WASHINGTON -- The U.S. Chamber of Commerce is sounding alarm bells about the need to preserve the North American Free Trade Agreement amid reports the Trump administration plans to stake out hard-line positions that could be deal breakers during the fourth round of negotiations scheduled to begin here Oct. 11.
In a speech before business leaders in Mexico City on Tuesday, Chamber President Thomas Donohue called the U.S. proposals "poison pills" that would force Mexico and Canada to leave the talks and ultimately lead President Donald Trump to try and withdraw from NAFTA.
"If the administration issued a withdrawal order -- which requires a six-month waiting period -- it would not be viewed by our partners ... as a negotiating tactic. Instead, it would abruptly slam the door on future negotiations because those governments have made it very clear they won't negotiate with a gun to their head.
"The United States could then reasonably expect trade retaliation … higher tariffs … broken supply chains … and potentially less cooperation on other priorities like anti-terrorism and anti-narcotics efforts. And who would be hurt the most as a result? The very Americans that this administration seeks to put first," Donohue said at the annual U.S.-Mexico CEO Dialogue, according to a copy of his prepared remarks.
The primary concern of automakers is what happens with rules of origin, which dictate whether goods imported from a partner nation qualify for duty-free status. The Trump administration is reportedly demanding a regional content value of 85 percent for automobiles and auto parts, up from 62.5 percent, with a new condition that half the content be produced in the United States.
Automakers have fought to maintain the current content requirement for finished vehicles because some parts are sourced globally to control costs. Mexico and Canada have expressed some flexibility on the issue, but said a U.S. minimum content requirement is a nonstarter.
U.S. negotiators are also pushing Mexican and Canadian red lines with proposals designed to give U.S. companies more opportunities for government contracts, as well as eliminate the use of neutral arbitration panels to settle trade disputes.
The business community is also worried about a proposal for a five-year sunset provision unless all sides agree to an extension. Donohue said a termination trigger would undermine investment in all three nations because businesses would fear the uncertainty.
Trump initiated the NAFTA renegotiation early this year on grounds it has led to massive outsourcing that has claimed U.S. jobs and economic opportunity. Administration officials have played up the $57 billion goods deficit with Mexico, including $68 billion for the auto sector, as the primary problem with NAFTA.
But experts argue that deficits aren't an accurate way to measure benefits of a relationship that has created an integrated North American economy with improved living standards for many people.
Last month, the Commerce Department released a study aimed at bolstering its case for tougher rules of origin. It showed that U.S. value-added content for automotive import from Canada and Mexico is declining, while non-NAFTA content is increasing, but Mexican officials have disputed the figures.
The proposed changes to rules of origin appear more like political rhetoric than a serious solution because there is no evidence that U.S. trade officials have put in the legwork to understand how higher content values would impact trade flows, jobs and economic growth, Doreen Edelman, co-chair of the global business team at law firm Baker Donelson, said in an interview.
The original NAFTA agreement took a lot of time and work by professional staff to reach the 62.5 percent content threshold "and I think it's unlikely they've put together a detailed proposal," she said.
"They have to work with industry tariff line by tariff line to figure out what is feasible, otherwise it will throw the entire supply chain out of whack," Edelman said.
If NAFTA disappears, she warned, manufacturers eventually might double down on investment in Canada and Mexico, as those countries expand free trade agreements around the world while the U.S. pulls back from existing deals.
Donohue urged pro-trade lawmakers "to steel their resolve for what could be a big fight." The powerful business federation is working to demonstrate broad support for NAFTA by sending scores of members who have flown in town up to Capitol Hill on Wednesday to lobby lawmakers. The Chamber also sent a letter to Trump and members of Congress from 310 state and local chambers supporting a modernized NAFTA that preserves existing benefits.