It's do-or-die time for NAFTA negotiators

It's do-or-die time for NAFTA negotiators
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These are make-or-break days, according to senior officials involved in the negotiations to forge an updated North American Free Trade Agreement (NAFTA). The United States, Canada and Mexico are trying to reach agreement on divisive issues over the coming week, hopefully by May 4.

The millions of NAFTA stakeholders should pay close attention and become active advocates, as needed, to help assure that this window of opportunity is not lost in disagreement.

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If trade ministers from the three countries can find ways forward on topics such as rules of origin for autos, investor protections, dispute settlement provisions and a sunset clause for the treaty, then they will instruct their officials to work over the month ahead to craft a detailed treaty text.

 

Due to the legislative schedule needed to get an agreement through the U.S. Congress this year and because of Mexico’s July 1 presidential and congressional elections, the negotiators are going all out. Agreement is far from assured, however, given the conceptual gaps to overcome.

Unless the three governments can craft compromises, the “modernization” of NAFTA will be delayed until after a new Mexican government takes office in December. The new Mexican president could take some significantly different positions, particularly on energy issues. A delay also would result in costly uncertainty for U.S. farmers, ranchers, workers and businesses.

Also in play is vital cooperation with Mexico and Canada on homeland security issues. The U.S. gains immensely from cooperation with Canada and Mexico as it extends our security far beyond America’s physical borders.

Over the last 10 years, the U.S. and Mexico, in particular, have greatly improved cooperation on managing the border, fighting drug trafficking and cooperating against potential threats from terrorists and other bad actors before they reach the United States.

There is much to do to make that security cooperation more effective. However, the recent criticisms by President TrumpDonald John TrumpJimmy Carter: 'I hope there's an age limit' on presidency White House fires DHS general counsel: report Trump to cap California trip with visit to the border MORE of Mexico over migration has united Mexico’s presidential candidates in criticizing the U.S., sparked Mexico’s Senate to call for suspending U.S.-Mexico homeland security cooperation and generated a critical speech to the nation by Mexican President Enrique Pena Nieto.

Pena subsequently ordered a review of all cooperation with the United States. Mexican officials and politicians say they do not understand why President Trump does not value all that Mexico is doing to bolster cooperation on migration and fighting organized crime.

In recent days, President Trump raised the idea of putting a clause into NAFTA to the effect that Mexico must stop migrants from crossing their country, sparking a sharp rebuff from Mexico’s foreign minister.

Such a move could open NAFTA to other divisive non-trade issues. For example, what would the U.S. think if Mexico asked for a NAFTA pledge that the U.S. stop the illegal arms and illegal drug sale profits flowing from the U.S. into Mexico?

This clash over migration comes in the heat of Mexico’s presidential and congressional campaigns, so there is significant potential for fanning anti-Americanism. Two recent polls show between 56 and 65 percent of Mexicans hold unfavorable views of the U.S.

The next Mexican presidential debate will be held in the border city of Tijuana on May 20. U.S.-Mexico relations and the border will be on the agenda. The costs will be high if a more anti-U.S. government emerges from Mexico’s elections.

What is in play with NAFTA?

Up to 14 million U.S. jobs are supported by NAFTA. NAFTA trade totals some $1.2 trillion a year. Canada and Mexico are the two largest export markets of the U.S. and two of the top three export markets for America’s farmers.

Ending NAFTA would cost millions of jobs and significant economic losses across a wide range of sectors, from autos to agriculture. 

Energy: Since 2015, the U.S. has had an energy trade surplus with Mexico. Mexico’s 2013 energy sector reforms allowed private investment for the first time since the 1930s, and U.S.-Mexico energy commerce blossomed since strengthening North America’s energy security.

Mexico’s leading presidential candidate, Andres Manuel Lopez Obrador, however, is a critic of Mexico’s energy reforms. Maintaining strong NAFTA protections for U.S. energy sector investors should thus be a top U.S. priority.

Security cooperation: U.S.-Mexico homeland security cooperation is unprecedented. U.S. and Mexican federal law enforcement, intelligence and security agencies are working together against cross-border crime, illegal migration from Central America and potential threats from bad actors.

U.S. and Mexico agreed on a joint strategy against the drug cartels in 2017. Such collaboration is why 10 former top U.S. military commanders wrote President Trump supporting NAFTA. The president’s critical tweets about Mexico make it harder to maintain Mexican support for that cooperation.

A more competitive America

China is America’s biggest economic competitor, and our NAFTA partners Canada and Mexico provide the skills and market specialization to compete more effectively.

A modernized and revitalized NAFTA will help us do that better by incorporating the digital economy, for example, and best practices from the years since NAFTA was negotiated in 1993.

Trade ministers and officials are working intensely on the most divisive issues, including rules of origin for autos (the level of required U.S. and North American content in cars), a sunset clause (an option for any country to pull out every five or so years) and dispute settlement mechanisms (special means for protecting investors and for settling disagreements among governments).  

The U.S. has moved on rules of origin, but Canada, Mexico and auto manufacturers say more is needed for a workable plan. There are large gaps to overcome in other areas. All three parties must be flexible and creative in the days ahead.

Without agreement, however, all three economies will face costly uncertainty until after Mexico’s new president takes office in December. Those with an interest in a successful modernization of NAFTA must pay close attention and intervene if necessary to assure a good agreement now. 

Earl Anthony Wayne is a public policy fellow at the Wilson Center, former U.S. ambassador to Mexico and former assistant secretary of State for Economic and Business Affairs, among other positions.