Disagreements Emerge between U.S., Canada and Mexico as NAFTA Talks Begin

The Trump administration set a tough tone Wednesday at the start of the renegotiation of the North American Free Trade Agreement, driving a wedge into its relationship with Canada and Mexico, Politico reports.

U.S. Trade Representative Robert Lighthizer invoked President Donald Trump’s strong criticism of the deal, saying that the agreement had “fundamentally failed many, many Americans”.

“I want to be clear that he is not interested in a mere tweaking of a few provisions and a couple of updated chapters,” Lighthizer said during opening remarks at the Washington Marriott Wardman Park before the start of round one of the talks.

“For countless Americans, this agreement has failed. We cannot ignore the huge trade deficits, the lost manufacturing jobs, the businesses that have closed or moved because of incentives, intended or not, in the current agreement.” Lighthizer said, while Canadian Foreign Minister Chrystia Freeland and Mexican Economy Minister Ildefonso Guajardo looked on.

Although the U.S. economy has added more than 1 million jobs since Trump took office, his popularity has steadily eroded. That makes a quick victory in the NAFTA negotiations all the more important in showing he can deliver for his base, Politico comments.

Lighthizer declared Wednesday an “historic day” and invoked Trump’s name several times in his opening comments; neither Freeland or Guajardo felt compelled to mention Canadian Prime Minister Justin Trudeau or Mexican President Enrique Pena Nieto.

“He’s speaking to an audience of one, and has to say what the boss wants him to say,” said Bill Reinsch, a trade policy expert at the Stimson Center, referring to the likelihood that Trump was watching Lighthizer’s remarks.

The U.S. is also pledging to make reducing its trade deficit a priority, a point that the other two trading partners sought to rebut right away on Wednesday.

“Canada does not view trade surpluses or deficits as a primary measure of whether a trading relationship works. Nonetheless, it is worth noting that our trade with the U.S. is balanced and mutually beneficial.” Freeland said during her opening remarks.

Freeland took aim at Trump and Lighthizer’s contention that bilateral trade deficits were signs of failure in trade pacts. When services trade is included, the United States ran a slight surplus of $8.1 billion with Canada last year, she said.

The Trump administration, however, tends to focus solely on goods trade when it complains about trade deficits. By that measure, the United States ran an $11 billion deficit with Canada last year and a $63 billion deficit with Mexico.

Still, Lighthizer acknowledged many in the U.S. agriculture sector have benefited from increased trade with Canada and Mexico, their two biggest export markets. The Trump administration also will be sensitive to the concerns of border communities, which have a particularly strong stake in NAFTA, Lighthizer said.

Those comments could reassure Republicans who fear reprisals from their constituents if the U.S. insists on changes that disrupt trade flows built up over the last two decades.

“It is important to look at states like Texas whose success with cross-border trade and commerce should serve as a model for growing the partnership between our three countries,” Senator John Cornyn, the No. 2 Senate Republican, said.

“I will continue to work with the administration to ensure any new agreement is in the best interest of the Texans whose livelihoods depend on free and fair trade across our borders.” he added.

A group of 52 House Democrats led by Representatives Bill Pascrell and Debbie Dingell, however, complained they were being kept in the dark as the administration embarks on the negotiations.

“Transparency and consultation with Congress are critical to establishing support for U.S. trade policies. Yet the administration has still not publicly stated its views on a range of issues and, to our knowledge, has not appointed a Chief Transparency Officer at USTR, as required by statute,” the lawmakers said in a letter to Lighthizer.

Senate Minority Leader Chuck Schumer urged Trump to veer sharply to the left in the trade talks by embracing priorities Democrats have espoused for years.

“They must push for robust currency manipulation provisions; strong, enforceable labor standards; punishment for companies that ship jobs overseas; and stronger ‘Buy American’ requirements, while providing workers, small businesses and the public with more input in negotiations,” the New York Democrat said.

The Trump administration shares many of those objectives, but the question is whether it can reach a deal with Canada and Mexico on issues like currency manipulation and labor standards that will win over Democrats without jeopardizing support on the Republican side of the aisle.

Lighthizer’s strong language came as Trump is struggling to make progress on many of the issues that catapulted him into office: repealing Obamacare, building a wall on the Mexican border and reforming the corporate tax code. NAFTA, however, may be a place where he can make his mark on a campaign promise, at least in some key sectors.

In line with many Democrats, the Trump administration is also seeking tougher rules of origin to assure that autos and auto parts that qualify for duty reductions under the pact contain both “substantial” U.S. content and higher North American content than is required under the current pact, Lighthizer said.

Other priorities include making changes to the dispute settlement mechanisms in the agreement in order to preserve the United States’ ability to impose duties on goods it has determined are unfairly traded, he said.

The most alarming thing in Lighthizer’s comments was reference to setting a higher U.S. content level for regional automotive trade under pact because Mexico is likely to fiercely resist that, said Reinsch of the Stimson Center.

For their part, both Guajardo and Freeland were more inclined to stress the benefits of the current agreement, and emphasizing each country’s willingness to modernize the pact.

But for a deal “to be successful, it has to work for all parties involved, otherwise, it’s not a deal. Mexico is committed to obtaining a win, win, win for all three countries.” Guajardo said.

Mexico’s top objectives include strengthening overall North American competitiveness, moving toward more inclusive regional trade and taking advantage of the 21st century economy, Guajardo said.

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