NAFTA talks after Trump's turnaround: What each country wants

By Megan Cassella, Adam Behsudi, and Doug Palmer

4/27/2017

President Donald Trump said Thursday he’s going to start talks “very soon” with Canada and Mexico to improve the North American Free Trade Agreement — a day after his aides said he was thinking of withdrawing completely.

But sitting down at the negotiating table won’t be easy. Each country wants something from the others. And the three-way negotiation could lead to months of give-and-take over everything from lumber subsidies to immigration policy.

Trump also will have to work within the complex negotiating structures set out by law — and appease the many competing American interest groups that will be jockeying for a good deal for themselves.

Here's POLITICO's look at what each country wants as Trump tries to make a deal with our neighbors to the north and south — after insulting both countries in recent weeks.

United States

He’s blamed NAFTA for a loss of American jobs, but Trump hasn’t been very specific about what he wants from a new agreement. White House spokesman Sean Spicer said Thursday the U.S. is looking to better the pact's agricultural, manufacturing and services provisions, and give it an overall modernization.

He said "some trade imbalances" have come up, referring to the deficits the U.S. runs with Mexico and Canada, and that the White House wants to talk about areas outside of NAFTA, like access to Canada's dairy market.

The administration is consulting with Congress over precise negotiating objectives, but a draft notification letter circulated among key lawmakers in late March revealed its initial thinking.

Market access: In a nod to U.S. farm and business groups worried about losing valuable sales to Canada and Mexico, the draft said Trump will “seek to maintain and expand current market access” between the three countries.

Trump also wants to reduce or get rid of non-tariff barriers to U.S. exports. An example of such a barrier: Canada’s controls on the prices and supply of poultry and dairy, which affect whether U.S. producers can sell their products there.

Rules of origin: In one potentially challenging area, the letter said U.S. negotiators will seek changes in the “rules of origin” that dictate how much of a final product must be made from material produced in the U.S., Canada or Mexico to qualify for duty reductions.

Digital trade: The administration would seek commitments from Canada and Mexico to refrain from imposing customs duties on digital products and avoid discriminating against products delivered electronically. It also wants a pledge to prohibit any restrictions to the cross-border flow of data or local data-storage requirements.

There also are a host of other U.S. objectives — from investor protections comparable to U.S. law, to a safeguard mechanism that allows for tariffs to be re-imposed in response to an import surge.

Mexico

In Mexico City, officials have stood firm against Trump as he has flirted with a pledge to implement a hefty tariff on imports and called for Mexico to pay for a wall along the U.S. southern border. They are not eager to get engaged in a renegotiation — officials say they prefer the term “modernization” — but will work with the U.S. administration, particularly on areas that were not covered in the original NAFTA agreement, such as telecommunications, energy and e-commerce.

Mexico has put few specifics on the table. It will be entering with some demands, rather than maintaining a purely defensive posture, said Moises Kalach, a Mexico City-based businessman who helps lead private-sector engagement with government on trade issues. But officials are trying to hold off on outlining what they want before they see Trump's objectives.

Keeping quotas and tariffs as-is. Mexico's main goal at this stage is to avoid going backwards, so any attempt to change standards to a degree considered to be worse for Mexico than what is laid out in the deal would be unacceptable. The idea of revisiting tariff levels or quotas is likely off-limits, said Antonio Ortiz-Mena, who was on Mexico's original NAFTA negotiation team.

Going beyond NAFTA to include security. Mexico has had fairly frequent meetings with U.S. officials. During those get-togethers, Mexican officials have been reminding their U.S. counterparts that the bilateral relationship is about more than just trade — something Mexican President Enrique Peña Nieto has highlighted as a guiding principle of the talks. Mexican officials are aiming for “comprehensive negotiations” that also include talk of migration, security, counterterrorism and drug trafficking, among other issues.

Canada

Canada is likely to make its own demands in the negotiations.

Access to the U.S. market. At the top of Canada’s list is maintaining the deep access to the U.S. market that NAFTA has provided Canadian firms. But Ottawa is also looking for improvements, especially in terms of access to U.S. government contracts. Canadian firms would like more exemptions to “Buy America” requirements — though that may be unlikely, given that Trump has made domestic procurement a marquee issue.

Easier U.S. immigration for workers. Canada is expected to push to get high-skilled workers better access to the U.S. labor market — another demand that could get pushback, in light of the Trump administration’s desire to reform the temporary-worker visa program. Canada also wants the U.S. to provide better recognition of Canadian professional credentials.

Reformed dispute resolution for companies. Ottawa may also push for improvements to NAFTA’s investor-state dispute mechanism, a system through which individual companies can sue countries for alleged discriminatory practices. This arrangement is commonly found in trade and international investment agreements, including most U.S. trade deals. In a separate deal with the European Union, Canada agreed to major changes to the process that would improve transparency and accountability, which it may want to see in NAFTA.

What’s next?

Trump said Thursday that the timeline for talks is “actually starting today.” But it is not that simple.

Trump can’t formally begin negotiations with Canada and Mexico until his administration gives Congress 90 days’ notice. And the law requires him to consult with panels in both houses of Congress on details of the notification letter before it is sent. That’s where things have gotten tricky.

Trump trade officials have met with a House advisory group, but not with the Senate one. One reason: Senate Democrats have argued that the 2015 law requires the president to have a confirmed U.S. trade representative before the meeting can take place, and confirmation of Trump’s USTR pick, Robert Lighthizer, has been delayed by multiple disputes, including Democrats’ assertion that he needs a waiver to serve as USTR because of past work for foreign governments.

But a Senate vote on Lighthizer could occur soon if those issues are dealt with in spending legislation that lawmakers must pass this week to avoid a government shutdown.

Formal negotiations won’t begin until August, in all likelihood. A key event in the lead-up to formal talks could be the annual North American Leaders summit, which typically takes place in the summer. But it’s not clear whether the three governments intend to hold the meeting this year.

Whenever talks begin, they will be made more complicated by Trump’s ever-present threat to withdraw from the agreement if he feels his demands are not being met.

“The fact that he reversed himself once doesn’t mean that he’s gone all soft and cuddly,” said Gary Hufbauer, a senior fellow at the Peterson Institute for International Economics. “This is the eternal card … He can turn it over again and again."