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NAFTA Talks Resume Amid Growing Speculation on U.S. Withdrawal

Thursday, October 12, 2017
Sandler, Travis & Rosenberg Trade Report

The fourth round of negotiations to revamp NAFTA got underway Oct. 11 amid increasing speculation that the Trump administration could soon announce the United States’ withdrawal from the trilateral free trade agreement. Prior to the opening session U.S. Trade Representative Robert Lighthizer announced that negotiators had finalized a chapter on competition that “substantially updates the original NAFTA and goes beyond anything the United States has done in previous free trade agreements.” Lighthizer also said the talks will go two days longer than originally scheduled to allow more time to tackle tough issues.

(ST&R will conduct a webinar Oct. 24 to review developments with respect to NAFTA and other administration and congressional trade actions. Click here for more information or to register.)

Prior to the negotiations President Trump reiterated his threat to withdraw the U.S. from the nearly quarter-century old agreement. “I happen to think that NAFTA will have to be terminated if we’re going to make it good,” Trump was quoted as saying in an interview with Forbes. “Otherwise, I believe you can’t negotiate a good deal.” This comment could indicate that Trump’s ultimate goal is an improved NAFTA, not its demise. However, U.S. Chamber of Commerce CEO Thomas Donahue said this week that withdrawal would not be an effective negotiating tactic because Canada and Mexico “have made it very clear they won’t negotiate with a gun to their head.”

On the other hand, the president’s objective may be to actually pull the U.S. out of NAFTA, which he has consistently criticized as a “disaster.” Observers see evidence for this in the controversial nature of the proposals the U.S. is expected to table during the fourth round. These include increasing the regional content requirements for automobiles from 62.5 percent to 85 percent and adding a requirement for 50 percent U.S. content, adding a provision that would automatically terminate the agreement after five years unless specific action is taken to renew it, significantly revamping the dispute settlement system, and reducing the amount of U.S. government procurement open to its NAFTA partners. If Canada and Mexico reject these demands, which they are seen as likely to do, the White House could claim it is impossible to secure a sufficiently advantageous deal for the U.S. and walk away.

In a speech in Mexico City Donahue voiced the growing concern that these “poison pill proposals … could doom” NAFTA. He argued that tougher rules of origin “would actually send business overseas,” that making the investor-state dispute settlement system optional would “raise questions around the world about America’s commitment to due process principles,” and that the proposed procurement changes “would lead directly to reduced sales of made-in-USA products and harm the American workers who make them.” These proposals are “unnecessary and unacceptable,” Donohue concluded, and “have been met with strong opposition from the business and agricultural communities, congressional trade leaders, the Canadian and Mexican governments, and even other U.S. agencies.”

A USTR spokeswoman dismissed Donohue’s warnings, stating that the substantial changes needed to make NAFTA work for more Americans “of course will be opposed by entrenched Washington lobbyists and trade associations.” However, a similar appeal to “do no harm” to NAFTA was made this week by more than 300 state and local chambers of commerce, who said in a letter to Trump that they support modernizing the agreement but want to protect and preserve the “deep economic ties and benefits” it provides to U.S. workers, farmers, ranchers, and businesses of all sizes.

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