Clouds Emerge Ahead of Trade-Bloc Party

Posted by on Feb 20, 2014 in Uncategorized | No Comments

Mexican Leader, in Interview, Suggests Wider Nafta Role as Pact Turns 20 Years Old, but Some U.S. Politicians Remain Wary

The Wall Street Journal; Feb. 19, 2014

By David Luhnow, William Mauldin and Paul Vieira


MEXICO CITY—Mexico and Canada are set to push for expanded trade within North America and a bigger global role for their continental trading bloc, even as some U.S. politicians show deep ambivalence over foreign engagements.

“The most important thing is to strengthen this project—that at least my government is very dedicated to—of making North America a great center of competitiveness,” Mexican President Enrique Peña Nieto, said in an interview late Monday. “And that this concept be fully shared by the three governments.”

The three countries’ leaders of will meet here Wednesday to celebrate 20 years of the North American Free Trade Agreement, but trade experts say the U.S. political appetite for more free-trade deals has waned, casting a shadow over efforts to expand the pact and deepen trade ties between North America and Pacific Rim countries.

The one-day meeting among Mr. Peña Nieto, Barack Obama and Canadian Prime Minister Stephen Harper —an annual event often dubbed the “Three Amigos Summit”—will explore ways to update Nafta and advance a wider agreement, the Trans-Pacific Partnership being negotiated with Pacific rim nations like Japan, Australia, Singapore, Chile, Peru, Vietnam and Malaysia.

Messrs. Peña Nieto and Harper pledged at a bilateral meeting on Tuesday to move ahead on stronger diplomatic and commercial relations, although the thorny issue of visa restrictions on Mexicans visiting Canada remained unresolved.

The Obama administration is seeking the full support of its closest trading partners to increase leverage with Japan and other countries where major disagreements are unresolved, said former officials.

Mr. Harper is also expected to press Mr. Obama on the proposed Keystone XL pipeline. The project, which would boost crude-oil exports from landlocked Alberta, has faced extensive delays in part because of worries over the project’s environmental impact.

Mr. Obama travels to Mexico amid lingering uncertainty over the weak U.S. economic recovery. The White House says increased trade—especially exports—brings high-paying jobs and economic growth without tax increases.

Critics of the pact, including many Democrats in Congress, point to the swelling U.S. trade deficit with Mexico and Canada.

U.S. government data suggest the U.S. economy has lost around 845,000 jobs because of increased imports from Canada and Mexico and the relocation of factories over the border in the past two decades, according to an analysis by Public Citizen, a government-watchdog group. Other trade experts dispute that data.

“This is a political problem, not an economic problem,” said Carla Hills, the former U.S. Trade Representative. “All evidence points to more jobs and innovation with free trade.”

Labor and environmental groups have been the loudest critics of the proposed Pacific pact, recently drumming up grass-roots opposition to the trade talks via social media and public demonstrations. But support for trade has also grown more tepid among Republicans, especially among the newer tea-party contingent that has populated the House and Senate since 2010.

One challenge for the leaders is that while North Americans have grown accustomed to close economic ties with their immediate neighbors, some are wary of economic integration across the ocean. According to an October study from American University, U.S. citizens say they would rather build on the existing North American trade ties than boost ties with Europe, China or India.

Three-way trade among the U.S., Canada and Mexico has grown to more than $1 trillion a year from some $290 billion in 1993, government data show. But supporters say now is the time to create deals to boost North American trade with the rest of the world, and use the region as an export platform to narrow the U.S. trade deficit.

“How does the U.S. compete against Asia? It has to be through Nafta,” said Luis de la Calle, a former Mexican trade negotiator on the deal. “A car made in Michigan is highly unlikely to be competitive in China. But a car made in Mexico by a U.S. company can be sold in China,” he said.

Mexico’s opening of its oil and gas market to private companies is aimed at lowering energy prices to help industry in Mexico become more competitive, Mr. Peña Nieto said. “We shouldn’t go it alone in trade. I believe that our geographical proximity can lead us to work together for competitiveness.”

If the U.S. strikes a trade deal with Europe, then all three Nafta countries will have separate European deals, said Jaime Serra Puche, Mexico’s former commerce minister in charge of Nafta negotiations. “We need more efficiency, to act as one region,” he said.

Consider Palliser Furniture, a privately held furniture maker in Winnipeg, Manitoba, that employs 1,100 people in Mexico. Palliser’s chief executive, Art DeFehr, said that in the 1990s the company had a choice between investing in China or Mexico. His firm chose Mexico because of reasons that included his family’s experience escaping Soviet-era communism.

Now, Mr. DeFehr says Palliser is positioned as one of the largest producers of custom-made leather furniture in North America, partly because of his Mexican investment. Meanwhile, his rivals who chose China have focused on higher-volume, lower-price furniture items.

“The cutting and sewing in Mexico has allowed me to arbitrage the Mexican labor to make sure Canadian operations still survive,” he said. “Mexico has helped me to keep Canada competitive. Without Mexico, I would have been left with a very small company in Canada.”

The Obama administration has asked Congress for “fast track” authority, which allows officials to forge trade agreements overseas that lawmakers must pass or deny with no amendments. But the bill generated an outcry as the top Democrats expressed public opposition.

“We are not going to just put an imprimatur on an agreement in which we have had no say,” Rep. Rosa De Lauro (D., Conn.) said last week at the unveiling of a report that showed Nafta’s negative impact in Mexico.

Vice President Joe Biden on Friday acknowledged congressional Democrats’ opposition to the Obama administration’s trade agenda, but he defended a proposed Pacific pact as an important counterweight to China.

Trade proponents say fast track will be difficult to pass before the November congressional elections, and Congress will have a hard time passing the TPP without fast track.

The U.S. negotiating partners are starting to voice public concerns about the lack of congressional support for the administration’s trade policy. The European Union’s top trade official, Karel De Gucht, told reporters in Washington on Tuesday that the trans-Atlantic trade pact would be nearly impossible to finish without fast track.

Analysts say Mr. Obama hasn’t pushed aggressively enough to convince skeptics in Congress.

“He’s great at speeches, but not very good at retail politics” with individual legislators, said Gary Hufbauer, senior trade expert at the Petersen Institute for International Economics in Washington. “Nafta created a lot of antagonism in the U.S., and the trade deal is used as a metaphor to oppose trade agreements of all kinds. The view that the TPP is Nafta on steroids is used as a negative phrase.”

“Trade has never been an easy sell,” said Ms. Hills. “What it takes is leadership.”