WASHINGTON – The Trump administration informed U.S. lawmakers that it intends to launch formal negotiations on overhauling the North American Free Trade Agreement, a big bet by President Donald Trump that he can win concessions from Canada and Mexico, and push a deal through Congress.
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Mr. Trump, who called the trade deal a "disaster" on the campaign trail, threatened to pull the U.S. out of Nafta as recently as last month and is seeking to bring maximum negotiating leverage to the talks.
"Today, President Trump is fulfilling one of his key promises to the American people," U.S. Trade Representative Robert Lighthizer told reporters on Thursday.
In a letter to congressional leaders, Mr. Lighthizer said the administration will start talks with Canada and Mexico as soon as 90 days from Thursday, in line with congressional rules on negotiating trade deals subject to expedited consideration by lawmakers.
Still, Canada and Mexico have only limited room to make deep concessions to Washington, given their own domestic political situations. Mr. Lighthizer said he hopes to wrap up negotiations by the end of the year, a key goal for officials worried Mexico's presidential election next year could weigh on the talks.
Mr. Trump was elected in part with a message of regaining American manufacturing jobs, and Mr. Lighthizer said Thursday that manufacturing will be a key focus of the talks.
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"Sectors such as manufacturing, particularly with regard to Mexico, have fallen behind, he said.
"Nafta was negotiated 25 years ago, and while our economy and businesses have changed considerably over that period, Nafta has not," Mr. Lighthizer wrote in the letter. "For example, digital trade was in its infancy when Nafta was enacted."
Many economists and trade experts say it will be hard to structure a trade deal that brings back labor-intensive manufacturing jobs, especially when wages are so much lower south of the border. Labor standards, included as an annex to the original Nafta deal as implemented in 1994, will be front and center in this year's talks, Mr. Lighthizer said.
Mr. Lighthizer's assertion that Nafta has been bad for American manufacturers will be hotly contested by the American business community, which has argued that the pact has done a lot to sustain some U.S. factories by creating more efficient continental supply chains that allowed U.S. firms to better compete globally.
Mr. Lighthizer didn't mention the supply chains in his comments Thursday, but the Business Roundtable, a trade association of large U.S. companies, stressed it in its own letter released Thursday morning outlining its goals for the renegotiation.
"The planned negotiations should not weaken or undermine Nafta given its many benefits for the United States," the letter said. "We think it is very important to...not disrupt supply chains that have been built up and greatly benefit U.S. businesses, workers and consumers over the last two decades."
In Canada, officials have repeatedly said they stand ready to begin formal talks on Nafta, with the aim of making improvements to the decades-old pact. Canada has much at stake in renegotiations, as three-quarters of all Canadian exports -- or the equivalent of 20% of its total economic output -- are U.S. bound.
Mexican officials sent notice to lawmakers months ago that they are ready to begin talks. Mexico has the most at stake in any renegotiation, since exports account for more than a third of its economy, and 90% of its exports are manufactured goods, mostly sent to the U.S.
Mr. Lighthizer said he hopes to preserve the existing, trilateral structure of Nafta but will likely negotiate separately with Mexico and Canada on many issues. But he didn't exclude major changes in the pact if negotiators reach an impasse: "If that proves to be impossible, then we'll move in a different direction," he said.
The 2016 political season brought a deep skepticism of U.S. trade policy, and the Trump administration will have to strike a fine balance if it wants to win the backing of a majority of lawmakers in the House and Senate, required for any final deal that significantly overhauls Nafta.
Besides facing what is likely to be acrimonious negotiations with Mexico City and Ottawa, the Trump administration will need to strike a deal that navigates difficult crosscurrents on Capitol Hill, a goal that eluded Barack Obama after he signed the 12-nation Trans-Pacific Partnership, or TPP. Mr. Trump pulled the U.S. out of the unratified Pacific framework in January.
Mr. Trump's campaign rhetoric is actually more closely aligned with that of Democratic lawmakers, who want the toughest possible trade rules to prevent what they see as unfair competition from Mexico's manufacturing sector. But it is unclear how many Democratic votes Mr. Trump can count on.
"For those of us who believe that U.S. trade policy--and NAFTA--need fundamental reform, this notice is very disappointing," said Rep. Richard Neal of Massachusetts and Rep. Bill Pascrell of New Jersey, Democrats on the House committee that oversees trade.
Republican lawmakers, on the other hand, are more likely to appreciate the existing free-trade provisions of Nafta that benefit farmers and big businesses.
The Republican chairman of that panel, Kevin Brady of Texas, said he looks forward to working with the administration to strengthen Nafta "in a seamless way and ensure that we retain the current benefits."
"There is no question that NAFTA has been tremendously successful for American workers, farmers, and businesses," Mr. Brady said.
An earlier draft letter from the administration listed several controversial provisions that could be included in Nafta talks, including a mechanism that would apply tariffs to a flood of imports and a potential tax that Trump officials argue would level the playing field with Mexico's value-added tax.
But the letter sent Thursday doesn't go into specifics on negotiating objectives. Mr. Lighthizer said the objectives will be spelled out at least 30 days before Nafta talks start, in line with a 2015 trade law that lays out Washington's procedures for negotiating and approving deals.
Congress also spelled out its own objectives in the 2015 law, known as fast track or trade promotion authority. One priority is considering the effect of countries' currency moves on international trade, and Mr. Lighthizer told senators this week he is considering including rules preventing trading partners from alleged currency manipulation.
Another priority for the administration is tightening so-called rules of origin that control which products are eligible for duty-free trade in North America. For example, raising the required North American content of automobiles in the bloc could squeeze out some Asian auto parts used in American-built cars.
Mr. Lighthizer said he is seeking to resolve thorny disputes with Mexico on sugar and with Canada on softwood lumber before the Nafta negotiations begin in earnest, but he said it is possible those issues could become part of the talks.
Trade experts say there is no guarantee the U.S. will be able to strike a deal that gets passed by Congress. Mr. Trump is facing intense political headwinds in Washington that could affect the talks, and the new president is seen as unpredictable in making decisions on trade policy, a key focus of Mr. Trump for decades.
--Paul Vieira and Robbie Whelan contributed to this article.
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(END) Dow Jones Newswires
May 18, 2017 12:19 ET (16:19 GMT)