Major Takeaways from Trump's Nafta Negotiation Objectives

By Bob Davis and Jacob M. Schlesinger Features Dow Jones Newswires

The Trump administration on Monday published its long-awaited negotiating objectives for a planned overhaul of the North American Free Trade Agreement, or Nafta. The objectives, required for a rewrite of the law, allow U.S. officials to begin formal talks with Canada and Mexico in as little as 30 days. The move also opens up what's expected to be a spirited debate in Congress, where majority votes would be needed in the House and Senate to pass any new deal. Here are some major takeaways:

Continue Reading Below

TPP By Another Name

The Nafta objectives include a number of items already negotiated under the Trans-Pacific Partnership, which President Trump killed on his first full workday in the Oval Office. They include rules covering state-owned enterprises, e-commerce and financial services. These should be easy parts to negotiate, since all three nations already agreed to such measures under TPP.

Environment and Labor

The administration says it wants to make environmental and labor disputes subject to Nafta arbitration panels -- meaning that alleged violations can be punished by the imposition of tariffs. They would replace weak labor and environmental panels that were added to Nafta after the main accord was negotiated as a way to win congressional support for the trade pact. Businesses in all three countries are likely to object.

Currency

Continue Reading Below

The administration wants to make Nafta the first U.S. trade pact to police "currency manipulation." That would be a big deal -- and one that may be easy to reach, because neither Canada nor Mexico face such accusations, which are usually leveled at Asian trading partners. The goal would be to establish this as precedent for future trade pacts.

Tougher Enforcement

One area where the plan does embrace the trade warrior agenda is a proposal to scrap a special Nafta provision that has made it easier for Canada and Mexico to avert U.S. trade sanctions, the so-called "Chapter 19 dispute settlement mechanism" that allows Nafta partners to challenge duties before a special Nafta tribunal available only to them. Canada in particular has made keeping Chapter 19 a priority. Chad Bown of the Peterson Institute for International Economics says the Trump administration's general focus on tougher enforcement will likely push Canada to dig in on keeping Chapter 19, making this one likely flashpoint of the talks.

Investor Protection

There is no provision of Nafta -- or other trade deals -- that irks critics more than the ability of investors to sue governments in arbitration panels over policies they deem antibusiness. A loss of sovereignty, the critics say. A necessary alternative to corrupt legal systems, counters business. The U.S. seeks a middle-ground that may not exist: The U.S. wouldn't eliminate the panels, but would constrain their power in the U.S.

Who's Nafta For?

The document does acknowledge some winners from Nafta -- notably "farmers and ranchers" who got "much needed market access" from the pact. That's a nod to the (heavily Republican) farm-state lawmakers who have made clear to Mr. Trump he'd better not mess with their success. It largely portrays the pact as a raw deal for "American workers," slammed by factories lost due to outsourcing. The broad goal is to help companies "grow their exports." Left unmentioned: American consumers, who, economists say, have gained tremendously from the pact through cheaper prices and greater variety.

Which Trump Faction Won?

All Trump trade pronouncements are scrutinized for which faction of his advisers won: the economic nationalists who shaped his campaign platform, or the globalists who run his economic team. The quick Kremlinology says it's the globalists, led by Gary Cohn, the former Goldman Sachs Group Inc. president running the White House National Economic Council. That said, the battle isn't over. Many of the provisions remain vague. And Mr. Trump has reserved the right to pull out altogether -- the goal of his nationalist advisers -- if he's not pleased with the final result.

Write to Bob Davis at bob.davis@wsj.com and Jacob M. Schlesinger at jacob.schlesinger@wsj.com

(END) Dow Jones Newswires

July 17, 2017 19:07 ET (23:07 GMT)