Trump Administration Inserting Political Risk Into NAFTA, Former Canadian Trade Official Says
A former Canadian chief negotiator for initial NAFTA talks accused the U.S. of building political risk into NAFTA through current talks, mentioning that proposals like the Trump administration’s pitch for tighter automotive rules of origin runs the risk of subverting North American competition and encouraging more countries to export autos and auto parts to the U.S. at its 2.5 percent most-favored-nation (MFN) tariff. Currently a senior business adviser in Bennett Jones law firm’s Ottawa office, John Weekes, during a Cato Institute trade event on Oct. 25, called “curious” U.S. Trade Representative Robert Lighthizer’s charge last week that NAFTA investor-state dispute settlement (ISDS) provisions are “political risk insurance” for U.S. businesses (see 1710180024).
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“That’s not really what’s going on,” Weekes said. “What he’s going about doing, I would suggest, is creating, building political risk into the agreement itself. And why would you do that? There’s a conscious decision to create an agreement that’s inherently unstable, and now, to suggest [a proposal] of ensuring that almost all the investment in North America goes into the United States. And that’s not the kind of agreement to which my country would like to be a party.” The U.S. has proposed to make ISDS optional in an updated NAFTA, to the ire of U.S. business groups (see 1710100025). Taking into account its hard-line stances on ISDS and automotive rules of origin, the Trump administration could predictably look to “rectify the problem” it would have with the World Trade Organization stemming from an inability to raise its auto tariffs beyond the 2.5 percent MFN rate to protect the U.S. auto industry, should foreign exporters choose to use that framework instead of a more restrictive NAFTA rule of origin, Weekes said.
Further, after Lighthizer last week criticized Mexican policies supporting maquiladoras as “largely dependent on exports to the U.S. without balance,” George Mason University Mercatus Center senior research fellow Daniel Griswold said that over two-thirds of products manufactured by U.S. companies’ Mexican affiliates are sold in that nation or other “third countries.” “When U.S. companies invest in Mexico, it isn’t primarily as a platform to export back to the United States,” Griswold said. “That’s the impression you’d get listening to certain officials in high office. It’s to reach new markets and to export.” The Office of the U.S. Trade Representative didn’t immediately comment.
Although investment in Mexico and overall trade volumes have grown since NAFTA entered into force, their actual levels have paled in comparison with expectations announced in the early 1990s, Georgetown University Law Center professor Alvaro Santos said. For example, the Mexican poverty rate and average wages haven’t grown since NAFTA’s 1994 entry into force, he said. “I wouldn’t advocate withdrawal,” Santos said. “The Mexican government has done a lot of good work showing how NAFTA has also been good for the United States, but we almost forget this other part, which is in fact, NAFTA has not been all that great for Mexico, and we need to rethink what we want out of it, and so now that the treaty is opened, it’ll be important to think about a strategy.”