How We’ll Assess a New NAFTA

Aug 20, 2018 - 12:00pm

Senior Vice President for International Policy

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Canadian, American and Mexican flags stand on stage ahead of the first round of North American Free Trade Agreement negotiations in Washington, D.C.
Canadian, American and Mexican flags stand on stage ahead of the first round of North American Free Trade Agreement negotiations in Washington, D.C.

After a year of negotiations, a second edition of the North American Free Trade Agreement (NAFTA) may be within reach. Some observers are skeptical, noting that many of the toughest logjams remain, but there’s no doubt the tempo of the talks has increased.

For the U.S. business and agriculture community, the question of whether to support a new NAFTA will be consequential. No trade agreement has been approved by Congress without vigorous support from the job creators who actually engage in international trade—from manufacturers and service providers to farmers and ranchers. Will that support be there for a new NAFTA?

At the U.S. Chamber of Commerce—the nation’s largest business group, representing the interests of more than three million businesses of every size, sector, and state—we know how we will proceed. Our member companies, associations, and chambers of commerce will review the agreement when it becomes public and share their views with us.

We intend to ask our members: Will this new NAFTA remove trade barriers in a way that will spur U.S. economic growth and create American jobs? Does it leave the U.S. business community worse off than the original agreement? Or is it a wash?

The Chamber outlined principles for the negotiations in June 2017 as the talks began, and they remain relevant for this assessment.

First, Do No Harm. As we wrote then: “Interrupting the $1.3 trillion in annual trade across our borders or reverting to the high tariffs and other trade barriers that preceded the NAFTA could put at risk many of the 14 million U.S. jobs that depend on trade with Canada and Mexico.”

For U.S. trade policy, the Hippocratic Oath remains critical, and the so-called “poison pill” proposals put forward by USTR will be scrutinized as they appear (or don’t) in their final form. For example, we will be examining the agreement to determine if the proposed expansion of regulation of the auto manufacturing sector (“rules of origin”) adds to costs substantially. If so, will this added red tape incentivize the offshoring of production and jobs? Will it harm American small and medium-sized auto parts manufacturers, as feared? Is this a de facto hike in trade barriers?

We’ll also ask: Will this new NAFTA eliminate or limit the original pact’s protections for investments, exposing U.S. investors to greater risk of discriminatory treatment when they do business in Canada and Mexico? Will the agreement slash U.S. firms’ access to Canadian and Mexican government procurement markets, leading to lost sales with no benefit to American workers?

Second, Restore Certainty. In June 2017, we wrote that industry’s chief desire was to end the uncertainty brought about by the frequent threats to withdraw from NAFTA. We wrote: “Uncertainty about the future of America’s terms of trade with Canada and Mexico would suppress economic growth and may engender political reactions that undermine U.S. exporters.”

With this in mind, we will examine the new NAFTA to see if proposals that seem almost designed to keep uncertainty high make it into the final agreement. One example is the proposed “sunset clause,” under which the agreement would automatically expire after a fixed number of years unless all three parties agree it should continue. This would create permanent uncertainty and undermine the business confidence needed to foster investment in job-creating enterprises.

Also, Congress, the business and agriculture communities, and most Americans like their trade agreements “strong and enforceable.” However, USTR has proposed to make compliance with NAFTA dispute settlement rulings purely voluntary. This could very well lead to a situation where governments are free to ignore their commitments with impunity. We will be looking to see how these provisions come out in the final agreement.

Third, Keep the Agreement Trilateral. As we wrote 14 months ago: “Maintaining the NAFTA’s three-party framework is critical as transitioning to entirely new bilateral agreements presents real risks. Such a transition could disrupt the flow of commerce and cost jobs. Also, moving to divergent rules—one set for U.S.-Canada trade and another for U.S.-Mexico trade—would add to costs for U.S. companies and erode their global competitiveness.”

Those points may seem obvious, but U.S. officials’ comments about a possible bilateral deal with Mexico have recently become frequent. Such an outcome would be highly problematic: The administration sought a mandate under the Bipartisan Congressional Trade Priorities and Accountability Act of 2015 (known as TPA) only to negotiate a trilateral agreement—not a pair of bilateral pacts. USTR wrote to congressional trade leaders that it was launching “negotiations with Canada and Mexico for modernization of the North American Free Trade Agreement (NAFTA).” This and other language in the letter appears to bind the United States to a trilateral outcome—unless it starts the TPA process anew.

There are practical obstacles to bilateral approaches, too. Given that Canada and Mexico share a firm opposition to nearly all the “poison pills” named above, a bilateral approach would not break the logjam. Perhaps most importantly, it just isn’t tenable politically for Mexico to approve an agreement with the United States that is deemed “not good enough” for Canada. Canadian and Mexican officials reaffirmed their strong, shared commitment to keeping NAFTA trilateral when they met in late July—the day before Mexican officials resumed talks with the United States.

Finally, Follow TPA. Per the USTR letter of notification to the Congress, the administration affirmed it is committed to “consult[ing] closely with Congress in developing our negotiating positions to ensure that they are consistent with Congressional priorities and objectives outlined in section 102 of [the TPA law].”

This was most welcome—and not just because pursuing the TPA statute’s negotiating objectives is required by law. The TPA negotiating objectives provide a roadmap for a true modernization of the agreement. These congressionally-mandated objectives support measures to upgrade NAFTA’s intellectual property chapter, win new access to Canada’s dairy market, and secure a commitment by Canada and Mexico to raise their de minimis levels to a commercially meaningful rate. The Chamber will scrutinize a new NAFTA to see if these goals are met.

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The U.S. business community will assess a new NAFTA on these points, and that should matter to policymakers. Debates over trade agreements are always fierce, and it is unlikely the agreement could win congressional approval without vigorous private sector support.

A new NAFTA that is inferior to the current agreement—one that raises barriers to trade, growth, and job creation—won’t be going anywhere. But a pragmatic approach to the final stage of negotiations—rejecting the unorthodox approaches that threaten harm to U.S. farmers, workers, and businesses—can win broad support by removing trade barriers rather than build new ones. This outcome is within reach if all three governments embrace it.

About the Author

About the Author

Senior Vice President for International Policy

Murphy directs the U.S. Chamber’s advocacy relating to international trade and investment policy.