After Fourth NAFTA Round, Pessimism
The fourth round of negotiations to remake the North American Free Trade Agreement wrapped up in Washington earlier this week, and there is reason to believe that the chances for a successful outcome—defined here as an agreement for an updated NAFTA—are lower than they were before.
The assessments of the negotiators after previous rounds were marked by optimism over the progress made in the talks. Not this time.
After noting that the United States, Canada, and Mexico have completed discussions in the Chapter on Competition, and that “negotiators made progress in several other negotiating groups,” a trilateral statement went on to say that “new proposals have created challenges” and that ministers discussed the significant conceptual gaps among the parties.”
US Trade Representative Robert Lighthizer was more blunt, in his closing statement.
“The United States had two objectives in these talks,” Lighthizer noted. “First, we wanted to update a 23-year-old agreement to reflect our modern economy….Our President has been clear about our second objective. NAFTA has resulted in a huge trade deficit for the United States and has cost us tens of thousands of manufacturing jobs. The agreement has become very lopsided and needs to be rebalanced. We of course have a five-hundred billion dollar trade deficit. So for us, trade deficits do matter. And we intend to reduce them.
“Frankly, I am surprised and disappointed by the resistance to change from our negotiating partners on both fronts.”
Lighthizer claimed some progress on the first objective, “but even here we have sometimes seen a refusal to accept what is clearly the best text available in spite of the countries having agreed to it in the past.”
When he referenced previously agreed-to text, Lighthizer was referring to the Trans-Pacific Partnership, an agreement negotiated during the Obama years among the three NAFTA partners and nine other countries. Some viewed TPP as the update that NAFTA needed. President Donald Trump pulled the US out of TPP during the early days of his administration.
“In certain cases, partners who agree to TPP have actually rejected its text here,” said Lighthizer. “I would have thought by now we could have cleared chapters dealing with digital trade, telecommunications, anticorruption, and several sectoral annexes, for example.
“We have seen no indication that our partners are willing to make any changes that will result in a rebalancing and a reduction in these huge trade deficits,” Lighthizer added. “Now I understand that after many years of one-sided benefits, their companies have become reliant on special preferences and not just comparative advantage. Countries are reluctant to give up unfair advantage….Continuing to design a national manufacturing policy that is largely dependent on exports to the United States without balance cannot long continue.”
Lighizer also threatened Canada and Mexico that the US will not continue to encourage US companies to invest in those countries, if those investments go toward manufacturing for export to the United States.
Published reports indicate the US is trying to negotiate a guaranteed level of US content in all NAFTA products, in order to redress the issue of trade deficits. That, apparently, is a no-go area for Canada and Mexico.
US companies have built integrated North American supply chains that rely on supplies from Mexican and Canadian producers. The demise of NAFTA, if that is where we are heading, could deal a blow to North American competitiveness.
Mexico will host the fifth round of talks in Mexico City from November 17 to 21. Additional negotiating rounds will be scheduled through the first quarter of 2018.