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Trump administration unveils goals in renegotiating NAFTA

A Focus is assembled at Ford's plant in Wayne, Mich., in 2013. (Mira Oberman/AFP/Getty Images)

The Trump administration on Monday unveiled its goals for renegotiating the North American Free Trade Agreement, issuing a broad plan for how it hopes to rewrite the terms of trade and transform the U.S. economy for decades to come.

The document contained a broad list of objectives, including some goals that have been specifically championed by President Trump, as well as numerous provisions that echo the Trans Pacific Partnership, an Obama-era trade agreement that Trump has disparaged.

"You can say everybody’s objectives are in here," said Doreen Edelman, co-chair of the global business team at the law firm Baker Donelson. "I think the people that wrote the objectives wrote them in a way that will allow everybody to find a win."

More than a third of U.S. exports flow to Canada and Mexico, and business and labor groups were watching closely to see what Trump's team would prioritize in the negotiations.

Companies that export products to Canada and Mexico are wary of anything that could limit their future access to those markets. Firms that have struggled against foreign competition, as well as labor groups that have seen their members' wages undercut by foreign workers, were hoping for measures that would give them a leg up.

The list, as well as the diverse and at times competing groups watching it, highlight the challenge Trump faces in transforming his criticism of the current trade deal into concrete policy proposals that live up to his promises.

In a 17-page document, the trade agency outlined a plan to reduce the U.S. trade deficit with Mexico, restrict the amount of imported material in goods that qualify under the agreement, and eliminate a controversial mechanism to review trade remedies.

The document's first provision contained the clear stamp of the Trump White House, as it called for the United States to reduce its trade deficit with NAFTA countries. Trump has often seized on bilateral deficits, which occur when the United States imports more from a trading partner than it exports to it, as a sign of a broken trading system -- despite criticism from economists who say the measure can be misleading.

But trade negotiators and lawyers said that many of the provisions. – including measures to regulate treatment of workers, the environment and state-owned enterprises – appeared to be lifted from the Trans-Pacific Partnership, an agreement that Trump heavily opposed.

The document called for new rules to govern the trade of services, like telecommunications and financial advice, as well as digital goods like music and e-books, which were not included in the original 1994 agreement.

It also called for creating an "appropriate mechanism" to ensure that the countries did not manipulate their currency to gain an unfair competitive advantage, a practice that China has used in past years to subsidize its exporters.

The notice called for eliminating the Chapter 19 dispute settlement mechanism, which allows companies to appeal decisions by domestic courts on trade remedies in an alternative panel. The U.S. lumber industry and others have railed against the mechanism, arguing that it prevents the U.S. from fully enforcing its trade laws.

Democrats were critical of Trump's objectives, saying they didn't go far enough.

Sen. Ron Wyden (D-Ore.) criticized the document as "hopelessly vague," and said that provisions on topics including the environment looked like "watered down versions of TPP proposals."

"It is surprising that in key areas the Trump Administration is seeking outcomes that were achieved in the TPP, which the President said was a bad agreement," he said in a statement.

Republicans were more positive about the statement, though some still had criticisms.

Rep. Kevin Brady (R-Tx.) said the objective set "an ambitious standard for improving NAFTA" that would allow the United States to use the deal "as a model for future trade agreements, which means that the United States would be setting global rules – not our competitors."

Sen. Orrin Hatch (R-Utah) welcomed the objectives as "an important part of the public discussion about the launch of the upcoming trade talks among our three nations," but said that future objectives must include stronger protections for intellectual property rights.

Canadian Foreign Minister Chrystia Freeland pointed out that Canada is America’s top customer and that NAFTA supports millions of middle class jobs in Canada, the U.S. and Mexico. "When negotiations begin, we will be ready to work with our partners to modernize NAFTA, while defending Canada's national interest and standing up for our values," she said in a statement.

The measured, comprehensive statement is a shift in tone from Trump's campaign rhetoric regarding NAFTA. He used the pact as a frequent foil, calling it "a defective agreement" and "the worst trade deal maybe ever."

Trump has often threatened to withdraw from NAFTA — including during a few tense days in April when the administration nearly scrapped the agreement, only to reverse its decision after pleas from U.S. businesses and foreign allies. At times, it has been unclear whether Trump's rhetoric represented a true policy stance or merely an attempt at leveraging further concessions from Canada and Mexico.

Current trade law requires the administration to publish “a detailed and comprehensive summary of the specific objectives” at least 30 days before the United States begins talks with Canada and Mexico. The administration has said that negotiations could begin as soon as Aug. 16.

Matt Gold, a professor at Fordham University and a former trade negotiator, said the administration did not shy away from including some of the most controversial trade issues among the trading partners. That included its calls to scrap the Chapter 19 dispute-settlement mechanism and eliminate certain barriers to U.S. agricultural exports — a reference to a long-standing conflict with Canada over dairy, poultry and eggs.

A bipartisan deal negotiated by President George H.W. Bush and signed into law by President Bill Clinton, NAFTA went into force in January 1994. Over the course of years, it eliminated tariffs on most products traded among the three countries, including agricultural goods, automobiles and textiles. The deal was designed to knit the three economies of North America closer together, raising Mexico’s standard of living and create a valuable new export market for U.S. and Canadian businesses.

Critics at the time argued that the difference between U.S. and Mexican wages would send millions of American jobs over the southern border — what presidential candidate Ross Perot memorably warned of as a "giant sucking sound." The deal still has plenty of critics, who accuse NAFTA of hollowing the U.S. manufacturing sector, especially in sectors such as automobiles. But U.S. farmers, retail chains and other industries consider the deal to be integral to their supply chains and have urged the administration to first “do no harm” in its negotiations.

Economists generally take a more nuanced view of the pact, believing that it has broadly benefited the U.S. economy by increasing trade and lowering the cost of consumer goods, while hurting narrow groups of workers who saw their jobs relocated across the border. In a 2012 survey of 41 prominent economists by the University of Chicago, 85 percent agreed that Americans were better off under NAFTA than under previous trade rules. Only 5 percent said they were uncertain, and none disagreed.

Research by economists Shushanik Hakobyan and John McLaren found that NAFTA did lower wage growth for blue-collar workers in the most-affected industries during the 1990s. Overall, it concluded that the impact of NAFTA on American wages was small. A study by economists David Autor, David Dorn and Gordon Hanson found no discernible impact on U.S. wages from trade with Mexico and Central America.

“There is almost no evidence that NAFTA was substantially harmful for U.S. workers. That myth has been promulgated by people from Ross Perot to Pat Buchanan to Donald Trump, but there is not any academic support for it,” said Autor, an economist at MIT. His work has shown that China’s entree into the international trading system in 2001 had a far bigger impact on U.S. workers.

Yet NAFTA has clearly knit the economies of the United States, Canada and Mexico together, and economists say fracturing those connections could prove to be painful. Under the deal, regional trade has tripled to more than $1.1 trillion in 2016. The U.S. Chamber of Commerce estimates that 14 million American jobs depend on trade with Canada and Mexico.

Trump’s opposition to NAFTA dates to the origin of the agreement. He criticized the deal in 1993, saying it would benefit only Mexico, according to local news reports at the time.

Trump was similarly opposed to the Trans-Pacific Partnership (TPP), a 12-country trade deal that included Canada and Mexico. The deal would have replaced some of NAFTA’s provisions and was widely viewed as a NAFTA 2.0 for the North American trading bloc. Though the deal was considered dead because of opposition in Congress, Trump declared his opposition by officially withdrawing the United States from the deal on his first Monday in office.

In his criticism of trade deals, Trump has formed an unusual alliance with labor-friendly figures on the political left, often sounding more similar to senator and presidential candidate Bernie Sanders (I-Vt.) and AFL-CIO President Richard Trumka than Republicans who have traditionally supported free trade.

Other key figures in the NAFTA renegotiation are believed to be a more moderating stance to Trump’s protectionist rhetoric.

Lighthizer, the administration’s main trade negotiator, has a reputation for taking tough action to protect American trade interests under the Reagan administration. Yet in testimony to Congress, he assured lawmakers that he would seek to first do no harm to an agreement that he acknowledged as important for American farmers and industries.

Wilbur Ross, the commerce secretary who Trump has entrusted with much of his trade agenda, has been even more moderate. A past supporter of the TPP, Ross said in May that certain concessions Mexico and Canada made in the TPP negotiations should be viewed as a “starting point” for NAFTA.

“There are some concessions that the NAFTA partners made in connection with the proposed TPP,” Ross said in an interview with Bloomberg Television. “There is no reason to throw those away.”

In a conference call with press Monday morning, Democratic lawmakers and labor leaders said this approach would fall short of Trump's promises to blue-collar workers.

“NAFTA needs to be fundamentally rewritten, not merely tweaked, and working people are united in our demand to rewrite NAFTA,” Trumka said. “If the group in Washington refuses to get the job done, American workers will find leaders who will.”

The Trump administration is renegotiating NAFTA under a legal provision called fast-track authority, which gives the president wide authority to independently broker a trade agreement before submitting it to Congress for an up-or-down vote. The statute requires the administration to publish detailed objectives for the negotiations at least 30 days before its formal talks begin.

See also:

Trump has singled out Mexico. But some say NAFTA’s real challenge is to the north.

At G-20 summit, it looks more and more like Trump against the world

U.S. and Mexico appear to take first steps toward renegotiating NAFTA, document suggests