NAFTA Talks: Who’s In Charge?

Joanne Butler Contributor
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Last night President Trump said (again) how the North American Free-Trade Agreement (NAFTA) is a lousy deal.  He added that the United States may have to exit NAFTA.  Meanwhile, his U.S. Trade Representative (USTR) is scurrying to renegotiate parts of NAFTA.  Further, some of the U.S. side’s goals seem to drift to towards the left.  Who’s in charge here?

The Trump administration’s goal is to go full throttle and have negotiations done by year’s end.  Mexico will hold its next presidential election in July 2018, and the Mexican side wants to wrap up the changes before electioneering begins.  But will rushing to meet a deadline put the United States in a position to accept demands we otherwise would reject?

First, a bit of history.  NAFTA was mostly negotiated under President George H.W. Bush’s administration.  Then Bill Clinton won the 1992 election – stating he was opposed to NAFTA as it lacked agreements on labor and the environment.  These were expected Democrat objections.

Clinton’s trade team negotiated ‘side agreements’ on these issues.  The revised agreement was passed by both houses of Congress and signed by President Clinton in 1993.  It went into effect in January 1994.

In June 2017, the Office of the U.S. Trade Representative (USTR) published its list of NAFTA objectives.  Curiously (for a Republican-Trump USTR) it states that Clinton’s side agreements on labor and the environment should be made part of the entire agreement.  This seems unnecessary, and opens up the possibility of further negotiations on labor and environmental standards.  If this happens, it will make for a tougher sell to a Republican House and Senate.

On page 12 of USTR’s document is an objective for non-discrimination in employment.  Why was this necessary?  Whose non-discrimination standards will apply under a new NAFTA?  Will Canada, with its liberal non-discrimination standard, replace U.S. law and jurisprudence?

For example, the U.S. Supreme Court found in the 2012 case of Hosanna-Tabor Evangelical School that religious institutions should have wide latitude to determine who was or was not performing a religious/ministerial function.

Canada, however, has a much narrower view regarding discrimination by a religious organization.  In hiring, the religious organization must state at the outset that its reason for hiring only Lutherans, Catholics, Jews, etc. is rationally connected to the job (information here; see slides 15-20).

Further, some, like Jorge Castañeda of New York University (and formerly Mexico’s foreign minister) want to go beyond an employment discrimination clause, and insert an enforceable Human Rights section into NAFTA.  This section would include how the United States treats Mexican illegal immigrants.

Some of the USTR objectives reflect good common sense for the 21st century, such as allowing importers to pay duties electronically (unthinkable back in 1994).  Another is to streamline and harmonize customs and sanitary inspections to lessen chokepoints at border crossings.  And so on.

A major actual trade issue will be settling rules of origin for textile and agricultural products.  For example, it’s non unusual to have a piglet or calf born in one NAFTA country, fattened in the United States (with cheaper U.S. grain) and slaughtered in another NAFTA country.  For tariff purposes, what’s the country of origin of the animal?

For textiles, the dispute centers over whether the final textile product should made of U.S. fibers (e.g., cotton) to qualify for NAFTA’s low tariffs.

Mexico could argue that its contribution of labor involved in cutting and sewing a garment (or pillowcase, etc.) outweighs the relative low cost of the cloth or fiber.  As you might expect, U.S. cotton and cotton yarn producers disagree.

My hope is that all three sides ditch the social feel-good stuff and stick to the (boring but necessary) mechanics of trade.  The negotiators should concentrate on reasonable supply-chain rules (freeing up those border chokepoints) and settle the various rules of origin issues.

These are straightforward Business 101 concerns that reflect how firms in the NAFTA countries have adjusted their activities over the past twenty years.  Hopefully, President Trump will understand the need to make NAFTA work better for U.S. companies.

But under no circumstances should U.S. negotiators sacrifice basic American principles, such as freedom of religion, just to get a quick deal.  Trade staffers in Congress need to keep a sharp eye out for any USTR ‘kabuki’ that hides concessions in the social issues arena.

Likewise, someone in the White House should remind the USTR staff over on 17th Street that outsourcing U.S. jurisprudence on employment discrimination to Canada, and similar issues, have no place in a trade agreement negotiated by the Trump administration – even if it means missing that year-end deadline.