[CTC] Trump Targets a NAFTA Deal With Few Defenders

[Arthur Stamoulis]

https://www.bna.com/trump-targets-nafta-n57982086884/ <https://www.bna.com/trump-targets-nafta-n57982086884/>
 
April 19, 2017
Trump Targets a NAFTA Deal With Few Defenders
By Dean Scott <mailto:DScott at bna.com>
It’s hard to know exactly what President Donald Trump has in mind for opening up the North American Free Trade Agreement, but it may be even harder to find industry and environmental groups or even members of Congress who want the 1994 deal left as is.Many environmental groups have seethed for more than two decades after seeing their concerns shunted aside into an environmental deal separate from NAFTA, one that lacked any significant enforcement provisions and today looks particularly inadequate compared to subsequent trade deals that were given more teeth to address environmental protections. Some industry groups including the U.S. Chamber of Commerce and the National Association of Manufacturers aren’t exactly defending the 23-year-old deal either, although they’re pushing Trump toward more of a tuneup of the U.S.-Canada-Mexico deal than tossing the whole thing onto the scrap heap. Trump has continued to call for renegotiating the deal, although his administration has sent mixed signals of late that suggest some softening in that position.

Then there’s Congress, where support for new trade agreements and removing trade barriers has eroded over the past two decades. Many are resigned to some change in the North American deal, noting that Trump won the election at least in part due to his vow to bring back U.S. factories and sink trade deals that he claims hurt U.S. competitiveness.

NAFTA “has been in place for a long, long time. Any contract—which in essence is what NAFTA is—after this many years needs to and should be tweaked,” Senate Foreign Relations Committee Chairman Bob Corker (R-Tenn.) told Bloomberg BNA. “And I’m certain there are tweaks that could be beneficial to [all] sides.”

Toothless Environmental Side Deal?

Environmental groups say those tweaks should include stronger enforcement of environmental protections. The environmental side deal negotiated alongside NAFTA— officially known as the North American Agreement on Environmental Cooperation and seen as an historic first given previous U.S. deals had been essentially silent on environmental issues—is today seen as largely ineffective, particularly in preventing environmental degradation in Mexico.

Most environmental groups wouldn’t be sorry to see the side deal go. Just 22 of the total 87 environmental complaints filed under the NAFTA environmental deal have resulted in the preparation of factual records outlining the concerns, according to a 2015 analysis by the Center for International Environmental Law.

Few of those complaints “have actually had a discernible impact on the enforcement practices at issue in the initial submissions,” the center concluded; just the process of preparing the factual records took an average of nearly five years to complete.

Part of the blame lies in lofty language in the NAFTA environmental deal which called on each country to “ensure that its laws and regulations provide for high levels of environmental protection and shall strive to continue to improve those laws and regulations.” But the deal never defined what “high levels” meant.

More recent U.S. trade deals have included environmental provisions in the core text of the agreements to allow governments to bring cases against each other for violations, Ben Beachy, senior policy adviser for the Sierra Club’s Responsible Trade Program, told Bloomberg BNA.

“Despite this,” he said, “not once has the U.S. used these trade deals to bring a single case against a single trade partner for environmental violations, despite widely documented evidence of illegal logging, rollbacks of environmental protections, and other abuses.”

Receptive in the Rust Belt

Sen. Sherrod Brown (D-Ohio), who has blamed NAFTA for eroding the state’s manufacturing base, told Bloomberg BNA he is “absolutely” receptive to reopening the deal but remains skeptical of Trump’s motives. One obvious fix, Brown said, would be to strengthen mechanisms to resolve trade disputes, but he noted many companies are wary of giving over such authority to international entities.

Trump’s “corporate backers won’t like it though, so we’ll see,” according to Brown, who applauded the new president’s decision made only days after his inauguration, to pull the U.S. out of the Trans-Pacific Partnership (TPP), a deal which also included NAFTA partners Mexico and Canada.The TPP deal and other trade deals since NAFTA have included attempts to address some of NAFTA’s perceived flaws, including weak environmental and labor side deals. But the Ohio senator is skeptical, saying more recent deals haven’t brought an “especially measurable” improvement in those areas.

“None of these trade agreements have done both—adopt both stronger rules and stronger enforcement—together,” Brown said.

Over-Criticized and Oversold?

Trump’s tough talk on NAFTA and his move to quash the TPP has put some Republicans in the Senate—including those in the Republican leadership who have supported the TPP, such as Sens. John Barrasso (Wyo.) and John Thune (S.D.)—in a bind.

But a few Republicans, including Sen. John McCain (R-Ariz.), have vowed to fight head-on Trump’s pledge to renegotiate NAFTA.

“Facts are stubborn things, and the facts clearly show that NAFTA has delivered enormous economic benefits to the citizens of my home state since it went into effect in 1994,” McCain said Jan. 26. “In just two decades, Arizona’s exports to Canada and Mexico have increased by $5.7 billion, or 236 percent,” McCain said in a statement.

Sen. Pat Roberts (R-Kan.) suggested part of the challenge is that trade deals are an easy target for critics as well as supporters.

“Most trade agreements I’ve worked on … have been overcriticized—and they’ve been oversold,” Roberts said at the March 14 Senate Finance Committee confirmation hearing for Robert Lighthizer, Trump’s U.S. Trade Representative nominee.

NAFTA was signed by President George H. W. Bush in December 1992; a year later President Bill Clinton signed legislation implementing the deal, which entered into force on Jan. 1, 1994.

Evolving Labor, Environmental Protections?

Sen. Maria Cantwell (Wash.), the top Democrat on the Senate Energy and Natural Resources Committee, said critics of trade deals often ignore incremental progress that has advanced labor and environmental protections since NAFTA, such as the 2009 deal between the U.S. and Peru.

The U.S.-Peru deal included an environmental chapter that for the first time addressed illegal logging as well as illegal trade in wildlife. “For every agreement that has gotten done, sequentially better provisions have been added for labor and sequentially better provisions have been added for environmental protections,” Cantwell told Bloomberg BNA.

Trump has vowed to begin NAFTA renegotiations in the months ahead but must clear several hurdles first, including consultation with Congress to be followed by a formal 90-day notice signaling the president intends to revisit the agreement.

Sen. Orrin Hatch (R-Utah), who chairs the Senate Finance Committee, said he is hoping Trump in the end will modify trade agreements that have too often “sacrificed commercial interests.”“As the administration updates existing agreements and negotiates new ones, I hope that they will be able to re-balance” that template, Hatch said during his panel’s March 14 hearing on Trump’s U.S. Trade Representative nominee.

Among Hatch’s top priorities for any NAFTA renegotiation: improving protections for U.S. intellectual property rights and trade secrets, the elimination of price controls, and improved access to other markets for U.S. farmers and ranchers.

Is Trump Softening Tone?

A draft of the notice leaked in March suggested a more modest retooling of the deal may be in the offing than might be expected from a candidate who attacked NAFTA during the campaign as a “total disaster.” Trump also vowed to pull out of the deal if he couldn’t get better terms for U.S. workers.

The White House has since sought to downplay the leaked letter from Acting U.S. Trade Representative Stephen Vaughn, saying it doesn’t accurately reflect the administration’s latest positions on NAFTA renegotiation.

But the letter at times reads like a measured defense of the deal, noting that trade between the three nations has tripled from $293 billion to $1.07 trillion in goods since 1993. Canada and Mexico “account for 29 percent of total U.S. goods trade,” according to the draft, “and are among the largest export markets for manufacturing, the first and third largest markets for agricultural goods.”

Other actions—including two executive orders Trump signed March 31—also have been relatively modest in scope.

One directed the Commerce secretary and the U.S. trade representative to do a broad study of trade deficits. A second order is to beef up collection of punitive duties in certain trade disputes, such as anti-dumping cases.

NAFTA Benefits Overshadowed?

Other obstacles to a full-blown renegotiation of NAFTA include what are likely to be significant demands by Canada and Mexico to bolster protections for their own industries.

Mexico has signaled “it may seek to broaden negotiations to include security, counter-narcotics, and transmigration issues,” according to a Feb. 22 Congressional Research Service report <https://www.everycrsreport.com/reports/R42965.html>, which raised the prospect of Mexico withdrawing from NAFTA “if the negotiations are not favorable” to its own interests.

Somehow lost in the debate, say backers of the trade deal, is the success of NAFTA in largely eliminating what were once substantial trade barriers to U.S. exporters seeking access to markets in Mexico.

Prior to NAFTA, about 60 percent of U.S. farm exports to Mexico required import licenses, a trade barrier essentially lifted by the agreement. NAFTA also eliminated or phased out tariffs in Mexico that were significant barriers to U.S. imports there.

Measured Response From Industry Voices

Industry groups such as the National Association of Manufacturers and the U.S. Chamber of Commerce generally favor trade deals, and both backed the Trans-Pacific Partnership that Trump withdrew from in January. But they acknowledge that after more than two decades, NAFTA may deserve closer scrutiny.

It may be “time to examine our various trade relationships to increase opportunities for American companies to compete on a level playing field,” the chamber’s president and CEO, Tom Donohue, said in a March 31 statement issued in response to Trump’s trade-related executive orders.

But Donohue cautioned against placing too much emphasis on the role trade deficits play in the overall U.S. economy, saying an imbalance of trade isn’t a particularly meaningful measure of economic health.

“It is worth remembering that some of our best years of economic growth have produced our largest trade deficits,” while the 2008 recession “was accompanied by a sharp reduction in the trade deficit,” he said. The chamber generally backs strong enforcement of trade rules and agreements “as long as such enforcement is based on facts and the proper interpretation of those facts and not politics,” he said.

Environmental Deals Failed to Deliver?

But environmental groups and many trade experts say the dispute settlement process for the NAFTA side deal was weak, particularly in comparison to the enforcement tools provided within the actual agreement to address trade disputes.

The environmental side agreement also authorized U.S. participation in NAFTA labor and environment commissions; authorized funding for such activities; and included provisions to address a country’s failure to enforce its own labor and environmental laws. However, the deal was less clear on how to respond if nations weakened those laws.

The Sierra Club was among the environmental groups to oppose NAFTA more than two decades ago despite Clinton’s inclusion of the side agreement because of concerns that the environmental standards were both weak and unenforceable.

“We at the Sierra Club opposed NAFTA at the get-go, we [warned] that it would be at the expense of workers and most people of the planet, and we feel confident after 20 years that we were right,” Beachy, the Sierra Club’s senior policy advisor, said.

But Beachy said there is no reason to expect Trump, who is making good on his campaign pledge to roll back climate change and other environmental regulations, will champion strengthening NAFTA’s environmental protections.

“We are quite skeptical there. Many [in Trump’s administration] believe climate change is a hoax, many are not fans of unions or health care, so we don’t think this will result in a more climate-friendly, environment-friendly agreement,” he said.Jake Schmidt, director of the Natural Resources Defense Council’s international program, said any NAFTA re-negotiation “needs to ensure that the agreement protects the planet and the communities most affected by pollution and climate change.”

Raising Climate Change in Trade

Edward Alden, a senior fellow with the Council on Foreign Relations, said there is little debate that the side agreements were not effective in addressing environmental issues under NAFTA.

“The notion that this would be a model whereby trade agreements could be used to enforce environmental and labor standards was, by and large, a failure,” Alden told Bloomberg BNA.

Whether those side agreements will be part of any renegotiation is unknown, Alden said. “The truth is we still don’t know all that much yet, certainly not at the granular level of what will happen to these side accords,” he said, even as it appears “there will be some renegotiation, of some sort” of the NAFTA deal.

“The White House has talked about it, the new commerce secretary has talked about it as a priority, and the Mexicans and the Canadians are preparing for it and coming up with their own wish lists,” Alden said. “We are going to get a renegotiation.”

Environmental groups say any new or renegotiated trade deals should include provisions to address climate change; for example, pacts could establish a floor or base level of climate protection so that trading partners don’t engage in a “race to the bottom” of climate standards. Trade policies also should, they say, encourage clean energy and eliminate incentives for fossil fuel development.

Trump Not Backing Off Criticism

The president has done little to soften his attacks on NAFTA since the November election. In his Feb. 28 address to a join session of Congress, Trump blamed the trade deal for what has been a decades-long decline in U.S. manufacturing jobs.

“We’ve lost more than one-fourth of our manufacturing jobs since NAFTA was approved,” he said.

“For too long, we have watched our middle-class shrink as we have exported our jobs and wealth to foreign countries,” the president said.

At a March 20 campaign-style rally in Louisville, Ky., Trump said NAFTA was “the worst trade deal ever made by any country, I think, in the world.”

Several of Trump’s key picks for trade-related positions, including Commerce Secretary Wilbur Ross, have taken similarly tough stances in favor of re-negotiating NAFTA. But the day-to-day work on the negotiations has been hampered by a delay in the Senate confirmation of Lighthizer, his U.S. trade representative nominee.

Many analysts say Trump overstates the degree to which trade deals have closed U.S. factories, noting other factors including increased efficiency that also reduced demand for jobs in the sector. The output per hour for all manufacturing workers has increased by more than 2.5 times since 1987, according to the National Association of Manufacturers.

Still, the U.S. has lost, by some estimates, 5 million jobs in the manufacturing sector since NAFTA went into effect.

Dwindling Free Trade Democrats

With few exceptions, House Democrats—many of whom had to be prodded by President Clinton to support NAFTA over objections of labor unions and environmental groups—have largely turned sour on the deal.

During the campaign while Trump blamed Bill Clinton, a Democrat, for approving the North American trade deal, NAFTA as well as more recent trade measures such as the TPP, have enjoyed arguably more support from Republicans than Democrats.

Clinton did sign the NAFTA implementing law and launched negotiations toward the environmental and labor side deals, but the broad terms of the deal were negotiated by his Republican predecessor, George H. W. Bush.

More Republicans than Democrats voted for the 1993 law implementing NAFTA both in the House—where 132 Republicans voted for the measure, compared to 102 Democrats—and in the Senate, where 34 Republicans and 27 Democrats supported the measure on final passage.

Rep. Joe Crowley (D-N.Y.), who chairs the House Democratic caucus, told Bloomberg BNA his party—particularly those members in the House—have only grown more skeptical of the NAFTA deal since its passage.

Today, he said, there are two camps of House Democrats: those who voted against the deal at the time and are still in the House today, “and people like me who were not here but [say]`had I been here, I would have voted no,’” Crowley said.“That’s the vote that is now the reality in dealing with NAFTA,” Crowley said.But that doesn’t mean Democrats will back Trump in renegotiating the deal, Crowley said, partly because the party remains skeptical that the president is committed to improving labor rights or environmental protections that are core issues for Democrats.

“Look, I don’t think we’re going to get to the point where we’re actually negotiating those aspects of it,” Crowley said. “I think the president is talking purely on the business end of it and trying to strike a better deal and bargain for American businesses,” Crowley said.

“Now I’m for American businesses to do better,” the New York Democrat said. “But the issues we have concerns about are the environment, our workers’ rights, our human rights here and in countries south of the border,” Crowley said, “and I don’t think this is the president to do that.”
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