[CTC] IUST Sources: Lighthizer pushed NAFTA counterparts for agreement in principle

Mon Mar 26 06:39:07 PDT 2018

One former trade official called the NAFTA talks the “craziest negotiation I’ve ever seen.”

Emphasis added
Sources: Lighthizer pushed NAFTA counterparts for agreement in principle by March 31
March 26, 2018

U.S. Trade Representative Robert Lighthizer has told Canada and Mexico’s NAFTA leads in private meetings that he wants to announce an agreement in principle by March 31 and that a legal scrub should be completed by May 1 -- the day the countries’ temporary exclusions for steel and aluminum tariffs expire, sources tell Inside U.S. Trade.

While Canada’s team was enthusiastic about getting talks wrapped up quickly and all three countries recognized the need to work toward a conclusion as fast as possible, Mexican Economy Secretary Ildefonso Guajardo rejected the March 31 timeline and the pressure Lighthizer tried to exert, those sources said.

The political leads agreed to announce the conclusion of seven additional chapters before April 8, the date they are tentatively scheduled to start the next round of talks in the Washington, DC area. Those chapters will deal with what sources described as “the modernization part” of the negotiations.

Lighthizer has also expressed opposition to holding an official eighth round of talks. Instead he has expressed a preference to handle outstanding issues through frequent meetings with his counterparts and have chapter leads continue intersessional negotiations, sources briefed on the conversations said. The next round is slated to take place the second week of April but none of the governments have confirmed that and logistical details have not been shared with key stakeholders or congressional staff.

USTR did not respond to a request for comment.

Setting May 1 as the date for a final, legally scrubbed agreement made sense as a pressure tactic for Lighthizer, sources said, and pointed to President Trump’s backing of that timeline and Trump’s outspoken willingness to hit the U.S. neighbors with a 25 percent tariff on steel and 10 percent on aluminum.

The president late last week set May 1<https://insidetrade.com/node/162436> as the date on which the tariffs go into effect for countries that have initially been granted an exemption, should his administration and those countries not arrive at a “satisfactory” alternative solution to tariffs by then. Canada and Mexico are among those countries.

If you extend [the deadline] once then the threat is no longer real,” one source said of the May 1 timeline to finish the NAFTA talks to avoid the tariffs. Congressional trade leaders have voiced strong opposition to imposing tariffs on U.S. allies, and Mexico and Canada have repeatedly emphasized the NAFTA talks run on a separate track from the tariff discussions. Still, the president and his Cabinet continue to link the two issues.

Commerce Secretary Wilbur Ross last week told the House Appropriations Committee that excluding Canada and Mexico was a “good faith” gesture and an indication that Trump sees a good chance for a deal.

One former trade official called the NAFTA talks the “craziest negotiation I’ve ever seen.”

But a source close to the negotiations said the Trump administration was right to use the steel and aluminum tariffs to put pressure on its NAFTA partners.

By revealing bold Sino-American intentions at the same time as they roll out their harsh steel and aluminum regime, USTR's play to co-opt and corral their NAFTA partners into a quick deal might turn out to be strategic genius,” the source told Inside U.S. Trade.

“Canada and Mexico know they would be well advised to bet on the market they depend on before that player blows up the current global trading balance. Trump just showed them he isn't bluffing and hasn't heeded their failed attempts to suggest they have other options,” the source continued. “They are now more beholden to the U.S. than yesterday. And you know what? You can't change geography.”

In recent weeks, sources close to the talks have sounded increasingly optimistic that an agreement in principle could be announced by mid-April and the new deal be concluded by May, not only because Mexico’s political calendar forces the country to be done with this process by April 30, one source said.

That optimism, sources said, stems in part from the fact that USTR has backed off some of its most controversial proposals and has shown flexibility in other areas.

Among those are the automotive rules of origin, where Lighthizer told his counterparts last week that he could consider abandoning his demand for 50 percent U.S. content if the regional content would end up at or close to 85 percent and if steel and aluminum would be added to the tracing list. Lighthizer also demanded wages be counted toward the content of a NAFTA-originating car, which he sees as a way to further incentivize the use of American parts.

These sources said Lighthizer is standing his ground on an opt-in mechanism for investor-state dispute settlement – a proposal that congressional Republicans have warned could jeopardize the passage<https://insidetrade.com/node/162268> of a new NAFTA – as well as government procurement, where he is seeking to cap market access for Canada and Mexico at the combined value of their procurements markets on a dollar-for-dollar basis.

Mexico and Canada at the last round of talks began bilateral negotiations on government procurement<https://insidetrade.com/node/162147> after U.S. negotiators had gotten no political direction to move away from their initial offer. The U.S. stance is seen as less of an issue for Mexico than it is for Canada but sources expected the Canadian team to go along with it in an attempt to “save” other priority areas, such as Chapter 19 dispute settlement and supply management for dairy.

Some sources have described Mexico as “caving” to several U.S. demands, including government procurement and ISDS, as a response to USTR backing off its proposals on state-to-state dispute settlement and seasonal produce.

The sticking point in the outstanding discussions is labor – a top priority issue for congressional Democrats who told Lighthizer that an insufficient outcome in that area would prompt them to reject<https://insidetrade.com/node/161771> the final deal, and an area where Mexican officials have repeatedly argued trade agreement negotiations were not the right tool to seek increased wages.

One source attributed Mexico’s willingness to “cave” to what he called “the Trump strategy.”

“Trump has scared them all. They are now saying ‘Hey, we better take this deal, it’s not unworkable.’”

The Mexican business community, on the other hand, is fighting behind the scenes against a quick conclusion and the take-it-or-leave-it-approach that USTR is presenting to its government, sources say. Mexican stakeholders have reached out to U.S. sources, asking for help in prompting congressional trade leaders to slow down the negotiations.

Lighthizer, in private meetings with his counterparts, made the case for getting this done as quickly as possible by stressing that he wanted the deal to be voted on by this Congress. During a hearing before the Ways & Means Committee last week, he said the three countries “have made a great deal of progress – but we still have a ways to go.”

“I have urged our trading partners to recognize that time is short if we are to complete a deal in time for consideration by this Congress,” Lighthizer told the panel.

Ways & Means Committee Chairman Kevin Brady (R-TX) said afterward that the NAFTA negotiators are “moving to that end period” where the “tough issues get dealt with.”

And so it certainly sounds to me like he's looking over the next month or so to conclude these in principle, if I heard him right,” Brady said.

One source said the USTR also floated the expiration of Trade Promotion Authority as an argument to wrap up talks by March 31. The president last week requested a three-year extension of TPA<https://insidetrade.com/node/162363> ,which is expected to be granted and would only fail if the key congressional trade committees allowed for a resolution of disapproval to make it to either floor for a majority vote.

While many agree that the TPA extension is unlikely to be an issue for the administration, observers still question whether a final deal -- as envisioned by Lighthizer -- would make it through the U.S. Congress.

It still seems to me there are some real issues here, including ISDS and sunset -- issues on our side, with what is acceptable to Congress,” one former trade official said.

In a heated exchange between Lighthizer and Brady during last week’s hearing, Brady forcefully shot down the USTR’s arguments against ISDS. He reiterated his own arguments that “there is no threat to sovereignty” and told Lighthizer: “Your client is Congress<https://insidetrade.com/node/162374>.”

Brady and other supporters of ISDS have made clear that a deal could only pass muster under TPA objectives if it included investor protections, but neither the NAFTA countries nor congressional Republicans are expected to fight Lighthizer’s approach or reject an agreement should it contain his opt-in version of ISDS.

“The reality is we’re going to get a deal done by the spring and this NAFTA deal will not be good for business,” one trade lawyer said. “I don’t know if he can get it through Congress.”

Some sources also worry that President Trump – as a symbolic gesture – will sign a NAFTA withdrawal notice the same day the countries agree on a new deal, saying that he still is convinced that withdrawal is needed to get a better agreement.

Lighthizer confirmed at a Senate Finance Committee hearing last week that withdrawal is not off the table, when asked to respond with yes” or “no” to a question by Sen. Chuck Grassley (R-IA).

“Can I tell my constituents we’re past the point of worrying about a withdrawal from NAFTA?” Grassley asked. “No,” Lighthizer said in response. – Jenny Leonard (jleonard at iwpnews.com<mailto:jleonard at iwpnews.com>)

Michael F. Dolan, J.D.
Legislative Representative
International Brotherhood of Teamsters
Desk  202.624.6891
Fax    202.624.8973
Cell    202.437.2254

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