Issue: May 2017
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We are delighted to present the inaugural edition of NAFTA NEWS, a periodic newsletter offering important information and insight as the renegotiation of the North American Free Trade Agreement takes shape in 2017. NAFTA NEWS is produced by three of North America’s leading government relations and public affairs consulting firms, ManattJones Global Strategies; Manatt, Phelps & Phillips LLP; and Tactix Government Relations and Public Affairs.
Through Manatt’s and ManattJones’ offices in Washington, D.C., and Mexico City, and Tactix’ head office in Ottawa, the firms are collaborating to provide their respective clients with the critical information and experienced judgment global companies and North American industry associations need to help navigate the choppy NAFTA waters. Each edition of NAFTA NEWS will provide our readers with need-to-know information and political insights from the three NAFTA national capital cities.
CanadaThe Liberal Party of Canada did not include NAFTA negotiations in its 2015 election platform, and NAFTA was not on the new government’s radar screen upon taking office that fall. To wit, NAFTA was not mentioned in the Dec. 4, 2015, Speech from the Throne, and the mandate letters provided by the Prime Minister’s Office (PMO) to the then-minister of foreign affairs and minister of international trade made no reference to NAFTA. Things changed dramatically on Nov. 8, 2016.
In light of the election of Donald Trump as president of the United States, managing the Canada-U.S. relationship quickly became Prime Minister Trudeau’s most significant file. To that end, a “surgical” Cabinet shuffle was executed in early January 2017, placing the Honorable Chrystia Freeland as the new minister of foreign affairs. Astute government watchers noticed with interest that Minister Freeland, formerly the minister of international trade, retained her responsibilities for managing the Canada-U.S. file, including trade relations. Normally, Canada-U.S. trade would be within the purview of the international trade minister.
Moreover, signaling the critical importance of the Canada-U.S. relationship on Canadian economic interests, the Prime Minister’s Office bolstered its ranks by bringing Minister Freeland’s trusted chief of staff at International Trade, Brian Clow, into the PMO to coordinate Canada-U.S. relations. Clow leads a small, tightly knit PMO team.
The bipartisan approach taken by the government is another key indicator of the prime minister’s focus on the Canada-U.S. relationship. Former Progressive Conservative Prime Minister Brian Mulroney, whose government signed the original Canada-U.S. Free Trade Agreement and negotiated the trilateral NAFTA, has been called upon to deploy his impressive Rolodex in pressing the Canadian case in Washington, D.C., and in the U.S. business community. Mulroney’s personal relationships include President Trump and Commerce Secretary Wilbur Ross. Last month Mulroney briefed, and no doubt advised, the Cabinet Committee on Canada- United States Relations, chaired by the Hon. Marc Garneau, on his findings and recommended approach to managing this file. Furthermore, provincial premiers of varying political hue have been deployed to D.C. and to key state capitals to remind American decision-makers and influencers of the importance of the Canada-U.S. trade relationship south of the 49th parallel.
Although by no means exhaustive of the key Canadian players on the Canada-U.S. file, the following offers a thumbnail sketch of four individuals who will have central roles as NAFTA negotiations commence in 2017.
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Hon. Chrystia Freeland, P.C., M.P.: A well-known journalist and author before jumping into the political arena, Freeland received her undergraduate degree from Harvard University before continuing her studies on a Rhodes Scholarship at the University of Oxford. After completing her studies, she worked as a journalist for the Financial Times, The Washington Post, The Economist, The Globe and Mail, and Thomson Reuters, where she was a managing director of the company. Freeland has an impressive number of contacts and relationships in both the American business community and U.S. political circles.
Steve Verheul: Verheul has been appointed as Canada’s chief trade negotiator for NAFTA. He brings an impressive international trade résumé to the NAFTA negotiating table. In early 2009, Verheul was appointed as Canada’s chief trade negotiator for trade relations between Canada and the European Union (CETA), successfully concluding the CETA negotiations that recently received parliamentary approval. Prior to that, he worked in international trade policy at Agriculture and Agri-Food Canada from 1989 to 2009, where he worked on the initial NAFTA negotiations, the Uruguay Round of Multilateral Trade Negotiations and the Doha Round of World Trade Organization (WTO) negotiations.
Brian Clow: Clow is the director of Canada-U.S. relations in the PMO. Before taking on this assignment earlier this year, he served as chief of staff to then-Minister of International Trade Freeland. Hailing from Toronto, Clow worked on Kathleen Wynne’s campaign to lead the Liberal Party of Ontario, subsequently serving as Premier Wynne’s executive director of issues management and legislative affairs at Queen’s Park. He then transitioned to the federal Liberal Party, working as a researcher in the Office of the Leader of the Official Opposition under then- Liberal leader Michael Ignatieff, and subsequently as a key organizer for the 2015 federal election campaign, tasked with issues management and rapid response for Justin Trudeau.
Hon. Andrew Leslie, P.C., M.P.: Leslie was elected as the Liberal member of Parliament, representing Orléans, in 2015. He initially held the role of chief government whip but, as part of Prime Minister Trudeau’s intense focus on Canada-U.S. relations, in early 2017 he was appointed parliamentary secretary to the minister of foreign affairs, with special responsibilities for Canada-U.S. relations. Leslie enjoyed a decorated 35-year career with the Canadian Armed Forces, during which he built important relationships with American military leadership. His military career included a variety of command and staff positions in numerous overseas postings with the U.N. and NATO. General Leslie served on international missions, including leading troops in Germany, Cyprus, the former Yugoslavia and, most recently, Afghanistan. In 2006, he became chief of the land staff/army commander and in 2011 was appointed the chief of transformation, where he served until his retirement from the military.
MexicoMexico was facing economic and political challenges prior to the candidacy and election of Donald Trump. Sluggish growth and lower-than-expected oil prices led to reduced tax revenue and subsequent budget cuts. Furthermore, the popularity ratings of President Enrique Peña Nieto (EPN) have fallen to historic lows. Thus, the sense of uncertainty that already pervaded Mexico was exacerbated by President Trump´s rhetoric, especially comments related to the construction of a border wall (paid for by Mexico); changes in policy to facilitate the deportation of millions of immigrants; statements in favor of a border adjustment tax; and most importantly, a promise to renegotiate or withdraw from NAFTA. Together these developments have taken the peso on a wild ride, led ratings agencies to give Mexico a negative outlook and created a broad climate of uncertainty in the country.
Recognizing that the North American economy has changed since NAFTA was negotiated in the early 1990s, Mexico has long been open to modernizing the agreement and had hoped to use passage of the Trans-Pacific Partnership (TPP) to achieve this outcome. When President Trump officially withdrew the United States from the TPP, the renegotiation of NAFTA provided the only viable opportunity to update this critical agreement.
In the face of U.S. threats against Mexican interests, Mexican public opinion has been unified in its demands that the Peña Nieto administration not yield to Trump’s pressure, despite the internal political, economic and social challenges facing President Peña Nieto. The Mexican administration has been quite consistent in its public statements that Mexico will not accept the unilateral imposition of changes to NAFTA by the United States and would, if necessary, allow the agreement to end rather than accepting diminished trade provisions. The constant Mexican admonition to “do no harm” has been echoed by the business communities in all three countries. Defending the long-established cross-border supply chains, especially for the automotive sector, and underscoring the value of North American production will be Mexico’s top priorities.
Mexico is of course highly dependent on the United States; roughly 80% of the country’s exports flow north, including manufactured goods that cross the border numerous times prior to completion and products assembled in Mexico from U.S.- or other foreign-sourced inputs. Nevertheless, prior to and especially following Trump’s threat to withdraw, Mexico has conducted a broad outreach campaign to underscore that the trade relationship is not one- sided, with particular focus on agriculture-reliant states in the U.S. Midwest that would suffer significant harm from a return to WTO-bound tariff rates for their exports. Further, EPN has instructed his secretary of economy to seek opportunities to diversify Mexico’s export markets, with particular focus on Argentina, Brazil, the Pacific Alliance and Asia, and to explore increased agricultural imports from Argentina and Brazil. A similar effort has been promoted within the Mexican Congress.
Though the Mexican government had not planned on a renegotiation, it has a number of seasoned trade negotiators on which to rely. Not only did the same team negotiate the TPP, but Mexico has more free trade agreements with more countries than any other country. Key members of the Mexican team include:
Secretary for Foreign Relations Luis Videgaray: As one of Peña Nieto’s closest advisors, Videgaray will play a gatekeeper role in the negotiations. By reviewing all decisions, he hopes to ensure that Mexico’s positions reflect interagency consensus. Videgaray has developed a close relationship with Trump’s son-in-law, Jared Kushner, who has been tasked with managing the U.S.-Mexico bilateral relationship. It was Videgaray who orchestrated Trump’s August 2016 visit to Mexico, which was at the time widely criticized.
Secretary of Economy Idelfonso Guajardo: Guajardo is a longtime government official and also served in the Congress. He has been Peña Nieto’s secretary of the economy since the inauguration in 2012. He is the direct counterpart to U.S. Trade Representative Robert Lighthizer, and will officially lead the Mexican delegation. Guajardo is an experienced negotiator who will aggressively defend Mexican interests while also working to find compromises where possible, as evidenced through his leadership of the Mexican TPP delegation.
Ambassador Geronimo Gutierrez: As Mexico’s ambassador in Washington, Gutierrez will play a prominent role during the negotiations and when the revised agreement goes before the U.S. Congress. Gutierrez was the managing director of the North American Development Bank (NADBank), the latest in a long series of North American-related government positions he has held throughout his career, including as undersecretary for North America at Mexico’s foreign ministry (SRE). This experience made him an ideal choice to be ambassador, and he has been a strong advocate in Washington for his country since assuming his position earlier this year.
Private Sector Advisors: A number of former NAFTA negotiators and Mexican trade officials are providing advice to the Peña Nieto administration from positions in the private sector. Herminio Blanco was the chief NAFTA negotiator and played a leading role in its approval by the U.S. Congress. Luis de la Calle is a former undersecretary for international trade (2000–02) and a frequent commentator on trade issues. Jaime Zabludovsky is another former NAFTA negotiator who now serves as chairman of the Mexican Council on Foreign Relations. Moises Kalach leads the business community’s engagement with the Mexican government; he played the same role during the TPP negotiations. All will provide advice to the current Mexican team and will be crucial to gaining approval and acceptance for a renegotiated NAFTA within the Congress and civil society.
United StatesDuring the 2016 U.S. presidential election campaign, international trade agreements, especially NAFTA, and the U.S. trade deficit received more attention than in many years. The subsequent election of Donald Trump, a candidate who opposed U.S. ratification of the TPP and called NAFTA one of the worst trade deals ever negotiated, raised the possibility that the United States would withdraw from the NAFTA agreement. Within days of his inauguration, Trump formally withdrew from the TPP and has repeated his calls for the renegotiation of NAFTA.
Despite the clear rhetorical focus on trade and NAFTA, Washington observers and insiders alike most often use the word “uncertainty” to describe the prevailing mood. The reasons include a lack of clarity from the Trump administration on its overall objectives for a renegotiation of the NAFTA agreement (and a brief threat to withdraw in late April), very public disagreements within the White House regarding how to approach NAFTA and trade more generally, and, until recently, the absence of a confirmed U.S. trade representative (USTR). The administration’s top priorities for NAFTA renegotiation are the trade deficit, rules of origin, digital trade/e- commerce and customs barriers. The administration’s expectation is to move quickly before the 2018 election season.
The Trade Promotion Authority (TPA) Act, which allows the administration to present a new or renegotiated trade agreement to the Congress for an up or down vote, requires that the administration officially notify the Congress of its intentions 90 days before negotiations commence. The administration notified Congress on May 18 of its intent to renegotiate the agreement with identical letters to House and Senate leadership; negotiations can now commence as soon as Aug. 16. The current TPA applies to agreements reached before July 1, 2018, with a possible extension to July 1, 2021.
Of the many administration officials, including the president, who will have a key role in the negotiations, four stand out as critical players in the current development of a U.S. negotiating position.
Secretary of Commerce Wilbur Ross: Since his nomination, and especially in the absence of a confirmed USTR until recently, Ross has played a much larger role than is traditional for the commerce secretary. Ross has taken a hard line on bilateral disputes, including those regarding dairy and lumber with Canada and sugar with Mexico. He also has been very clear in his view that the United States has been taken advantage of in its free trade agreements.
USTR Robert Lighthizer: Now confirmed, Lighthizer will likely reassert his agency’s traditional role as the chief trade negotiator. Lighthizer has dedicated his private practice to anti-dumping and countervailing duty (AD/CVD) cases and is a strong proponent of an enhanced focus on enforcement.
National Economic Council Director Gary Cohn: Cohn is one of a number of Trump administration officials who previously worked at Goldman Sachs. Cohn in fact is a former president and COO of the firm. Cohn is a leader of the pro-trade faction within the White House and prevailed over Peter Navarro in late April when Trump threatened NAFTA withdrawal. Cohn was also chosen to present the president’s tax reform proposal along with Treasury Secretary Steven Mnuchin, underscoring his central role in economic policy.
USTR General Counsel Stephen Vaughn: As acting USTR before Lighthizer’s confirmation, Vaughn played a leading role along with Wilbur Ross in the initial congressional consultations regarding NAFTA renegotiation. Like Lighthizer, Vaughn is an AD/CVD attorney and well-known advocate of government support for manufacturing.The following comments recently shared with us are indicative of the general state of play:
- According to professional staff members, House members do not view the process as “renegotiating NAFTA” but as upgrading and modernizing it. Most feel that NAFTA has worked, and they are currently working with the administration on priorities for the rework. The Senate is still awaiting clarity and expects that the objectives contained in the “leaked” TPA notification will be narrowed in a final version, although which issues make the cut is uncertain. Though few political appointees are in place, conversations have been held with the “principals,” such as Commerce Secretary Ross and former acting USTR Vaughn.
- In a private meeting, a member of the Senate leadership indicated that he had been concerned about the president’s threat to pull out of NAFTA and was pleased to hear the president’s announcement that he will pursue renegotiation. He stated that 5 million jobs in the U.S., many in states that Trump carried, would be harmed by a pullout from the NAFTA agreement.
- Rep. Michael McCaul will lead the U.S. Congressional delegation to the 53rd United States – Mexico Inter-Parliamentary Group meeting beginning on June 4 in Mexico. The agenda includes: Economic and Trade Issues; Migration and Human Rights; and, Security and Border Issues. This will be the first Congressional delegation to visit Mexico since the TPA notification was submitted.
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ManattJones Global Strategies LLC is a strategic consulting firm with over 16 years of experience providing senior government and corporate executives with intelligence, advice and stakeholder engagement support to drive market entry and business expansion efforts in Mexico and other Latin American countries. Likewise, as a consulting subsidiary of Manatt, Phelps & Phillips LLP, we are able to seamlessly connect Latin American clients to the full range of legal and consulting services of this top-ranked U.S. law firm.
From our offices in Mexico City, Monterrey (Nuevo Leon), Los Angeles and Washington, D.C., our truly binational and biliterate team has deep regional expertise and an invaluable presence on the ground. We have a proven track record of success, expert knowledge of the market and regulatory environment, and connections at the highest levels of business and politics. In addition, we will work with local strategic partners and business associations to support your business when necessary.
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This newsletter has been prepared by Tactix Government Relations and Public Affairs; ManattJones Global Strategies LLC; and Manatt, Phelps & Phillips LLP to provide information on recent developments of interest to our readers. It is not intended to provide legal advice for a specific situation or to create an attorney-client relationship.