A new round of negotiations regarding the North American Free Trade Agreement (NAFTA) between Canada, Mexico and the United States began on Wednesday October 11. The occasion was marked by a face to face meeting at the White House between US President Donald Trump and Canadian Prime Minister Justin Trudeau.
Harsh criticism of NAFTA was a staple of candidate Trump’s presidential campaign and helped craft his identity as a credible agent of change willing to challenge the status quo represented in the minds of many by the career politician stalwarts of America’s two major political parties.
As President, Trump has remained a vocal critic of NAFTA and he continued to advocate meaningful change in his public comments this past week. The Trump Administration’s current proposals regarding NAFTA are aimed at reducing its influence and, failing that, pulling the US out of the agreement. “If we can’t make a deal, it will be terminated and that will be fine,” Trump stated.
Trump has said, both as candidate and President, that he prefers direct bilateral trade deals and that he would pursue such one- on- one deals with Canada and Mexico if indeed the US was to end participation in NAFTA.
The relationship of US automakers with Mexico is the most visible sore point in America with respect to NAFTA because of the loss of so many US auto manufacturing jobs due to NAFTA. Some of the Trump administration proposals are clearly designed to bring back some of these manufacturing jobs to the US.
For instance, there are currently no country-specific rules of origin in the pact. Cars can cross the continent’s borders duty free if they have a specified amount of content from within the Nafta region. With respect to cars and pick-up trucks, this NAFTA bloc requirement is 62.5%. The Trump administration is proposing a change to this rule to require 50% U.S. content—and 85% NAFTA bloc content.
The US auto industry, both car makers and their suppliers, have invested a great deal in their Mexican production plants and view Trump’s proposals with trepidation. Publicly they are generally quiet, to avoid antagonizing portions of their customer base. However, big business lobbying organizations such as the American Chamber of Commerce have been vocal critics of the Trump proposals.
However, intracontinental unhappiness with NAFTA extends far beyond issues related to the US auto industry, as Prime Minister Trudeau’s personal visit to the White House demonstrates. Many Canadians contend that the US and its companies do not adhere to the letter and spirit of of the current dispute resolution process entailed by NAFTA. The Trump Administration and many American companies want to gut existing NAFTA dispute resolution mechanisms even further and enable American companies to resort to outright litigation more frequently.
These divergent perspectives on the dispute resolution process are exemplified by the recent imposition by the US of a 220 percent import tax on Delta Corporation’s proposed purchase of 125 small jets manufactured by Quebec based Bombardier. [Delta Corporation is discussed in a separate article in this issue.]
This action was taken based on a determination by the US Department of Commerce (DOC) that Bombardier was able to avail itself of unduly high amount of state aid in setting its sale price to Delta. As a result, the American manufacture who had lost out in bidding for the contract, Boeing, had suffered “material injury”.
Some Canadians argue that the DOC is not a neutral dispute resolution body with respect to such a dispute and resorting to DOC is contrary to the dispute resolution procedures specified by NAFTA. These critics argue that American companies skirt NAFTA’s international arbitration resolution mechanisms in situations like this simply because the Americans often lose on the merits and would prefer to use their financial muscle to irresponsibly litigate their way to unjust results the way they do against smaller US rivals.
DOC’s intervention on behalf of Boeing is also instructive in that it demonstrates that there will always be cultural divides with respect to NAFTA that will be hard to bridge. Consider that Bombardier as a company has total revenues of about $16 billion. Boeing has revenues of over $94 billion, a full 40% of which (at least $37 billion) comes from military and defense contracts. In other words, Boeing’s revenue from the US government dwarfs Bombardier’s revenue from all sources.
Many outside the US find it disingenuous (to say the least) that the US Commerce Department does not recognize Boeing’s virtual status as the Canadian equivalent of a ‘crown company’ with respect to the US Defense Department. To such critics, ignoring this obvious reality is merely a convenient posture to engage in trade protectionism.