NAFTA parties may ‘walk away with an agreement that allows them to claim a political victory’

The likeliest outcome of the renegotiation of the North American Free Trade Agreement is that the United States, Canada and Mexico “will walk away with an agreement that allows them to claim a political victory,” according to an issue brief from Rice University’s Baker Institute for Public Policy. President Donald Trump’s renegotiation team will likely get concessions on nearly all issues, although they may fall short of initial U.S. demands, the brief’s author said.

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“NAFTA Renegotiations: Constraints and Likely Outcome” was authored by Tony Payan, the Françoise and Edward Djerejian Fellow for Mexico Studies at the Baker Institute and director of the institute’s Mexico Center.

“Negotiations may yet fail,” Payan wrote. “NAFTA may still collapse. But the likeliest outcome is that by mid-2018, all three parties will walk away with an agreement that allows them to claim a political victory. Thus, the most likely future for NAFTA is neither continuity — that is off the table as per U.S. goals — nor a ‘modernized’ agreement that the U.S. does not appear to want. The probable result is an agreement that will include new areas but is in general more restrictive (less free, if you will), with the political interests of the Trump administration decisively shaping the final document. In the end, NAFTA will be saved — without common values between the Trump administration and NAFTA’s two other partners — mostly because of political necessity. And Canada and Mexico will wait for a better day to ‘modernize’ it.”

Although the three countries kept their negotiations largely secret to reach an agreement quickly, the parties are so far apart that they have already announced that talks will have to go well into 2018, Payan said.

“For almost a quarter of a century, NAFTA has been the centerpiece of economic relations among all three countries in North America … and has, to a considerable extent, facilitated cooperation in other areas, such as security and law enforcement, as all three countries viewed the agreement as a symbol of a broader strategic partnership,” Payan wrote. “Criticisms of NAFTA have never been entirely absent in the United States or Mexico — and are much less evident in Canada. However, since Donald Trump’s arrival on the political scene, there has been a heightened re-examination of the economic relationship among all trading partners.”

On May 18, Trump formally notified Congress that NAFTA was to be renegotiated. The arguments justifying the revision of the agreement include the loss of jobs in the U.S. due to changing trade flows resulting from NAFTA (about 700,000, according to the U.S. Trade Representative) and the trade deficit with Mexico (around $64 billion in 2016). The renegotiation of the treaty began in August.

“Trump — with low favorable ratings in the polls and a stalled legislative agenda — is in dire need of a political victory,” Payan wrote. “Successfully renegotiating NAFTA will give him one.”

The United States will likely obtain pledges on Mexican and Canadian export restrictions to the United States, Payan said. “Mexico and Canada will also open up sectors where the United States stands to gain, such as e-commerce and government procurement, and further open their energy industries to U.S. businesses,” he wrote. “The United States will also gain concessions on U.S. national content in manufacturing and force a Mexican pledge to revise its wage policy. Mexico and Canada could also make concessions on dispute mechanisms, perhaps by making them voluntary. Such concessions may be enough for Trump to claim victory. Whether such concessions will do much to address the president’s broader goals — notably a U.S. economic revival based on a resurgence in manufacturing employment — is another question altogether. America’s fundamental economic issues far transcend trade with Mexico and Canada.”