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Is fortune smiling on NAFTA?

Free Market Reflections with Steve Dittmer

If fortune is smiling on Canada this spring, you will be reading this column for clues as to how an agreement in principle was finally forged on renegotiating NAFTA.

For months now we’ve been tracking the convergence of numerous factors that were pointing towards a do or die situation either this spring or in 2019. Mexican and U.S. elections, President Trump’s Trade Promotion Authority renewal, Canadian provincial elections and tremendous pressure on the Trump administration from farm, ranch and business interests were key factors. In addition, if the Trump administration were to present a new treaty to a Republican Congress before November elections, it would have to allow for a six-month notice and a crowded legislative calendar, meaning an agreement by May’s end. Technically, the exemption from the U.S. steel and aluminum tariffs for Canada and Mexico as involved in NAFTA negotiations expire May 1.

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Frankly, in the States the ruckus over a potential trade war with China pushed NAFTA off the media radar; even farm state media is focused on beans and hogs and China.

So important negotiating stages regarding NAFTA were going on without gaining much attention. When the quietly scheduled eighth round of talks was set aside because the top officials were coming to Washington smelling a deal, few took notice. But Mexico and Canada had sensed a willingness from the U.S. to back off some demands that they considered out of the question. And the renegotiation of the U.S. Free Trade Agreement with South Korea had been completed off-stage, quietly and quickly with no startling changes.

Then we had the quickly gathering firestorm around proposed tariffs between China and the U.S. sucking most of the oxygen out of Washington. How much that pressure was wearing on President Trump after months of NAFTA standoff, only a handful knew. But he is not known for his patience. With the pressure of stalled immigration negotiations, the China contretemps, endless investigations over phantom Russian conspiracies and old scandals, NAFTA negotiations might well have been seen as a good place to gather a win, a chance to get something important successfully off the table and notch another win for Republicans before the November elections.

Whether the three countries managed an optimistic communique, a framework/agreement in principle or a real agreement with details to be hashed out by those in the diplomatic trenches this summer, much will have been determined by the auto industry. U.S. demands for higher percentages of both NAFTA-member and American-made parts in autos had evidently shifted to a percentage of parts made by workers earning a certain wage level. The concept was to take away some of the pressure for manufacturers to relocate to Mexico solely on the basis of labour costs, something not everyone agrees happens very often. How Mexico would deal with such a requirement, given that their current wage levels would fall short, hadn’t been revealed at our deadline for this issue. Presumably, Mexico’s industries would be allowed some time to phase in wage increases.

Hopefully, we will not have to go through what Canada experienced with a Canadian/EU agreement in principle in 2013 that did not go into effect for almost another four years, according to Patrick Leblond of Ontario’s Centre for International Governance Innovation (“White House Tries to Pull NAFTA Back From Brink as Deadlines Loom,” New York Times, April 5, 2018).

Two other sticking points had been government procurement and dispute resolution. It would seem the former could be solved by rules encouraging free competition to keep the cost of government administration as low as possible. As for the latter, after months of negotiations over a subject studied for decades, one would think these negotiators know everything there is to know about various dispute resolution systems. All that remains is to decide either who gives up something to get a resolution on a new system or agree on refinements to the present system.

In fact, while it is true the negotiators do the easy stuff first and leave the toughest nuts until the end, the final result always somewhat depends on when the “end” is. All the positions on the tough issues and proposed solutons have been staked out months ago. But if the three leaders agree to set a date upon which the issues shall be resolved — which forces them to make certain calls that have to be made — the diplomatic troops can draft a lot of language when necessary. The key rests with the leaders, especially President Trump, who started all this.

Whichever way things go in the pivotal month of April and what remains to be done in May, we should all know where things stand by the end of May. Either we will have a renegotiated NAFTA — if the three countries’ legislatures approve — or we all live with the existing NAFTA agreement until well into 2019.

About the author

Contributor

Steve Dittmer is the CEO of Agribusiness Freedom Foundation, a non-profit group promoting free market principles throughout the food chain. He can be reached at [email protected]

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