Trump's NAFTA revamp would require
concessions, may borrow from TPP
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[November 22, 2016]
By David Lawder
WASHINGTON (Reuters) - President-elect
Donald Trump's plan to renegotiate the North American Free Trade
Agreement (NAFTA) to make it "a lot better" for U.S. workers would not
be a one-way street for his administration, as Canada and Mexico prepare
their own list of demands that could require difficult U.S. concessions.
The 22-year-old NAFTA and other trade deals became lightning rods for
voter anger in the U.S. industrial heartland states that swept Trump to
power this month.
Trump -- who on Monday vowed to file notice of his intent to quit an
Asia-Pacific trade deal on his first day in office -- has pledged to
leave NAFTA if it can't be improved to his liking. But he has said
little about what improvements he wants, apart from halting the
migration of U.S. factories and jobs to Mexico.
Trade experts, academics and government officials say Canada and Mexico
would also seek tough concessions and that NAFTA's zero-tariff rate
would be extremely difficult to alter. And any renegotiation would
likely take several years.
"In a renegotiation, one side can come in with requests, but the other
side is going to expect concessions," said Wendy Cutler, a former deputy
U.S. Trade Representative (USTR). "We need to know what we're going to
ask for and what we can give."
When Cutler helped renegotiate a stalled trade deal with South Korea in
2010, USTR won concessions for U.S. automakers, but at the expense of a
longer phase-out on steep Korean pork tariffs and allowing Korea to
largely maintain a health care reimbursement system that favors domestic
Trump, who during the campaign called NAFTA the "worst trade deal ever"
and threatened to levy a 35-percent tariff on Mexican-assembled autos
and other goods, would have a hard time raising U.S. tariffs without
scrapping the agreement, trade experts say.
"There is no precedent in free trade negotiations for one side raising
tariffs more than the other," said Chad Bown, a senior fellow at the
Peterson Institute of International Economics in Washington.
"If U.S. workers are more expensive than Mexican workers, the only way
to level the playing field is to do things that raise costs in Mexico,"
Negotiating stronger environmental and labor protections would be one
way of doing this, as it would increase manufacturing costs in a
lower-income country like Mexico.
The Trump transition leader for trade, Dan Dimicco, declined Reuters'
requests for comment. DiMicco, who is under consideration to be Trump's
top trade negotiator, is a former chief executive of steel giant Nucor
Corp. who has long fought for protections against unfairly traded
In a YouTube video message published on Monday, Trump vowed to quit the
Trans-Pacific Partnership (TPP), a proposed 12-country Pacific-rim trade
bloc. Although the TPP terms were settled more than a year ago, the pact
was never taken up by U.S. Republican leaders in Congress due in part to
anti-free-trade rhetoric in the presidential campaign.
Calling it a “a potential disaster for our country", Trump said his
administration would instead negotiate "fair, bilateral trade deals that
bring jobs and industry back onto American shores.”
His comments would appear to snuff out any hopes among other TPP
countries that the pact championed by President Barack Obama could be
revived under the new administration.
Mexican President Enrique Pena Nieto said at a Pacific Rim summit on
Saturday that he would be willing to discuss NAFTA with Trump to
"modernize" the treaty -- but not renegotiate existing provisions.
He said that modernization could include adding environmental, labor and
other provisions that weren't contemplated when NAFTA was being
negotiated in the early 1990s.
Canadian Prime Minister Justin Trudeau, who met with Pena Nieto on the
APEC sidelines, said he was "keeping our options open" on trade
discussions with the U.S. president-elect.
But if NAFTA is reopened, Canada will insist that any renegotiation
bring an end to a decades-old dispute over Canadian exports of softwood
lumber, said David MacNaughton, Canada’s ambassador to the United
[to top of second column]
Trucks wait in a queue for border customs control to cross into U.S.
at the World Trade Bridge in Nuevo Laredo, Mexico, November 2, 2016.
U.S. producers claim the Canadian wood is unfairly subsidized
because it comes from federal lands and have threatened to seek
billions of dollars in tariffs, which Canadian officials say would
make a "mockery" of free trade.
For Mexico's part, any concessions that would favor U.S. industrial
goods could be met with demands to increase U.S. import quotas for
Mexican sugar and protections for Mexico's potato crop.
And both Mexico and Canada would likely demand greater access to
compete for U.S. public sector procurements, now largely protected
by "Buy America" laws. A major Trump administration infrastructure
spending program would make this a more enticing target, Cutler
BORROWING FROM TPP?
Since NAFTA was enacted, total U.S. trade with Canada and Mexico has
quadrupled to $1.3 trillion a year, but the U.S. combined goods
trade deficit with Canada and Mexico has grown from $9.1 billion in
1993 to $76.2 billion in 2015.
(Graphic showing trend in U.S. trade deficit, imports:
NAFTA's effect on U.S. jobs is disputed. Critics such as the
left-leaning Economic Policy Institute charge that it has led to the
loss of some 850,000 U.S. manufacturing jobs, while proponents such
as the U.S. Chamber of Commerce claim the trade growth has added a
net 5 million jobs in the United States.
The non-partisan Congressional Research Service concluded that NAFTA
has had only a small positive effect on U.S. growth, but has helped
U.S. manufacturers become more competitive due to more efficient
A renegotiated NAFTA could, ironically, end up borrowing key
elements from the TPP to stiffen provisions on environment, labor
and digital economy standards, trade experts said.
Mexico and Canada have already agreed in the TPP to "fully
enforceable" labor and environmental improvements, meaning that
punitive duties could be imposed on countries that don't comply -- a
major step-up from NAFTA.
TPP also included provisions governing e-commerce and cross-border
data flows -- sectors that barely existed as NAFTA was negotiated in
the early 1990s -- to better protect intellectual property and
ensure a free and open internet. Officials in all three countries
say NAFTA needs modernization in this area.
Trump economic advisers Peter Navarro and Wilbur Ross have
suggested, however, that the TPP environmental, health and safety
standards aren't strong enough.
In an economic white paper and various opinion pieces, Navarro, a
University of California-Irvine business professor and Ross, a
billionaire private equity investor who is being considered by Trump
to lead the Commerce Department, said they want future U.S. trade
deals to include "prompt triggers and automatic renegotiation if
trade gains are not distributed fairly."
They also want "ironclad sanctions" against currency manipulation,
and "zero tolerance" for intellectual property theft.
"In any negotiation or renegotiation, our guiding principle should
be this: Enter into a free trade agreement only if it both increases
total trade and reduces our trade deficit," they wrote.
(Additional reporting by David Ljunggren in Ottawa, Dave Graham in
Mexico City and Nick Carey in Chicago; editing by Stuart Grudgings)
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