Economics: Nafta Talks Off to an Opaque Start
The joint statement issued by Nafta countries following the first round of renegotiations contained only the vaguest generalities about what they discussed and if any progress was achieved. Stakeholders briefed on the talks were similarly circumspect, but much can be gleaned from the texts of the opening statements from the heads of each country’s delegation: US Trade Representative Robert Lighthizer’s assessment that Nafta has “fundamentally failed” and requires a total overhaul stands in stark contrast to the Mexican and Canadian reps' insistence that all three countries have benefited greatly during 23 years of the pact.
Lighthizer said his government’s priority is to greatly lower the US trade deficit with Mexico — although it is unclear if he intends to achieve that through a major expansion of quotas in a shift toward regulated trade — while also raising the possibility of setting rules of origin for each country rather than for Nafta as a bloc, reviewing rules of origin and eliminating the Chapter 19 conflict resolution mechanism.
It is unclear to what extent this tough attitude toward the United States' neighbors is directed at carrying through on Trump campaign promises and a nationalist economic agenda, and how much of it, including talk of cracking down on currency manipulation, and rules governing state-owned companies and government subsidies on certain industries, is designed to set the stage for an effort to rebalance the US trade balance with China and restrict non North American countries’ possibilities of making manufacturing investments within the Nafta bloc on the part of non North American countries. In one of the biggest surprises, Lighthizer made clear he would make a concerted effort to increase the percentage of North American content on manufactured goods, to which the Mexican representative Ildefonso Guajardo correctly responded that there are no trade agreements that set rules of origin by country, because they would impose a “straight jacket” on value chains.
But what is clear is that the US has a highly ambitious agenda it hopes to exhaust in very a few months at the expense of its neighbors and the value chains that have been built throughout the region in the past 23 years, and it seems obvious that focusing on lowering its trade deficit with a specific country is no way to renegotiate a multilateral trade bloc.
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