Clinton, Obama threat to end NAFTA alarms business

By Doug Palmer

WASHINGTON (Reuters) - U.S. business groups expressed alarm on Wednesday over a threat by Democratic presidential candidates Barack Obama and Hillary Clinton to pull the United States out of the North American Free Trade Agreement if Mexico and Canada won't renegotiate it.

"The rhetoric is getting more vituperative. Now, they're talking about abrogating (the agreement). That would be a disaster for American jobs," said Frank Vargo, vice president for trade policy at the National Association of Manufacturers.

Both Clinton and Obama said during a debate on Tuesday in Ohio the United States could "opt out" of the 14-year-old pact if Canada and Mexico refuse to strengthen labor and environmental provisions and modify an investment chapter that critics say favors corporate interests too much.

The steps would be aimed at addressing concerns that NAFTA has caused U.S. job losses.

"I have put forth a very specific plan about what I would do. And it does include telling Canada and Mexico that we will opt out unless we renegotiate the core labor and environmental standards," Clinton said.

"I think actually Senator Clinton's answer on this one is right," Obama said. "I think we should use the hammer of a potential opt-out as leverage to ensure that we actually get labor and environmental standards that are enforced."

Top U.S. and Canadian trade officials expressed concern over the remarks.

"Forty percent of U.S. growth last year was attributable to exports. So really, now is not the time ... to be shutting the doors and having doors shut in our face by, quote, opting out of existing trade agreements," U.S. Trade Representative Susan Schwab told reporters after a speech.

Canadian International Trade Minister David Emerson said he feared ending the agreement would open the door to a spate of protectionist U.S. actions against Canadian exports.

"It may be softwood lumber one day, it may be beef another day. The real risk is you lose the ability to resolve these disputes in a relatively neutral and objective way," he said.

Although the United States has lost 3 million manufacturing jobs since 2000, overall manufacturing jobs increased during the first years of NAFTA, which went into force in 1994, even though some factories did move to Mexico, Vargo said.

Also, almost all of the growth in imports from Canada and Mexico over the past seven years has been in oil and natural gas, not manufactured goods, Vargo said.

AIMED AT OHIO VOTERS

Before NAFTA, U.S. companies faced an average tariff of 12 percent on exports to Mexico, while the United States applied a average 2 percent tariff on Mexican goods.

The trade agreement has phased out tariffs on both sides, eliminating a 6-to-1 advantage in Mexico's favor and more than doubling U.S. exports to that country to $136.5 billion in 2007, said Sen. Charles Grassley, an Iowa Republican.