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White House calls for changing, but not scrapping, NAFTA in draft letter

The Trump administration will seek modest — but numerous — changes to the North American Free Trade Agreement, according to a draft of a letter sent to Congress last week, displaying a much more conventional approach to trade negotiation than the dramatic changes President Trump had suggested he planned to seek.

The draft letter suggests a much more diplomatic tone than Trump has threatened to use during NAFTA renegotiations. It says, among other things, that the White House would look to strengthen cooperation under the World Trade Organization, an international group that the Trump administration had suggested in the past it might not abide by.

The draft letter also reinforces that Canada and Mexico are the United States' two largest export markets, and that the countries have “shared borders” and “shared goals, shared histories and cultures, and shared challenges.”

“Compared to some of the campaign rhetoric, the letter seemed quite reasonable and measured,” said John Veroneau, a former deputy U.S. trade representative under President George W. Bush. “It didn’t strike me as suggesting a departure from the status quo in any significant way.”

One section of the letter that is likely to prove controversial appears to call for restricting federal procurement to U.S. suppliers. If the two other countries adopted similar rules in response, U.S. firms that have contracts with Mexico City and Ottawa could lose business, warned Jeff Schott, an expert on trade at the Peterson Institute for International Economics.

NAFTA is a free-trade agreement that went into force in 1994 after the Clinton administration reached a deal with Canada and Mexico. NAFTA has significantly expanded trade between the three countries, but Democrats and Republicans have said the agreement should be changed because they fear it has hurt U.S. workers. Trump has complained that the deal has allowed Mexico to take advantage of the United States, causing an imbalance in the kinds of goods that are shipped across the border and luring away U.S. jobs.

To renegotiate NAFTA, the White House must send a letter to Congress stating its intent, and the White House’s Office of the U.S. Trade Representative began circulating a letter last week. The White House must formally notify Congress 90 days before it formally begins renegotiating the trade agreement, and when the letter is formally sent to Capitol Hill, that process will start.

“For reasons of scale alone, improving the NAFTA has the greatest potential to benefit the workers, farmers, and firms of the United States,” says the draft, which was signed by Stephen P. Vaughan, the acting U.S. trade representative.

“Basically, in most areas, it’s very consistent with the trade negotiating strategies of past administrations,” Schott said.

He added, though, that there are several lines in the letter that indicate departures from past policy. One of the objectives listed is to “seek to level the playing field on tax treatment,” a brief and cryptic phrase that could suggest duties on Canadian and Mexican products.

During the campaign, Trump floated a tariff of as much as 35 percent on certain goods imported from Mexico. Another possibility is that if Republicans in Congress deliver on their proposal to adjust corporate taxes at the border, the administration's negotiators want to to make sure that Mexico and Canada are ready to accept the change.

Other language in the letter suggests the administration is skeptical of a process for resolving disputes between governments and multinational firms that has been criticized by liberal figures including Sen. Elizabeth Warren (D-Ma.), who say corporations have exploited the system at the expense of the public interest. Some on the right have objected to the process as well, arguing that it impinges on American sovereignty by giving international tribunals authority that would otherwise belong to U.S. courts.

Yet the letter does not explicitly call for ending the process, known as investor-state dispute settlement. “They put a lot of code words in there about that, but there’s still some ambiguity,” Schott said.

Another component of the letter appears related to an old dispute with Canada over softwood lumber. For more than three decades, U.S. loggers have argued that their Canadian competitors are receiving unfair advantages from the government, and the draft calls for eliminating a provision of NAFTA that Canadians could use to appeal any duties the United States imposes on Canadian softwood in retaliation.

There were only a couple of passages in the letter that seemed reflected Trump’s stated policy of putting the interests of American workers first. One, Veroneau noted, was the section on “rules of origin,” which govern how much raw material from outside North America can be used in products that are manufactured in Canada, Mexico or the United States and sold under NAFTA’s favorable terms.

The document calls for “rules of origin that ensure that the Agreement supports production and jobs in the United States.”

Some of the proposed changes are generic and could be interpreted in different ways. The draft letter says, for example, that it would “address anticompetitive business conduct, and other competition-related matters, as appropriate.”

The letter also calls for stronger intellectual-property rights and a commitment from Mexico and Canada not to impose customs duties on digital products.

The draft letter was first reported by the Wall Street Journal. Because the letter was just a draft, it probably will be changed before it is formally sent and received on Capitol Hill.

“NAFTA is the worst trade deal maybe ever,” Trump said in a debate with Democratic presidential nominee Hillary Clinton in September. "It's a defective agreement."

Trump has said that if Mexico does not agree to the United States' demands in the renegotiations, he probably would withdraw from NAFTA. But the letter does not include this threat and suggests that a reworked trade deal is possible.

“We are committed to concluding these negotiations with timely and substantive results for U.S. workers, consumers, businesses, farmers, and ranchers, keeping in mind U.S. priorities and negotiating objectives,” the draft letter says.

The Trump administration is “getting serious about negotiating in a way that wouldn’t prevent the other side from sitting down with them,” said Alan Wolff, a former ambassador under President Carter who is now senior counsel at Dentons. “They’re headed for a negotiation, so vituperation wouldn’t help that negotiation very much.”

Wolff also said that the letter could indicate the administration’s direction on trade policy outside of North America. “It sets the administration on a path with respect to future talks with Japan and other countries,” he said. “Part of this is going to be a template for how other governments are approached.”

On the campaign trail President Trump spoke out aggressively against NAFTA, calling it "the worst trade deal maybe ever signed anywhere." (Video: Daron Taylor/The Washington Post)