Trade Officials: No Deal On NAFTA (Yet)

Trade talks ended this week without officials reaching a consensus on proposed changes to the North America Free Trade Agreement, Reuters reported Friday afternoon. Senior officials representing Canada, the United States, and Mexico have agreed to resume negotiations shortly, as the May 17 deadline for a Congressional vote imposed by House Speaker Paul Ryan (R-WI) draws nearer.

The failure to reach a conclusion this week is indicative of the turbulent political forces surrounding the 90s-era trade pact, which U.S. President Donald Trump has frequently disparaged in the years before and after his election.

Since taking office, Trump has threatened repeatedly to withdraw from NAFTA if arrangements do not go his way:

We are in the NAFTA (worst trade deal ever made) renegotiation process with Mexico & Canada.Both being very difficult,may have to terminate?

— Donald J. Trump (@realDonaldTrump) August 27, 2017

Following an October 2017 Oval Office meeting with Canadian Prime Minister Justin Trudeau, the President told reporters that “I’ve been opposed to NAFTA for a long time in terms of the fairness of NAFTA. I said we’ll renegotiate. I think Justin understands this, if we can’t make a deal it’ll be terminated and it will be fine.” And just today, Trump blasted the trade deal during a meeting at the White House with U.S. automakers, declaring that “NAFTA has been a horrible, horrible disaster for this country and we’ll see if we can make it reasonable.”

Whether the President has the authority to unilaterally withdraw from trade agreements or not remains a matter of some debate.

Reuters notes that Trump’s criticisms probably went unappreciated by present automotive executives, who generally favor NAFTA:

Automakers have called NAFTA a success, allowing them to integrate production throughout North America and make production competitive with Asia and Europe, and have noted the increase in auto production over the past two decades with the deal in place. They have warned that changing NAFTA too much could prompt some companies to move production out of the United States.

The meetings on Friday marked the first time representatives from all three countries met to discuss these issues, including Canadian Foreign Minister Chrystia Freeland, Mexican Economy Minister Ildefonso Guajardo, and U.S. Trade Representative Robert Lighthizer. After meeting for less than half an hour, according to Reuters, Mexican and Canadian officials made it clear that big differences of opinion remained. Lighthizer, for his part, offered in a statement that the U.S. was ready to continue working with Mexico and Canada, saying that “The United States is ready to continue working with Mexico and Canada to achieve needed breakthroughs on these objectives. Our teams will continue to be fully engaged.” The statement made no mention of time frames or deadlines.

Lighthizer has already given way on some of the Trump administration’s original demands, abandoning the original push for vehicles to contain at least 50% U.S.-made components before qualifying for NAFTA tariff exemptions. He has also signaled a willingness to “bend somewhat on his original proposal to raise the overall North American portion of the value of vehicles to 85% from the current 62.5%,” a move designed largely to reduce dependence on parts from Asia in the assembly of cars and trucks.” The effort to emphasize the use of automobile parts produced in the NAFTA region constitutes a major element of the Trump administration’s goal of bolstering job growth and increasing investment in the United States.

Nevertheless, Mexico has not yet signed on with these efforts, which has proven to be one of the main hitches in negotiations. Guajardo, though, said his team tried hard throughout the week to come to terms, and that there were “plenty” of other outstanding arrangements to be agreed upon as well. “We’re not going to sacrifice the quality of an agreement because of pressure of time,” he said.

Reuters reports that the three sides have been “gradually narrowing their differences on autos,” according to officials and industry sources, but that other major issues remain to be resolved, including “U.S. demands for a sunset clause that would allow NAFTA to expire if it is not renegotiated every five years, and elimination of settlement panels for trade disputes.”

Why It Matters

America’s trade with her neighboring countries is vital for economic, political, and geopolitical reasons.

Since NAFTA was signed in 1994, trade has more than tripled with Mexico and Canada, who are the two leading importers of American products. This close-knit trading relationship affects numerous industries in the United States. The New York Times provides a concise breakdown:

:: Automakers ::
The automotive sector in the three countries are tightly linked, exporting and importing billions of dollars of parts. Last year the United States imported 1.6 million vehicles from Mexico. But about 40 percent of the value of the components in those vehicles came from the United States.

:: Apparel ::
American textile makers shipped more than $11 billion in goods to Canada and Mexico last year, according to the National Council of Textile Organizations. The tariffs that the three countries have on clothes under the W.T.O. are relatively high, often 18 to 20 percent.

:: Agriculture ::
Nafta opened major markets to United States farmers. American corn now is sold in Mexico, a market it had previously been excluded from. Mexican avocados, tomatoes and other fresh fruits and vegetables are now commonly found in United States groceries, especially during the winter growing season.

:: Medical Devices ::
The United States imports about 30 percent of its medical devices and supplies, and Mexico is a leading supplier. And some major American manufacturers have opened factories in Mexico in recent years.

Without NAFTA’s free trade protections, all of these products made in Mexico and Canada will cost more, and America’s producers will export less. Americans stand to gain or lose a lot with the successful renegotiation of NAFTA, and with midterms coming up, a botched agreement is not something an already-controversial President and governing party needs. The GOP rank-and-file is starting to feel the pressure as well, with Pennsylvanian Republican Senator Pat Toomey penning a May 10 op-ed warning the President “Don’t try to blackmail us on NAFTA.”

Additionally, Trump has made recent overtures to Mexico threatening NAFTA if they fail to “stop the big drug and people flows” over the U.S.-Mexico border. Should negotiations with NAFTA allies stall, or should Trump be forced to cave on the issue due to midterms coming up, he will lose much of his bargaining power in these areas. And, as The News Blender has covered previously, Mexico is already shopping elsewhere for trading partners.

An important date to remember as NAFTA talks continue is July 1. That is the day that Trade Promotion Authority, which gives the White House considerable authority in pushing trade deals through Congress, is set to expire (although it can be renewed, should the President ask for an extension). But it is also the day of Mexico’s presidential elections, in which former Mexico City Mayor Andres Manuel Lopez Obrador is the current front-runner. A nationalist populist in his third run for president, Lopez Obrador is Mexico’s Donald Trump in many ways, including in regards to NAFTA, having only recently changed his position to “absolute support” of both NAFTA and the TPP. If talks persist beyond that date, NAFTA’s future becomes even more uncertain.

The landmark free trade agreement has a major impact on American businesses and foreign relations alike. Experts remain divided over which terms will take effect should the United States withdraw from it, but the bottom line is that, in today’s ever-expanding global economy, America can’t afford to find out.