Technology & Trade

When Two ‘Wrongs’ Make a ‘Right’

in Program

By William Reinsch

Today’s topic — and title — come from Steve Lamar at the American Apparel and Footwear Association who suggested it after reading something I told Politico referring to the administration’s draft letter to the Congress on its goals for a NAFTA renegotiation: “It is ironic that they want to fix a ‘terrible’ agreement by including provisions from the TPP, one deal that the administration claims is even worse.”

Steve’s suggestion was brilliant because it summarizes precisely what is happening — after spending the entire campaign trashing NAFTA (wrong #1), the president is now proposing to fix it by borrowing language from TPP, which he trashed as even worse (wrong #2), but if he actually does that, it could well produce a significantly improved agreement (right #1).

The administration’s draft letter reflects in part what the U.S. business community has been asking for — a NAFTA upgrade through the inclusion of new provisions that either address issues that did not exist in 1993 like digital trade or update issues like intellectual property, labor, and environment where a lot has happened in the past 23 years that the existing agreement does not address.

An upgrade is a good idea, and it appears all three countries favor it, at least in principle. The irony lies in where the administration is likely to look for language addressing those issues — the recently negotiated but now dumped by Trump Transpacific Partnership (TPP). Of course, one cannot compare a detailed negotiated document like TPP to an eight page letter, but looking at the latter, it appears that our NAFTA objectives track what we obtained in TPP in a number of areas, including investment, intellectual property and state-owned enterprises.

If you don’t believe that, all you need to do is listen to the people who opposed TPP. For example, Inside U.S. Trade quotes a statement by Public Citizen’s Lori Wallach on the letter: “For those who trusted Trump’s pledge to make NAFTA ‘much better’ for working people, it’s a punch in the face because the proposal could have come from any past pro-NAFTA administration and describes the Trans-Pacific Partnership (TPP) or any other same-old trade deal.”

Of course the letter is a draft, so it may well change, but on the “upgrade” issues my guess is it will remain largely the same. Addressing those issues has broad support; they’re also mentioned in the trade promotion authority bill enacted in 2015 which means they have Congressional support; and the practical reality is that if one is looking for language as a basis for negotiation, TPP is the place to go. It is the most recent agreement we negotiated and therefore the most up to date, and Mexico and Canada were both parties to it and thus have already agreed to its contents. That does not mean they would automatically agree again — trade agreements always involve a balance of concessions and items conceded in the context of 12 parties might not be conceded with only 3 — but borrowing from TPP would certainly provide some advantages over starting from scratch.

One should not assume from this that the letter is perfect. The trade skeptics remain skeptical, as they will of virtually any agreement, and there are some things there for the pro-trade folks to worry about as well: one sentence on taxes which has raised eyebrows and questions about what it means; ambiguous language on government procurement; and a rules of origin reference to U.S. content rather than NAFTA content which, if intentional, suggests an interest in abandoning the entire concept of an integrated North American market in favor of more domestic content. Even assuming that could have the intended result of bringing manufacturing jobs back onshore, which is a stretch, it would cause major disruptions in the value chains that companies in all three countries have carefully built up over the past 23 years.

So, the potential for turning two wrongs into a right is very much there, but danger lurks as well. Moreover, any agreement is not going to happen without the same strenuous opposition from the right and the left that inflamed last year’s campaign. President Obama was not able to get beyond that on TPP. President Trump spent the last year pandering to it, but now that he’s in charge he’s going to have to deal with it in the context of actual negotiations rather than campaign rallies.

William Reinsch is a Distinguished Fellow with the Stimson Center, where he works principally with the Center’s Trade21 initiative
Photo credit: thenunnery via Flickr
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