Abandoning NAFTA would be catastrophic for state economies

The economic future of the United States, especially as it relates to free and open trade with our two biggest trading partners, Canada and Mexico, depends in large part on the outcome of the Trump administration’s renegotiation of the North American Free Trade Agreement (NAFTA).

That is why 13 state lawmakers from across the country have written a letter urging the president to reinforce America’s commitment to this highly beneficial trade agreement. 

There can be no doubt that NAFTA has benefitted the national economy in the 24 years since its adoption. NAFTA has generated greater economic activity by American businesses and has reduced the prices that Americans pay for the goods that they buy every day.

{mosads}Both of these NAFTA outcomes grow the economy, drive competitiveness and improve efficiency and innovation. America’s GDP is up $80 billion as a result of NAFTA, and according to the U.S. Chamber of Commerce, an estimated 14 million American jobs rely on trade with our northern and southern neighbors — nearly 5 million of which are attributed to increased trade due to NAFTA.  

States have been major beneficiaries, too, with Canada and Mexico ranking among the top three trading partners for all but one of the 50 states. The crucial role that NAFTA has played in linking American businesses of all sizes with new markets is just one reason state lawmakers are vocally supporting the preservation of the agreement.

One of NAFTA’s best kept secrets is that small- and medium-sized enterprises (SMEs) are primary beneficiaries. Seventy-five percent of companies exporting to Canada and 73 percent exporting to Mexico have fewer than 50 employees. States rely on SMEs to create jobs.

State lawmakers also worry about the removal of key provisions in NAFTA, jeopardizing important investment protections that have served American businesses well.

Statements made recently by U.S. Trade Representative Robert Lighthizer indicate that the U.S. might consider doing away with the Investor-State Dispute Settlement (ISDS) mechanism in a renegotiated NAFTA.

The ISDS mechanism, which has been included in more than 3,000 international agreements, offers assurance that American business interests are protected outside U.S. borders. ISDS provisions included in NAFTA protect the investments of U.S. companies in the event of disputes between American companies and our trading partners. 

ISDS’s track record is compelling. Within NAFTA alone, American companies have won numerous settlements against foreign governments. On the other hand, not a single one of the 18 cases brought against the United States by Canadian or Mexican companies has succeeded.

Energy companies are particularly vulnerable to the whims of nations that appropriate assets owned by overseas businesses to finance populist economic policies. Outside of NAFTA, the ISDS mechanism helped a U.S.-based firm recover $1 billion in damages after the company was treated unfairly by the government of Ecuador.

The case, which took more than nine years to resolve, was only possible because of the fair and neutral arbitration provided by the ISDS. 

In a similar instance, the provision allowed the recovery of $1.6 billion after then President Hugo Chavez had the Venezuelan government seize private assets belonging to American companies.

With Mexico poised to elect new leadership on July 1, and with leading candidate Andrés Manuel López Obrador openly discussing closing Mexican energy markets to private companies, the ISDS provision could soon be more useful than ever. 

Much has changed in the past 24 years and NAFTA needs a facelift to reflect advances in technology and changes in international commerce. If renegotiated, a new version of NAFTA can provide the certainty which countless U.S. business sectors, including energy, agriculture and manufacturing, need to thrive.

State economies will benefit, too, from a modernized agreement that expands opportunities for American companies and workers. 

After several rounds of negotiations, however, the future of NAFTA is still uncertain. We believe strongly that abandoning this highly productive trade agreement would be catastrophic for state economies and would imperil the tremendous progress that has been made in forging relationships between American exporters and new markets in Canada and Mexico.

We believe it is time for President Trump to signal his support for modernizing NAFTA, including preserving the ISDS provision, and to begin writing a new chapter for our economy.

Karla Jones is the director of the American Legislative Exchange Council’s Task Force on International Relations and Task Force on Federalism.