THE NAFTA: A “DISASTER” WORTH KEEPING?
Within days of being confirmed as the new US Trade Representative, Robert Lighthizer issued an official notice to the US Congress in early May advising of the Administration’s intention to enter into NAFTA negotiations.
All through the long and relentless 2016 US presidential campaign, then-candidate Donald Trump railed against the NAFTA as “the worst trade deal maybe ever signed anywhere”. He committed to renegotiating “a better deal by a lot” or withdrawing from the deal altogether.
So why is the official notice of an intent to renegotiate the NAFTA newsworthy? It was certainly telegraphed enough long beforehand. Loudly… and repeatedly.
Well, providing notice to Congress triggers a 90-day timetable for consultations. It also sets out when negotiations can commence in accordance with the most recent version of US fast-track trade negotiating authority, the Trade Preferences Extension Act of 2015.
The real news therefore is that NAFTA negotiations can now commence sometime on or after August 16, 2017.
In the lead-up to late August, officials from all three countries are undertaking preparations, including stakeholder consultations on the various perspectives of their respective industry stakeholders, consumers and citizens.
And the various interests, especially in the US, have been keen to make themselves heard with respect to NAFTA.
Since announcing public consultations in May, the USTR has received over 12,000 written submissions. Three days of marathon public hearings involved 130 witnesses with perspectives that ranged from anxiety over the possible demise of the Agreement, to bottled-up anger over the Agreement’s perceived failures, and everything in between.
Textiles, plastics, steel, the recording industry, the NFL, automakers, freight, environmental groups, home builders, farm groups, pet food manufacturers — representatives from all these sectors offered testimony.
To illustrate the extremes of the stakeholders’ perspectives resurfacing, one of those submissions entered is from R-CALF — the US western-based Ranchers-Cattlemen Action Legal Fund.
Yes, R-CALF is back.
After spending nearly a decade in a losing effort to impose protectionist US country-of-origin labeling measures — which then morphed into a WTO dispute wherein the US government was forced to ultimately rescind the measure — R-CALF now advocates for reinstating US COOL.
And nary a mention of the past legislative and protracted trade dispute history to mar their twenty-five or so pages worth of undistilled diatribe about the ills of imported product.
Ask any Canadian cattle producer, and they will have much to say about R-CALF and US COOL. About how much the ensuing fiasco cost the industry on both sides of the border. About how the effort came close to unraveling the intricate supply chain integration of the North American beef industry upon which its global competitive position is built.
Supply chain integration is one of the key benefits and successes of the NAFTA. It goes to the competitive edge of many sectors with North American-wide operations, whether that be in beef, pork, steel, autos, etc.
Autos is the poster child for sector integration and resulting cost efficiencies attributable to the NAFTA. Auto parts crisscross North American borders at least eight times before final vehicle assembly, according to the Alliance of Automobile Manufacturers’ recent submission to USTR.
The uncertainty alone attached to announcing NAFTA renegotiation has put a chill on future investment plans in that sector, and across industries. If the continental business model is to unravel, then industry will simply adapt to using inputs from outside North America.
Multinational mobility guided by profit, not patriotism.
Acknowledging the high stakes at risk in the upcoming NAFTA negotiations, US Commerce Secretary Ross — the Administration’s co-lead in these talks — has repeatedly committed to a first rule of “do no harm” when talks get underway.
The implication from the Administration is that the NAFTA is not all that bad after all— that some parts deserve careful preservation.
And therein lies the contradiction in narrative that presents a serious challenge for the new US Administration. For they are the ones that got this party started, more as a call to arms to correct “the disaster” wreaked by the worst trade deal ever signed. Anywhere.
A counter message voiced by a growing aggregate of American industry and government representatives points to the benefits of the NAFTA as amassing the world’s largest free trade area, spurring commerce in a collective marketplace of some 450 million people representing a combined GDP of some $20 trillion (or about 28% of the global economy).
Within US circles, the fact has not been lost that Canada and Mexico have consistently been the top destinations for US exports, collectively accounting for more than 34 percent of US shipments abroad in 2016.
Secretary Ross has indicated in the past that NAFTA negotiations could be completed by the end of this year or early 2018. USTR Lighthizer has been more circumspect, suggesting that he wouldn’t be bound by “artificial deadlines”.
In a revealing assessment of the high stakes politics at play offered during his first public testimony before the Senate Finance Committee, USTR Lighthizer stated: “I’m very focused on the fact that when we bring something back, it has to pass, and that there’s almost no margin for error.”
An added complication is the Mexican presidential elections in July 2018 and US mid-term elections in November next year, which suggests that the clock is already ticking on these negotiations.
Talks haven’t even begun yet, and still: tick, tock, tick, tock.
Expectations have been raised high in the US regarded outcomes. After all, NAFTA renegotiation was promised to produce “a better deal by a lot”.
This makes the politics of selling a renegotiated NAFTA problematic. A mere “tweak” to modernize the Agreement would not address the grand promises made to US auto and manufacturing workers in the Rust Belt.
Yet a serious overhaul of the Agreement will take time.
The new Administration, which denounced the NAFTA as a product of previous administrations and their poorly-assembled negotiating team, will own the outcome of this coming renegotiation. And they know it.
After all the vitriol and political toxins poured on the trilateral agreement during the campaign, can the new Administration sell a tweaked version of the existing Agreement or is a substantive overhaul of the NAFTA now the only way?
Are the political considerations the same for both US partner countries, or distinguishable as between Canada and Mexico?
If the latter, would a bilateral negotiating construct be more efficient?
Would the compromises deemed acceptable to each of the three country participants in order to complete negotiations be able to pass a jaded US Congress?
All pressing questions.
The USTR will issue a more detailed listing of what the US Administration hopes to gain from these talks on July 17th. This will offer some sense of the anticipated scope of the upcoming talks.
But there will be no crystal ball answers until the reality TV show called US politics airs its new spin-off series, The NAFTA, in late August/early September.
The title of the first episode: Do No Harm.
Tick, tock, tick, tock.