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Three-nation effort to revise NAFTA begins

Published: 
Thursday, August 17, 2017
FILE - In this April 21, 2008 file photo, national flags representing the United States, Canada, and Mexico fly in the breeze in New Orleans where leaders of the North American Free Trade Agreement met. Renegotiation of the three-way trade pact are set to start on Aug. 16, 2017, in Washington D.C. (AP Photo/Judi Bottoni, File) Kenner

Of all the trade deals he lambasted on the campaign trail as threats to American workers, President Donald Trump reserved particular scorn for one: The North American Free Trade Agreement.

The NAFTA agreement with Mexico and Canada was “the worst trade deal in history,” candidate Trump declared. He accused NAFTA of having swollen America’s trade deficit with Mexico, pulled factories south of the border and killed jobs across the United States.

Trump promised to renegotiate the 23-year-old deal—or walk away from it. Now the time has come. Five days of talks aimed at overhauling NAFTA began yesterday in Washington, with negotiations to follow in Mexico and Canada.

The United States has never before tried to overhaul a major trade agreement. So analysts aren’t sure what will emerge from the talks.

But it’s clear that delivering on Trump’s campaign promises will be difficult. A new version of NAFTA would require approval from a divided Congress. And even an improved NAFTA might not deliver the payoff Trump and his supporters are hoping for: The restoration of millions of lost manufacturing jobs.

Economists and trade analysts do see opportunities to improve NAFTA, which eliminated most barriers on trade among the United States, Canada and Mexico. If nothing else, the pact could be updated to reflect the growth of the digital economy.

But a technocratic rewrite is unlikely to satisfy Trump supporters and NAFTA critics who want a revamped agreement to shrink America’s trade deficit and return jobs to the United States.

A more aggressive approach—demanding more made-in-America content for products that qualify for NAFTA’s duty-free status, for example—risks imperiling some benefits that Americans think the trade deal provided to them.

American farmers, for example, fear losing easy access to the Mexican market. Manufacturing companies have built supply chains that crisscross NAFTA borders; they worry about having investments jeopardised. And Canada and Mexico are sure to respond to any harsh American demands with their own.

Plus, the clock is ticking. Next year brings a presidential election in Mexico and congressional elections in the United States. Forging a complex agreement will be even tougher if the political temperature is running hot.

Last month, the Trump administration listed its objectives for the renegotiation. Some of them will meet fierce resistance from Canadian and Mexican negotiators.

The administration has riled Canada, for example, by saying it wants to eliminate a dispute-resolution process established under NAFTA. That process lets Mexico and Canada appeal unfavorable rulings by US courts and agencies in trade cases. They can appeal to five-person NAFTA panels, composed of two members from each county in the dispute and a fifth that usually alternates between them. The panels’ rulings are binding.

But the panels have a reputation for overturning US trade decisions. That is especially so in cases involving Canadian softwood timber imports to the United States; a long-standing source of conflict. America complains that Canada subsidises its loggers, allowing them to dump cheap timber in the United States.

“We lose lots of sales,” says Jason Brochu, co-president of Pleasant River Lumber in Dover-Foxcroft, Maine. “It’s not fair to have subsidized lumber come in unchecked.” The ruling panels, he says, lack “a proper dispute-resolution process.” He’d like to see them eliminated.

That idea causes heartburn in Ottawa. Before they could rely on the panels, Canadians “felt they were not getting a fair shake” in US courts and administrative proceedings, says Daniel Ujczo, a trade lawyer with Dickson Wright in Columbus, Ohio. “They see (the panels) as something they earned.”

The United States also wants more leeway to slap tariffs on imports that are found to hurt American industry. For now, NAFTA limits America’s ability to use that power in cases involving Canada and Mexico. If America imposes taxes on their exports, would Canada and Mexico retaliate with their own tariffs?

In another attempt to ensure that any revamped pact promotes US manufacturing, the Trump administration wants tougher rules requiring that goods that qualify for NAFTA benefits are actually made mostly inside the three-country free-trade bloc — and don’t include too many components from, say, China. Manufacturers, which have built supply chains that straddle NAFTA borders, worry that a NAFTA redo will disrupt their operations.

Magna International, an auto supplier based in Aurora, Ontario, for instance, has 55 manufacturing plants in the United States, 50 in Canada and 30 in Mexico. Its products, such as car-seat components, can cross NAFTA borders five or six times. If it had to pay tariffs at each border crossing or produce more paperwork to prove where parts originated, Magna’s costs would rise.

If a NAFTA overhaul raises costs, “eventually that cost is going to get to you—you, the end consumer,” says Scott Paradise, a Magna senior executive.

American consumers have benefited, after all, from low-cost small cars built south of border.

Renegotiating NAFTA is part of the administration’s plan to restore a chunk of the seven million factory jobs America has lost since US manufacturing employment peaked in 1979. NAFTA lured many manufacturers to Mexico to capitalise on cheaper labour.

But Matthew Gold, a former US trade official who teaches at Fordham University’s School of Law, says robots and competition from China have played a bigger role in wiping out American factory jobs.

“Nothing in the NAFTA renegotiation will bring back that tens of thousands of manufacturing jobs that America lost to automation and to trade with China in the years since we entered into NAFTA,” he says. “While this renegotiation will improve NAFTA, it will be a great disappointment to those who expect the see its impact on their lives.” AP