It’s official: NAFTA will be the new TPP with fewer countries

July 18, 2017

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 (ISDS) 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 a commitment to seek “an appropriate mechanism” to avoid manipulation of exchange rates (which neither country has done in decades). In 2016, the Obama administration thought the most appropriate mechanism was a side letter to the TPP committing to regular consultations on currency between finance ministries. 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 is unclear what “genuine” means, nor how this stacks up with substantial transformation, minimum regional value content, or the other legal 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.” This was the limitation imposed on labor rights in Obama’s TPP, as well. 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 NAFTA renegotiation in May, it was going to be exceedingly difficult to shift course from legacy trade policy. Republicans in Congress set the negotiating objectives back in 2015 as part of the Fast Track delegation of trade authority to the executive branch. Under this authority, any trade deal reached before July 1, 2018 (with a possible extension until July 1, 2021) can benefit from expedited congressional consideration, if it meets the specified goals. The bill asked for continuity with legacy trade policy. The administration could have provoked a constitutional crisis had it attempted to use Fast Track without meeting the objectives. (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 congressional district by district level to attempt to keep officials bought into the status quo ante.

Perhaps most crucially, Trump’s own officials do not support change. The 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 that deal, that will be a relief, although a missed opportunity to extend the rules to Asia – the central geopolitical argument for the deal (however unpersuasive). By any measure, not an efficient use of negotiators’ resources.