Quick Deal on Revised Nafta Is Possible, Former USTR Froman Says

(Bloomberg) -- The U.S. could renegotiate the North American Free Trade Agreement by early next year if it sticks to seeking concessions that Mexico and Canada agreed to make in past accords, said former President Barack Obama's top trade negotiator.

The U.S. may be able to convince its Nafta partners to sign a deal that looks similar to the Trans-Pacific Partnership, said Michael Froman, who was U.S. Trade Representative until President Donald Trump took office in January. Froman negotiated the TPP pact linking the U.S. and 11 other nations, which Trump formally withdrew from in January, days after taking office and before Congress voted on it.

Despite the withdrawal, the Trump administration has indicated it may be open to using parts of TPP as a starting point for negotiations on other trade deals.

Commerce Secretary Wilbur Ross this week said the best window to negotiate a Nafta overhaul will close in early 2018, before campaigning heats up ahead of a general election in Mexico in July. Mexican officials have expressed interest in clinching a deal by the end of this year.

“That's a source of potential leverage for the United States that the Mexicans are so eager to get this done,” Froman said Friday in an interview.

But the talks could derail if the U.S. pushes too hard, he said. “We have a rather long history with Mexico and the feelings of anti-Americanism or concern about being overly accommodative with the United States are really just beneath the surface,” he said.

Contentious Items

Froman noted that a draft letter to Congress laying out U.S. priorities looked very similar to the goals he pursued in TPP. However, it also contained items likely to be contentious for Mexico and Canada, such as a promise to “level the playing field on tax treatment.”

U.S. lawmakers have complained that Mexico's value-added tax unfairly benefits some Mexican exports, which are exempt from the levy. But it would be unprecedented for the U.S. to try to change another country's tax system through trade negotiations. “We've never taken on domestic taxation in a trade agreement,” said Froman.

The final letter to Congress, which was sent last month and kicked off 90 days of domestic consultations over Nafta, was less detailed about U.S. goals. Trilateral talks on a new agreement could begin as early as Aug. 16.

The TPP withdrawal, as well as Trump's decision this week to pull the U.S. out of the Paris climate-change accord, will undermine America's credibility when pursuing other deals, Froman said. “It has an effect on U.S. credibility and leadership and the willingness of countries to follow our lead,” he said. “That's damage we'll have to repair.”

100-Day Plan

The U.S. and China announced a 100-day plan in April to address trade irritants between the world's two biggest economies. Last month, the U.S. said it had secured better access on a number of fronts, including for U.S. beef producers and financial-services firms.

But Froman said the key test for the administration will be showing results on deeper-seated issues, such as China's reluctance to tackle overcapacity in sectors such as steel and aluminum.

“China needs to shut down hundreds of thousands of metric tons of steel production, and a whole series of aluminum smelters that don't make economic sense,” he said.

The Commerce Department in April opened investigations into whether imports of steel and aluminum hinder national security. Ross said at the time that he hopes to finish the review by June.

To contact the reporter on this story: Andrew Mayeda in Washington at amayeda@bloomberg.net.

To contact the editors responsible for this story: Brendan Murray at brmurray@bloomberg.net, Sarah McGregor, Ros Krasny