Negotiators must redouble efforts as clock ticks on NAFTA

After a short cooling off period, the North American Free Trade (NAFTA) negotiators need to redouble efforts to forge an agreement this summer that all three countries find beneficial.

An agreement that preserves and increases the almost 14 million American jobs supported by NAFTA is clearly in the U.S. interest. On June 18, Secretary of State Mike Pompeo provided an optimistic perspective that agreements could be reached “in the coming weeks.”

A North America without NAFTA would lose billions of dollars in exports, millions of jobs and increase consumer expenses, according serious studies. The new U.S. steel and aluminum tariffs and retaliation by others will cost additional jobs if left in place.  

{mosads}The U.S. Chamber of Commerce says NAFTA uncertainty and the new U.S. tariffs are already raising costs and taking a toll on business. A NAFTA that better prepares the U.S. for the global competition with China makes much more sense than weakening cooperation with the United States’ two biggest export markets and production partners.

To find success, however, the rhetoric needs to move beyond misleading statements about “trade deficits” and “fair trade” to fact-based analysis and proposals to improve the agreement in ways that all three countries’ leaders can defend at home.

The U.S. and its two neighbors need an agreement that will demonstrably make North America wealthier, stronger globally and better prepared for the shocks of competition during the “Fourth Industrial Revolution” ahead.

The legislatures and publics of all three countries should examine carefully the proposals under consideration and the analysis supporting them, as well as agreements reached. They should not let governments off the hook to produce a forward-moving and forward-looking agreement. 

After the blow-up around the Group of Seven Summit, Canada is in no mood to be forced into an agreement. Canadians rallied behind Prime Minister Justin Trudeau in rebuffing the new U.S. steel and aluminum tariffs and the harsh criticism of Canada.

Canadians are chaffing from factual inaccuracies, e.g., they really do have a trade deficit with the U.S., the U.S. actually has a large manufacturing surplus with Canada and 99 percent of trade is actually tariff free.

They reject the charges that Canadian steel is a “national security” threat to the U.S., given that the nation has been a U.S. ally in conflicts since WWI.

In Mexico, there is strong support for Mexico’s $3 billion retaliatory tariffs in response to the U.S. steel tariffs, as well as for rebuffing President Trump’s continued calls for Mexico to pay for a border wall, which recently sparked a stern Twitter rebuke from Mexico’s president.  

The focus in Mexico, however, is on the July 1 presidential elections. After the vote, there is a long transition until December when the new Mexican president takes office. This gives a summer window when negotiators could try to forge agreement. Perhaps the U.S. could submit it to the current Congress before its term ends in 2018. 

These next months offer a window of opportunity for the U.S. to get a fresh start with Mexico’s new president, who will serve for six years. Mexican officials say they are ready to re-engage and expect their president-elect would welcome getting an agreement done before he takes office.

The current leader in the Mexican presidential race, left-of-center Andres Manuel Lopez Obrador, has so far taken a low-key approach to NAFTA, signaling that he supports it, but also that no NAFTA is better than a bad deal. How the U.S. handles NAFTA, and other Mexico-related issues, after July 1 can set the tone for the next six years.

In this connection, President Trump and advisors recently talked about dividing NAFTA into two bilateral negotiations. This looks like an effort to increase U.S. advantage over Mexico and Canada, which both will likely resist.

Dividing NAFTA in two would also be costly to U.S. interests. First, U.S. industry is more competitive against rival producers because a three-way NAFTA allowed companies to build more efficient integrated supply chains across North America, reducing costs for consumers.

Second, U.S. business and farmers see the new three-way NAFTA as a way to move further toward shared regulatory norms and more harmonized customs and border trade processes in order to lower costs and open new opportunities.

A recent study of the U.S.-Mexico border found that more border integration could create over a million new U.S. jobs and $140 billion in GDP growth.

Third, a three-way NAFTA accord will carry more weight than bilateral agreements in shaping international rules and norms in markets containing most of the world’s consumers.

The EU and China are working hard to get others to adopt their rules, disadvantaging U.S. companies. A new NAFTA will be a stronger base for the U.S. to present its preferred norms.

Fourth, the three-way collaboration in North America enhances energy security and supports lower prices, which in turn will make manufacturing more competitive.

Finally, some issues will be negotiated bilaterally (like Canadian dairy supports and Mexican labor issues) even in a three-way agreement.

Hard work in May on the crucial “rules of origin” for manufacturing autos under NAFTA made progress. But, important differences remain on issues including the auto rules, intellectual property, agricultural market access, labor, geographical indications, dispute settlement, government procurement and whether or not to have a “sunset clause” (an issue that helped set off the public clash with Canada).

All parties need to move on some issues (including Mexico on labor rights and Canada on dairy supports). Canadian and Mexican officials say that they are ready to work with flexibility on important issues for the U.S., but that the U.S. needs to show flexibility too, so that each party can win support for a new treaty back home. 

North America’s farmers, businesses and workers and their representatives should increase the pressure on all three governments to find creative ways to reach a NAFTA agreement this summer that benefits all three countries.

Earl Anthony Wayne is a public policy fellow at the Wilson Center, a former U.S. Ambassador to Mexico and Argentina and the former assistant secretary of State for economic and business affairs, among other positions.