Will Trump’s NAFTA revamp reflect all that tough talk on trade deals? Not exactly

Reporting from Washington —  Far from the sweeping trade overhaul that Donald Trump promised on the campaign trail, his administration is considering a surprisingly modest revamp of the North American Free Trade Agreement, according to a draft letter provided to Congress.

The objectives outlined would bolster Trump’s emphasis on “Buy American,” including giving greater preferences for U.S. companies in government procurement.

But the draft includes none of the harsh, punitive measures or steep tariffs he once threatened against Mexico. Neither does it crack down on currency manipulation or weak labor regulations, things critics of free trade in particular have long sought.

The relatively minor changes to NAFTA would be a far cry from Trump’s campaign promise to dramatically reshape or withdraw from what he repeatedly called one of the worst deals ever negotiated by the U.S.

Ironically, the draft also incorporates many of the elements in the Trans-Pacific Partnership, the 12-nation trade deal negotiated by President Obama that Trump also trashed and formally withdrew from shortly after he took office.

John Veroneau, a trade lawyer in Washington and former deputy U.S. trade representative in the George W. Bush administration, said the draft hardly qualifies as “protectionist and the first shots of a trade war. People may take issue with different items in the letter, but there’s nothing alarmist or unconventional about it.”

If the draft is adopted, its approach toward NAFTA would mark a political victory for a pro-free-trade faction that has been rising inside the Trump administration, led by former Goldman Sachs President Gary Cohn, now Trump’s top economic advisor. He and others have been seeking to temper the more protectionist policies articulated during the campaign.

White House Press Secretary Sean Spicer downplayed the significance of the draft, saying it was “not a statement of administration policy. That is not an accurate assessment of where we are at this time.”

Spicer suggested that there would be substantial changes in the letter after Trump’s nominee for U.S. trade representative, Robert Lighthizer, is confirmed by the Senate.

Under the draft plan, the administration also left in place a dispute-settlement procedure that is standard in many free trade agreements but that free trade opponents see as promoting the relocation of investments and jobs overseas.

The draft proposal, which was sent to Senate and House oversight committees, was signed by acting U.S. trade representative Stephen Vaughn. But it likely would have gotten the nod from other key officials in the White House as well, according to trade experts with knowledge of the process.

It wasn’t clear whether Trump himself had reviewed the draft or signed off on it. Since taking office, the president has toned down some of the strident rhetoric amid the split within his administration on trade issues.

The administration must give Congress a 90-day notice before beginning negotiations on NAFTA.

The draft elicited little public comment from congressional Republicans, who have been worried that Trump’s hard-line stance on trade could prompt retaliation from other nations and hurt American farmers and other businesses.

William Reinsch, a veteran trade expert now at the Stimson Center, a Washington-based think tank, said the moderate principles in the draft may have reflected the administration’s nod to GOP leaders and traditional Republican orthodoxy in favor of trade. “They were very aware of who their customers are,” he said.

But Democrats on Capitol Hill, who are seen as crucial for Trump to press through tough changes on NAFTA and trade policy in general, were sharply critical of the draft proposal.

“It is appropriate that the Trump NAFTA renegotiation letter came out in March, because compared to his campaign rhetoric, it is ‘in like a lion and out like a lamb,’ ” said Rep. Sander Levin (D-Mich.). He said it failed to adequately address one of the biggest shortcomings in NAFTA — a lack of enforceable labor standards that have contributed to the large wage difference between the U.S. and Mexico.

“The terrible labor conditions — laws and practices — in Mexico have completely distorted the market,” Levin said.

Celeste Drake, a trade policy specialist at the AFL-CIO, said the proposal contained a few potentially positive points, but she described them as vague. And she noted that “too much of it reads as if it is pulled straight from the [Trans-Pacific Partnership] marketing materials, including a corporate grab bag of tools that could be used to drive standards down to the lowest common denominator.”

The eight-page draft letter includes a number of negotiating objectives that were pursued by the Obama administration in completing the Trans-Pacific Partnership, including sections covering digital trade, intellectual property enforcement, state-owned enterprises and labor and environmental obligations. Obama had sold the Pacific Rim agreement, which was years in the making, as a way for the U.S. to assert its influence in Asia and set the standards of trade and investment amid a rising China.

The Trump administration’s draft proposal said it would seek to tighten rules to curb the percentage of parts and components from non-NAFTA countries that are used for manufacturing in North America and can qualify for tariff-free treatment. But the draft did not specify how it would do so, and many experts and businesses worry that such restrictions would disrupt supply chains and ultimately lead to higher prices for manufacturers and consumers.

Another change sought by the administration is to expand the U.S. government’s ability to apply tariffs on goods from Mexico and Canada when there is a flood of imports that causes serious injury to a domestic industry.

Such so-called safeguard remedies already exist for global imports, but NAFTA has provided special protections for Canada and Mexico.

“I think this is going to generate some strong reactions,” said Dean Pinkert, a trade lawyer who had served for 10 years as a member of the International Trade Commission, which investigates such safeguard cases.

The draft said the U.S. also wants to “level the playing field on tax treatment,” a reference to certain taxes in Mexico that the Trump administration views as discriminating against American-made products.

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