NAFTA: What Now?

US objectives and timetable provide welcome starting point for NAFTA renegotiation.

LATINVEX EDITORIAL

US Trade Representative Robert Lighthizer this week announced the objectives and timetable for the renegotiations of the North American Free Trade Agreement (NAFTA).

Both announcements provide a welcome relief after the roller coaster since Donald Trump was elected US president in November.

Contrary to Trump’s campaign threats, his administration will not pursue tariffs against Mexico.

While the US does focus on reducing the trade deficit with its southern neighbor, the USTR states that that objective will happen through “increased market access.”

“Through the renegotiation of NAFTA, the Trump Administration will seek a much better agreement that reduces the U.S. trade deficit and is fair for all Americans by improving market access in Canada and Mexico for U.S. manufacturing, agriculture, and services,” the USTR’s office said in a statement on Monday.

The negotiating objectives also include adding a digital economy chapter and incorporating and strengthening labor and environment obligations that are currently in NAFTA side agreements. Additionally, among other objectives, the Administration will work to eliminate "unfair subsidies, market-distorting practices by state owned enterprises, and burdensome restrictions on intellectual property," the USTR's office announced.

One Mexican official told Reuters that the US objectives were "not as bad" as feared and initial reaction from pro-NAFTA groups such as the Borderplex Alliance has also been favorable.

“We are encouraged by the inclusion of priorities in the areas of: trade facilitation, digital trade, small business, and energy," it said in a statement. “Let's work together to establish a modern NAFTA that strengthens our economy, creates new job opportunities, and positions the U.S. as the global economic leader we all know it to be."

The objectives are also a far cry from the threats of withdrawing from NAFTA or imposing a border adjusted tax, as both Trump and Congressional Republicans had threatened.

Either scenario would be costly, with a 35 percent tariff on Mexican parts driving up U.S. auto-making costs by an average of $1,145 per car, and a 20 percent BAT adding $1,800 and would have put an estimated 50,000 US jobs at risk, according to Boston Consulting Group projections quoted by Bloomberg.

However, Mexico's economy minister on Tuesday expressed concern that the United States was insisting on reducing trade deficits and raised questions about U.S. hopes to scrap NAFTA’s Chapter 19 dispute settlement mechanism that hinders the United States in pursuing anti-dumping and anti-subsidy cases against Mexico and Canada, Reuters reports.

Meanwhile, U.S., Mexican and Canadian officials have agreed to an aggressive timetable to renegotiate the trade pact, starting August 16 and aiming to conclude early next year to avoid Mexico's 2018 presidential elections, Reuters reveals.

“The negotiators will have to move fast, as they'll be under intense pressure to wrap up discussions by early 2018, before Mexico's presidential campaigns pick up steam,” Antonio Garza, US ambassador to Mexico between 2002 and 2009 during the administration of President George W. Bush, warned in a comment on July 19.

Polls show leftist Andres Manuel Lopez Obrador – a critic of NAFTA, the United States and private business – leading, in large part thanks to Trump’s anti-Mexico rhetoric. (See Mexico: Leftist Threatens Reforms).

There is no doubt that the negotiations won’t be easy. However, the US objectives and agreement for speedy talks clearly provide a welcome starting point.  

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