NAFTA renegotiations aim to update an old treaty

Negotiators from Canada, Mexico and the United States are meeting on August 16 for the first round of talks in the renegotiation of the North America Free Trade Agreement (NAFTA). This will be the first major reworking of the landmark trade accord since it came into force in January of 1994.

The NAFTA was one of the first of its kind: a big, multilateral free trade agreement that incorporated North-South cooperation - that's diplomat-speak for bigger, rich economies (the US and Canada) agreeing to trade with smaller, developing economies (Mexico).

But 23 years ago, the world was a much different place, and the NAFTA needs updating, experts agree. The internet as we know it today - along with many jobs that it created - did not exist.

"When you look at the last 20 years of Canada and the US, there are issues that Canadian and US business communities need to address," said Daniel Ujczo, an American lawyer specializing in international trade and customs. "The irony of this situation is that while this came about with a very anti-trade rhetoric from people like the [US] president, there is an opportunity to advance the ball. Or, puck, for our Canadian friends."

"Canada has always been upfront about wanting to renegotiate the NAFTA," said Sarah Goldfeder, a former US diplomat to both Mexico and Canada. "Mexico has done a really good job of having other trade negotiations in the hopper, so they're building new markets."

The stakes are high. These countries are among each others' biggest trading partners. 

"Trade with the US and Mexico is more than 25 percent of Canada's GDP and accounts for more than 75 percent of their exports," said Laura Dawson, director of the Canada Institute at the Wilson Center. "They have to at least maintain the status quo."

In 2016, the US-Mexico goods and services trade was worth $579.9 billion (493.8 billion euros), making it the US' third-largest trading partner. And with elections looming for all three countries in 2018 and 2019, everyone wants to be able to show off something to their home team.

What the US wants

In its negotiating objectives, released in July, the US stipulated that the new NAFTA must "break down barriers to American exports" and eliminate "unfair subsidies, market-distorting practices…and burdensome restrictions of intellectual property."

"There are two big buckets of what the US wants," said Alden. "One is sensible updates to the old agreement. The whole modern digital economy is not in there." 

The other "basket," said Aled, will be harder to get through because it contains the "America First" issues, including the US trade deficit with Mexico, allegedly the entire reason why Trump wanted renegotiations in the first place.

The problem is, said Walid Hejazi, associate professor at University of Toronto's Rothman School of Management, trade agreements have nothing to do with trade deficits.

"Trump somehow thinks he can negotiate a deal that would force Mexico to take American exports but the US would not import anything from Mexico," said Hejazi. "That's not how trade works."

Sorry, but what does Canada want, eh?/Mais qu'est-ce que veut la Canada?

Canada, above all, wants to keep its access to the US market. Their focus will be on customs and border protections, experts said.

"The position is we like the status quo," said Mark Warner, a Canadian international trade and antitrust lawyer. "We'd like all the things we have now, but we want more access to the US and without anyone opening up trade disputes."

Trump wanting to renegotiate NAFTA is a secret boon for Canadian Prime Minister Justin Trudeau. "Trudeau was elected after TPP [the Trans-Pacific Partnership] was negotiated and signed, but his constituency wasn't pleased with TPP at all," said Goldfeder. "He needed a way to downplay TPP. So when Trump walked away from it and talked about renegotiating NAFTA, it worked out well for him."

That doesn't mean Trudeau is off the hook. "This is a hot potato for Trudeau," said Ian Lee, associate professor at Carleton University's Sprott School of Business. "The US is our largest trading partner in the world. The overarching goal is to ensure that we have as much as possible guaranteed access to the US market. Everything else is a detail."

Mexico's objectives

"Mexico is going into the negotiations with a mind that they have to defend NAFTA," said Mireya Solís, senior fellow for foreign policy at the Brookings Institute. "There is a firm idea that is has to remain a trilateral agreement."

"Certainly there is some upside to Mexico for updating the treaty," said Russell Green, international economics fellow at Rice University's Baker Institute. "But they weren't the driving force, and in context of all the other aspects of Trump's focus on Mexico, that puts them on the defensive."

A big concern will be implications for Mexican jobs, said Hejazi. "If Trump forces some kind of outcome that limits Mexican exports, that will have a direct impact on Mexican prosperity and jobs."

This wouldn't bode well for the elections that Mexico is staring down in July of 2018. The ruling party doesn't want to look like it capitulated to US demands, said Green.

"They could try to finish up negotiations as quickly as possible and hope everyone either forgets about it, or is happy with the outcome," Green said.

And as always with Trump, said Ujczo, this could all change with a single tweet.