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Experts say NAFTA imperiled but not dead

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Experts say NAFTA imperiled but not dead

Tit-for-tat tariffs between the U.S., Mexico and Canada have muddied the waters of an already troubled NAFTA negotiation, which experts said could bring the talks to the brink of a collapse.

President Donald Trump and Prime Minister Justin Trudeau are slated to meet at the G7 Summit in the Charlevoix region of Quebec June 8-9, where White House economic adviser Larry Kudlow said he expects "important" bilateral meetings between the U.S. and its northern neighbor on trade.

Kudlow told reporters June 6 that he did not want to speculate on the prospects for NAFTA being renegotiated in 2019, but did say that "communication lines are open" and that the three countries are still talking and working toward a deal. He also told Fox News on June 5 that Trump prefers to renegotiate NAFTA through separate bilateral talks with Canada and Mexico.

Trump and Trudeau will meet at the G7 summit amid a simmering dispute over U.S. steel and aluminum tariffs that has ensnared Canada and Mexico and increased the rancor over the NAFTA talks.

The Trump administration said May 31 that it would not renew exemptions from a 25% tariff on steel imports and a 10% tariff on aluminum imports for the NAFTA partners, which led to swift retaliatory measures from both Canada and Mexico. Trump has said permanent exemptions on those tariffs would be based in part on a NAFTA deal to his liking.

Christopher Sands, director of the Center for Canadian Studies at Johns Hopkins University's School of Advanced International Studies, said in an interview that two bilateral deals between the U.S. and Canada and Mexico are a real possibility but that a "wild card" exists amid the tension.

The Trade Promotion Authority, or TPA, the congressional-renewed legislation that sets out special authority for administrations to negotiate trade deals and fast-track implementation, is set to expire July 1. Trump asked Congress for a three-year extension in March, but Sands noted that due to some Republican objection to the U.S. steel and aluminum tariffs, there is a 20% chance that TPA will not be renewed should talks go awry at the G7 Summit.

Lawmakers could refuse to renew the TPA through what is known as a "resolution of disapproval," which would require a vote of 50% plus one in both chambers of Congress and does not require a presidential signature. Sands said such a move by lawmakers is "fairly achievable."

If Congress fails to renew the TPA, the NAFTA talks could be stopped and the deal would be frozen in place, giving Mexico and Canada a reprieve, he noted.

"If Charlevoix turns into a huge open spat with our major allies, that's the kind of catalyst for establishment Republicans and Democrats to possibly take Trump down a peg and tell Trump 'this is getting out of control'," Sands said. "That's in the backdrop here and could be a real wild card as we come out of Charlevoix."

Simon Lester, a trade policy analyst with the Cato Institute, said in an interview that the tariffs, combined with prior Canadian and Mexican objections to U.S. demands on automobile content and auto worker wages, would only decrease the possibility of getting a new trade deal through this year.

"It's already looking pretty unlikely that a new NAFTA will get done and this can't help," Lester said. "Maybe this isn't the straw that breaks NAFTA's back and maybe it will collapse under its own weight. But it can't be good."

There have also been so-called "skinny" package proposals for NAFTA, pushed largely by the automotive, agriculture, and energy industries that have benefited from NAFTA, something that Lester said is unlikely but remains unclear due to lack of details from the administration. A "skinny" package would not need congressional approval but would be much more limited in scope than a wide-scale overhaul of the trade deal.

"From what I'm hearing from the Trump administration, we don't want skinny," Lester said. "What kind of concessions would be enough for them? What are we willing to give in return? I feel like I haven't gotten straight answers out of them. I'm just not sure what their realistic endgame is."

Trade talks between the U.S., Canada and Mexico this spring proved to be inconclusive, and negotiators eventually missed House Speaker Paul Ryan's stated deadline of May 17 to reach a deal in order to vote on it in the current Republican-controlled Congress. The Mexican presidential election is also looming on July 1.