It’s official: NAFTA will be the new TPP with fewer countries
Late on Monday, the Trump administration released their long-awaited objectives for the renegotiation of the North American Free Trade Agreement (NAFTA).
If it looks familiar to trade wonks, that’s because it is. In area after area, the Trump administration proposes to change the North American pact to make it more like the Trans-Pacific Partnership (TPP). The latter pact was shelved last year after it was clear that there were insufficient votes in Congress to pass it.
Given Trump’s withering critique of trade pacts, one might have expected at least some nod to economic populists. But that is completely absent from this document.
There is no commitment to eliminate or even reform the controversial investor-state dispute settlement system. Instead, the document pledges that foreign investors in the United States will not be “accorded greater substantive rights than domestic investors.” But successive administrations have always maintained that ISDS never did give greater substantive rights. So no real change there.
There were some real surprises. I was expecting to see some major changes on currency, rules of origin, or Buy America rules, but there’s no real commitments here. There’s nothing firm on currency, only commitment to seek “an appropriate mechanism.” Obama agreed to a side letter in TPP: would that meet Trump’s new mark? On rules of origin, there is a generic statement about ensuring that “the benefits of NAFTA go to products genuinely made” in North America. It’s unclear what “genuine” means, nor how this stacks up with substantial transformation, minimum regional value content, or the other standards. On Buy America, they just commit to maintain existing policy (where our trade pact partners are treated as if they were American). Not very Bannon-esque, this.
Labor is a big loser in the new document. Unions have long demanded that negotiators eliminate a requirement that labor violations can only be punished if they are done “in a manner affecting trade.” As the first ever labor rights case in a trade pact showed last month, this is exceedingly tough to meet. For the administration to keep the trade nexus requirement given this recent historical context is a big diss.
To be fair, the administration is not the only actor that deserves credit or blame here. As I wrote when the White House started the clock on renegotiation in May, it was going to be exceedingly difficult to shift course from legacy trade policy. Republicans in Congress set the objectives back in 2015, and continuity is what they asked for. It could have provoked a constitutional crisis had the administration departed from those. (Notable that this is one constitutional crisis they backed away from.) Moreover, Canada and Mexico do not want major changes, and have mobilized in the U.S. on an agency by agency and an almost precinct by precinct level to attempt to keep officials bought into the status quo ante.
Perhaps most crucially, Trump’s own officials do not support change. Today’s document bears a striking resemblance to statutorily mandated annual trade report to Congress that I wrote about in March. As I noted then, Trump trade documents are schizophrenic, opening with apocalyptic assessments of the effect of trade before settling into more conventional market access concerns in the body of the report. Today’s addition evinces the same pattern, with an introduction that promises to “stop the bleeding” of U.S. jobs caused by the old policy and then a body that extends the prior approach.
In short, from digital commerce to competition policy to intellectual property to financial services, this is basically the TPP deal that Trump canned in his first week in office. For advocates of the deal, that will be a relief, although a missed opportunity to extend the rules to Asia. By any measure, not an efficient use of negotiators’ resources.