NAFTA needs a facelift, not a lobotomy

Mexico, Canada and the United States will soon sit down to update the North American Free Trade Agreement (NAFTA). Moving toward that process, U.S. and Mexican business leaders and officials will meet Tuesday in Washington with the “modernization” of NAFTA, as the U.S. Trade Representative put it to Congress, on the agenda. 

Many agree that this effort is worthwhile to keep our region competitive. After 23 years, parts of the agreement should be adjusted, for example, to include e-commerce, data flows and other products and services that have emerged since 1994. U.S. companies have a strong presence in these sectors. Other aspects of NAFTA will be reviewed in light of the decades of experience to address shortcomings. Each country will have their particular areas of concern.

{mosads}Three key premises should be central to discussions, however: (1) recognizing the real value of the trade, investment and production networks that currently support jobs and businesses across North America; (2) acknowledging that others in the world are rapidly improving their own competitiveness; and (3) identifying areas ripe for collaboration to help preserve and create new jobs in the face of the technological revolutions and global competition ahead.

While some criticize NAFTA, it is essential to remember that Canada and Mexico are the first- and second-largest buyers of U.S. goods in the world. An estimated 14 million U.S. jobs depend on commercial ties with our North American neighbors. Those jobs are spread across most every U.S. state. NAFTA’s modernization should not endanger these U.S. jobs or sales. 

North American trade is four-times larger today than it was in 1993, and U.S.-Mexican trade is almost six-times larger. In 1993, it was estimated that 700,000 U.S. jobs depended on trade with Mexico. In 2016, that estimate stood at 4.9 million U.S. jobs tied to commerce with Mexico. The jobs have also evolved. One result is that U.S. manufactured imports from our two neighbors hold a much larger percentage of U.S. content than from any other country in the world. 

That high portion of U.S. content reflects how much we build together in North America. We should be trying to make our cross-border production chains more efficient with NAFTA’s modernization by reducing transactional costs (e.g. border infrastructure and process improvements). 

North America is already ranked as the most competitive regional trade grouping in the world by Southern Methodist University’s Bush Presidential Center. We should be doubling down to make North America even more competitive, while creating jobs for the future global competition.

Around the globe, a big disruptive force is at work affecting jobs: technology. With new technology comes the need to retrain workers and develop better-educated workforces to use it. As NAFTA is modernized, alongside that negotiation, the governments, companies, educational and professional associations in the U.S., Mexico and Canada should engage in a process to prepare for future technological change and the challenges of creating workforces to increase prosperity. 

We can enhance the production networks that already exist across our continent. We can build on best practices to more effectively educate, train and retrain workers by bringing together education, research, business, professional, labor and other associations with federal, state and local governments in an new cooperative endeavor to accompany a modernized NAFTA.

Most U.S. manufacturing job losses in recent years were from new technology (and secondarily from trade, largely trade with China). By introducing automation and robotics, companies increased U.S. productivity and output, but this led to a decline in manufacturing employment. U.S. innovation and investment in technology helped keep U.S. global competitiveness high, while the U.S. companies’ ability to source production across North America helped fend off global competitors. 

Though lower-skilled jobs in the U.S. were lost, including to Mexico, new higher-skilled U.S. jobs were created. The U.S. is still one of the most innovative countries in the world, but the competition is fierce. Others, like China, are investing heavily to strengthen innovation and improve the ease of doing business.

The pressure from global competition and technological change is unlikely to let up. Predictions of an approaching “fourth industrial revolution” with new technologies suggest that more manufacturing (and service) jobs will be replaced with higher-skilled jobs. Serious skills gaps already exist in the U.S. workforce, and the demand for new skills and educational attainment by workers is likely to continue to rise in the U.S. as well as in Mexico, Canada and elsewhere.  

A Deloitte and Council on Competitiveness study found that the two top drivers of manufacturing competitiveness are: (1) the quality and availability of researchers, scientists and engineers; and (2) the quality and availability of skilled labor.

To accommodate the emergence of new technologies and to keep our manufacturing sectors competitive, the modernized NAFTA should build in the flexibility to allow the adjustments, training and integration that will be needed for all three countries to remain competitive as technology evolves.  

NAFTA can and should be modernized, while preserving its good results. Even the best improvements in the NAFTA text, however, will not address fundamental challenges facing workers and businesses across North America.

To help meet those challenges and to ensure that North America remains the most competitive and dynamic economic region on the planet, a new public-private effort is needed that draws on the resources not only of governments, but of businesses, labor, educational and professional institutions, to help ensure that North America’s workforces gain the skills today to excel in the jobs of tomorrow.

Earl Anthony Wayne was U.S. ambassador to Mexico from 2011-15.  He served in a range of U.S. diplomatic posts over 40 years, including six years as assistant secretary of state for economic and business affairs. He is Public Policy Fellow at the Woodrow Wilson Center for International Scholars, among other affiliations.

The views expressed by contributors are their own and not the views of The Hill.