Foreign Affairs Minister Chrystia Freeland talks to the media after day one of the NAFTA talks in Washington, D.C., Wednesday, Aug.16, 2017. THE CANADIAN PRESS/Alex Panetta

NAFTA, Round 1: U.S. opens talks by insisting on major changes to pact

WASHINGTON — The United States opened the first round of negotiations for a new North American Free Trade Agreement on Wednesday with a muscular message that it will push for major changes, not just mere tweaks to the quarter-century-old agreement.

The early rhetorical stomping from the economic giant in the middle of North America was at odds with the message of amity and mutual benefit emanating from the continent’s northern and southern amigos.

The style was more rough-and-tumble than the substance. The U.S. listed a few demands and they were expected: changes in the auto sector that mean more production in North America, including the U.S. changes to the dispute-resolution system and a general rebalancing of trade relationships.

American trade czar Robert Lighthizer called it a momentous occasion. He credited his boss for it. And he castigated the existing NAFTA as a failed agreement for many Americans, in those communities that have lost jobs and industries.

“This is a historic day for the United States,” Lighthizer said. “American politicians have been promising to renegotiate NAFTA for years. But today President Trump is going to fulfil those promises.”

Lighthizer said he completely shares Donald Trump’s views on trade. And that view, he said, is that the U.S. wants substantial changes to NAFTA. He appeared to walk back Trump’s quote a few months ago that suggested he only wanted some minor tweaking with Canada.

“I want to be clear: He is not interested in a mere tweaking of a few provisions and a couple of updated chapters,” Lighthizer said.

“We feel that NAFTA has fundamentally failed many, many Americans and needs major improvement.”

He said these changes must include:

— On auto parts, new rules for imports, so cars include “higher” North American continent, and “substantial” U.S. content under a revised tariff-free threshold. It’s still unclear what percentages the U.S. will seek and whether it will insist on an American-made percentage. Canadian and Mexican ministers quickly said they would oppose such an American carve-out.

— A new dispute-settlement mechanism that respects national sovereignty and democratic processes. That question has been a historic irritant with Canada. It was the final issue resolved on the final night of negotiations in the 1987 agreement. At issue is whether international panels should have power to settle cross-border disputes between companies.

Canada doesn’t want American courts deciding irritants like softwood lumber.

Reacting to Lighthizer’s statement, Peter Clark — a Canadian trade expert who has sat on the dispute panels — said there’s probably room for compromise, like allowing extraordinary appeals to domestic courts: “Is there some middle ground? Can we set up a panel of retired Canada and U.S. judges, for instance?”

Another trade observer admitted being surprised by the tone.

“It’s an aggressive posture,” said Dan Ujczo, a Canada-U.S. attorney with Dickinson Wright. “It’s somewhat unorthodox to come out with that level of negative comments about the existing agreement and to lead with our most difficult issues first.

“Most observers thought this would be an opening session of planning discussions over coffees and cocktails. But it’s clear the need for speed is taking over.”

He urged people not to read too much into the posture.

It merely indicates that the U.S. is in a hurry to get an agreement before Mexico’s election next year, and is moving faster than normal to get to the toughest issues, Ujczo said. Trade veterans say the pace of the talks is unprecedented — with the desire to revamp NAFTA over the course of several months.

Many Americans resent the current NAFTA, Lighthizer said.

It’s true the agreement has benefited sectors like farming, Lighthizer said: “But for countless Americans, this agreement has failed…. We cannot ignore the huge trade deficits the lost manufacturing jobs the businesses that have closed or moved.”

Some 700,000 lost U.S. jobs are linked to NAFTA, he said.

Day 1 even featured an academic point-counterpoint over the subject of trade deficits.

Canada, Mexico and most mainstream economists believe judging a trade relationship on the basis of whether you buy or sell more to a specific partner is wrong-headed. But it’s a fixation of the Trump administration, which has made it a priority to narrow the import-export gap.

Canada’s Foreign Affairs Minister Chrystia Freeland challenged the economic rationale behind that. In any case, she noted, it’s irrelevant with respect to Canada — because Canada bought $8.1 billion more than it sold to the U.S. last year.

Lighthizer countered that later. He pointed out that over the long term Canada has run a surplus with the U.S. He avoided mentioning the reason: oil prices. Historically, when they are high, Canada runs a trade surplus when they drop, it’s a deficit.

But the general tone from the non-U.S. participants was markedly warmer.

Freeland opened her remarks by holding up a picture of U.S. and Mexican firefighters helping to douse forest fire flames in British Columbia: “Over the course of these negotiations,” she said, “I will be keeping these images, and the spirit that they represent, front of mind.”

Mexico’s lead minister, Ildefonso Guajardo, agreed that the talks should seek a “win-win-win” for all three countries — a notion recently endorsed by U.S. Vice-President Mike Pence.

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