Clinton, Obama threat to end NAFTA alarms business

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.

"Those exports support a lot of good-paying jobs here in the United States. I wonder what the candidates would have to say about the potential loss of those jobs if the United States opted out of NAFTA," Grassley said.

Christopher Wenk, director of international policy at the U.S. Chamber of Commerce, called Clinton and Obama's comments "troubling," but said they were aimed mainly at Ohio voters who blame NAFTA for many of their state's economic woes.

"I think you have to take a lot of what they're saying right now with a grain of salt," Wenk said.

Thea Lee, policy director for the AFL-CIO labor federation which has long pushed for stronger worker protections in trade pacts, said the Tuesday night debate showed the ground was "definitely shifting" on trade in the United States.

"From our point of view, folks are on record now on a lot of these things and we certainly will be following up," Lee said, adding that the United States had to use the threat of withdrawing from NAFTA to show it was serious.

"If you don't put exit on the table, you don't have much leverage to get a serious negotiation going," Lee said.

The largest U.S. farm organization said it was not eager to reopen the pact.

"If anything, it's contributed to our positive export picture," said David Salmonsen, a trade analyst at the American Farm Bureau Federation.

Mexico is the United States' second-largest destination for agriculture exports after Canada, and exports have increased more than threefold since NAFTA took effect in 1994.

(Additional reporting by Missy Ryan in Washington and Randall Palmer in Ottawa; Editing by Cynthia Osterman and David Wiessler)