MEND IT, DON’T END IT: Trump’s NAFTA Negotiations Can Still Be Salvaged

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Bryan Riley Free Trade Initiative director, National Taxpayers Union
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Last week — on May 18 — marks the one-year anniversary of President Donald Trump’s announcement that he would initiate new negotiations to “modernize” the North American Free Trade Agreement. Far from modernization, though, the Trump administration’s approach to NAFTA will harm Americans, hurt the economy and ruin our relationships with our closest allies.

There is an easy way President Trump can win on NAFTA: He can direct U.S. Trade Representative Robert Lighthizer to follow through on the promises he made to Congress when he entered into negotiations one year ago. Speaker of the House Speaker Paul Ryan’s imposed deadline has passed for the administration to submit a renegotiated deal for in order for Congress to consider this year. For the near-future, it’s now or never for NAFTA negotiations.

On May 18, Lighthizer notified Congress that the administration “plans to initiate negotiations with Canada and Mexico regarding modernization of the North American Free Trade Agreement (NAFTA).” (Emphasis added.) Lighthizer further promised that U.S. negotiating objectives would be consistent with those specified in the Trade Priorities and Accountability Act.

This approach was widely praised. NAFTA has been a big success for the United States. The American economy has added a trillion dollars in manufacturing output since the agreement took effect. But the agreement was due for an update.

Unfortunately, instead of sticking to its stated priorities, negotiators have reversed course and pursued a variety of negotiating objectives that in many cases appeared to be not just economically dubious, but also inconsistent with U.S. trade law.

For example, U.S. negotiators have sought to make it easier for foreign governments to expropriate Americans’ property without providing compensation. This is contrary to USTR’s legal mandate to seek to “establish standards for expropriation and compensation for expropriation, consistent with United States legal principles and practice.” It’s also inconsistent with a July USTR promise to “reduce or eliminate barriers to U.S. investment in all sectors in the NAFTA countries.”

Trade wonks call this the Investor-State Dispute Settlements (ISDS) provision. ISDS is a little-known provision to most Americans, but it is critical to companies that do business with our NAFTA trading partners. Despite this, there is strong opposition to ISDS from Lighthizer. In his view, ISDS is a “subsidy” to business. He asked: “Why is it a good policy of the United States government to encourage investment in Mexico?”

One answer can be found in the text of the U.S.-Canada Free Trade Agreement, negotiated under President Reagan: “A hospitable and secure investment climate is indispensable if the two countries are to achieve the full benefits of reducing barriers to trade in goods and services.”

Encouraging investment across borders is a big win for the American economy and American workers. Our manufacturing sector has seen incredible success under NAFTA’s ISDS provisions, and our infrastructure sector has never been more important. The United States has one of the most successful shipping and freight rail systems in the world, and the operations of those sectors of the economy have been a huge success for Americans, employing hundreds of thousands of Americans while benefiting tens of millions. Unique goods like lumber from Canada and agriculture from Mexico are carried daily on trains that cross borders. American trains and trucks being confined to the contiguous U.S. would be a foolish goal.

Another good reason to keep ISDS is provided by the current leader in Mexico’s presidential race, who once compared investing in Mexico’s oil industry to “buying goods without a receipt.” His party’s co-founder reportedly added, “if businesses won’t cooperate, expropriate.”

Other U.S. proposals that had nothing to do with modernizing NAFTA include efforts to impose mandatory minimum wage rules on businesses in Mexico, attaching a self-destruct provision (also called a “sunset clause”) to NAFTA , and imposing costly new domestic content regulations on U.S. carmakers.

In addition, although U.S. trade law states negotiators are supposed to strive to strengthen dispute settlement procedures to make sure our trading partners play by the rules, U.S. negotiators instead sought to weaken them, in some cases proposing to delete entire chapters from NAFTA.

It has been full year since the Trump administration notified Congress of its intent to modernize NAFTA. After a year of wasting effort on bad ideas that would weaken NAFTA, it’s time for President Trump to direct Ambassador Lighthizer to follow through on the promise he made to Congress a year ago. The result would be a modernized NAFTA that increases economic freedom in the United States and throughout North America.

Bryan Riley is the director of the Free Trade Initiative with the National Taxpayers Union, a nonprofit dedicated to fair economic policy at all levels of government.

The views and opinions expressed in this commentary are those of the author and do not reflect the official position of The Daily Caller.