#1 - NAFTA ROUND FIVE -- FIVE THINGS TO KNOW
1) Today is the sixth and final day of negotiations and there haven't been any bombshell developments.
2) The three country’s trade ministers – Lighthizer, Freeland, and Guajardo are not there, having met at APEC. That means they won’t meet again until January. The December meeting of chief negotiators is already being played down as a non-event.
3) The 5th round focused mostly on the “modernization” components of the agreement which are not among the most divisive. The tougher issues, including the sunset clause, auto rules of origin, and the seasonal produce provision are not going to be decided in Mexico – or anytime soon. There have been reports however that those issues were at least discussed in Mexico.
4) Canada and Mexico are waiting to see if the U.S. will back off of the hardline proposals they've put on the table while also showing some small measure of flexibility. On the sunset proposal for instance - Reuters reported that Mexico and Canada are now willing to consider a review process instead of a termination clause in an effort to find common ground.
5) There was a robust industry presence in Mexico - including from auto companies, the tech sector, and retail. Their general reaction to the round was that no news is good news BUT that negotiations continue to trend in the wrong direction for thier priorities. The USTR message to industry continues to be that many of the proposals they are concerned about are simply opening negotiations positions and that they should dial back their rhetoric against those proposals.
#2 - USTR RELEASES UPDATED NEGOTIATION OBJECTIVES
Late last Friday, USTR released an update to their NAFTA renegotiations objectives – read HERE.
The document is an update from the Trump administration’s original objectives released in July. Here is some of the updated language on the most controversial aspects of the negotiations thus far:
Sunset clause: “Provide a mechanism for ensuring that the parties assess the benefits of the agreement on a periodic basis.” NOTE: This language is not as strong as the demands reportedly made at the negotiating table. Perhaps there is room for common ground mentioned above.
Eliminating Canada’s supply management system: USTR now says they will “Seek to eliminate unjustified measures that unfairly limit access to Canada’s markets and unfairly decrease market access opportunities in third countries for U.S. dairy products, such as cross subsidization, price discrimination, and price undercutting.”
Procurement, specifically a U.S. proposal that would match access dollar for dollar: The new language says USTR will “Ensure reciprocity in market access opportunities for U.S. goods, services, and suppliers in Canada and Mexico.”
Auto rules of origin, a subtle but important shift: The document added the following bolded text: “Ensure that the rules of origin incentivize production in North America as well as specifically in the United States.”
NOTE: USTR released the updated negotiation objectives under pressure from Senator Ron Wyden who had placed a hold on the nominations of several trade officials until he got an updated summary of negotiation objectives, as required by the 2015 Trade Promotion Authority bill. POLITICO reported last week that an aide to Wyden said that the Senator would now lift that hold.
#3 - LORI WALLACH AND DONALD TRUMP: STRANGE BEDFELLOWS INDEED
Last week, the Daily Beast published a story that was a product of a FOIA request for U.S. Trade Representative Robert Lighthizer’s schedule. They confirmed what’s long been whispered in trade circles: that Lori Wallach, of Public Citizen, the self-proclaimed “countervailing force to corporate power,” has been a frequent guest of Trump’s trade chief. Many have speculated that passing a renegotiated NAFTA or any other Trump trade policiy that requires Congressional approval will require Wallach’s support and advocacy with liberal Democrats on Capitol Hill who’ve regularly opposed open trade policies.
#4 – TAX REFROM AND THE TRADE DEFICIT
On Friday, Binyamin Appelbaum of the NY Times laid out the econ 101 behind why most economists agree that tax reform will increase the trade deficit. Here is the key paragraph:
“The connection between tax cuts and trade deficits is not controversial. The mechanics are straightforward: Republicans are proposing to reduce federal revenue through a $1.5 trillion tax cut without a commensurate reduction in federal spending. To pay for the tax cuts, the government will need to borrow more dollars, some of which will come from foreign investors. Foreigners will get those dollars by selling more goods and services to Americans, which will widen the trade gap.”
Perhaps that’s part of why Republican Senators Lankford, Enzi, and Thune asked the Trump administration in a letter last week to stop focusing on trade deficits in NAFTA negotiations. To be fair, the letter may have been unrelated, as most pro-trade Republicans - and economists for that matter - agree that trade deficits are a bad measuring stick for trade policy.
#5 - TECH FIGHTS BACK IN NAFTA NEGOTIATIONS
While most battle lines in NAFTA have been drawn between the U.S. and other countries, the battle on copyright policy has divided two industries here at home: tech vs. content.
By most accounts, to date, the Trump administration has sided with traditional content (including the movie and recording industry) by offering proposals in NAFTA that don’t sync with Trade Promotion Authority negotiation objectives passed in 2015 by Congress and current U.S. law. Last week, a number of tech and business organizations, representing the who’s who of tech, pushed back on what departing from those standards would mean:
“We write to express our concerns, in the context of the ongoing North American Free Trade Agreement (NAFTA) modernization talks, that the administration may be considering departing from a carefully calibrated and balanced compromise among all key stakeholders in the area of copyright….E-commerce platforms, cloud services, cybersecurity testing services, streaming services, text and data mining tools, machine learning, a vibrant entertainment industry, and numerous other current and future innovations are possible in part because the United States has a strong and balanced copyright framework.”
How this could play out: While the content industry seems to have the upper hand now, the tech industry has important and powerful tools to galvanize public support for their position. Anyone who remembers the 2012 coordinated protests against SOPA and PIPA knows how quickly the tide can turn. Also, many observers believe that the content industry may be using NAFTA as a way to jumpstart efforts to reform domestic copyright law.
#6 - REACTIONS TO THE ASIA TRIP
The President promised a “major” announcement on trade last Wednesday following his two week Asia trip, so most trade watchers were disappointed when his Wednesday speech included no new announcements and lots of old platitudes. Examples:
• "The days of the United States being taken advantage of are over."
• Re: trade deficit: “We are going to start whittling that down, and as fast as possible.”
• “We will take every trade action necessary to achieve the fair and reciprocal treatment the United States has offered to the rest of the world for decades.”
While the President used recycled rhetoric, most commentators focused squarely on the fact that the remaining TPP countries came to an agreement in principle while Trump was in Asia to make the case the U.S. was falling behind on trade. Here are some of the columns we noticed in the aftermath of the trip:
The TPP Shouldn't Stop at 11 – Bloomberg Editorial Board
Trump’s Pacific Trade Tear – Wall Street Journal Editorial Board
China Could Sell Trump the Brooklyn Bridge – Tom Friedman, NY Times
#7 – MEXICAN TRUCKS: THE BATTLE CONTINUES
Last week saw a battle of letters on the age-old issue of whether, and how, long-haul Mexican trucks can operate north of the border. What was as recently as last year a mostly settled matter has been reignited in NAFTA. That's because of a U.S. proposal that would add a “safeguard” mechanism creating new restrictions on Mexican operations under certain conditions.
Last week more than 100 trade associations wrote to USTR asking that no changes be made to the program. That letter was quickly followed by a letterfrom 24 lawmakers calling for the administration to stick with their position.
More on this issue from Reuters HERE.