NAFTA negotiators head to Mexico City gearing up for a standoff

by Adam Behsudi (feat. Eric Miller)

POLITICO
November 15, 2017

NAFTA NEGOTIATORS HEAD TO MEXICO CITY GEARING UP FOR A STANDOFF: Trade negotiators from Canada, Mexico and the United States are descending on Mexico City today for a fifth round of NAFTA negotiations expected to feature some progress on low-level technical issues and a near total avoidance of the agreement’s thornier issues.

Over six days of talks, which unofficially begin today but formally kick off on Friday, Canada and Mexico are aiming to focus predominantly on the “modernization” aspects of the deal, or on areas like electronic commerce and streamlined customs procedures where all three countries feel there is a need for adjustment and a clear way forward. But on controversial areas from produce to procurement to a “sunset” provision, the U.S.’s two North American partners are for now largely leaving the onus on the Trump administration to come back with reworked offers they might be willing to consider, rather than come up with concrete counter proposals themselves.

At the same time, they will also be looking to get a better sense of if — and how much — Washington might be willing to compromise on proposals it has put forward so far, hoping to gain clarity on whether they represent concrete, uncompromising demands or whether the U.S. is simply bluffing in an attempt to gain an upper hand.

“You’re going to see an active and very lively debate going on in Canada and also in Mexico about, 'Are these negotiating positions, or are these hard and fast U.S. proposals?’” said Eric Miller, president of the cross-border consulting firm Rideau Potomac Strategy Group, which focuses on trade issues. “The parties are essentially going to eyeball each other and see who blinks.” Read more from Pro Trade’s Megan Cassella, who heads to Mexico City later this week, here.

IT’S WEDNESDAY, NOV. 15! Welcome to Morning Trade, where your host welcomes thoughts on how to prepare his turkey for Thanksgiving. I’ll also welcome any trade news: [email protected] or @abehsudi.

NET NEUTRALITY 101: The long-running fight over net neutrality, which pits telecom giants against tech companies, is heating up at the Federal Communications Commission. To understand what the fight is all about and where it’s headed, check out POLITICO’s latest explainer video featuring technology reporter Margaret Harding McGill and the artwork of Pulitzer Prize-winning cartoonist Matt Wuerker. Click HERE to watch.

U.S. PUSHING FOR SAFEGUARDS ON NAFTA TRUCKING PROVISIONS: The United States is proposing adding a form of safeguard mechanism in NAFTA on Mexico’s long-haul trucking industry that would allow the U.S. to impose new restrictions or limitations if it were faced with certain negative conditions, Morning Trade has learned. The proposal, which was formally put forward in the fourth round of talks outside Washington, shows that the U.S. is not going so far as to push for the removal of Mexico’s long-haul trucking industry from NAFTA’s cross-border services chapter. But it also reflects in part some critics’ concerns over a change in 2011 that allowed Mexican long-haul truckers to transport goods into the U.S. under a pilot program developed by the Obama administration.

It’s not yet clear how Mexico will respond to the proposal, which could further complicate the already complicated renegotiation of NAFTA. But Mexican officials have previously expressed opposition to any changes to the country's current market access under the deal.

On Tuesday, more than 100 trade associations wrote a letter to U.S. Trade Representative Robert Lighthizer urging him to maintain the cross-border trucking provisions as is in any renegotiated agreement.

The signees, which include the American Farm Bureau Federation, the Motor & Equipment Manufacturers Association and the Retail Industry Leaders Association, warned that elimination would have a long-term negative impact on businesses, increase port congestion and decrease companies’ competitiveness.

REPUBLICAN SENATORS TAKE A SHOT AT TRUMP’S NAFTA APPROACH: Sens. James Lankford, Mike Enzi and John Thune are telling the Trump administration that using the trade deficit as a guidepost for renegotiating NAFTA is the wrong approach.

"If the desired result of current trade agreement renegotiations is job growth, concern over a negative trade balance should not be part of those discussions," the lawmakers said in a draft letter to Lighthizer obtained by POLITICO.

The letter is the latest sign of unhappiness within GOP ranks over how the talks with Canada and Mexico are going. The senators said they hoped to work with the administration “toward addressing real trade issues such as expanding markets for U.S. producers and businesses, eliminating foreign subsidies, and enforcing current trade laws.”

Sunset questioned: The three senators also urged the administration to drop its proposal for a "sunset review" mechanism that would terminate the agreement after five years, unless the countries agree to renew it. They called that idea "unnecessary" since it's already possible for countries to revisit the pact if they see fit.

"Your very engagement in not only reviewing, but renegotiating, the North American Free Trade Agreement (NAFTA) without any current sunset is evidence of every future U.S. administration’s ability to review and renegotiate trade deals," the senators said. Read more here.

CANADA TAKES LUMBER FIGHT TO THE NEXT LEVEL: Canada is taking a stand against U.S. countervailing duties on imports of Canadian softwood lumber by launching a Chapter 19 NAFTA dispute against the duties that are targeting some companies with tariffs of more than 18 percent.

"The U.S. Department of Commerce’s decision on punitive countervailing and anti-dumping duties against Canada's softwood lumber producers is unfair, unwarranted, and deeply troubling," the Canadian Foreign Minister's Office said in a statement Tuesday. "As our government has said publicly for some time, we will forcefully defend Canada’s softwood lumber industry, including through litigation, which we are launching today."

The case sets up a major fight under a dispute settlement mechanism the Trump administration wants to get rid of in the ongoing NAFTA renegotiations. Chapter 19 sets up an independent arbitration panel through which countries can challenge another’s anti-dumping or countervailing duties. Canada frequently used the mechanism to challenge past U.S. tariffs on softwood lumber, but most of those cases ended up being dropped as the U.S. and Canada reached agreements managing lumber trade in lieu of tariffs.

PENCE: TRUMP KEEPING OUR TRADING PARTNERS AT ARM’S LENGTH: Vice President Mike Pence said he’s on board with the president’s tactic of pursuing bilateral trade deals as a way to put the interests of American workers and businesses first.

“I come from a manufacturing state and an agricultural state and the president spoke to me about a vision for trade that is really built on arm’s-length relationships with countries around the world,” Pence said Tuesday at The Wall Street Journal’s CEO Council conference. “President Trump believes in trade. He believes in, as he says, free and fair trade. As he said to me then and he said over the course of his travels this last week, the president just believes that these multilateral deals that tie many nations together ultimately result in the United States losing leverage for the ability to hold people accountable to commitments they make in the trade arrangements, and he believes that we’ll be able to advance the interests of our countries and the countries that we’re trading with more effectively if we simply have arm’s-length relationships.”

America first, not America alone: Pence, once a supporter of the Trans-Pacific Partnership that Trump scrapped, added that the administration is going to work “very vigorously to expand access to world markets.”

“I do believe that talking with leaders around the world there’s been a great deal of enthusiasm once they realize that President Trump when he said America first, he didn’t mean America alone,” he said. “He just simply meant that he wants to get back to win-win relationships.”

ROSS TAKES A HARD LINE: Commerce Secretary Wilbur Ross talked more about how the U.S. will continue to take a hard line on its proposals ahead of the fifth round of NAFTA talks.

"In any negotiation, if you have one party that is not in fact prepared to walk away over whatever are the threshold issues, that party will lose," he said at the WSJ event.

Screaming and yelling: Far from striking a conciliatory tone, Ross said the negotiating environment has only grown more complicated as a result of industries voicing a greater level of concern over the direction the administration is taking in the renegotiation.

"As one special interest group, say agriculture, for example, gets nervous, they start screaming and yelling publicly," he said. "They start writing letters, soliciting the Congress people, and [then] they start screaming and yelling in public. It just complicates the environment and, frankly, makes the negotiations harder." Read more here.

TRUMP’S ASIA TRIP: THE CALM BEFORE THE STORM: Trump’s braggadocio on business deals struck on his trip to Asia belie the simmering trade tensions between the U.S. and China that many analysts believe will now come to the fore.

“For me, we’re moving inexorably toward the edge of the cliff,” said Dan Ikenson, head of the Cato Institute’s Center for Trade Policy Studies.

Despite Trump's glee over $250 billion in corporate deals announced in Beijing, he personally had little hand in them and they collectively did nothing to address his main grievance over Chinese industrial policies that restrict American firms and contribute to the large trade deficit between the world's two biggest economies. Pro Trade’s Doug Palmer provides a download on Trump’s Asia trip here.

HUNDREDS OF COMPANIES, ASSOCIATIONS CALL FOR GSP RENEWAL: More than 350 U.S. companies and industry associations are urging the leaders of the Senate Finance and House Ways and Means committees to take action and renew the Generalized System of Preferences program, which is set to expire at the end of the year.

In a letter sent Tuesday to Sens. Orrin Hatch and Ron Wyden and Reps. Kevin Brady and Richard Neal, the groups noted that the program’s expiration would “have an immediate and negative impact on American employers, who would be forced to pay over $2 million a day in new taxes.”

The GSP program, which would expire Dec. 31 without congressional action, allows certain non-sensitive products from 120 developing countries to enter the U.S. duty-free. When it was last allowed to expire, from August 2013 to July 2015, it cost U.S. companies $1.3 billion in extra taxes, the groups said.

“GSP renewal fits squarely on a congressional agenda to pass tax and trade legislation that benefits American families, workers and companies,” wrote the groups, which include the American Apparel & Footwear Association, the National Foreign Trade Council and the U.S. Chamber of Commerce. “The sooner it happens, the sooner we return our focus to making competitive American products, providing consumers with goods at affordable prices, and growing the U.S. economy.”

TECH GROUPS PRESS USTR ON COPYRIGHT: The Information Technology Industry Council, the Internet Association and other groups representing the tech sector are urging USTR to stick with a compromise on copyright protections and exceptions struck in the Trans-Pacific Partnership, rather than side with music groups that want a different approach in NAFTA.

“While we recognize the administration’s decision to withdraw from the Trans-Pacific Partnership earlier this year, we believe that the copyright provisions negotiated with Canada, Mexico, and other countries in that agreement provides the best framework for addressing copyright in NAFTA,” the groups said in a letter sent to Lighthizer today.

“In short, there was a thorough and wide-ranging debate among the full range of stakeholders regarding the appropriate approach to copyright. No stakeholder got everything it wanted, but the various interests ultimately supported a collective approach that reflected U.S. law,” the groups argued.

The missive is the latest in a continuing battle over NAFTA copyright provisions. The Recording Industry Association of America and other music groups sent their own letter in September urging the Trump administration not to include “broad copyright exceptions and sweeping immunities for those committing content theft” in the revised pact.

“This would be an open invitation to America’s trading partners to act as havens for piracy and refuges for those who illegally infringe American creative content,” the groups said.

CHINA REPORT URGES TOUGHER CFIUS APPROACH: The U.S.-China Economic and Security Review Commission released its annual 2017 report today with recommendations for Congress to take a tough stance on Chinese investment. That includes taking steps that go beyond pending legislation introduced last week to reform the process of the Committee on Foreign Investment in the United States.

That includes recommending CFIUS reform that prohibits Chinese state-owned companies from acquiring U.S. assets, including a net economic benefit test to ensure acquisitions “advance U.S. national economic interests,” and requiring that proposed acquisition of a U.S. media company be assessed on the Chinese entity’s adherence to Chinese Communist party propaganda, among other things.

The commission also urges Congress to consider legislation that would condition Chinese investment in the U.S. on reciprocity for U.S. investors in China. Read the executive summary here.