Washington Insider: NAFTA Talks Off to Rocky Start

The renegotiation of the North American Free Trade Agreement is a big deal and is getting very considerable press coverage. For example, the New York Times reported on Thursday that the talks got off to a “rocky start.” In addition, reports of the beginning of the talks appear to emphasize how far apart the partners are, and how different the measures of success seem to be.For example, the Times reported that the administration “lectured Canada and Mexico on the failures of the current agreement” and “began to seek significant concessions.” “We feel that NAFTA has fundamentally failed many, many Americans and needs major improvement,” said Robert Lighthizer, the United States trade representative, who is leading the U.S. team.By contrast, the Canadian and Mexican representatives say the current agreement is not tilted against the United States.The overarching issue is the importance of trade deficits--Americans buy more goods and services from Mexico than Mexicans buy from the United States to the tune of $55.6 billion last year. Lighthizer said the administration has made it clear that trade deficits are a “primary measure of the nation’s economic health.”Mexico and Canada, however, have a very different view that is united in discounting the importance of trade deficits, the Times said, and many economists agree. A nation may run a deficit with one trading partner and a surplus with another. What matters is the totality.Mexico has been even more pointed in resisting the assertion that there is a problem. The economy minister, Ildefonso Guajardo Villarreal, told a Mexican Senate commission last week that he was “delighted to analyze the situation that we call ‘trade rebalancing’ if and when we manage to improve that through expanding trade, not restricting it.”So, the Times concludes that how the administration’s political position translates into the details of the negotiations is a key issue, but there are other problems. The administration, for example, insists that it wants to do away with a system of independent arbitration that allows companies to seek the elimination of tariffs. The system has been used primarily by Mexican and Canadian companies to force the United States to abandon protectionist measures found to be in violation of the agreement.Another conflict concerns the automobile industry. Under the current agreement, a car assembled in Mexico can be imported without an import tax if at least 62.5% of the car measured by value, was made in North America. The Trump administration wants to raise that bar, but carmakers are wary. A higher share of American components, means more expensive cars, the Times says.“Many in the business community feel that the NAFTA is working quite well and they don’t want disruption in existing supply chains,” said Jeffrey J. Schott, a NAFTA expert at the Peterson Institute for International Economics in Washington. There is general agreement among the three nations that NAFTA needs to be modernized since it was written before the advent of Internet-based commerce, for example, and there is broad support for stronger enforcement of workplace and environmental protections. Indeed, the three nations already renegotiated NAFTA once as part of the discarded Trans-Pacific Partnership agreement, the Times says.But on more substantive issues, both Canada and Mexico are seen as showing a growing willingness to resist American demands.Luis de la Calle, a former NAFTA trade negotiator for Mexico, said the shock value of the administration’s threats has diminished since the presidential election. “Most people thought back then that he had powers to impose duties, close the border, prevent investment,” Mr. de la Calle said. “Now people have learned what trade experts knew all along, that he doesn’t have those powers.”The administration also will need congressional support for a revised agreement. Democrats, who have long sought changes to NAFTA share many of the administration’s stated goals but political infighting could complicate any alliance.There is also little if any congressional support for the administration’s threat to withdraw from the trade agreement if Canada and Mexico resist improvements.Ms. Freeland of Canada spoke first on Wednesday, and described the deep friendship that our countries share. Mr. Guajardo Villarreal struck a similar tone. “NAFTA has been more than a trade agreement,” he said. “It has made us think of ourselves as a region.”However, while Mr. Lighthizer acknowledged that NAFTA had benefited groups including American farmers and communities along the Mexican border, he then insisted that the agreement was broadly damaging causing the loss of hundreds of thousands of U.S. jobs.He also asserted that the views of the president about NAFTA are “well known” and “he is not interested in a mere tweaking of a few provisions and a couple of updated chapters.”So, the talks are now underway—and the opening statements reveal a wide, wide chasm between trade policy views of NAFTA partners. “Microbalancing,” the policy many U.S. officials seem to prefer seems likely to mean more protections and restrictions, rather than market growth, and a greater threat to current and potential ag markets than many observers formerly believed. As a result, these talks should be watched closely as then develop, Washington Insider believes.