NAFTA 2.0: Upgrading Economic Ties To Boost Competitiveness

During these last 23 months of my first term in Congress, I crisscrossed 820 miles of the U.S.-Mexico border between El Paso and Eagle Pass, Texas, many times talking about international trade. Despite the campaign rhetoric, I believe that under a Trump administration we have a real opportunity to improve North American competitiveness in the rest of the world through an upgrade of the North American Free Trade Agreement (NAFTA).

This belief was confirmed during several days of discussions on energy, commerce, and rule of law in Mexico with business and political leaders.

Our recently concluded election cycle has almost made NAFTA a new four-letter word. Supporters of NAFTA have probably inflated the economic gains of the accord and detractors have likely overestimated the resultant job losses. While the economies of the United States, Canada, and Mexico have grown, there have been both winners and losers.

It is undeniable that U.S. trade with Mexico and Canada has more than tripled since the signing of the agreement and, according to the U.S. Department of Commerce, goods exported to Mexico and Canada last year supported almost 3 million U.S. jobs – that’s more than a quarter of the total jobs supported by U.S. exports.

According to the International Trade Commission, Canada was the leading market for U.S. exports last year and Mexico ranked second. Canada and Mexico were second and third, respectively, as suppliers of U.S. imports. My home state of Texas exported more than any other state in the Union and Mexico is our number one trading partner, surpassing the next four largest – Canada, Brazil, China, and South Korea – combined.

The 29 counties I represent contain more U.S.-Mexico border than any other district in Congress. Being home to nine out of the top 50 busiest land ports of entry in our country, I have learned something very simple – the U.S., Mexico, and Canada are not competitors, but partners who build things together. We do not just sell goods to each other, but we jointly produce them. In North America, a product moves across borders multiple times before being finally sold to a consumer.

An example in my hometown of San Antonio is the Toyota Motor Manufacturing plant that produces the Tundra and Tacoma pickups. This assembly plant employs 2,299 members of the San Antonio community and supports 356,000 jobs in the U.S.

The success of this plant depends upon a trade relationship with Mexico. Based on the geographic proximity to the border, Toyota – as well as all U.S. automakers with production plants in Texas –  is able to enhance competitiveness by using auto suppliers’ Mexico-based parts operations. Toyota purchases up to $1 billion annually for their Mexico supply chain, supporting final truck assembly in San Antonio.

Christopher E. Wilson from the Mexico Institute at the Woodrow Wilson International Center for Scholars described how the phrase “Hecho en México” or “Made in Mexico” label can be misleading because, “a large portion of the money U.S. consumers spend on Mexican imports actually goes to U.S. companies and workers … a full 40% of the content of U.S. imports from Mexico was originally made in the United States.”

Additionally, U.S. content contained in Canadian imports is 25%.

The same, however, cannot be said for Chinese imports, which have only 4% U.S. content. Wilson further accurately explains that China and other Asian economies represent a larger threatening source of competition for the U.S. economy and that continued and improved economic cooperation with Mexico and Canada is one of the best ways for the United States to improve its global competitiveness and defend American industry.

In order to grow our economy, we cannot just buy American; we have to sell American throughout the world.

By enhancing the existing economic integration in North America fostered by NAFTA, the next administration has an opportunity to design a more competitive North American marketplace. President Trump has made it clear he is not interested in pulling completely out of NAFTA but rather strengthening it. My suggestion to President Trump’s new U.S. Trade Representative, Secretary of State, and Secretary of Commerce would be to focus on the following areas as a means of achieving NAFTA 2.0.

Regulatory cooperation, especially in the energy sector: Combined, Mexico and Canada account for nearly 50% of crude oil imports to the U.S., and the U.S. exports of petroleum products have increased to Mexico by 152% over the last decade according to the Energy Information Agency. The energy relationship between the U.S., Mexico, and Canada represents an area of additional growth that can be stifled by an uncertain regulatory environment. Overly burdensome government regulations can reduce market access for U.S. goods, services, and investments. Guidelines, rules, regulations, and laws for government procurement and other regulatory regimes should be transparent and based on sound science, cost-benefit analysis, and risk assessments.

Intellectual property rights, digital trade in goods and services, and cross-border data flows: Strong protection of intellectual property rights leads to innovation that creates new lifesaving drugs or disruptions in industries, leading to new opportunities. Any trade agreement should reflect a standard of protection similar to that found in the United States and Governments should never be involved in the violation of intellectual property rights, including cyber theft and piracy. Electronically delivered goods and services should receive no less favorable treatment under trade rules than physical products, and measures that impede digital trade in goods and services, restrict cross-border data flows, or require local storage or processing of data should be eliminated.

Labor and environmental provisions: The American worker can compete with anyone if given a level playing field. All trade agreements should adopt and maintain fundamental internationally recognized core labor rights and effectively enforce labor laws. Likewise, common sense environmental laws that promote and protect clean water and clean air for generations to come should be hallmarks of any deal. The utilization of clean and renewable energy sources should have a common benchmark and the means to hold those who cheat accountable.

Elimination of trade distortions and unfair competition favoring state-owned and state-controlled enterprises: 90% of the exporters in Texas are small or medium sized companies. Small businesses should have equal access to international markets, and barriers that disproportionately impact small businesses should be eliminated. Companies should not be regulated by a government entity that is also a competitor, and state-run entities that receive government subsidies should not be allowed in competitive industries. To allow fair completion, trade agreements should combat government corruption by strengthening anti-bribery and conflict-of-interest laws.

Lowering barriers to agricultural exports: The U.S. continues to lead the world in agricultural production, but the majority of the world’s consumers and the highest growth markets exist outside of our borders. Protectionist approaches that close off markets or impose arbitrary caps on specific products undercut opportunities for producers and raise prices for consumers.

Modern border: When we talk about border security we must talk about international commerce at the same time. Improving the movement of legitimate goods, services, people and animals will allow us to better focus on illegal border traffic. To better facilitate commerce we need to continue to streamline our customs process to eliminate costs, invest in border infrastructure, and modernize the movement of goods and services.

It has been almost 25 years since President George H.W. Bush signed NAFTA in my hometown of San Antonio. A lot has changed in American politics and our economy since then.

Before the election, Mexico was one of our strongest trading partners and since the election that fact has not changed. Mexico will continue to be a strategic trade partner for North American Competitiveness. Just as we build things together, the U.S., and Mexico will modernize NAFTA together.