Nafta Renegotiations Open in Washington -- Update

By William Mauldin and Paul Vieira Features Dow Jones Newswires

The Trump administration launched the renegotiation of the North American Free Trade Agreement Wednesday by laying out a starkly different vision from that of its two continental trading partners of how the pact has worked and how radically it should be rewritten.

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The wide gap between the administration's opening rhetoric and the positions of Mexico and Canada suggests a difficult road ahead in redoing the 23-year-old accord, even discounting for the posturing at the opening of any negotiation.

"We believe that Nafta has fundamentally failed many Americans and needs major improvements," U.S. trade representative Robert Lighthizer said at the opening of talks in Washington. "We need to assure that the huge trade deficits do not continue."

Mr. Lighthizer said Mr. Trump, who vilified Nafta in the 2016 presidential campaign, isn't interested in just modernizing the pact and "tweaking" commercial rules, but rather wants new features to reduce the U.S. trade deficit with its two neighbors.

The disparate approaches have worried some business leaders, who see a risk that political leaders could dig in on opposing positions and hurt the ability of negotiators on the ground to strike a deal. Mr. Trump has repeatedly warned he could pull the U.S. out of Nafta.

"Canada doesn't view trade surpluses or deficits as a primary measure of whether a trading relationship works," Canadian Foreign Minister Chrystia Freeland said, noting that the U.S. has a surplus in trade of goods and services with Canada. Ms. Freeland touted the "deep friendship our countries share."

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Mexico's Economy Minister Ildefonso Guajardo said his country "thinks that Nafta has been a strong success for all parties."

Mr. Guajardo said achieving a consensus won't be easy. "Let's not be mistaken, the first challenge we have is to find a common ground among the three countries," he said. "For a deal to be successful, it has to work for all parties involved; otherwise it is not a deal."

Mr. Lighthizer pointed to Nafta's success for many U.S. farmers, but he said it has hurt many others. The U.S. wants to boost rules to protect intellectual property, guard against currency manipulation and make changes to dispute-resolution mechanisms in Nafta to "protect our national sovereignty," he said.

Given Mr. Trump's fiery rhetoric on trade, Mr. Lighthizer's tone "isn't going to shock anyone, but is the kind of posturing you expected to happen privately," said Mark Warner, a trade lawyer who practices in New York and Toronto.

The benchmarks for success Mr. Lighthizer laid out suggest a tough path ahead. The rising U.S. trade deficit with Mexico and the sharp drop in American manufacturing jobs are particularly difficult issues to address in trade agreements. Economists and former officials point to broader macroeconomic forces as playing far larger roles than trade does in creating deficits and jobs.

Mr. Lighthizer has yet to define exactly how the U.S. intends to negotiate a new pact that reduces trade imbalances among Nafta partners. Advisers to the Trump administration have discussed injecting some specific deficit-reduction benchmarks into the pact or demanding new provisions that officials believe could have that effect.

One of the main ways Trump officials are looking to move the needle on deficits is by tightening the "rules of origin," the requirements governing what portion of a product has to come from within the trading bloc to qualify for tariff-free treatment. In his opening remarks, Mr. Lighthizer seemed to suggest the U.S. could set a standard not only for North American content, as Nafta currently does, but also for U.S.-specific content -- a demand the trading partners would almost certainly resist.

Auto-parts makers from all three countries have warned officials about the risks to the industry's integrated supply chain if changes to Nafta make it harder to ship parts across the continent's borders. Still, said Flavio Volpe, head of the Automotive Parts Manufacturers' Association, a Canadian lobby group, "you are going to have to give a little bit, otherwise there's no victory for the American administration side."

The Trump administration is still working with U.S. lawmakers and business groups in many key areas and isn't expected to propose new Nafta text this week on automotive rules of origin, currency manipulation or a controversial form of arbitration known as investor-state dispute settlement, according to people familiar with the U.S. negotiating position.

The three countries opened the talks in a Washington hotel ballroom with flags from each nation lined up behind the ministers and chief negotiators.

Mexico, whose economy has been transformed the most by Nafta, was represented by a large delegation including formal and informal advisers and members of the Mexican Senate who flew in for the event.

Ms. Freeland, the senior Canadian official, made a point of giving some of her remarks in Spanish, in an apparent show of solidarity with the Mexicans also facing U.S. demands.

The ballroom was also filled with industry lobbyists -- officially designated "stakeholders" -- with interests in the talks, from farm groups to retailers, as well as groups representing consumers and labor.

Officials hope to hold several rounds of talks this fall and complete negotiations as soon as early next year, before the political season heats up in Mexico and the U.S. Following the current first round, officials are expected to meet in coming weeks in Mexico City for the next round.

--Jacob M. Schlesinger contributed to this article.

Write to William Mauldin at william.mauldin@wsj.com and Paul Vieira at paul.vieira@wsj.com

(END) Dow Jones Newswires

August 16, 2017 16:29 ET (20:29 GMT)