The Trump administration today released long-awaited goals for renegotiating NAFTA, borrowing heavily from the discarded Trans-Pacific Partnership agreement and putting a strong emphasis on reducing the bilateral trade deficits with Canada and Mexico.
“Too many Americans have been hurt by closed factories, exported jobs, and broken political promises,” U.S. Trade Representative Robert Lighthizer said in a statement released along with the goals. “Under President [Donald] Trump’s leadership, USTR will negotiate a fair deal.”
The administration’s decision to target the trade gaps with Mexico and Canada as a negotiating goal is a significant departure from past practices. It is also one that may be hard to achieve, since many economists argue the deficit is driven by macroeconomic factors, rather the provisions of trade agreements.
However, it reflects Trump’s apparent belief that the United States’ $63.2 billion deficit with Mexico and $10.9 billion deficit with Canada are signs that the current deal has failed.
The Office of the U.S. Trade Representative said it wanted to keep many provisions of the 23-year-old agreement while bringing it into the 21st century. The proposal aims to add rules to govern digital trade, state-owned enterprises and currency practices. That will be a relief to farm and manufacturing groups worried about losing sales to Canada and Mexico if tariffs are reimposed after years of duty-free trade.
"We must preserve the advantages that our manufacturers, service providers, farmers, workers and consumers now enjoy with respect to NAFTA across our economy," House Ways and Means Chairman Kevin Brady said. "Maintaining existing benefits, plus improving our access to Mexico and Canada, will allow us to continue to create American jobs, spur economic growth and open up new opportunities for all Americans through NAFTA.”
The objectives also reflect Trump’s insistence on reshaping the pact to try to bring back jobs to the United States. In one example that could affect North American automotive trade, the goals call for tougher rules of origin “to ensure that the benefits of NAFTA go to products genuinely made in the United States and North America.”
The goals also heavily discuss maintaining the United States’ ability to impose trade remedy measures, such as anti-dumping and countervailing duties, against imports that it believes are unfairly traded or that threaten domestic industries. Those provisions are likely to resonate in the industrial Midwest.
In a related vein, the White House wants to eliminate a chapter in the current agreement that established a special tribunal for NAFTA countries to challenge each other’s anti-dumping and countervailing duty decisions. They also have targeted another provision that excludes NAFTA partners from emergency “safeguard” tariffs that could be imposed to protect a domestic industry under stress from imports.
But House Democrats, who may hold the key to the ultimate fate of the renegotiated pact, blasted the objectives as overly vague and said they made it seem as if the administration "is only seeking to bevel the edges of a trade pact in need of an overhaul.”
"The summary of objectives published today raises more questions than it answers,” Rep. Richard Neal, the top Democrat on Ways and Means, said in a statement. "In certain areas, there continues to be a complete lack of clarity or specificity, suggesting the administration may not even know what it wants in a new NAFTA.”
Neal and Rep. Bill Pascrell, ranking member of the Trade Subcommittee, both criticized what they saw as a step to incorporate aspects of the TPP into NAFTA 2.0, even though Trump vilified the Asia-Pacific pact during last year’s campaign and pulled out of it on his third day in office.
“The objectives reveal an approach to trade negotiations that looks like the same, conventional approach taken in previous trade agreements — suggesting that the ‘new’ NAFTA might not be new at all,” Neal said.
“It looks as if he wants to take the contents of the TPP, a deal he rejected in his first week in office, and call it NAFTA,” Pascrell added.
The document did not directly address the inclusion of or any alterations to the controversial investor-state dispute settlement mechanism, which labor and environmental groups want to be dropped in any revamped deal. They charge that the system undermines the right of governments to regulate in the public interest by giving companies a special forum to challenge government decisions that they believe have adversely affected their investment in violation of the pact’s rules.
The document’s investment section simply mandates that a deal should “secure for U.S. investors in the NAFTA countries important rights consistent with U.S. legal principles and practice.”
The objectives do outline expectations more broadly for dispute settlement, such as making procedures more transparent. However, it’s unclear if those demands apply only to disputes under the agreement between governments or if private companies would also be subject to those rules.
“We must be sure to enforce new and current rules through effective dispute settlement provisions, including the proven tool of investor-state dispute settlement,” Rep. Dave Reichert, the chairman of the House Ways and Means Trade Subcommittee, said in a statement. “The need for modern trade rules is clear — particularly in light of our withdrawal from TPP earlier this year.”
Another top Republican said the objectives should have gone further in pushing for stronger protections for intellectual property rights, among other areas.
“If we are to truly modernize NAFTA and establish the most advantageous rules for selling American goods and services around the globe, future negotiating objectives must include stronger protections for intellectual property rights, upgraded rules and enforcement procedures for American exporters and investors, and improved regulatory practices that treat American goods and services fairly,” Senate Finance Chairman Orrin Hatch said in a statement.
Sen. Ron Wyden, the top Democrat on the Finance Committee and a vocal advocate for the need to implement stronger digital trade rules, criticized the provisions included in that areas as lacking “the level of ambition I would expect given the promises this president has made.”
Both Canada’s and Mexico’s top trade officials declined to comment on the negotiating objectives. Ottawa “will be ready to work with our partners to modernize NAFTA, while defending Canada’s national interest and standing up for our values," Canadian Foreign Affairs Minister Chrystia Freeland said.
USTR is required under U.S. trade law to publish negotiating objectives 30 days before it begins talks on a free trade agreement. The first NAFTA round is expected in mid-August, although no date or location has been announced yet.