Delayed Nafta Talks to Seep Into Political Races Next Year -- Update

By William Mauldin in Washington and Dudley Althaus in Mexico City Features Dow Jones Newswires

The decision to extend negotiations over the North American Free Trade Agreement into next spring will inject trade into the middle of political campaigns in the U.S. and Mexico next year, and may complicate efforts to sign and ratify a new version of the pact.

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The U.S., Canada and Mexico said Tuesday that they would take a longer-than-expected pause in the talks and allow negotiations to run through the first quarter of 2018, extending a previous goal of wrapping up a deal around the end of the year.

The Trump administration has proposed several provisions that would weaken Nafta, generating opposition from the U.S. business community and Canadian and Mexican officials, but support from labor leaders.

Those battle lines are expected to harden in next year's campaigns, pitting those, like President Donald Trump, who blame trade pacts for the loss of jobs in the U.S., against well-funded, business-backed candidates who support free trade and will point to ways that it benefits their constituents.

The talks have already inflamed politics in Mexico, which has presidential and congressional elections next year. A leftist candidate, Andres Manuel Lopez Obrador, is seeking to succeed President Enrique Peña Nieto and has called for Nafta to be renegotiated by whoever wins next summer's vote. Canada's Liberal government, led by Prime Minister Justin Trudeau, faces no immediate political risks from the delay as it doesn't face re-election until 2019.

In the U.S., the 2016 presidential and congressional races showed just how potent trade can be as a campaign issue. Then-candidate Trump made opposition to Nafta a centerpiece of his campaign, calling the pact a "disaster" and insisting he would withdraw from it or renegotiate it. He also opposed the Trans-Pacific Partnership, a deal negotiated under Barack Obama. Hillary Clinton went against her party's incumbent in opposing the TPP.

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A deal in March would require lawmakers facing reelection to make a quick decision about whether to support Mr. Trump's brand of trade policy -- closer to that of unions and many Democrats -- or more traditional free-trade policies backed by most Republican lawmakers, business groups and a smaller group of Democrats. Congress would have to ratify any renegotiated agreement, assuming there is one.

"The later this deal gets pushed into the election year, the more complicated it gets for politicians," said Scott Reed, senior political strategist at the U.S. Chamber of Commerce. "Congress does not want to deal with this in an election season." he said.

Lobbyists and trade experts following the talks say Mr. Trump, like previous presidents, will need to rely mostly on GOP lawmakers to pass any Nafta overhaul. A Nafta deal reached in March would lead to a vote as early as in September or October, on the eve of the November elections, due to delays built into "fast track" legislation that pave the way for the passage of trade pacts.

"We have a real opportunity to improve Nafta, but to achieve that, the administration must work with Congress and stakeholders to reach a unified U.S. position," Sen. Orrin Hatch (R., Utah), the chairman of the Senate committee that oversees trade, said Tuesday in a statement. "I have concerns that some recent proposals by the United States and Canada would have the opposite effect and wouldn't pass Congress."

The trade issue, analysts said, is likely to resonate most in the industrial Midwestern states where Mr. Trump's message that bad trade deals were to blame for the loss of U.S. manufacturing jobs helped propel him to victory. Trade could also come into play in border states favoring free trade and in agricultural areas worried that changes in Nafta -- or a withdrawal -- could hurt their exports.

The issue could put Republicans in the position of having to make a complicated choice between free-trade policy backed by the Chamber of Commerce -- a heavy spender in election seasons -- and Mr. Trump's "America first" policy, analysts say. Former White House aide Steve Bannon, a leading skeptic of existing U.S. trade agreements, has vowed to back alternatives to the traditional Republicans running for re-election to the Senate next year.

Still, the outlook for Nafta is unpredictable and could weigh on the election in several different ways. For example, Mr. Trump could send notice during the election season that he intends to withdraw from Nafta as a pressure tactic to win a deal with Canada and Mexico or to convince lawmakers to vote for his deal. Lawmakers could condone such a step or rally to challenge his authority to exit from the pact without a nod from Congress.

U.S. trade representative Robert Lighthizer told reporters Tuesday at the end of the fourth round of Nafta talks that the delay wouldn't have an effect on Mexico's politics until "maybe sometime in March." He didn't comment on the political implications of the delay in the U.S.

In Mexico, recent opinion polls give Mr. Lopez Obrador, a left-leaning nationalist, about a third of the vote, well ahead of possible contenders. That is roughly the same as his tally against Mr. Peña Nieto in 2012, when he placed second. None of the other political parties have yet selected a candidate.

President Peña Nieto said this week that his ruling Institutional Revolutionary Party, or PRI, will decide on its standard-bearer by mid-December. Among the party's current front runners are is Interior Minister Miguel Angel Osorio Chong and Finance Minister Jose Antonio Meade, a respected economist and lawyer who has no electoral experience.

The conservative National Action Party, a business friendly party that held the presidency for the first dozen years of this century, has been bitterly divided in seeking its candidate. Margarita Zavala, wife of former President Felipe Calderon, resigned from the party this month to seek the presidency as an independent.

Both the PRI and National Action are strongly pro-Nafta and promote free market policies.

While he hasn't outright condemned Nafta, Mr. Lopez Obrador has criticized many of the market-friendly policies adopted in Mexico since the treaty was signed in the early 1990s. He has called for Nafta to be renegotiated by whomever wins next summer's vote.

Should the Nafta talks collapse -- or Mexico be seen as getting a raw deal in any agreement -- Mr. Lopez Obrador will prove the biggest beneficiary, said Federico Estevez, a political analyst at ITAM, a Mexico City university that has educated many of Mexico's elite.

The outcome could have an effect in Canada in 2019, but analysts say Mr. Trudeau could find cover however it comes out.

"If Trudeau is successful in renegotiating a modern Nafta, then it's a big win," said Nik Nanos, head of Ottawa-based polling firm Nanos Research. "But if he's not successful, he has Donald Trump as the political fall guy."

--Paul Vieira in Ottawa contributed to this article.

Write to William Mauldin at william.mauldin@wsj.com and Dudley Althaus at Dudley.Althaus@wsj.com

(END) Dow Jones Newswires

October 18, 2017 16:40 ET (20:40 GMT)