri­vate in­vestors and companies to sue gov­ern­ments — a pro­vi­sion that has strong back­ing from or­ga­nized la­bor and civil so­ci­ety groups.

The Trump ad­min­is­tra­tion also wants to elim­i­nate a NAFTA chap­ter that has al­lowed Mex­ico and Canada, in par­tic­u­lar, to con­test U.S. anti-dump­ing and gov­ern­ment-sub­sidy tar­iff de­ci­sions by turn­ing to a NAFTA panel of judges.

U.S. trade of­fi­cials have told out­side ad­vi­sors that they are plan­ning seven rounds of talks be­fore Christ­mas. Their hope is to have a deal in prin­ci­ple in place by the end of the year, or early 2018 at the lat­est, to avoid po­lit­i­cal com­pli­ca­tions in Mex­ico’s pres­i­den­tial vote in the sum­mer and the U.S. midterm elec­tions later in the fall.

But most trade ex­perts doubt they can meet such an ag­gres­sive timetable. And in a sig­nal an­tic­i­pat­ing the chal­lenges ahead, U.S. Trade Rep­re­sen­ta­tive Robert Lighthizer said Wednesday that this lat­est round would be ex­tended through next Tues­day, two more days than orig­i­nally planned.

Pool photo/Getty Im­ages

SO­PHIE TRUDEAU, left, and her hus­band, Cana­dian Prime Min­is­ter Justin Trudeau, meet with Pres­i­dent Trump and Me­la­nia Trump at the White House while talks among the U.S., Canada and Mex­ico take place.

Jim Wat­son AFP/Getty Im­ages

AT ONE POINT dur­ing the meet­ing be­tween Pres­i­dent Trump, left, and Cana­dian Prime Min­is­ter Justin Trudeau, Trump said he could see the U.S. and Canada do­ing a bi­lat­eral deal to re­place NAFTA. Trudeau, when asked about the idea, noted that talks were on­go­ing.

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