Nov. 18 (Bloomberg) -- Barack Obama, who threatened during the presidential campaign to withdraw from the North American Free Trade Agreement unless he could renegotiate it, may delay reworking the accord as he focuses on the U.S. economic crisis.

After he becomes president in January, Obama will order a study on the world’s largest trade agreement, then seek longer- term negotiations with Mexico and Canada on how to change it, according to three advisers, who spoke on condition that they not be identified. A delay would be a victory for companies such as Caterpillar Inc., General Electric Co. and Citigroup Inc., which have tried to head off protectionism in the U.S.

The recession, the collapsing auto industry, a record trade deficit with China and other issues are pushing Nafta aside, analysts and industry representatives said.

“There should be some adjustments made to Nafta, but it’s going to take some time,” said Scott Paul, executive director of the Alliance for American Manufacturing, a Washington-based group that represents the United Steelworkers union and steelmakers. “There is an active crisis,” he said, and labor advocates see the China issue as more important.

Obama vowed to overhaul Nafta by strengthening its labor and environmental protections in his bid to win over voters in states such as Pennsylvania and Ohio during the primaries. Delaying the process would give him time to try to live up to those pledges while dealing with resistance to renegotiation by Mexico and Canada.

“They can just let it percolate while Nafta stays out of sight,” said John Magnus, a trade lawyer at Miller & Chevalier in Washington. “Eventually, he will have to level with the American public and say that Nafta is not the villain it has been made out to be.”

Other Priorities

Some Democratic lawmakers and union leaders who worked for Obama in battleground industrialized states say blocking trade deals with Colombia and South Korea, as well as taking a harder line against China, are higher priorities.

“The whole issue of renegotiating Nafta was always a symbolic argument about the failed trade policies of the last 20 years,” said Leo Gerard, president of the United Steelworkers union.

Nafta is a powerful symbol because of its unpopularity. More than half of American voters polled in June by Rasmussen Reports favored renegotiating the agreement.

Mexico and Canada have sent officials to make the rounds among Washington business associations to figure out what renegotiation would entail. While some business groups have urged both governments to embrace the prospect as a chance to update the accord, the two governments are skeptical.

Leave Nafta Alone

Changing Nafta would be “very bad,” Mexican President Felipe Calderon said during a speech at a Sept. 23 Foreign Policy Association event in New York.

“Everybody is going to lose,” Calderon said. “The choice is between a future of integration and success, and a future of distrust and resentment.”

Canadian Trade Minister Stockwell Day also voiced reluctance. “We don’t want to be putting any kind of a drag on a relationship with Nafta that has led to significant prosperity and job creation for both parties,” he said in an interview.

Mexico’s government warns that its farmers want new caps on corn and sugar imports, and that any renegotiation might result in new restraints on American agricultural imports. Canada has issues about energy, lumber and the auto industry that it would want to discuss, said Gary Hufbauer, a trade expert who co-wrote a report about ways to amend the accord and traveled to Ottawa recently.

Protectionist Congress

And Obama is already facing pressure from companies such as Caterpillar and Citigroup to support pending trade and not turn protectionist.

“Why are we seeing this rush to protectionism when we’re talking about creating American jobs?” Doug Oberhelman, who oversees Caterpillar’s global engine business, said in an Oct. 28 interview.

Obama will face countervailing pressures from Congress.

“We saw more candidates campaigning on fair trade than in anytime in history,” said Senator Sherrod Brown of Ohio, a critic of the Bush administration’s free-trade agenda. “It’s become a national priority.”

Obama joined Hillary Clinton in Ohio earlier this year in holding out the prospect of withdrawing from Nafta unless Canada and Mexico agreed to renegotiate.

“We should use the hammer of a potential opt-out” from Nafta “as leverage to ensure that we actually get labor and environmental standards that are enforced,” he said at a Feb. 26 debate, days before Ohio held its primary election.

Since wrapping up the nomination, he has added some nuance to his views.

Just ‘Tweaks’

Instead of forcing U.S. trading partners to accept new labor and environmental rules, the Obama campaign said it would “work with the leaders of Canada and Mexico to fix Nafta.” At a July campaign event, he described the changes he was looking for as “tweaks.”

That may be just as well, since Nafta isn’t really the issue it’s made out to be, said Hufbauer, a fellow at the Washington-based Peterson Institute.

“Nafta is a tarnished brand, but this is all Disney World to discuss” renegotiating it, he said. Changing the agreement “would have no impact” on unionized jobs or workers’ wages in the U.S., he said.

To contact the reporter on this story: Mark Drajem in New Orleans at mdrajem@bloomberg.net.

Last Updated: November 18, 2008 10:33 EST