[CTC] NAFTA ministers aim for agreement in principle by May 4; USTR prepares congressional strategy

Sat Apr 21 12:20:42 PDT 2018

INSIDE US TRADE
NAFTA ministers aim for agreement in principle by May 4; USTR prepares congressional strategy

April 20, 2018 
Negotiators from the three NAFTA countries will be working continuously through May 4, when the countries aim to announce an agreement in principle, and U.S. Trade Representative Robert Lighthizer and his team are starting to game out strategies for how to maneuver the new deal through the current U.S. Congress, sources briefed on the plans said.

The White House and USTR have ramped up their engagement with Capitol Hill ahead of what many expect will be an attempt to ram the new agreement through Congress by either initiating a withdrawal from the existing deal; relying on a majority of Republican support despite advancing proposals GOP members publicly opposed; or potentially bypassing Congress altogether.

While circumventing Congress is a strategy that is seen as less likely to be employed or succeed, congressional aides say they expected lawmakers -- especially Republicans -- to cave in a gun-to-the-head scenario if they had to choose between Lighthizer’s new NAFTA or no NAFTA at all.

Sources briefed on the status of the talks said USTR officials were hopeful the remaining roadblocks could be resolved in the next two weeks -- and that they expected Canada and Mexico to respond with flexibility to the willingness to compromise that USTR has shown in the auto talks <https://insidetrade.com/node/162648> since an initial proposal was tabled last October.

One area where Lighthizer has not shown much flexibility is investor protections. He told reporters in October that he believed investor-state dispute settlement was akin to the U.S. government buying companies political risk insurance and incentivizing outsourcing, and that he opposed that mechanism because it was not market-based.

Republican lawmakers, most notably the chairmen of the committees of jurisdiction, warned the USTR that his insistence on hampering ISDS could jeopardize congressional passage of the agreement.

During a hearing before the House Ways & Means Committee last month, Lighthizer got into a heated back-and-forth <https://insidetrade.com/node/162374> with chairman Kevin Brady (R-TX), who once again warned Lighthizer that ISDS was part of the negotiating objectives laid out in the Trade Promotion Authority law and for that reason must be part of the renegotiated agreement. Lighthizer made clear he was unmoved by Brady’s criticism.

“The strongest argument in favor of ISDS, Mr. Chairman, is that you’re in favor of it,” Lighthizer told Brady. “That’s the strongest argument in my opinion."

“Some would disagree with that, Mr. Ambassador,” Brady replied, adding a clear warning: “Your client is Congress.”

Sources briefed on private conversations between Lighthizer and key lawmakers, including House Speaker Paul Ryan (R-WI), said the USTR has heard similar arguments from other members -- and has been equally dismissive. The conversation between Lighthizer and Ryan was described as “heated” and, according to people with direct knowledge of the exchange, Ryan at one point challenged Lighthizer by asking several times: “Bob, how many [free trade agreements] have you passed?”

Neither Ryan’s office nor USTR responded to requests for comment.

Several congressional aides, private-sector sources and former trade officials said Lighthizer’s performance during the House hearing, as well as his testimony at a Senate Finance Committee hearing the next day, was poor, and suggested he could have lost some votes because of what they perceived as an arrogant tone and posture toward key lawmakers’ views.

“I’ve never seen a USTR so dismissive of Congress’ role in this area,” a former trade official said of Lighthizer’s testimony.

Sources said the White House legislative affairs team recently began working on its whip operation for the new agreement -- a month before the talks are set to wrap up. A private-sector source with experience in maneuvering trade bills through Congress said it was “such amateur hour that they are just now thinking about that.”

A congressional aide said that while Lighthizer and his team were “laser-focused” on how to move the new deal through Congress this year, the strategy was still lacking details.

President Trump is widely expected to submit a notice of withdrawal along with an implementing bill for the new deal or shortly before NAFTA 2.0 is submitted to Congress to pressure lawmakers to pass it. That strategy would force both sides of the aisle to weigh the prospect of losing two major export markets against voting for a new deal they do not favor.

“If you think a new NAFTA is better than no NAFTA you don’t think about a whip operation until the end,” the congressional source said. “It’s all about the dynamic. The threat of withdrawal hovers over everything.”

Another private-sector source said the thinking in the White House and at USTR from the beginning was that the administration would deal with ratification “once we have an agreement.”

Last September, Lighthizer told reporters that congressional approval was “of course” the “fundamental question” <https://insidetrade.com/node/160154> but said he would not concern himself with it until he reached a deal that the other countries agreed to -- and that President Trump backed.

“First I want to get it through Canada and Mexico, and then I have to get it through the White House, and then I have to get it through Congress. So I guess I’m going to do it in that order, right?” he said on the sidelines of the second NAFTA round.

In a closed-door meeting a month later, he told lawmakers on the Ways & Means Committee that he would not abandon his controversial proposals even if the GOP majority was not in favor of them, stressing that he had an “audience of one” <https://insidetrade.com/node/160596> -- the president. Lighthizer also said he envisioned a “new paradigm” in which his NAFTA agreement won support from a majority of lawmakers, including many Democrats.

Republican and Democratic congressional aides believe Lighthizer is confident he will win an overwhelming majority of Republican support because most GOP members would not vote against an agreement the president backed or vote down a trade deal that on balance would be good for their constituents, especially when compared with the alternative of no NAFTA.

The “landscape” for a vote “looks good” but only if autos and ISDS can be resolved favorably, a GOP aide said. “Everything else is smaller potatoes compared to those two,” the aide continued.

A Democratic aide countered that Republican members “would scream about ISDS at a mock markup” but were unlikely to make their vote contingent on that outcome.

“They will all line up, hold their noses and vote for it,” a private-sector source said.

Congressional aides told Inside U.S. Trade Lighthizer was relying on labor groups to deliver Democratic support for the new agreement, eying the backing of the United Steelworkers -- which has members in both the U.S. and Canada -- and potentially the United Automobile Workers to shepherd the deal through Congress.

A former trade official said he was “not sure that this administration has prepared for a trade vote.”

“I don’t think there’s a formula to get the right votes together,” the former official said. “That’s why there’s all this talk about getting it through otherwise."

Some fear USTR is considering ways to get a new agreement implemented without bringing it back to Congress for a vote. There is disagreement among lawyers about whether the executive branch has the authority to make certain alterations to the agreement that would not require changes in U.S. law without having lawmakers approve them.

“It wouldn’t surprise me if they’re going through some kind of thought process on that,” one aide said. “If [Lighthizer] is thinking about a way to strike a deal where key elements that are popular are included, they can do that right away,” the aide continued, saying rules of origin were arguably the biggest focus for Lighthizer.

“Republicans let them off the hook on KORUS,” the aide said, referring to the U.S.-Korea Free Trade Agreement that the Trump administration has worked to amend without congressional approval.

“Maybe they’ll use the precedent there,” the aide said.

Congressional staff members said it was not clear that Lighthizer and his team were actually considering such a strategy but one said it could explain why there was a significant lack of consultation with the key committees on trade. Congressional aides also quietly warned that anything that does not involve Capitol Hill would be unpalatable and would backfire on the administration.

“Congress has been very clear that any changes to NAFTA -- that they want to be part of that,” a former trade official said. “Initially USTR was following TPA requirements until it got to a point where it got too difficult and time-consuming.”

The former trade official said it seemed like Lighthizer in his approach to NAFTA and Congress -- and whether or to what extent to involve lawmakers -- was trying to “have it both ways.”

Lighthizer and his counterparts face pressure on multiple fronts to wrap up the talks -- most notably the TPA time lines and the Mexican elections this summer.

Temporary exemptions for Canada and Mexico from Trump’s global steel and aluminum tariffs, which are set to expire on May 1, are also looming over the negotiations, though one source briefed on the status of the talks said there was “no evidence” USTR was linking NAFTA to the tariffs.

Sources say it was likely the Trump administration would extend the exemptions for Canada and Mexico until a deal is finalized. Many expect the tariff exemptions to be a tradeoff for concessions the other countries make on auto rules of origin, with Lighthizer demanding that a certain amount of steel and aluminum be sourced from North America.

Ministerial meetings between Lighthizer and his Canadian and Mexican counterparts were held Thursday and will continue Friday. Ministers are prepared to meet on Saturday as well, if necessary, sources said, before Canadian Foreign Affairs Minister Chrystia Freeland and Mexican Economy Secretary Ildefonso Guajardo have to leave town for commitments in Canada and Europe on Sunday.

Guajardo last week said the teams were aiming for an agreement in principle by the first week of May <https://insidetrade.com/node/162617> but downplayed expectations for this week, saying on Monday that he did not expect a major announcement <https://insidetrade.com/node/162710> to come out of the trilateral meeting on Friday.

USTR is aiming for an agreement in principle by May 4 and hopes to have the text finalized one month later, during the first week of June, sources briefed on the plan said.

Mexican private-sector sources told Inside U.S. Trade they had been summoned to Washington for meetings beginning April 23 and set to last until May 4 because USTR wants to wrap up the agreement early enough to ensure it can meet all Trade Promotion Authority requirements in time to put the deal to a vote in December, during a lame-duck session.

On Thursday, Guajardo said 70 to 80 percent of the modernized deal <https://www.vanguardia.com.mx/articulo/redactado-entre-70-y-80-del-tlcan-20-ildefonso-guajardo> had been “drafted” but that the “most complex issues are still pending.” He suggested the ministers could announce the closing of four additional chapters on Friday, which would mean 10 out of approximately 30 chapters would be finished.

The automotive content rules are among the most complex outstanding issues -- as are government procurement, labor and intellectual property. Another key issue that has gained attention in recent days is agriculture, particularly dairy -- with many lawmakers urging Lighthizer <https://insidetrade.com/node/162707> not to trade away U.S. interests in dairy for other priorities in the talks.

According to people briefed on a private conversation between House Speaker Ryan and President Trump, Ryan demanded that a new NAFTA agreement should not be closed without expanding dairy market access and addressing Canada’s so-called class 7 pricing scheme, which critics say favors Canadian products by restricting access for U.S. exports.

Agriculture Secretary Sonny Perdue told a Senate panel last week that Lighthizer “has some larger issues <https://insidetrade.com/node/162643>” in the talks with Canada and Mexico and called upon lawmakers to “help in impressing upon the ambassador how important it is to make sure the dairy situation in regard to Canada is also resolved.”

A private-sector source briefed on the dairy talks said it was not clear that USTR even knew what it was asking of Canada or had settled on a potential landing zone.

“I’m not as optimistic as I want to be,” Perdue added. -- Jenny Leonard (jleonard at iwpnews.com <mailto:jleonard at iwpnews.com>)

INSIDE US TRADE
Guajardo: 'There was a lot of progress made today'

April 20, 2018 
The U.S., Canada and Mexico made “a lot of progress” in NAFTA talks on Friday, according to Mexican Economy Minister Ildefonso Guajardo.

The ministerial-level discussions will continue next week as the three countries intensify talks. U.S. Trade Representative Robert Lighthizer wants a deal in principle announced by May 4, with legal work on the text wrapped up by early June.

Reuters reports <https://www.reuters.com/article/trade-nafta/update-1-canada-mexico-laud-nafta-progress-ministers-to-reconvene-tuesday-idUSL1N1RX1HO> that Canadian Foreign Minister Chrystia Freeland said on Friday that the parties were “certainly in a more intense period of the negotiations and we are making good progress,” while Guajardo said “There was a lot of progress made today.

Freeland also commented on the biggest sticking point in the talks to date, auto rules of origin.

“We continue to work very hard on rules of origin, really the heart of this agreement,” Freeland said, according to Reuters.

As Inside U.S. Trade reported <https://insidetrade.com/node/162786> earlier today:

Negotiators from the three NAFTA countries will be working continuously through May 4, when the countries aim to announce an agreement in principle, and U.S. Trade Representative Robert Lighthizer and his team are starting to game out strategies for how to maneuver the new deal through the current U.S. Congress, sources briefed on the plans said.

The White House and USTR have ramped up their engagement with Capitol Hill ahead of what many expect will be an attempt to ram the new agreement through Congress by either initiating a withdrawal from the existing deal; relying on a majority of Republican support despite advancing proposals GOP members publicly opposed; or potentially bypassing Congress altogether.

While circumventing Congress is a strategy that is seen as less likely to be employed or succeed, congressional aides say they expected lawmakers -- especially Republicans -- to cave in a gun-to-the-head scenario if they had to choose between Lighthizer’s new NAFTA or no NAFTA at all.

Sources briefed on the status of the talks said USTR officials were hopeful the remaining roadblocks could be resolved in the next two weeks -- and that they expected Canada and Mexico to respond with flexibility to the willingness to compromise that USTR has shown in the auto talks since an initial proposal was tabled last October.

Arthur Stamoulis
Citizens Trade Campaign
(202) 494-8826

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