After weeks of mostly pessimistic speculation, the sixth round of NAFTA renegotiations ended last month in an atmosphere of cautious optimism: Optimism because Washington seems less likely than ever to pull out from NAFTA; cautious because there are plenty of other ways to undermine the trade pact.
Among those ways, as U.S. Trade Representative Robert Lighthizer correctly noted in his closing remarks following the latest round, is allowing these talks to drag on indefinitely. Why? Because one of NAFTA’s biggest benefits is also one of its least tangible: certainty.
The longer we allow NAFTA’s future to stay shrouded in doubt, the more immediate and long-term damage we risk doing to the United States’ global commercial positioning. At a time of American economic growth, as three dozen Senate Republicans wrote recently, it would be a mistake to do anything other than modernize the existing agreement. This makes quick, forward progress all the more imperative; the flip side is potential damage on three levels.
First, we’re putting our own industries and the thousands of companies they comprise in a remarkably difficult position. Across the board, major decisions and potential investments are on hold as businesses large and small wait anxiously for progress. That effect is directly felt by the millions of Americans whose jobs depend on NAFTA.
Second, we risk market diversion with our top export partners, Canada and Mexico. Given that much of the impasse stems from U.S. demands that neither of those neighbors shares, while they increasingly show a desire to compromise, they’re not banking their international commercial agendas on NAFTA alone.
The most poignant example is Canada’s shift on the Trans-Pacific Partnership, which has been revived after U.S. withdrawal and is due to be signed in March. After months of uncertainty over whether Canada would join, Ottawa officially signed on last month, reflecting some of its impatience with the NAFTA negotiations. The country has also recently entered a free-trade deal with the E.U. and begun talks with India and China.
Mexico is on a remarkably similar path. Also a signatory to the revamped TPP, our southern neighbor is currently broadening its own free-trade agreement with the E.U. and prospecting for new opportunities in Asia. The message from our NAFTA partners is clear: A renegotiated and updated NAFTA is in everyone’s interests, but amid uncertainty on the direction of negotiations, other avenues to broaden international commerce will be pursued.
Third and finally, the world is watching to see if the United States is willing to compromise, as is typical in a negotiation. At a time when China is aggressively ramping up its global trade leadership, including in our own hemisphere, we’re sowing doubt over whether we’re worth doing business with. At the same time, the region’s larger economies are increasingly looking to deepen and diversify their international commercial ties.
America’s hard-earned standing as a reliable and rational business partner is not one that we should take for granted.
America’s hard-earned standing as a reliable and rational business partner is not one that we should take for granted. As the maxim goes, “A good reputation is hard to build, easy to destroy, and difficult to regain.” We need not fully abrogate NAFTA to harm ours in this case — simply creating inertia is enough to do damage.
Excessive U.S. posturing at the NAFTA negotiating table could have a real impact on the degree to which potential partners — in the Americas and beyond — believe it worth their time to try to ink new deals with the United States. The result could be a very different global trade environment a few years from now, one in which regaining our lost ground may be easier said than done.
Of course, none of this is to say that the U.S. should prioritize swift talks over comprehensive talks, or that we shouldn’t advocate for our interests. But, as Lighthizer himself seemed to acknowledge, the three North American countries would do well not to let another round of negotiations pass without progress on any of the key U.S. proposals.
One of those, a proposal to change auto rules of origin to only provide tariff exemption for cars containing at least 85 percent North American and 50 percent U.S. content, has been decried by Mexico, Canada, and American automakers alike. Mexico and Canada rightly complain that such high content requirements are politically and economically indefensible. American automakers point out that even if the new requirements were accepted, they would do more harm than good to the North American auto industry and the extremely complex supply chains that make it competitive.
As a compromise in this latest round, Canada floated the prospect of including intellectual property as part of our domestic-origin calculation for vehicles. This is an idea that could help to reflect the importance of intellectual property in today’s high-tech, research-heavy world, while also taking care not to disrupt the supply chains that undergird our industries. And U.S. automakers seem to agree.
Though Lighthizer dismissed the proposal, during a pres conference Monday, as “the opposite of what we are trying to do,” it at least showed that a path forward on some of the tougher issues could be possible. But that will inevitably require the U.S. to moderate its original positions on this and other key issues like dispute panels, government procurement, and the five-year sunset clause.
To the credit of the three negotiating teams, beneath the headline-grabbing impasse on thorny topics, real progress is being made. This latest round produced much-needed agreements on anti-corruption measures and e-commerce protections. Slowly but surely, these talks are indeed piecing together a new and improved NAFTA, from which our continent stands to benefit greatly.
Still, for all the headway made on less contentious issues, the fact remains that soon enough, the key sticking points will need to be resolved as well. Real progress must be made not only during the next round of talks in Mexico City later this month, but in the weeks leading up to it. For the sake of our lynchpin industries and the millions of Americans they employ, we’d do well to realize that tough NAFTA compromises must come sooner rather than later.