Having pulled the US out of the Trans-Pacific Partnership (TPP) last January, the stakes are sky high for the up and coming renegotiation of the North American Free Trade Agreement (NAFTA), the three-nation deal with Mexico and Canada, as President Donald Trump follows up his campaign promise to protect American companies and jobs. The success or failure of these talks holds massive implications for businesses involved in international trade and logistics.
Trump has repeatedly derided NAFTA as obsolete and damaging to American workers. According to Global News, one key issue threatens to derail the talks: Washington’s request to eliminate Chapter 19 of the NAFTA treaty. Under these arrangements, Mexico and Canada can appeal decisions made by the US to impose duties on their products, and vice versa. Many parties view this Chapter as fundamental to the present trading arrangements between the three sovereign states.
Though getting rid of Chapter 19 may be on Trump’s wish list, Canadian officials warn that attempts to axe Chapter 19 will not please the Trudeau government, and any moves to do so will simply result in Ottawa abandoning the talks. The sensitivity and febrile nature of this issue was confirmed by a highly placed government source linked to the Globe and Mail.
Pressing the point home, Prime Minister Trudeau spoke at a press conference held prior to the talks, “A fair dispute-resolution system is essential for any trade deal that Canada signs.”
The talks for updating the 23-year-old trade pact are set to take place in Washington August 16-20, and officials from the three nations aspire to conclude a deal by year end or early next year, well before the Mexican elections in July 2018.
The high stakes involved in this process is underpinned by Trump’s insistence that he wants to do more than simply tweak NAFTA. He desires fundamental changes to a pact he has labelled a disaster and has threatened to pull out of the pact.
Observers initially feared he would act just as he did with the TPP, pulling the US out of this pact on his first day of office. However, since then, he has reversed his stance on withdrawing from NAFTA, probably because of the trade benefits the US derived from this longstanding deal. Research suggests that the NAFTA accord underpins over a trillion dollars of trilateral trade among the United States, Mexico and Canada.
“Source(s): NAFTA Triumphant Assessing Two Decades of Gains in Trade, Growth , and Jobs; Mexico; Canada
Trade Representative Robert Lighthizer told a press conference that US negotiators will take a “do-no-harm” approach to renegotiating the deal. He said the objective was to modernise outdated aspects of the pact signed in 1992 and maintain the gains the US agricultural industry has reaped from the agreement.
Lighthizer’s comments suggest the US is preparing for a surgical approach, such as cutting out Chapter 19, to avoid severing any American benefits. Trump’s top priority, hammered home time after time during last year’s ultimately successful election campaign, is to shrink the US trade deficit with Canada and Mexico by improving access for US goods exported to these countries under the three-nation pact.
Mexico and Canada officials have welcomed updating of the NAFTA agreement as long as the US does not push to impose punitive tariffs.
The US also wants to upgrade certain standards, including labour and environment standards, and control the digital trade. Canada and Mexico have agreed to upgrade these areas in place of the TPP trade pact.
Observers feel there will not be any fundamental changes to the pact after it is renegotiated. “The three countries are so tightly knitted together socially and economically that it makes it almost impossible for reinserting too many blockages to the current trade flows,’’ insisted Sunny Ho, executive director of The Hong Kong Shippers’ Council and publisher of Shippers Today.
Ho then inferred Trump’s real motives during this process, “I believe this is more an action to show to the US public the President has not forgotten his promises made during the election campaign.”
He continued, “The assembling activities currently being carried in Mexico may be affected to some degree, especially in attracting new business and investors. The extent would very much depend on the availability of substitutions. Minding most of these activities are labour intensive and low value added, the chance of relocating back to the US seems remote.
“Foxconn is building new facilities, but the investment amount is not something that ordinary businesses can afford. It might provide more incentive to source from countries that are less US’ trading rival targets, such as Vietnam and Bangladesh,” Ho concluded.