NAFTA Trading Partners Agree: It's Time for a Change

Mexico and Canada are finally in agreement that NAFTA could use an update, not that the Trump administration gave them much of an opportunity to refuse renegotiations. However, after taking a critical look at the two-decade old agreement, representatives from all three nations have reached the consensus that it’s time for a change.

At Wednesday’s CAR Management Briefing Seminars, Colin Bird, minister-counselor for trade and economic policy at the Canadian Embassy, and Francisco Sandoval-Saqui, a Mexican trade official for his country’s Ministry of the Economy, laid out their country’s agendas for the NAFTA trade talks slated to begin in Washington, DC on August 16th.

Both countries are eager to make cross-border trade more fluid without handing an unfair advantage over to the United States. President Trump has previously accused NAFTA of being “the worst trade deal maybe ever signed anywhere, but certainly ever signed in this country,” and immediately moved to dismantle it upon taking office. While his stance has softened over the last few months and the reins have been handed over to Robert Lighthizer, Trump has remained bullish on the issue — claiming domestic automakers are giving away U.S. jobs and income to Canada and Mexico.

Sandoval-Saqui refuted those accusations outright, stating that NAFTA had succeeded in integrating the supply chains in the automotive industry without giving Mexico an unfair advantage. According to Automotive News, he claimed that automobiles assembled in Mexico used an average of $5,500 worth of parts made in the United States per vehicle, while cars built in the U.S. used $3,800 worth of Mexican-made parts per vehicle. “Mexican auto parts are key for U.S. auto industry competitiveness,” Sandoval-Saqui said.

Ideally, Mexico wants the negotiations to reduce tariffs and provide a smoother flow of trade between countries. “We want to look at how to reduce friction at the borders and remove regulatory framework that is not needed. That is the challenge and opportunity to do that,” he said.

Canada is hoping for the same. “We have an opportunity to look at our shared transportation infrastructure, improve our border crossings and avoid needless regulatory differences that have nothing to do with health and safety,” said Bird. “Modernizing NAFTA goes beyond a drafting exercise, and the level of high-level political attention we have on NAFTA right now is too big an opportunity; we must not squander it.”

“For Canada, it is important that we simplify and modernize the Rules of Origin, we avoid rules that are so complicated and marginal that they actually encourage production offshore. There are over 300 pages on Rules of Origin in the existing NAFTA, and that seems like a bit of excessive red tape.”

Automakers are in agreement. The industry is mainly seeking a swift and unambiguous update that doesn’t rock the boat too severely. However, if NAFTA changes in a manner that allows car manufacturers to move product between countries more easily, all the better.

Additionally, Bird stated his country hopes to see an updated NAFTA encourage small and medium-sized companies to trade across borders, bolster support to female entrepreneurs, acknowledge the economic aspirations of Canada’s indigenous communities, and ensure workers across North America see their interests reflected in the revised agreement.

Protecting workers has also been an interest within the United States, where the United Automobile Workers’ leadership, both past and present, has urged the government to be mindful of the domestic workforce. In May, former president of the UAW, Bob King, even claimed he supported the plan to reconfigure the trade agreement — provided it maintains labor’s best interests. “Workers have to be protected, our economy has to be protected, and the environment has to be protected,” King said. “NAFTA didn’t do that. If [Trump] renegotiates NAFTA to do all that, great. I’m skeptical, because everything I’ve seen him do so far is to take care of the wealthy, not to take care of the workers or the environment.”

Some of that sentiment is echoed by the White House, which explicitly stated it wants to see all countries adhering to basic workers’ rights and “establish rules to ensure that NAFTA countries do not impose measures that restrict cross-border data flows.”

However, for all the agreement, neither Mexico nor Canada want to roll over and let the United States take whatever it wants from the deal. Canadian industry groups have warned Prime Minister Justin Trudeau to be exceedingly careful not to upset the current balance and let the Trump administration steamroll its neighbor to the north.

“What I hear from the business community is for NAFTA to be trilateral,” Perrin Beatty, president and CEO of the Canadian Chamber of Commerce, told Bloomberg in a recent interview. “There are very few businesses who’d want to see stranded assets as a result of changes.”

Magna International, one of the world’s largest automotive parts suppliers, is Canadian-based but does an equal share of business in all three member nations — and is wary of sudden changes to the accord. While CEO Don Walker believes updating NAFTA could benefit the automotive industry, he’s worried about alterations to the Rules of Origin.

“A change to one element of the rule could have a cascading effect on other rules that may result in unintended consequences,” Walker said.

Canada’s Automotive Parts Manufacturers’ Association concurred, suggesting that any level of protectionist policy taken by any of the three countries could be detrimental to the industry as a whole.

[Image: NAFTA Secretariat]