By Alexandra Moffit

Photo: President Clinton Signing NAFTA, Creative Commons License

1. The North American Free Trade Agreement (NAFTA) is a treaty between the United States, Canada, and Mexico that’s been in effect since 1994.

The region is home to over 444 million people. Before NAFTA, the United States and Canada created a free trade agreement in 1989. The three countries started negotiations under the tenure of President George H. W. Bush, and the treaty was completed and signed into law by President Clinton.

2. NAFTA was put in place to encourage economic integration between Canada, the United States, and Mexico.

NAFTA pushes countries to open their markets and eliminate tariffs. Another major goal of the treaty was to create and encourage North American competitiveness in the world. NAFTA was to create an economic zone like the European Union.

Similar to the European Union, an open economic zone would allow each country to specialize. In the United States, one oft-cited example is manufacturing. Since manufacturing is often cheaper in Mexico, some companies have moved production from the United States to Mexico under NAFTA. On the other hand, surplus agriculture such as almonds in the United States could be exported to Mexico or Canada.

3. NAFTA isn’t just an agreement – there are many institutions in place to facilitate it.

NAFTA includes a Free Trade Commission. This commission oversees the work of several working groups, committees, and other entities of NAFTA. There are many working groups in place to encourage investment and trade. These are in place to encourage cooperation in areas such as labor and environmental policies. Important aspects of NAFTA include customs, goods, agriculture, and business. Millions of people in each of the three countries depend on NAFTA every day.

4. President Trump hates NAFTA.

            

President Trump blames NAFTA for the loss of some U.S. jobs to Mexico. He has called the treaty the “worst trade deal in history.”  President Trump also remarked, “I’ve been opposed to NAFTA for a long time, in terms of the fairness of NAFTA.”

As President Trump said, the treaty caused some job loss in the United States’ Rust Belt, specifically in the manufacturing sector. However, millions of other American jobs depend on NAFTA In addition, there is no proven direct causation for any net loss of jobs being because of NAFTA, as job losses depend on many factors. For example, around the same time as NAFTA, China emerged as a manufacturing powerhouse and joined the World Trade Organization. China joining the WTO is one of the many potential factors that resulted in job losses in the United States’ manufacturing sector since 1994.

5. The United States, Canada, and Mexico have been renegotiating NAFTA for several months, and there is no end in sight.

Since President Trump took office, renegotiating NAFTA has been a top priority. The three countries have been negotiating a rewrite of the treaty for the past few months, with four rounds of talks completed so far.

In the most recent meetings, the NAFTA negotiators have decided to extend negotiations into 2018. The three North American powers have not been able to find common ground on several important points. These contentious points include how to rewrite the treaty and whether NAFTA should have to be renewed every five years. The fate of NAFTA is in jeopardy. Many experts believe that the dissolution of NAFTA could jeopardize North American competitiveness, making competing with China and the European Union more difficult. The current American climate of protectionism could hurt the economic growth of all three countries in the short term and long term.

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November 16, 2017

By Alexandra Moffitt

This week, a fourth round of negotiations begin in Ottawa as the United States, Canada, and Mexico meet to renegotiate the North American Free Trade Agreement (NAFTA). NAFTA covers issues of customs, government procurement, and intellectual property rights, among others. Millions of Americans depend on NAFTA every day directly and indirectly. On October 5^th, the Atlantic Council released a report entitled “What if NAFTA ended? The Imperative of a Successful Renegotiations” and held an event on the topic. Following keynote remarks from Representative Will Hurd and the Honorable Bill Zoellick, the drafters of the Atlantic Council report and Mr. Zoellick held a roundtable discussion of the effects of NAFTA and the importance of maintaining the agreement. The atmosphere framing the discussion are President Trump’s anti-NAFTA remarks in recent months.

In his keynote, Congressman Will Hurd, a Member of the U.S. House of Representatives from Texas, said, “sometimes we forget to talk about things we take for granted.” He stressed that NAFTA created North American competitiveness in the world, and that a lot of Americans do not know that Mexican companies create jobs in the U.S. He underscored the importance of keeping NAFTA for the economic benefits.

Former U.S. Trade Representative Bill Zoellick indicated that there were serious risks and huge implications if NAFTA were lost. NAFTA is a continental base for the 21^st century, which connects three democracies and 500 million people. NAFTA allows the three countries to better compete in the global system. Zoellick said, “bilateral trade deficits are negative trade income” to President Trump, which Trump equates to losing.  Zoellick called this “economic nonsense.” NAFTA negotiators are trying to push other countries to open their markets, and remove exemptions, while removing obligations from the organization.    

After Mr. Zoellick’s remarks, the event transformed into a panel discussion of the NAFTA renegotiations with Phil Levi, Daniel Schwanen, and Javier Mancera serving as experts for the United States, Canada, and Mexico respectively. Each of the three drafted sections of “What if NAFTA ended? The Imperative of a Successful Renegotiations.” Phil Levi said there is a lot of uncertainty surrounding NAFTA. After President Trump’s Executive Order on NAFTA, businesses and agriculture came out against it. Mr. Levi cautioned that the most difficult issues in the NAFTA renegotiation have not been discussed yet.

Javier Mancera indicated that Mexico is looking to add new chapters rather than renegotiating previously decided ones. Because Chapters 11 and 19 of NAFTA each provide for a private right of action pursuant to violations, these chapters are immensely important to Mexico. Mr. Mancera mused that it was surprising that American Republicans would want to remove that clause. Daniel Schwanen stressed that Canadians have a consensus that trade helps the country. This feeling of goodwill towards international trade buoys Canada’s stance on NAFTA.

The most captivating moment of the discussion came at the end. Panelists were asked what percentage they gave that President would pull out of NAFTA. The panelists gave their percentages as 50%, 50%, 40%, and more than 50%. These percentages from experts in the field offer a chilling picture for the future of NAFTA. North America’s competitiveness in global trade are at a turning point. Will President Trump jeopardize North America’s status in the world?

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October 14, 2017

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October 11, 2017

By Marcus Gustafsson

 

International Trade, Investment and Dispute Settlement

Global trade saw a tumultuous 2016. For the first time in fifteen years, global goods trade is expected to have increased more slowly than global GDP, at a mere 1.7%. Major regional trade agreements were twice rejected, in the Brexit vote and then through President Trump’s withdrawal from the Trans-Pacific Partnership (TPP) in early 2017. Perhaps as significant was the fact that both Democrat presidential contenders, Hillary Clinton and Bernie Sanders, similarly rejected the TPP, alongside the whole of the traditionally trade-friendly GOP elite. Trump has announced he will renegotiate NAFTA, and another mega-regional agreement, the US-EU Trans-Atlantic Trade and Investment Partnership, is looking moribund. The retreat of regionalism may strengthen the multilateral WTO regime, at least in the short run, and some British commentators are urging the UK to become a global free trade haven. However, Prime Minister May is no standard-bearer for increased globalization, and the US is poised to pursue bilateral trade deals and  to circumvent WTO rules. The benefits of multilateralism are no longer viewed as self-evident in major developed countries.

In an interesting reversal of roles, Xi Jinping defended global free trade as the first ever Chinese president to attend the World Economic Forum in Davos. Taking advantage of Trump’s withdrawal from the TPP, China pushed ahead with negotiations of the Regional Comprehensive Economic Partnership slated for conclusion in 2017 (together with India, South Korea, Japan, Australia, New Zealand, and ASEAN), as well as its One Belt, One Road policy seeking to improve trade links throughout Central Asia. Despite rising anti-globalization sentiments in the US and parts of Europe, trade liberalization efforts are thus far from abandoned. Indeed, the EU managed to sign a long awaited free-trade deal with Canada, overcoming a veto threat wielded by the Wallonian regional government in Belgium. The EU also launched consultations over its proposal to establish an Investment Court System to replace controversial investor-state dispute settlement procedures. In this regard, the TTP’s innovative chapters on labor, the environment, competition and state enterprises may also be retained and revived in future deals.

Turning to the WTO, the Trade Facilitation Agreement, the WTO’s first multilaterally negotiated agreement since the organization’s creation 22 years ago, came into force in early 2017. It is expected to slash members’ trade costs by 14.3 per cent when fully implemented. An amendment to the TRIPS agreement on the availability of generic drugs also entered into force after being provisionally applied since 2003. Yet even disregarding potential pressure from an unpredictable Trump administration, the WTO dispute settlement body (DSB) faces mounting pressure. Firstly, the US blocked the reappointment of Appellate Body member Seung Wha Chang, which some commentators believe may undermine the body’s judicial independence. Secondly, China has taken a complaint to the WTO over what it considered was a promise by the EU and US to no longer label it a “non-market economy” (NME) by 2016, which otherwise allow the US and EU to impose higher anti-dumping duties on Chinese products. Any ruling will be highly contentious. Finally, experts have indicated that newly proposed reforms of the US tax code may be inconsistent with The United States’ WTO obligations.

International Finance

In international finance, multilateral cooperation has been fraying for some time. The European Commission imposed a €14 billion fine on Apple for preferential treatment by Ireland, while the Obama administration halted an attempted tax inversion by Pfizer (again, in Ireland). Tax evasion was also high on the agenda in 2016 thanks to the Panama Papers, which highlighted the use of vast, opaque structures of off-shore shell companies to hide wealth by prominent individuals. Coincidentally, Britain hosted a global anti-corruption summit soon after the leak, generally considered a step in the right direction to foster increased transparency on tax and government procurement. 

EU-US frictions again surfaced after the US finalized rules requiring foreign banks to capitalize US subsidiaries, against which the EU quickly retaliated. Similarly, final agreement on how to calculate international capital requirements for banks under the Basel III rules was delayed over a proposal that would minimize banks’ ability to use internal models to evaluate risk, and thereby increase funding pressures on European banks. Moreover, the Financial Stability Board indicated in its second annual report that new capital rules had been implemented without stymying the supply of credit in most jurisdictions, but that this might have been due to lax monetary policies, and it highlighted increased concern over the effect of regulations on economic growth.

Monetary Policy

On the monetary front, the reversal of such lax monetary policies became ever more likely with the Federal Reserve’s second interest rate hike since the Great Recession. The US election further boosted the dollar’s appreciation, prompting hot money to flow out of emerging markets, and pressuring dollar-denominated sovereign debt. Meanwhile, China continued to profess its commitment to internationalizing therenminbi (RMB) as a rival to the US dollar’s global dominance, and its efforts were recognized in the official inclusion of the RMB in the IMF’s basket of reserve currencies in October. Yet despite what looked like an emerging market recovery in the first half of 2016, the RMB saw a record annual depreciation against the dollar  and Chinese foreign reserves hit a symbolic US$ 3 tn low in January this year, prompting China to curb the excesses of its corporate dealmaking and undermine the yuan’s availability. China’s attempts to prop up the RMB also seem to have stayed the Trump administration’s hand in labeling China a currency manipulator, despite campaign rhetoric.

Conclusion

Many have looked at 2016 as heralding significant change, and while the lasting effects are still too early to ascertain, they will doubtless be felt for decades. Yet as the above review shows, even if countries increasingly asserted their national interests, in an ever more globalized, integrated world, cooperation and multilateralization continues to be the only viable game in town. However, if this is true, and the tide of history slowly but inevitably flows in the direction of progress, then much energy is currently being wasted trying to wade in the opposite direction.

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March 24, 2017