Trump’s NAFTA Renegotiation

The NAFTA renegotiation Donald Trump promised during his campaign may finally be getting started.  The specialty trade publication Inside US Trade (subscribers only) has a draft of the administration's notice to Congress "that the President intends to initiate negotiations related to the North American Free Trade Agreement (NAFTA) and its architecture," in which the administration sets out "specific objectives for negotiation."  

At first glance, the administration's plan looks like more than just a tweak to NAFTA, but will not come close to blowing up the system (as it sometimes sounded like during the campaign).  Things may change before the final notice is sent out, but for now a lot of what's in there seems like an attempt to upgrade NAFTA to reflect provisions that have been developed in U.S. trade agreements over the last 15 years, including in the TPP.  In a sense, this NAFTA renegotiation is an attempt to make NAFTA more like the TPP.  Some examples are:  

• adding rules on digital trade and cross-border data flows
• adding enforceable provisions on labor, the environment, and state-owned enterprises
• revising the provisions on investor-state dispute settlement
• strengthening intellectual property rights

To the extent that the NAFTA renegotiation just incorporates TPP provisions, it is not too worrying.  That's not to say that we in Cato's trade policy center like all of the TPP provisions, but it would indicate that the Trump administration is not looking to do anything too radical on trade.

On the other hand, there are some proposals that could take NAFTA in a more protectionist direction.  Some examples of that are proposals to:

• Eliminate a special procedure to have an international panel review U.S. anti-dumping/countervailing duties
• Address the perceived unfairness of foreign border adjustment taxes ("level the playing field on tax treatment")
• Make sure NAFTA allows Buy America provisions ("establish rules that require government procurement to be conducted in a manner that is consistent with U.S. law and the Administration's policy on domestic procurement preferences")
• Tighten up rules of origin, that is, restrict who can benefit from low NAFTA tariffs
• Add new procedures that allow special tariffs when there are increased imports ("a safeguard mechanism to allow a temporary revocation of tariff preferences, if increased imports from NAFTA countries are a substantial cause of serious injury or threat of serious injury to the domestic industry")

Keep in mind that this is just the draft, so the objectives stated here may change a bit.  Also, note that this is simply what the U.S. will ask for, and not necessarily what it will get after sitting down with Canada and Mexico.

All in all, it is somewhat of a relief to see that the proposed changes do not completely undermine NAFTA.  However, there will be some aspects of these proposals that we will be pushing back on, once the specifics of the proposals become more clear.