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US presidential strategy in trade negotiations from Mexico to China

The purpose of US President Donald Trump's bullying bluster in North American Free Trade (NAFTA) talks is reportedly an appeal to his political base of working men and their wives.

While this is true, it is also more than that. It lays down a barrage of testy complaint, providing an air of suspicion in which he is free to cast a forensic eye over all. No longer is there any pretense of making nice, going along to get along or being diplomatic. It's all up-front, blunt and personal.

Given the Pavlovian nature of the western media which predictably howls in dismay, news of tough talking Trump trade negotiators' threats of severe tariffs and quotas is instantly conveyed to the president's political base in headlines and soundbites.

Just as the media triumphantly heralds his latest threats, they also delight in calling what happens next a "disgraceful retreat" or a "climbdown", failing to recognise a negotiating tactic that shortens the process, having all retreat to their last ditch bottom lines rather than forever fuss over pettifogging details.

So it has been with the tripartite NAFTA talks with the US, to which Canada and Mexico each direct 80 per cent of their exports, and the US deploying its Trumpish brinksmanship. These talks have grabbed headlines over imports of aluminum and steel, which Trump's political base says globalisation has exported US jobs offshore.

While this action responds to a campaign promise, it is now generally known - even to the his political base - that little can be done without material loss to the US in other sectors. In fact, when President George W Bush imposed duties on imported steel in 2002, it was said to destroy 200,000 jobs which then had to rely on unsustainable costlier American steel.

But such bad news coming from the Trump administration is far more acceptable to his political base, who feel that all bureaucrats are interfering, self-serving, money-wasting scoundrels. To them, these are the alligators inhabiting Washington's political swamp, who Trump is pledged to eliminate and he will be believed as long as his approval ratings are within striking distance of 50 per cent.

The truest thing ever said of the Donald Trump phenomenon in the 2016 election was that "the press takes him literally, but not seriously; his supporters take him seriously, but not literally". And what was true of the election is just as true today.

what that means, in practical terms, is that his usual hyperboles, taken as "lies" by a hostile media does, are just marks of his blustering style to his base, which is entirely consistent with his rough and tumble deal-making career in New York's real estate market, and therefore nothing to worry about it.

As the media is disinclined to report anything favourable about him, much less any success, looking for positive reporting outside pro-Trump Fox News is a fruitless endeavour. One anti-Trump Bloomberg report did its best to cast him in a negative light, almost concealing the fact that he was arguing for freer trade, when Canada was striving to protect its dairy and poultry sectors. But rather than stress Trump's counter-intuitive role reversal, Bloomberg focused on how poorly Trump was received by America's worthy northern neighbour.

But to be fair, trade issues are complex and difficult to understand, often beyond the reach of even Bloomberg's often erudite business acumen. Making trade news even more arcane is that often issues involved are sensitive, shrouded in secrecy, with disingenuous reasons given to obscure the real whys and wherefores.

Take one NAFTA sticking point, the future of the Investor-State Dispute Settlement (ISDS) provision. ISDS provisions, in NAFTA as well as in many other trade agreements, allow companies with foreign investments to bring before an arbitration panel claims that a state actor violated the treaty by expropriating their assets, discriminating against them or denying them fair and equitable treatment.

An example was the Canadian government banning the US export of toxic PCB waste in compliance with the UN's Basel Convention, which the US did not sign. Waste treatment company SD Myers then sued the Canadian government under NAFTA Chapter 11 for US$20 million in damages. The claim was upheld by a NAFTA tribunal.

The US wanted the ISDS provision defanged. Partly, it is a sovereignty issue, not wishing to be bound by provisions of multi-lateral treaties. But in the ISDS case, there are also questions of potential judicial misconduct.

Opponents of ISDS argue that arbitrations are carried out in secret by trade lawyers who do not enjoy the typical safeguards of judicial independence and procedural fairness, who earn income only if a case is brought and proceeds.

They are not accountable to the public or required to take into account broader constitutional and international law human rights norms. The Peterson Institute for International Economics agrees "that secrecy has gone too far".

Proponents of ISDS say confidentiality is a standard feature of all arbitrations and one that enables a constructive, de-politicised and fact-oriented atmosphere of dispute resolution. On the other hand, such traditional confidentiality is limited to disputes that affect the parties in question and not the broader public.

The energy industry supports ISDS in NAFTA as a useful tool for the energy industry in protecting foreign investments. In the absence of ISDS, those foreign investors would likely be forced into the home country's courts to resolve disputes, says the American Petroleum Institute (API).

The upcoming elections in Mexico may sharpen the energy industry's concern. The leading presidential candidate, Andres Manuel Lopez Obrador, has suggested he could reverse the recent privatisation of the oil and gas industry in Mexico, including by reneging on contracts between private investors and Mexico's state-owned oil company Petroleos Mexicanos (Pemex).

Without ISDS, foreign private investors may have no effective recourse to secure their rights under the NAFTA and to recover compensation for any violations by Mexico.

The United States Council for International Business agrees: “Without substantive provisions protecting investment, including the ISDS, it's very unlikely that the United States would gain the very tangible benefits it gets from open investment among the three NAFTA partners," it said.

In another case Windstream Energy LLC, an American wind energy developer, won an award against Canada. Having secured a renewable energy contract to feed-in-tariff programme to sell energy into Ontario's grid from an offshore wind facility Windstream planned to build in Lake Ontario.

But before Windstream could construct that facility, Ontario placed a moratorium on offshore wind development. An arbitration panel found that although the moratorium did not violate NAFTA per se, Canada had denied Windstream fair and equitable treatment in violation of NAFTA as a result of its actions following imposition of the moratorium.

Specifically, the tribunal took issue with Canada's failure subsequently to provide adequate justification for the moratorium and its failure “to address the legal and contractual limbo in which Windstream found itself after the imposition of the moratorium”.

It is easy to understand that these cases are not the stuff of riveting news, especially the obscure details upon which these issues are based. So it is hard to blame even a biased media for failing to cover trade issues in the detail needed to comprehend what is at stake - especially when what is released to journalists is fragmentary because so many issues are shrouded in secrecy.

But Mexican Sinaloa State Governor Quirino Ordaz Coppel, whose territory borders the United States, took a balanced view of the NAFTA talks, telling Xinhua that the trading partners would resolve their problems after clearing air of difficult issues.

But more than that, he said. All sides would now diversify and end up doing more trade with the world, said Governor Coppel.

"Mexico has been very dependent on the United States. We are accelerating and deepening the diversification of our trade with China, with South America, and with Europe, but especially with Asia," he said.

"The important thing is that the relationship should be reciprocal, this is what must mark good agreements. China is very important, it is a great global player," said the governor, adding that strengthening trade and business is in everyone's interest.

Speaking in Singapore's Straits Times, Sergio Ley, formerly Mexico's ambassador to Indonesia and China, agreed. Mr Ley, now president of the corporate chapter for Asia and Oceania of the Mexican Council for Trade, Investment and Technology, said: "It is remarkable what Singapore has achieved. I think very few societies in the world have done what Singapore has done up to now. Thanks to that, Singapore is becoming a feature in the maps of Mexican businessmen."

While Canada does the same, broading its trade contracts to Europe and the Far East, Mexico is not far behind. Nor is international shipping which is offers new services to the republic which long championed free trade throughout Latin America.

Singapore based APL, now a unit of French shipping giant CMA CGM offers new services to Latin American in anticipation.

Volume at Mexico's Port of Manzanillo increased 8.5 per cent year on year in 2017, to 2.01 million laden TEU. The Port of Lazaro Cardenas’s volume grew by 3.8 per cent in 2017 from 2016, to 773,697 laden TEU. Mexican imports from China rose 14.2 per cent in January and 35.4 per cent in February, according to Container Trade Statistics.

The weekly Quetzal Express (QEX) now connects China, Korea, Taiwan and Hong Kong with Mexico and west coast South America (WCSA), with a sailing time of 22 days to get from South China to Mexico. Other port calls on the route are Guatemala, Colombia, Ecuador, and Peru.

 “The QEX service will complement other APL services in delivering fresh produce from Mexico and Latin America to the importing Asian markets of China, Taiwan, and Korea,” said APL spokeswoman Shirley Poo, adding that the eastbound route will carry Mexican fruit and perishable goods as well as imported manufactured goods from South China.

The service follows APL’s launch of three earlier loops that link Asia and Mexico, each stopping at one or more Latin American ports, among them ports in Columbia, Ecuador, Chile, and Central America. The three existing routes, and the new one, all stop at the Pacific coast port of Manzanillo, the country’s largest container gateway.

All of which are further indications of the growing interest in global shipping with Mexico and in its growing role in world trade. While the successes of the American presidential trade strategy may not be apparent, partly because of media hostility, but perhaps more because little excitement is generated by detailed trade reports. Nonetheless, his base support should hold up and provide a solid foundation for re-election if nothing serious goes wrong.

For the problems solved in boring repair jobs to existing trade deals will not provide sweeping end-runs and crowd-cheering goal scoring. Fixing NAFTA will be a test, but its success or failure must be reviewed through the retrospectoscope, that is from the future. Time will tell, as it most frequently does.

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U.S. Trade Specialists