After deliberations last week in Washington by the key ministers ? Canada’s Chrystia Freeland, Mexico’s Ildefonso Guajardo, and the United States’ Robert Lighthizer ? three doors lie before their leaders:
- Pursuing a big deal with negotiations suspended until next year, after the Mexican inauguration and new U.S. Congress convenes.
- Agreement now on a modest deal, such as the recent remake of the Korea-U.S. Free Trade Agreement.
- The booby prize – Trump rescinds NAFTA.
Calling NAFTA “the worst trade deal ever,” Trump has come close to scrapping it on several occasions. Farmers, auto workers, and business – key components in the Trump base – now say “do no harm“ to NAFTA.
Congress is responding to their pressure by telling the U.S. president to reform NAFTA. After enduring 23 years as one of the scapegoats for job loss and illegal migrants, its threatened demise has rehabilitated NAFTA with half of Americans saying they want to keep it.
As Sino-American trade tensions continue to escalate, China requires sustained attention from the Trump administration.
If Trump wants to build international support to persuade China to curb its overcapacity in steel production and to follow international norms on intellectual property, then repairing neighborhood relations makes good geopolitical sense. With the midterms approaching, it is also good politics.
So what would a revised NAFTA, even in a modest deal, look like?
Dispute settlement is the red line for Canada and Mexico. The Trump administration is applying trade retaliation as never before. Canada has felt the U.S. sting on softwood lumber, Bombardier jets, and newsprint. It also faces tariffs on steel and aluminum – exemption depends on the NAFTA talks. Canada and Mexico must have redress, beyond the U.S. court system, from unilateral U.S. trade actions.
A new content formula for North American autos appears within grasp, although Mexico will need to bend on the minimum-wage component.
Access to government procurement could be resolved by letting governors and premiers figure this out through regional reciprocity agreements. Canada did this in 2010. States and provinces handle most spending on infrastructure. Having a variety of vendors ensures better value and checks local gouging.
The Mexican idea of having a thorough review of the agreement after five years should satisfy the U.S. demand for a sunset clause.
If these pieces fall into place, resolution of other items should follow.
Canada would keep supply management of its dairy and poultry industry. In return, the U.S. will get increased quota access – what they would have gotten if they had stayed in the Trans-Pacific Partnership. The threshold after which duties apply on cross-border imports would be revised upwards from Canada’s $20 rate to that approaching the Mexican rate – $50 – but nowhere near the $800 U.S. rate.
The negotiators and ministers have gone as far as they can go. If Trump is set on a “quick“ deal, then the three leaders must weigh in.
With new auto-content rules and slight improvements on agricultural access, Trump would claim victory for auto workers and farmers. Canada and Mexico would retain dispute settlement. There would be provisions on energy as well as environment, labour and gender – reflecting elements of the Trudeau progressive trade agenda.
For Mexico, the stakes are high. How will a deal affect campaigning for its July 1 presidential and congressional elections? President Enrique Peña Nieto’s chosen successor, Jose Antonio Meade, is currently running well behind the leftist former mayor of Mexico City, Andres Manuel Lopez Obrador.
And what about Congress? A modest deal won’t meet every local interest.
With effort, an agreement could be voted on during the lame-duck session after the Nov. 6 mid-term elections, but it would be tough. Trump may well decide to double down by introducing the new NAFTA and rescinding the current version, telling Congress to take it or leave it.
A modest NAFTA agreement would still be a win-win-win. North America would retain its top spot as a competitive trading platform. In time, there will be more improvements, whether through future NAFTA updates or when a future U.S. administration joins the Trans-Pacific Partnership.
Monty Hall said that there were “some strange moments” on “Let’s Make a Deal,” like the time that there was an elephant behind one of the doors. Living in Trump times, we understand what he meant.