The United States Trade Representative (USTR) announced a set of U.S. trade objectives for a modernized North American Free Trade Agreement (NAFTA) on Monday. The objectives seem to offer a bit to everyone, trade skeptics and trade advocates alike. To do so, they use strong yet vague rhetoric on protectionists’ priorities, like the trade deficit, while promising to maintain and expand market access for U.S. farmers, manufacturers and the broader business community.
Beyond the general messaging, the more than 100 detailed objectives underscore the breadth, complexity and challenges of the work ahead, especially if the negotiators are to reach basic agreement by the end of the year and before Mexico enters into its 2018 presidential election campaign season.
{mosads}The negotiations are slated to begin in mid-August. On the positive side, the U.S. objectives demonstrate much common ground with its North American partners. Many of the topics and mechanisms proposed — including labor, environment, state-owned enterprises and trade in digital products — have essentially already been agreed upon by all three countries through the Trans-Pacific Partnership (TPP) negotiations. The more that can be rescued from the TPP text, the more likely it is that the NAFTA negotiations will be able to be concluded quickly and successfully.
Since the renegotiation was announced, the business and agricultural communities have vigorously stressed the importance of North American trade to their bottom line. Canada, Mexico and the U.S. trade some $1.24 trillion a year: $3.3 billion a day. That trade supports an estimated 13 million U.S. jobs and makes Canada and Mexico our two largest export markets in the world.
“Do no harm” was the plea of many. Instead, they advocated an update to NAFTA that would aim to reduce barriers to trade and expand exports. Much of the 17 pages of U.S. objectives reflect the private sector comments, aiming to protect and expand upon the system of interconnected regional supply chains that has made North America more competitive in the global marketplace.
There is much that can be a “win-win” in this negotiation, growing trade and creating new jobs while modernizing NAFTA to cover new disciplines (e.g., digital commerce and data flows) and incorporating best practices developed since the treaty was negotiated in the early 1990s (e.g., improved sanitary and phytosanitary practices, stronger intellectual property protections, more transparency across the board, stronger labor and environmental provisions actually in the treaty).
Ideally, the new agreement will also include some new world-class standards and practices that can be used as models for other accords, whether on anti-corruption or currency manipulation, the latter of which is not really a priority with Mexico and Canada, but could set a precedent.
However, the U.S. objectives also set off some alarm bells in Mexico City, Ottawa and elsewhere. One flashing red light is the first item in the list of U.S. objectives: “Improve the U.S. trade balance and reduce the trade deficit with NAFTA countries.” It is perfectly laudable to seek to sell more U.S. goods to Mexico and Canada, but moving toward managed trade would be quite contentious.
Both Mexico and Canada have overall trade and current account deficits with the world that, as percentages of GDP, are comparable to that of the United States. They do not run big overall surpluses like China or Germany. Additionally, many economists also argue that trade agreements are not the right place to try to fix overall trade imbalances because the overall trade imbalances are created by macroeconomic problems, not by trade.
Thus, the more sensible overarching goal might be to strengthen the position of all three countries and North America as a whole to compete with the other world trade powerhouses.
Another point of contention is sure to be the U.S. proposal to eliminate NAFTA’s Chapter 19, which allows each country to challenge domestic findings related to anti-dumping and countervailing duties through an independent tri-national panel, rather than through domestic courts. This will meet opposition from Canada, which sees this chapter as an important part of the existing treaty. Mexico and Canada are doubtless concerned about other references to tougher enforcement in the United States’ goals.
Canada and Mexico will also be looking skeptically at any new restriction that the U.S. administration may want to put in place regarding “Buy American” policies. They may also push back on the proposal for Mexico and Canada to match recent U.S. steps to liberalize their treatments of express shipments (raising de minimis levels), but this is a fair request consistent with private sector input.
These positions were not unexpected given statements by the Trump administration in recent months. Mexico and Canada will have their own objectives and have been preparing to resist those proposals they have identified as unacceptable.
The breadth of the objectives is impressive. It reflects the complex and integrated networks built over the last quarter century in North America. Fortunately, many of the topics can be more easily addressed in this update because of work done among the U.S., Canada and Mexico in the context of the TPP negotiations, but the long list of objectives suggests that a complex negotiation lies ahead.
A decision to change U.S. trade remedy law (i.e., Chapter 19) may also create additional requirements for congressional notification that could delay the conclusion of the negotiations. If the United States seeks to strengthen NAFTA’s rules of origin, which was left vague in the objectives, that would add further complexity to the process.
Delay into 2018 will increase the likelihood that the negotiations get caught up in Mexico’s presidential elections and then the U.S. midterms. This, in turn, would invite nationalistic electoral rhetoric and complicate the process of getting to a mutually agreeable and politically feasible outcome.
The negotiators will have to simultaneously address the many multifaceted substantive issues in modernizing NAFTA while managing the minefield of the political calendar in the year ahead. Let’s hope they are up to the task — some 13 million U.S. jobs and the competitiveness of North America’s regional production platform hang in the balance.
Earl Anthony Wayne is a public policy fellow at the Wilson Center and former ambassador to Mexico and assistant secretary of state for economic and business affairs. Christopher Wilson is deputy director of the Wilson Center’s Mexico Institute and author of the recent report, “Growing Together: Economic Ties between the United States and Mexico.”
The views expressed by contributors are their own and not the views of The Hill.