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Chances for a revamped NAFTA pact by this year are slipping away

Chances for a revamped NAFTA pact by this year are slipping away
A worker processes hides in a leather tannery in Guanajuato, Mexico. Surging demand for auto upholstery has revived the region's leather industry. (Yesica Prado / For The Times)

Despite a flurry of negotiations in recent weeks, hopes are fading fast that a revamped North American Free Trade Agreement will be completed and approved by lawmakers this year.

House Speaker Paul D. Ryan said Thursday that there are only a couple of weeks left to reach a deal in time to meet various trade-legislation requirements to get a new NAFTA pact to Congress for a vote by the end of 2018.

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Ryan backpedaled from his previous declaration that the deadline was May 17, which congressional Democrats criticized as an arbitrary and misleading date designed to forestall an emerging deal that he and some other Republicans don't like.

But whether a real deadline is two weeks away or a month from now, as some analysts maintain, most agree that significant gaps remain among the three NAFTA countries on key issues. Although talks are continuing, top trade ministers from Canada and Mexico left town last week. And with momentum slipping, negotiations to revise the 24-year-old trade pact look more and more likely to be pushed into next year.

If that happens, it will prolong the uncertainty that has hung over businesses and hampered some investments. And it could prove politically costly for President Trump in an election year.

Overhauling NAFTA has been at the top of the president's economic agenda, and he is said to have sought a prompt conclusion so that he could brandish it as a victory before the midterm election. During the 2016 campaign and as president, Trump repeatedly denounced NAFTA as a "disaster" and blamed it for America's big trade deficit with Mexico and destruction of domestic manufacturing and jobs.

Now analysts say it appears the best that Trump can hope for this year is a so-called skinny NAFTA fix, in which Canada and Mexico agree to strengthen auto rules aimed at bolstering U.S. production. That has been a dominant issue and one that the parties have already spent much of their time negotiating.

"The only way I can see a finality to this process in 2018 is a skinny NAFTA. It's that or nothing," said Daniel Ujczo, an international trade lawyer who specializes in Canada-U.S. affairs at the law firm Dickinson Wright and has been closely monitoring the talks.

A revision of auto rules that includes raising regional content requirements and incorporating certain wage standards would be meaningful, and it will almost certainly be held up as a big win for the Trump administration. Still, Ujczo and other experts doubt that it would be enough to convince Trump's base of supporters and others backing sweeping changes in NAFTA that the president had made good on his promise to radically transform the agreement.

Among the administration's publicly stated objectives for a NAFTA redo are making substantial changes on government procurement and investor-dispute settlement, opening up Canada's dairy market, and inserting a new provision that would allow NAFTA to automatically expire after a few years. It's not clear that any of these issues have been resolved.

Analysts say the timing of the midterms in the U.S. and presidential elections in Mexico set for July have given both American and Mexican negotiators a sense of urgency to forge a deal, but some said Canadian officials have been more hesitant, apparently betting that a delay into next year may offer a better chance of maintaining the current NAFTA.

"Canada seems bizarrely confident that by not agreeing to changes they can indefinitely have the status quo," said Lori Wallach, director of Public Citizen's Global Trade Watch.

Besides rewriting NAFTA, the Trump administration is in the thick of a high-stakes trade battle with China, and those prospects are unclear as the president has gone back and forth on how hard he will press for real reform amid increasing pressure from farmers and other constituents facing pain from trade friction with China.

Trump this week took considerable heat for his tweet Sunday when he indicated he would help the Chinese telecom-equipment maker ZTE avert job losses in China, even though his own administration recently penalized ZTE for violating American laws and posing a security risk to the U.S.

A high-level delegation from Beijing is in Washington for meetings Thursday and Friday in an effort to head off a potentially costly trade war. Chinese officials were expected to offer a package that includes a promise to buy more U.S. goods to address Trump's perennial complaints about China's massive trade surplus with the U.S. The Trump administration has threatened to impose billions of dollars in tariffs on Chinese goods, and Treasury officials are set to propose new investment restrictions on China by Monday in response to Beijing's mercantilist industrial policies.

On Thursday, Trump slammed China on trade, saying the U.S. has been "ripped off" by the Asian nation. At the same time, the president suggested that he would help ZTE as a favor to Chinese President Xi Jinping and because "the firm buys a lot of components from U.S." suppliers. Trump was scheduled to meet with the Chinese delegation's leader, Liu He, on Thursday afternoon, possibly signaling that the talks were progressing.

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White House Press Secretary Sarah Huckabee Sanders on Thursday refused to discuss trade.

Talk of a skinny NAFTA that could be in the works has angered some congressional Democrats, who, if that comes to pass, will almost certainly attack Trump for being soft on trade, just as some did after the president's tweet defending ZTE. "U.S. negotiators need to stay at the table," said Rep. Rosa DeLauro (D-Conn.), a liberal lawmaker who is pressing for dramatic improvements in NAFTA, particularly on labor.

At the same time, Trump's push to remake NAFTA has turned off free-trade conservatives who represent Republican orthodoxy and the elites of his party.

"Trump and his economic nationalists are walking a fine line," said Patrick Egan, an associate professor of politics and public policy at New York University, adding that the president can't count on scoring points with more rhetoric and bravado by standing up to other countries. "He's kind of reached a ceiling on the political upside," Egan said.

Trump's chief trade negotiator, Robert Lighthizer, had hoped to strike an agreement in principle on a revamped NAFTA around the middle of this month, to ensure there was ample time to meet trade-promotion rules — a 90-day notice to Congress, publication of a text of the agreement, and an economic-assessment report — for an up-or-down vote by Congress in the lame-duck session at year's end. Failing that, Lighthizer has expressed concerns that a new Congress in 2019 could have very different priorities, complicating the progress made thus far.

There are similar considerations on the Mexican side, with a new president to be elected in the summer. Canada's prime minister, Justin Trudeau, isn't up for reelection until 2019.

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