NAFTA needs modernization, not evisceration

Trade officials from the U.S., Canada and Mexico just wrapped up the sixth of seven meetings to renegotiate the North American Free Trade Agreement (NAFTA). This process is the result of President Trump announcement last year that his administration would revisit the trade pact in order to get a better deal for the American people.

While NAFTA could benefit from an update, Trump administration officials have made several demands that threaten the entire deal and cause serious economic repercussions.

{mosads}President Trump has repeatedly made it clear he’s no fan of NAFTA. He often calls it a “disastrous trade deal,” but in truth, the treaty has been great for the American economy. Canada and Mexico are the United States’ largest trading partners, which has been made possible by the free trade agreement.

NAFTA has helped U.S. companies export $262 billion to Mexico and more than $320 billion to Canada in 2016 alone. Since its adoption in 1994, U.S. manufacturing output is up approximately 80 percent, the economy has grown by $11 trillion, and our workforce has expanded to the tune of 50 million jobs.

While all of these benefits cannot be ascribed directly to NAFTA, it’s hard to argue that the trade deal has been a disaster for our economy. 

Representatives from all three nations must work together in good faith in order to complete negotiations and continue this successful partnership. This process cannot be used as an excuse to scrap the deal. Indeed, withdrawal would cause serious economic harm to our country.

A recent study by the Business Roundtable found that terminating NAFTA would result in an almost immediate loss of 1.8 to 3.6 million U.S. jobs and a reduction in GDP of $119 to $231 billion. Our neighbors might fare even worse, as Canada would lose an estimated 1.2 million jobs and Mexico would lose between 2.3 to 10.3 million jobs. It would be devastating for the entire region. 

With the stakes extraordinarily high, U.S. negotiators must act with precision and care. Thus far, they have wisely sought to liberalize trade on a number of fronts, such as increasing de minimis customs thresholds, opening up Canada’s overly protected dairy markets and pressuring Mexico to privatize its state-owned enterprises.

It’s unlikely that all of these efforts will be successful, but they are worthwhile goals that should certainly be part of the conversation.

At the same time, some of the negotiating objectives of the U.S. could cause the entire deal to collapse. For instance, an attempt to remove the current Investor-State Dispute Settlement (ISDS) system endangers the support of virtually the entire American business community.

ISDS is a dispute resolution mechanism that helps U.S. businesses and investors protect their investments in NAFTA countries, essentially by enforcing the rule of law within international markets. Despite concerns from some critics, it hasn’t posed a significant threat to our business community or rule of law.

The U.S. has been subject to 18 cases through ISDS since the 2000s and has won every single dispute. Conversely, U.S. investors have won or ended disputes favorably at least 40 percent of the time over the last decade. 

Likewise, the push by U.S. negotiators for a five-year sunset provision for NAFTA would be disastrous. Businesses simply cannot make important investment decisions based upon such a short timeframe.

Companies must be assured that they will have access to Canadian and Mexican markets for a much longer period of time before they purchase equipment, expand factories and locate supply chains. Further, neither Mexico nor Canada are enthusiastic about the prospect of renegotiating NAFTA once again in a matter of just years.

A sunset clause — like removal of ISDS — would be a poison pill that would effectively kill NAFTA. 

There remains a long road ahead for the NAFTA renegotiation process. Some observers have even speculated that it could last into 2019. This uncertainty isn’t good for our nation’s economy, which has been growing steadily thanks in large part to deregulatory actions and tax reform.

However, the potential harm that would result from terminating the deal would be truly catastrophic and unravel many — if not all — of these gains. If Trump wants to build an “America First” legacy that generates economic prosperity, it’s imperative to modernize, not eviscerate, NAFTA.

Brandon Arnold is the executive vice president of the National Taxpayers Union, a conservative taxpayers advocacy organization.