NAFTA renegotiation talks open amid high expectations

WASHINGTON - 16 Aug 2017:Negotiators from Canada, Mexico and the United States open the first round of talks on Wednesday to revamp the 23-year-old regional free trade agreement some see as a demon and others as a savior.

Between those extremes, there are high expectations but vastly different views on how to remake the North American Free Trade Agreement into a deal that pleases all sides, and fulfills President Donald Trump's repeated campaign promises to help US workers.

Trump famously denounced NAFTA as "the worst trade deal maybe ever signed anywhere," and promised to pull out of the agreement he said has destroyed US jobs, but succumbed to pressure to renegotiate instead.

Given recent criticism over his handling of North Korea, Venezuela and the white supremacist violence in Charlottesville, Virginia, Trump will need to have something he can call a victory out of the talks.

However, he recently warned again that he will "terminate NAFTA" if "we don't get the deal we want."

While some view statements like this from Trump as bombast, Fred Bergsten, director emeritus of the Peterson Institute for International Economics, warned, "Failure is an option."

"We don't like to say that, we don't like to think about it, but it's true," he said, warning of serious consequences to the US economy.

Even with that threat hanging over the talks, negotiators are going into the first of several rounds of negotiations optimistic about updating the pact that was signed before the internet was a force, and covers a market of nearly 500 million people.

Large negotiating teams from Canada, Mexico and the United States will meet through Sunday to develop the new text of the pact. They are due to reconvene September 5 in Mexico City.

The timeline for the talks is expected to be aggressive, given elections in Mexico in July 2018, as well as the US legislative calendar.

A USTR official confirmed plans to add a chapter on digital trade, as well as incorporating side agreements added after the fact on environmental and labor standards.

Canada also has stressed the need for stronger labor and environmental rules in the agreement.

- Focus on deficit -

For the White House, however, the central focus is on changing NAFTA rules to reduce the US trade deficit and to protect US manufacturing jobs.

"The deficit is a large issue that we will have to address, and intend to address, in a comprehensive way," the USTR official told reporters.

"Our starting point for the negotiation of the NAFTA is to get a more balanced, reciprocal trade agreement that supports more high-paying jobs for Americans and grows the US economy."

Although US trade with Mexico shifted from a $1.7 billion surplus in 1993 to a $55.6 billion deficit in 2016, during that period total trade with Canada and Mexico more than tripled, reaching $1.2 trillion by last year.

Economists argue that a free trade agreement is not the place to address a bilateral trade imbalance, and focusing on the deficit could become a key sticking point in the talks, since reducing the US deficit likely means cutting imports from Mexico or increasing exports.

- Sticking point -

Another likely source of dispute is Washington's desire to eliminate an infrequently used dispute resolution process under which a NAFTA panel can overrule individual countries' decisions on dumping and unfair subsidies.

Washington views Chapter 19 as unfair, since it can overrule decisions made by US agencies on imports thought to receive unfair subsidies.

But for Canada especially, which has successfully used the process in the longstanding timber dispute with the United States, Chapter 19 is not negotiable.

And Mexico's Congress passed a resolution last month calling for negotiators to resist any move to eliminate the mechanism.

The question remains whether that becomes a red line for the US side, and would prompt Washington to withdraw from the trade deal that has allowed vast multinational supply chains to form throughout the region.

US Congressman Tim Ryan, a Democrat from Ohio, told reporters "the mature way" to make needed changes to the deal "is to sit down and make the new model" through negotiations.

"You can have huge disruptions in the economy if you don't handle this like an adult," he said.