President Trump hates the North American Free Trade Agreement. But that's where the certainty ends. A lack of clarity over how he wants to renegotiate it has forced stakeholders to scramble to figure out what parts they want changed and what parts they want to defend.
Trump demonstrated how unpredictable he could be in mid-April, when he was poised to announce that America was pulling out of the agreement, which was struck with Canada and Mexico a quarter-century ago. The president has long argued that the U.S. got the short end of the deal that was finalized in 1993 and implemented in 1994 during the Clinton presidency.
With a draft executive order in hand and a finger on the kill switch, Trump was talked out of it at the eleventh hour when Mexican President Enrique Pena Nieto and Canadian Prime Minister Justin Trudeau called the White House to get him to stop, saying America's sudden exit would be too much of an economic "shock to the system."
By the end of their talks, Trump had made it plain that he's willing to walk away from NAFTA if he doesn't get his way, but also showed that he can be swayed.
NAFTA reduced trade barriers, tariffs and duties so that goods from each country have free access to markets in the others. A few Canadian products, mainly dairy and poultry, were exempted. The deal also includes agreements on customs procedures, government contracting, investment, intellectual property rights, and dispute settlement procedures, and it also defines "rules of origin," which are standards that determine which country a product is from.
Stakeholders now have their first shot in over two decades to rework the deal. Renegotiation talks are set open in August, and American stakeholders have until June 12 to submit their wish lists to the U.S. Trade Representative's Office spelling out exactly how they think NAFTA should be rewritten. A variety of business groups, which don't necessarily share the same interests, will weigh in. Organized labor and environmental groups will make their cases, too.
Big business is divided on reopening NAFTA, according to several trade association officials, most of whom spoke with the Washington Examiner on condition of anonymity. While some industries are eager to rewrite the deal, NAFTA is working just finely for others. Reopening it represents an unnecessary risk, those ones say.
The U.S. Chamber of Commerce, which is coordinating with its Mexican and Canadian counterparts, has taken a fairly neutral stance, owing to its obligation to represent all U.S. business. Its two main goals are to ensure the dispute resolution system isn't changed and the deal remains a trilateral one, as opposed to two bilateral ones.
But for other, more specific interests, the August talks represent a second chance to get what they wanted from the Trans-Pacific Partnership, in which America, Canada and Mexico were among 12 nations negotiating a trade deal that Trump formally killed in one of the early acts of his presidency.
Other industries want new provisions in NAFTA not because they have any issue with Canada or Mexico but because they want those provisions to become standard in U.S. trade deals, which would let them be included in future deals with Europe, Asia and others.
Trump has frequently attacked NAFTA because of America's trade deficits, which he sees as evidence that Washington was on the losing end of the deal, a view not widely shared by most economists. Trump views trade as a zero-sum game.
"With Mexico, we have $70 billion in deficits, trade deficits, and it's unsustainable. We're not going to let it happen. Can't let it happen. We're going to have a good relationship with Mexico, I hope. And if we don't, we don't," he said in a February speech to a group of manufacturing CEOs.
In March, the U.S. Trade Representative's Office circulated a draft outline of its NAFTA objectives with members of Congress. It called for modest changes to the deal but did make one genuinely novel addition, with language allowing countries to reinstate tariffs if a flood of imports causes "serious injury or threat of serious injury" to local industries. It also indicated that Trump would push to allow the government to favor American companies in contracting, which is in line with the administration's push for "Buy American" policies.
Trump has taken a particular interest in Canada's dairy policy, which was exempted from the original NAFTA deal. It was apparently Trump's anger over barriers faced by U.S. dairy farmers that prompted his short-lived plan in April to pull out. He had tweeted about farmers numerous times in the preceding week.
"We're also going to stand up for our dairy farmers in Wisconsin ... and that demands, really, immediately fair trade with all of our trading partners, and that includes Canada," he said in an April speech in Kenosha, Wis.
The administration's May 18 letter to Congress officially announcing its intention to renegotiate NAFTA provided few details on its goals. It stated only that "our aim is that NAFTA be modernized to include new provisions to address intellectual property rights, regulatory practices, state-owned enterprises, services, customs procedures, sanitary and phytosanitary [pest-related] measures, labor, environment, and small and medium enterprises."
More recent comments suggest the administration is trying to balance business' interests. "The first rule is do no harm," Commerce Secretary Wilbur Ross said at a May 31 forum hosted by the Bipartisan Policy Center. "The second rule of thumb is that there were a number of concessions that the NAFTA countries made in connection with TPP, so we would view those as the starting point for discussion."
Mexico also sees it as a possible second chance at TPP. "A package is already in your pocket. But my message [to the U.S.] is that if you become extremely greedy, you may waste a victory that is already there," Ildefonso Guajardo, Mexico's economy minister, told the Financial Times in April.
TPP would have reduced Canadian tariffs on U.S. poultry and dairy products without eliminating them. It required Mexico to update its policies on labor, the environment, Internet security and intellectual property. It would have prohibited requirements that data be stored locally and prevented prohibitions of data flowing across borders, a key concern of companies involved in e-commerce. It would have eased "rules of origin" for car manufacturing, allowing them to be labeled as made in America provided that a majority of parts originated in a TPP country.
Trevor Kincaid, deputy U.S. trade representative during the Obama administration, said reviving TPP's deals is the most likely outcome of the talks. "To a large extent, TPP represented an expansion and updating of NAFTA. It's the one area where the administration can make changes, especially if they are interested in moving quickly and (as Ross said) doing no harm. All of those negotiations are already done."
The agriculture issues with Canada in particular were some of the biggest achievements of TPP, Kincaid noted. "Dairy was one of the most difficult issues and was only concluded in the final hours. I don't think any trade deal is going to go through Congress without agriculture's support." After all of that effort, he doubts the parties involved want to start over.
Beyond that, he said, the changes are mostly likely to be modest. "Do no harm is becoming that mantra that a lot of industries are rallying around," he said.
Here are the major players in the talks and what they want:
Manufacturers: "The real motive for reopening NAFTA is coming from manufacturing," said an official for one major Washington-based trade association, who asked not to be named. U.S. manufacturers have the most to gain from a renegotiation and the longest wish list.
"The 23-year-old NAFTA is certainly in need of updating, and we are working closely with our broad membership at areas of potential improvement," said Linda Dempsey, at the National Association of Manufacturers, in an April speech.
Manufacturers point out that NAFTA doesn't address numerous advances in technology. For example, in 1993, nobody was talking about data across borders. Now, small manufacturers use online storefronts and want NAFTA to address issues such as hosting data in a foreign server and cloud storage.
Manufacturers also want stronger intellectual property protections for copyrights and patents; reductions of regulatory and testing standards in Canada, which they argue constitute de facto trade barriers; stronger language protecting foreign investments; and preservation of the independent arbitration system for settling trade disputes used in NAFTA and other trade deals. That's the so-called investor-state dispute settlement mechanism, which allows companies to challenge NAFTA governments directly in an arbitration system.
Manufacturers are even interested in ending Canada's tariffs on dairy products. It is a key issue for food and beverage industry manufacturers.
Pharmaceutical industry: This sector has a particular problem with Canada's intellectual property laws, particularly its "utility doctrine," which is also called the "promise doctrine." This allows Canada to break patents if a Canadian court decides the product failed to meet the "promise" of its patent, an extremely vague standard.
In March, Eli Lilly lost an appeal before a NAFTA tribunal for $500 million in damages after Canada used the doctrine to break two of the drugmaker's patents in 2010. The ruling has alarmed business groups, which want to use the NAFTA renegotiations to nip the practice in the bud.
"Canada is an outlier in how it uses its utility doctrine, but there is the issue that this practice could spread to other countries," said Nigel Cory, trade policy analyst for the Innovation Technology and Innovation Foundation.
Drugmakers want Mexico to update its intellectual property laws. The country has yet to ratify international agreements it signed on to in the 1980s.
Pharmaceutical companies also want more aggressive border enforcement to seize counterfeit drugs.
Automakers: The industry wants NAFTA to include language dealing with currency manipulation and rules stipulating that American safety standards are sufficient for the other countries. These are not, however, problems the industry has with Canada or Mexico. Instead, carmakers want these provisions to become the standard for any future trade deals.
Beyond that, its main concern is to preserve NAFTA's existing "rules of origin." Under the current NAFTA rules, a car or light truck has to have at least 62.5 percent of its parts from the U.S. to be deemed a product from there. Labor groups would like to see that percentage go higher. Manufacturers that use parts from several countries or have manufacturing facilities in other countries argue that standard is already high enough.
"We think NAFTA has been a success and has helped us to be successful. Having said that, we are very supportive of the renegotiation," said Matt Blunt, president of the American Automotive Policy Council, which represents Ford, General Motors and Fiat Chrysler Automobiles.
The car industry is the one business group that doesn't support the investor-state dispute resolution system. "We have called for an end to ISDS. We would argue that you could improve the trade discussion without it. There have been concerns, too, that it undermines national sovereignty," Blunt said. Some critics of the system say it is too easy for foreign companies to win relief from NAFTA governments, often over the objection of the citizens of those countries.
Asked if the auto council's motive was to maintain peace with the United Auto Workers, Blunt said no, but added that it was not a make-or-break issue for automakers, either.
Agriculture: Agribusiness is firmly in the "NAFTA is working very well" camp. When Trump threatened to pull out of NAFTA in April, groups such as the American Farm Bureau Federation, the National Corn Growers Association and the American Soybean Association squealed loudest. An industry source echoed Ross' comment that the White House must "first do no harm."
"Mexico has said [in reaction to Trump] that it can get its corn and soybeans from elsewhere. That got agriculture's attention," said an industry source.
Having said that, the dairy and poultry industries do have problems with Canada, which has tariffs on both of those products, neither of which was covered by the original NAFTA. TPP would have expanded American access to those markets without completely removing barriers. Agriculture would like a second chance at negotiating those deals.
The industry also would like to see TPP language on food safety that limited use of the "precautionary principle," which is used to deny entry to products on safety grounds even if they haven't been proven unsafe. Countries instead would be required to rely on proven science to invoke safety protections.
Energy: This is another sector in the "NAFTA is working just fine" camp. With the long-delayed Keystone XL pipeline project between the U.S. and Canada approved by Trump in March, the energy industry's biggest concern has been addressed. A source at one major trade association said it wasn't sure it would file a brief with the Trade Representative's Office, for the simple reason that they didn't have anything to ask for.
The energy industry's main interest, therefore, is preserving the status quo.
"When you look at the interdependence between the countries and how it benefits the U.S., I think we need to stand back and take a deep breath before we make any changes," Jack Gerard, president of the American Petroleum Institute, said at a May 31 forum hosted by the Bipartisan Policy Center.
Labor: Labor unions, in contrast, want to shatter the status quo. It is the one group on the Left with whom Trump has ties, particularly the building and construction trades. AFL-CIO President Richard Trumka has been a frequent White House guest. He has warned Trump not to "tinker around the edges" when NAFTA is renegotiated.
Labor has indicated five main issues. It wants the investor-state dispute system thrown out and replaced with domestic courts, the inclusion of currency manipulation language, the elimination of a section that limits "Buy American" policies in government contracts, an increase in clean air and water standards, and a raise of the "rules of origin" requirement above 62.5 percent.
Getting rid of investor-state puts labor at odds with most industries except automakers, and they are also at odds with automakers over the rules-of-origin requirements.
Environmentalists: Environmental groups want to disrupt the status quo even more than labor does, as they are fundamentally at odds with business and not fans of trade to start with. They're likely to have few friends in the White House but will be able to rally opposition among congressional Democrats.
They want, for example, the Paris climate change agreement included in NAFTA. Given that Trump pulled the U.S. out of the deal with great fanfare on June 1, that clearly won't happen.
The greens also want an end of investor-state disputes, uniform and binding environmental standards across the three countries, border taxes on goods that create pollution when they are produced, a "climate impact test" for all policymaking among all NAFTA countries, restrictions on cross-border traffic to reduce vehicle emissions, the creation of an independent entity to investigate and charge violations for environmental rules, requirements to buy green technology in all government contracts, and elimination of a NAFTA provision that requires Canada to export a portion of its oil to the U.S.
In addition, they want the NAFTA negotiations themselves to be "public and transparent." The individual chapters, once agreed to, must be made public and put online.
Eliminating the investor-state appears to be their biggest priority since the setup has made it hard for green groups to pursue lawsuits against international companies.
"We have a great system for adjudicating these disputes here in the U.S. We should use it," said Ben Beachy, trade policy analyst for the Sierra Club.
Canada: The nation's farmers are pressing their government to preserve the existing tariffs allowed under NAFTA, which insulate them from foreign competition. Trudeau has indicated he will defend them, arguing in an April tweet in response to Trump: "The U.S. has a $400 million dairy surplus with Canada, so it's not Canada that's the challenge here. Let's not pretend we're in a global free market when it comes to agriculture."
Ottawa is expected to act to protect its de facto lumber price support system. Northern timber is harvested from public lands. The U.S. industry has long complained that the rates the Canadian government charges its loggers for chopping down trees is so low that it counts as a subsidy. Canada denies it.
It is also expected to protect its utility doctrine, which enjoys broad public support. Trudeau is expected to oppose any changes to the U.S. government's procurement policy, which currently welcomes bids from Canadian contractors. Trump has vowed to beef up a "Buy American" policy, and some lawmakers have called on him to limit contracts to U.S. businesses.
Mexico: Of the three countries, Mexico is the one that benefited most from NAFTA. Businesses in the country are eager to open negotiations with the U.S. for the simple reason that they want to ensure that U.S. markets remain open to them. Going ahead with talks reduces the chances that Trump will follow through on his threats to unilaterally pull out. The country already agreed to several concessions to the U.S. as part of TPP, primarily regarding enhanced labor and environmental standards on emissions and wildlife conservation, and its leaders have said those are still on the table.
It's also likely that Mexico will push to preserve existing rules of origin, which benefit its manufacturers. More than one-third of the parts in a car, for example, can be made in Mexico, and the product can still deemed "made in the USA."
"What we want is to maintain free access for Mexican products, without restrictions, without tariffs and quotas," Mexican Foreign Minister Luis Videgaray said in January. Guajardo, the economic minister, has warned that if the proposed deal is "less than what we have now, it doesn't make sense to stay in."
But all this assumes the status quo in Mexico. Leftist presidential candidate Andres Manuel López Obrador has been climbing in the polls ahead of the country's July 2018 election and presents a wild card to anything negotiated by the current government.
"We intend to form a government that shows respect for our neighbor to the north while never yielding in our determination to defend Mexican sovereignty," Lopez Obrador wrote in a May 1 op-ed in The Washington Post. "To this end, we will wage a battle of ideas against those who promote selfishness, class bigotry, fear-mongering and discrimination of all types, and we will seek to persuade Trump that his foreign policy is flawed and counterproductive."