NAFTA talks kick off: Early signs raise little alarm, but strategy still in 'pre-game state'
Thursday's letter to Congress shorter and less detailed than the March draft — but July will be more revealing
As the renegotiation of the North American Free Trade Agreement begins, industry groups and U.S. congressional leaders are warning President Donald Trump to be careful.
"It is important that the administration follow the spirit of the Hippocratic Oath: First, do no harm," Republican Senator Orrin Hatch, of Utah, said during U.S. Trade Representative Robert Lighthizer's confirmation hearings.
Pro-trade groups — from the U.S. Chamber of Commerce to export-dependent farmers — repeat "do no harm" like a mantra in their lobbying.
The tone of Thursday's letter to Congress — which officially triggered the 90-day consultation period required before opening up NAFTA — suggests this message is getting through.
"As a starting point for negotiations, we should build on what has worked in NAFTA, and change and improve what has not," the newly sworn-in Lighthizer told reporters.
How could Canada or Mexico disagree? They didn't. All three are calling for "modernization" of the 23-year-old deal.
Mere weeks ago, Trump was writing NAFTA off as a "disaster" that he might scrap. Now comes this short, let's-get-to-work kickoff notice from Lighthizer.
It's even less threatening than the draft priorities Congress saw in March.
Border taxes? Buy America rules? Longstanding agriculture beefs? The only sound heard was crickets.
That doesn't mean they're off the table.
"Bob understands that he doesn't want to pre-empt the Congress," said Gordon Ritchie, who negotiated Canada's free trade agreement with the U.S. in the '80s. "Putting the kitchen sink in at this point was unnecessary, because Congress will put it in."
'Aggressive enforcement'
That's the point of the 90-day consultation period now underway: Congress gives its wish list, then negotiators try to deliver.
"If they'd had more detailed stuff in, in a sense, they'd be more constrained," Ritchie said. "This gives Lighthizer all the freedom he needs to put something together."
"We're still in a pre-game state," he said. "They haven't even fielded a team really, let alone decided their game plan."
Monica de Bolle, a senior fellow at Washington's Peterson Institute for International Economics, said the letter to watch for is expected two months from now.
Thirty days before negotiations start, the USTR publishes its negotiating objectives.
The lack of specifics in Thursday's letter could be a combination of not wanting to tip the U.S. hand, and lacking time to staff up and strategize, she said.
The standout sentence in that letter, she says, refers to "establishing effective implementation and aggressive enforcement of the commitments made by our trading partners" — language she called "Rossian" for mirroring the perspective of U.S. Commerce Secretary Wilbur Ross.
Canada has already had a strong taste of "aggressive enforcement" from Ross's department, including softwood lumber duties applied last month and, earlier this week, an aerospace investigation targeting Canada's Bombardier.
"They will now take a much tougher stance," she said, suggesting the U.S. will self-initiate investigations over any possible unfairness.
Reworking, not scrapping, Chapter 19
Simultaneously, the Trump administration has mused about scrapping NAFTA's Chapter 19, which provides the arbitration panels that Canada and Mexico can use to appeal U.S. duties like these.
"It's very strange," de Bolle said, because the other two countries will never agree to that, particularly with this "aggressive enforcement" staring them in the face. "They're soon going to hit a wall if they don't change their stance."
Ritchie agrees that American insistence on ending Chapter 19 — something Canada made concessions to get — could be a sticking point.
"On what planet could Canada agree to eliminate our barriers against imports … only to have the Americans agree to do the same, but with the right to, anytime they feel like it, slap on phoney countervailing duties?"
Canada may agree to create a permanent tribunal to replace Chapter 19's ad hoc panels, but scrapping it? Not possible, Ritchie said.
Another puzzler emerged this week as Lighthizer talked of including currency manipulation in a reworked NAFTA.
Both Canada and Mexico have floating exchange rates, meaning they don't manipulate currency, so it seems like an odd NAFTA demand.
On the other hand, there's no reason to disagree to it, de Bolle said. Its inclusion would allow the U.S. to then turn around and raise the issue with China or South Korea, the real targets.
Ending currency manipulation lets Trump say he's got a "fair" trade agreement, she said. Easy win.
'Canada's really not the problem'
De Bolle, an analyst of Latin American trade issues, said there was nothing in Thursday's letter that Mexicans couldn't deal with.
They remain highly concerned about border tax issues, but the things in this letter — digital trade, intellectual property protections, and labour and environmental standards — already appeared in the Trans-Pacific Partnership agreement all three countries negotiated in 2015.
TPP language could be recycled, if everyone's politically savvy enough not to emphasize where it's from. (Trump and many in Congress still portray the TPP as a bad deal that the U.S. was right to bail on.)
As Lighthizer sent his letter to Congress on Thursday, Ross was meeting with Jerry Dias, the leader of Canada's largest private-sector union, Unifor.
"It was a good discussion," Dias said after. "We agreed that Canada's really not the problem. The problem is Mexico."
Far from fearing renegotiation, Dias said "we have the opportunity to fix a lot of things," including preventing more jobs from heading south.
Revised rules of origin for the automotive sector — determining what products are duty-free when components come from multiple countries — appear inevitable.
Flavio Volpe, who represents Canadian auto parts manufacturers, told CBC News Network's Power & Politics he expects his industry to come out on the right side of the negotiations.
"What we found was that the American interest and the Canadian interest overlaid very well," he said Thursday.
Canada and Mexico have already worked together to keep the U.S. from calling all the automotive shots in the TPP. Mexico now needs to bring its labour rights up to standard, Dias said.
He also points out that the U.S. needs access to Canadian energy and resources — something that puts Canada in control.
"The American threat to rip up the agreement … is simply not credible," said Ritchie. "If they take that position, the answer on the Canadian side must be 'Be my guest.'"
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