Nafta's Red Tape Fight Hits Snag as Business Group Sounds Alarm

(Bloomberg) -- The U.S., Canada and Mexico are at odds over a proposal to beef up Nafta’s powers to cut red tape, as one major business group warns efforts to simplify regulations could end up taking a step backward.

Canada wants to roll the existing U.S.-Canada Regulatory Cooperation Council into the North American Free Trade Agreement, a pact Donald Trump is threatening to quit. Advocates of the Canadian proposal liked the idea of entrenching stronger harmonization of rules on things like food safety and drones while also adding Mexico into the mix -- and doing so would also boost another Trump goal of cutting red tape for businesses.

But the push has hit a wall. The U.S. is signaling a skepticism for a trilateral council and that accepting it may require a power shift -- if rolled into Nafta, the council would move under the control of U.S. Trade Representative Robert Lighthizer’s office. A Lighthizer spokeswoman declined comment, while a business group that initially backed the idea is now sounding an alarm by saying USTR doesn’t have the expertise to do this.

“Putting it under USTR is not the right answer. This is not a place to resolve disputes,” said Maryscott Greenwood, the chief executive officer at the Canadian American Business Council who is closely involved in Nafta talks.

In a survey of business council members’ Nafta priorities, regulatory harmonization topped the list. “Our preference is to have the status quo on steroids. If you can do that through Nafta, terrific,” Washington-based Greenwood said. Instead, the U.S. power shift would “put the brakes on it.”

Red Tape Push

The U.S., Canada and Mexico began renegotiating Nafta in August at the insistence of Trump, who’s said the deal led U.S. companies to fire workers and move factories south of the border. He’s threatening to quit and initially wanted a deal by December but talks could now potentially stretch into 2019.

Trump has also boasted about clawing back certain business regulations at home, and a joint effort with Canada has been led by the RCC since its creation in 2011. Regulatory cooperation is a sleepy term that means governments aligning their rules for things like safety testing that allow a product to be sold. Standardized rules cut costs on such things as testing and labeling, and substantially simplify trade for business.

In the U.S., RCC efforts are currently led by the Office of Information and Regulatory Affairs, or OIRA, which is a division of the White House’s Office of Management and Budget, or OMB.

Mexico and the U.S. have their own High-Level Regulatory Cooperation Council, launched in 2010 to spur cooperation on things like food, nanotechnology and offshore oil and gas development standards. Mexico supports adding some form of an RCC into Nafta so long as it’s trilateral, a notion the U.S. is resisting, according to the person familiar with talks.

‘No Authority’

Lighthizer typically favors bilateral deals, and the U.S. is said to have signaled it typically considers any trade-related regulatory cooperation as, simply, a trade issue -- therefore on USTR turf, not the White House. The U.S. is said to have made that clear at the bargaining table.

“That was a big step in the wrong direction, if in fact that is what’s on the table,” Greenwood said.

The countries’ current positions are not entirely clear and they theoretically could still agree to preserve regulatory efforts outside Nafta. Representatives for Canadian Foreign Affairs Minister Chrystia Freeland and Mexican Economy Secretary Ildefonso Guajardo declined to comment.

“The preference would certainly be to use Nafta for what the private sector people hoped it would be used for -- a way to make permanent, and bolster, the RCC, rather than the opposite,” said trade consultant Eric Miller of Rideau Potomac Strategy Group, another close observer of Nafta talks. “You’re essentially taking it from the right authority and expertise to make it happen, and handing it to the people who have no authority and no expertise.”

Nafta, which took effect in 1994, governs much of the commerce between the U.S., Mexico and Canada, which trade $1 trillion annually in goods. Regulatory cooperation offers much of the economic incentive to improve the deal, and rolling the RCC into Nafta properly could be essential in growing existing trade, Miller said.

“If the U.S. business community really wants this, and the Canadian business community really wants this, they’ve got to step up and let the negotiators on all sides knows that this is a top priority and we have to fight for it,” he said.

To contact the reporters on this story: Josh Wingrove in Ottawa at jwingrove4@bloomberg.net, Eric Martin in Mexico City at emartin21@bloomberg.net.

To contact the editors responsible for this story: Theophilos Argitis at targitis@bloomberg.net, Chris Fournier

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