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Clashing Over Commerce: NAFTA’s Uphill Battle

Following seven rounds of talks, a renegotiation of the tri-country free trade agreement hangs in limbo

By: Dawson Bell

Renegotiating a 2,000-page trade deal that has been in effect for 24 years and substantially transformed the economies of each participating country is no small undertaking. It should come as little surprise that the pace of progress through seven rounds of talks on a new North American Free Trade Agreement (NAFTA) between Canada, Mexico and the United States has been glacial.

But that does not mean that it is not worth doing or will not get done, according to NAFTA experts and observers. In fact, there is broad consensus that a “modernization” of NAFTA, drafted when the internet and the global economy were both in their infancy, is overdue, said Douglas George, consul general of Canada in Detroit.

“There is no such thing as a simple trade negotiation,” George said.

Modernizing NAFTA has the potential to create benefits for all three countries, he said.

“Millions of jobs depend on trade. We don’t want to disrupt that; we want to improve it,” George added.

The renegotiation itself was triggered, in significant part, by the election of President Trump, who has called NAFTA “terrible” and “unfair,” and threatened to withdraw if changes are not made. The Trump administration’s stated aim is to reduce U.S. trade deficits by, among other things, increasing Americanmade content in vehicles assembled within NAFTA countries.

That goal may be laudable, but it is also unrealistic, said U.S. Rep. Mike Bishop (RMI 8), who has attended several NAFTA sessions and planned to be in Mexico City for Round 7. Bishop serves on the U.S. House of Representatives’ Ways and Means Committee, which oversees trade issues with other countries.

“We’d like to build everything here,” Bishop said, “but that’s not how modern supply chains work. The automotive industry is very different now from when Henry Ford was bringing raw materials into the River Rouge plant and pushing cars out the other end.”

Preserving the benefits of NAFTA — which he said have been critical to making Michigan manufacturing and agriculture globally competitive — is the goal of a broad coalition in Congress. One Bishop is “confident” can be reached.

U.S. Rep. Sander Levin (D-MI 9), a longtime critic of NAFTA who voted against its initial ratification and has followed the talks closely, also said an American abdication of the treaty now would be a mistake. But Levin remains adamant that the renegotiation must include enhanced labor standards to protect U.S. jobs from outsourcing.

“We can’t ignore this issue any longer,” Levin said. “Real wages in Mexico are lower now (than in 1994). There needs to be dramatic change.”

How much leverage the Trump administration has to extract concessions from its trading partners is an open question. Both Canada and Mexico are more heavily dependent on access to U.S. markets than America is to either country. But several studies on the impact of a withdrawal from NAFTA predict severe consequences for the American economy. Moody Analytics suggests NAFTA’s collapse could trigger a recession and the loss of 3.3 million American jobs, with “the Great Lakes region bearing the brunt.” In public, Canadian and Mexican negotiators have signaled little willingness to accommodate U.S. demands, while agreeing with the need to modernize the pact.

The picture is further clouded by upcoming elections in Mexico, Ontario, Québec and the United States, with jobs and trade likely to be a top issue of debate.

“Now our time is running very short. I fear that the longer we proceed, the more political headwinds we will feel,” U.S. Trade Representative Robert Lighthizer said. “I also note that in all three countries, reaching an agreement at the negotiating table is only part of the process. In the United States, after an agreement in principle is concluded, our laws require public disclosure of text, further consultations, and numerous reports before it can be considered by Congress. Thus, in the United States, we must resolve our outstanding issues soon to maintain the possibility of having this measure be considered by the current Congress.”

Daniel Ujczo, an international trade attorney with Dickinson Wright, said one encouraging, and little noted, sign of hope was the recent indication from Lighthizer that the administration would seek authority from Congress to continue negotiating, perhaps into 2019. But he called it only a “stay of execution. We can’t sit on our hands.”