(Bloomberg) -- The U.S. is poised to kick off a three-month countdown to renegotiating the North American Free Trade Agreement, the first major test of President Donald Trump’s vow to clinch better deals for the world’s biggest economy.
Before officially starting talks with Nafta partners Canada and Mexico, the Trump administration must notify Congress to begin 90 days of domestic consultations. Robert Lighthizer, who was sworn in as U.S. Trade Representative on Monday, has spent the past two days on Capitol Hill meeting lawmakers for required talks before he can give Congress the official notification.
Trump’s efforts to garner the political cooperation he needs to hammer out a new trade pact will be complicated by controversies engulfing the White House. The president is still facing backlash over his firing of FBI director James Comey, as well as fallout from a memo Comey wrote in which he said Trump tried to shut down an investigation into former National Security Adviser Michael Flynn. The administration denied Comey’s version of events.
Reworking the trade deal was a central promise of Trump’s election campaign, when he called Nafta a “disaster” that has inflated the trade deficit and cost millions of U.S. jobs. After threatening to withdraw from the 1994 agreement entirely last month, Trump reconsidered in favor a re-negotiation but said he’ll terminate America’s involvement if talks don’t go his way.
Lighthizer, during discussions with a congressional committee this week, indicated that currency issues will on the table during Nafta revamp, according to a Democratic Senator who was briefed on the matter. Lighthizer told senators that “it would be fair to say that” currency issues “would be part” of a new Nafta deal, Ron Wyden, of Oregon, told reporters.
Discussing the effect of currency valuations during Nafta negotiations is “a model statute that could be applicable generally,” said Wyden, relaying what he heard from Lighthizer. The USTR’s office declined to comment. The peso and Canadian dollar briefly strengthened after Wyden’s comments were published.
Addressing currency manipulation became a principal U.S. negotiating objective of trade agreements as part of a trade promotion bill passed in 2015.
The Trade Promotion Authority legislation defines unfair currency practices as “protracted large scale intervention in one direction in the exchange market and a persistently undervalued foreign exchange rate to gain an unfair competitive advantage in trade,” according to a report by the Congressional Research Service.
The TPA, which gives lawmakers a yes-or-no vote on amending trade deals, was passed amid tension over whether the U.S. should sign the 12-nation Trans-Pacific Partnership, championed by then-President Barack Obama. Trump pulled the country out of TPP during his first week in office, before Congress could approve the deal.
According to the TPA, the White House has to give Congress 90 days’ notice before it formally starts renegotiating a trade deal. During that time, the administration must meet with members of the House Ways and Means and Senate Finance Committees, with a view toward coming up with the principles the U.S. will adopt during the negotiations.
Other issues expected to come up in Nafta talks include so-called rules of origin, which dictate the amount of North American-made parts that must be used in assembled products such as cars. The U.S. has also indicated it would like to overhaul the process under which foreign companies can be challenged in court by the state, and strengthen the ability of government contracts to give preference to U.S. companies.