To enhance or restrict: US must choose the former for NAFTA

As the North American Free Trade Agreement (NAFTA) negotiations continue toward an uncertain conclusion, the White House will need to choose whether to pursue an updated agreement that expands North American trade and investment, or one that restricts it. 

If the latter course is chosen, American business will for the first time in decades be faced with the prospect of urging Congress to reject a trade agreement.

{mosads}Two rounds of talks in Washington and Mexico City have now identified areas of agreement and divergence among Canada, Mexico and the United States. But even as ministers from our two neighbors have consistently framed the issues as a means to further North American competitiveness, the United States has offered a different view. 

At the beginning of negotiations, U.S. Trade Representative Robert Lighthizer warned that, “NAFTA has fundamentally failed many, many Americans,” claiming some 700,000 U.S. workers have lost their jobs as a result, a claim subsequently fact checked and debunked.   

Negotiators often open with maximalist positions, but tweets threatening to pull out of the agreement unless Canada and Mexico buckle are not designed to reassure other countries’ negotiators. As negotiations continue, it is possible to envision an improved NAFTA that wins sufficient support for implementation. 

It is also possible that the Trump administration’s efforts to change NAFTA will lead to an outcome that will be rejected by the other stakeholders in the deal, including the U.S. business community and Congress. 

For over two decades, NAFTA has supported growth, job creation and improved living standards in Canada, Mexico and the United States. Trade among the three nations has tripled since the agreement was adopted.

According to some estimates, 14 million jobs in the United States depend on trade with Canada and Mexico, across sectors as diverse as basic manufacturing, agriculture, transportation, services and the automotive industry — many in states that voted to elect Donald Trump. 

These jobs and the fully integrated supply chains that are the key to modern manufacturing production will be at risk if NAFTA falls by the wayside. 

Ending NAFTA would entail significant non-economic costs, too. The strong partnerships we share with our neighbors is the envy of our friends and adversaries around the world. If NAFTA fails, meaningful cooperation on drugs, immigration, counterterrorism and the environment could no longer be taken for granted after a generation of progress. 

Other countries will be compelled to ask why the United States treats two very close allies with such disdain, and what that implies for U.S. alliances, even as they move to take advantage of renewed Canadian and Mexican efforts to diversify their trading partners.  

Despite the discordant opening round, the NAFTA negotiations need not end badly. Business leaders in all three countries agree on the broad outlines of a modernized agreement. It should include new provisions that reflect the realities of the 21st-century economy, such as digital trade and electronic commerce. 

It should strengthen intellectual property protections so that North America continues to be a source of innovation and competitiveness. It should place disciplines on the trade of state-owned enterprises, expand the integration of North America’s energy market and put leading-edge labor and environmental protections into the core text of the agreement.

These would be significant improvements to a document that is now showing its age, and they are achievable. 

Much more problematic would be a trade-restrictive agenda that relies on artificial, managed-trade mechanisms to produce numerical balances, regardless of economic realities. American negotiators appear ready to demand new protectionist rules for many sectors, as well as more restrictive rules on product content and government procurement. 

The administration’s top negotiation objective, in fact, is to, “[I]mprove the U.S. trade balance and reduce the trade deficit with the NAFTA countries.”  But each new plea for protection will come at the price of less market access to Canada and Mexico for U.S. exporters, while hurting U.S. consumers and raising costs along the production chain. 

A focus on bilateral trade deficits in specific sectors at the expense of promoting a level playing field and the competitiveness of the North American region will jeopardize the framework of the entire agreement. 

The United States has a rare opportunity to update a unique partnership with two of its most important trading partners. For decades, trade agreements have passed Congress with the strong backing of American business.

But the opening of negotiations has revealed a disconnect between the stated objectives of the Trump administration, the U.S. business community and the other negotiating counterparts. As a result, this time may be different.

If the United States negotiates a new, more restrictive NAFTA that imperils both economic and political relations with two of our closest friends, the business community may be compelled to urge Congress to reject it.

Jose W. Fernandez served as assistant secretary of State for economic, energy and business affairs from 2009-13. He is a partner with Gibson Dunn & Crutcher LLP. Christopher Padilla served as undersecretary of Commerce for international trade from 2007-08. He is vice president for government affairs with IBM. They co-chair the Council of the Americas’ Trade Advisory Group. Council of the Americas is an American business organization whose goal is promoting free trade, democracy and open markets throughout the Americas.