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NAFTA brinkmanship fails to meet deadlines

Free Market Reflections with Steve Dittmer

Almost from day one, President Trump has threatened to pull out of NAFTA if he doesn’t get the deal he wants.

The politicians promised we would know whether or not we were going to have a new NAFTA agreement by early May.

Frankly, President Trump had it in his hands. The most important issue (gauged by the time invested in it), auto assembly and auto parts, has been discussed for weeks now, long enough that negotiators must have analysed all the different paths to creating a solution.

And the sunset clause was always a non-starter. Just working out the complex models needed to assess the percentage of parts from the U.S., the percentage of parts from North America, the percentage made by workers making so many dollars per hour illustrates how ludicrous it is to push for a five-year sunset or renewal vote on the treaty. Five years wouldn’t be enough time to phase in the complexities of any new auto manufacturing model, or allow Mexico to find a way to pay at least some workers double or triple what they’re making now. Besides, no country negotiates a trade deal for so short a period as five years.

Nonetheless the demands for a sunset clause and changing or dropping the dispute resolution system appear to have become key issues to getting a new agreement. A number of other chapters have already been buttoned up.

Drop the sunset stupidity, forget about the dispute resolution system (which those who have been operating under the treaty for 24 years say is not broken) and voilà, one has a renegotiated NAFTA treaty. Insist on them and there is no new treaty today, and a greater risk that a new Mexican government won’t ratify whatever you come up with tomorrow.

Could it be that simple? Throughout these negotiations U.S. officials have been focused on reducing trade deficits and the flow of U.S. jobs offshore. Yet neither the sunset provisions nor dispute resolutions have anything to do with satisfying those two objectives.

Take away the idea that the sunset provision and the dispute resolution are just the product of less-than-logical politicians, and one is left with an even more distasteful proposition: that the Trump administration was not negotiating in good faith and only insisted on those two dubious provisions in order to kill the deal. That is not what I want to believe but the administration had to know going in that at best those two items were just bargaining chips, something to throw away somewhere towards the end of negotiations.

That would mean the overhaul of the auto industry is still the big obstacle, even after months of negotiation.

Part of the problem here is that Trump wants to discourage companies from moving to Mexico for lower wage rates. In my opinion, it is not our government’s job to use a trade treaty to micromanage wage scales in Mexico. That is the kind of manoeuver labour unions use, or environmental zealots who believe they know better how countries should be run. It is the U.S. government’s job to make doing business in America as lucrative as possible for business. The cuts to taxes and environmental regulation done by this administration, Congress and federal agencies are steps in the right direction. But free trade is not about dictating policy to another country.

  • Read more: Over 14 per cent of U.S. farm exports seen at risk in trade disputes

So has the window closed for a new NAFTA deal? The original deadline set by U.S. Trade Representative Robert Lighthizer was May 4. The congressional deadline for this Congress to consider a treaty was May 17. It seems there is some wiggle room in this six-month lead time. Part of the time is set aside for the International Trade Commission (ITC) to review the deal and Congress has three months as set by the 2015 Trade Promotion Authority law to review and pass the agreement. Since Congress passed this law requiring roughly three months to review trade agreements, presumably Congress could revise this timeline, if it wants to. Or the ITC could agree to work faster.

As this issue went to press the Mexican officials were optimistic that a deal concluded by the end of May could still work.

Otherwise we’re faced with, at best, continued negotiations and at least another half a year operating under a NAFTA agreement that has served the three countries well in the past. President Trump will have backed into providing some certainty for awhile. Maybe a new deal may materialize by late 2018 or 2019.

I’m not concerned about a “blue wave” changing the makeup of Congress drastically, although getting a treaty through the new Congress will not be so easy. A greater concern is the possibility of a more antagonistic administration and legislature in Mexico.

What about President Trump’s threats to pull out of NAFTA if he doesn’t get a deal? Short term, given the tremendous pressure being applied to the administration by American agriculture and American businesses and a mid-term election in the offing it is hard to imagine the President pulling out this year. Once it’s too late to do an agreement this year, the timing is wrong for such a move. He could keep all the votes of rural America for the mid-term — the labour unions already know he’s trying to keep jobs in America — and thus it is prudent to wait until next year to decide whether to withdraw.

In addition, the exemptions on steel and aluminum tariffs for Canada and Mexico were to expire June 1, unless NAFTA negotiations remain ongoing. It would not seem conducive to NAFTA negotiations to slap tariffs on one’s trading partners.

In the end I think negotiations will continue. Real change will have to wait.

About the author


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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