For NAFTA renegotiations to succeed, misconceptions must be addressed

Source:Xinhua Published: 2017/8/16 16:51:19

On the eve of the opening round of renegotiating North American Free Trade Agreement (NAFTA), experts are urging the US government to get rid of its misconceptions about a trade imbalances and genuinely discuss the issues at hand with Canada and Mexico.

The trade pact reduced tariff barriers to zero for the three countries and led to tripling of trade among them over the last 23 years. However it is one of the most controversial trade agreements in the world, criticized by some as a job destroyer and praised by others as a propeller of economic growth.

Now the world is watching if the five-day trade talks could put a positive spin on the future of NAFTA, or lead to the breakup of one of the the world's largest free trade compacts.

US MISCONCEPTIONS

US President Donald Trump has frequently expressed his determination to address the US trade deficit issue during the renegotiations. But experts say his approach is a misguided one, potentially leading to a deadlock in the talks.

"Trade agreements are inappropriate and ineffective vehicles for attempting to reduce trade imbalances," according to a report titled "A Path Forward for NAFTA" released by Peterson Institute for International Economics (PIIE).

The report explained that external imbalances are created by internal macroeconomic imbalances and can be remedied only by changes in the latter.

"Continued US insistence on cutting its trade deficit, especially via bilateral efforts with Mexico, would almost surely lead to dissatisfaction with the outcome and potential blowup of the entire agreement," the report said.

In July, the US Trade Representative (USTR) office listed "Improve the US trade balance and reduce the trade deficit with the NAFTA countries" as the first and foremost goal for the renegotiation.

It's the first time that the USTR has included deficit reduction as a specific objective for the US trade talks with Mexico and Canada, reflecting the Trump administration's determination to address the issue.

Another misconception held by the Trump administration according to experts is that trade is the primary cause for job losses.

Edward Alden, a senior fellow at the Council on Foreign Relations, said the job losses in the manufacturing industry has been real and the impact on the manufacturing-dependent states significant.

"But the primary cause was automation, technology," said Alden, who added that changing consumer demands was also a major cause of manufacturing job loss.

Instead of blaming trade for it, experts said the country should really start investing in its own people again like it used to do in the past and help who have lost jobs in manufacturing industry to meet the needs of the new era.

MAJOR DIFFICULTIES IN RENEGOTIATION

The toughest issue in NAFTA renegotiation will be how to settle disputes, experts said.

A dispute-resolution mechanism under Chapter 19 of NAFTA allows Canada and Mexico to appeal countervailing and anti-dumping duties imposed by the United States through independent tribunals that have often ruled against Washington rather than through judicial reviews in US courts.

"The Trump administration wants to eliminate that mechanism. Both Canada and Mexico see it as tremendously important because they believe that otherwise they could face arbitrary restrictions on their access to the US market so that will be a very hard issue," said Alden.

On Monday, Canada suggested it could walk away if the United States seeks to remove the mechanism.

"Canada will uphold and preserve the elements in NAFTA that Canadians deem key to our national interest, including a process to ensure anti-dumping and countervailing duties are only applied fairly when truly warranted," Canadian Foreign Minister Chrystia Freeland said in a speech at the University of Ottawa's Center for International Policy Studies.

Another difficulty will be government procurement.

The Trump administration wants to expand the use of "Buy American" rules for government purchases, while Canada and Mexico want more opportunities for their companies to sell to all levels and branches of governments in the US

Experts said modifying or scrapping the procurement chapter to close US markets to the two NAFTA partners could backfire.

"The two NAFTA partners could retaliate by adopting rules favoring their own companies in contracting, thus adversely affecting American companies and jobs," according to PIIE's report.

If the chief aim of a NAFTA renegotiation is to "do no harm," as some US officials emphasized, NAFTA's procurement chapter should remain untouched, suggested the report.

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