Is there a future for NAFTA?

Members of the free trade agreement are struggling to move forward in the renegotiation process

Is there a future for NAFTA?

Donald Trump has repeatedly threatened to abandon NAFTA. The next round of negotiations will take place in Mexico from the 25th of February until the 5th of March 2018. So far, Canada and Mexico have been trying to address the United States’ demands in order to update the terms of the deal and, while it is unlikely that negotiations will conclude on schedule, there is optimism about the future of the trade agreement.

The North American Free Trade Agreement entered into force in January 1994. It was created to expand trade between the US, Canada, and Mexico by progressively eliminating tariffs and other types of restrictions.  In August 2017, the member states began renegotiating after president Trump manifested his intention to withdraw from the deal unless better conditions are guaranteed for the US.

Since he was running for president, Trump said NAFTA was “the worst trade deal” and he continues to blame it for the loss of jobs in the US manufacturing sector. While it is true that jobs have been lost, it is important to look at the bigger picture.

On the one hand, many jobs disappeared as companies could find cheaper labor south of the border. On the other hand, jobs have also been created and, in fact, millions of jobs based in the US depend on this trade agreement. According to Josh Bivens, director of research at the Economic Policy Institute, many low skilled jobs were lost, but jobs pertaining to design and business services were created, Business Insider reported.

Also, the US Chamber of Commerce examined the results after two decades of NAFTA and in a 2016 report they stated that: “Trade with Canada and Mexico supports nearly 14 million American jobs…The expansion of trade unleashed by NAFTA supports tens of thousands of jobs in each of the 50 states—and more than 100,000 jobs in each of 17 states”.

At the end of the day, the question is: would the US jobs come back to the mainland if it abandons NAFA?

While Trump seems to believe that withdrawing from the agreement will bring jobs back to his country, many argue that it would actually have a detrimental impact on the US economy. CNN money, for instance, stated that dissolving NAFTA would more likely cost U.S. jobs.

“When costs in one country rise -- as would happen with Mexico if NAFTA is killed -- companies just move operations to the next cheapest country. It could be another country in Latin America or an Asian nation”.

While disagreements persist, the US administration has recently signaled progress in the negotiations. Commonly, the most contentious topics are discussed at the end of the talks and, although the countries expect to reach a deal by the end of March, the conversations could be extended.

Nevertheless, recent declarations by government officials seem to indicate that there is a future for NAFTA. According to Bloomberg, US Trade Representative Robert Lighthizer said that the talks are going well, and the US is making headway in its efforts to renegotiate the agreement.

Mexico’s Finance Minister also expressed confidence in the future of NAFTA. "Our central scenario is that this will go to a good deal”, said the minister, "We believe trade is good for all three nations, and that's what we're hoping for”.

Some of the major issues that are at the heart of the negotiations are the sunset clause, the dispute settlement provisions and auto parts. The sunset clause, was proposed by the US as a way to ensure that the deal stays up to date. It would basically do so by causing NAFTA to expire every five years unless all three countries agree it should continue.

Regarding auto parts, the US wants to increase the use of locally-made parts that is required in order for autos to qualify for tax-free status. Finally, Canada is keen on maintaining the dispute settlement mechanisms while the US is pushing to remove some of them.

Both Canada and Mexico have come up with alternative proposals trying to find a balance between the US’ demands and maintaining an agreement that would be beneficial for all three countries. Although the progress made so far has been very limited, the general mood now could be described as one of “cautious optimism”.


Latin American Post | Paula Bautista 

Copy edited by Susana Cicchetto

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