Published
October 10, 2017
It’s time to “ring the alarm bells” on NAFTA, the head of the U.S. Chamber warned.
The business community will fight to make sure it’s modernized because abandoning the North American Free Trade Agreement is an “existential threat” to the continent’s national and economic security, said U.S. Chamber President and CEO Tom Donohue.
Speaking ahead of the U.S.-Mexico CEO dialogue [remarks as prepared], Donohue said:
Our free trade partners, in particular Canada and Mexico, are vital geopolitical allies in the fight against terrorism, transnational crime, and illegal immigration. In these trying and complicated times, we must double down on these relationships, not drive them apart.
By tying together the U.S., Canada, and Mexico more closely economically, Donohue argued, NAFTA has been an economic benefit for North America's citizens:
It has helped us build deeply integrated supply chains that have created tens of millions of jobs for Americans, Mexicans, and Canadians.
They enjoy an improved quality of life and a lower cost of living because we make things together and trade with each other.
In fact, U.S. exports to Canada and Mexico generate nearly $37,000 in annual export revenue for every American factory worker.
“The trilateral commercial relationship is far too valuable to American businesses, workers, and economic growth for us to retreat or turn inward,” he added.
Trade with Canada and Mexico supports 14 million jobs and more than 125,000 small- and medium-sized American businesses export to the two countries.
Early in the negotiations to modernize NAFTA, the U.S. Chamber gave “the administration every opportunity, all the support, and just enough pressure to do the right thing,” Donohue said. And “negotiators have made real progress on a number of chapters, including customs, small business, competition policy, and digital trade.”
However, Donohue lamented, “there are several poison pill proposals still on the table that could doom the entire deal.”
Sunset clause
One stipulation that NAFTA would dissolve after five years unless all three countries agreed for it to continue is awful for long-term business planning and investment, Donohue noted:
We all know that certainty and stability are crucial to successful trade relationships—and necessary to foster a pro-investment environment that drives economic growth and job creation. This clause would achieve the opposite effect.
And it is the result of the undue emphasis the White House has placed on the U.S. trade balance in all of our agreements. The business community, along with any economist worth his or her salt, has repeatedly explained that the trade balance is not only the wrong way to measure who’s “winning” on trade, it’s the wrong focus, and is impossible to achieve without crippling the economy.
Rules of origin
The Trump administration also wants to increase the percentage of content required in a good that must be made among the three countries in order to be traded duty-free. As Donohue explained, changes to the “rules of origin” would be counterproductive:
Under NAFTA, the rules of origin are already extremely tough. For example, in the automotive sector, 62.5% of a car or truck must be produced within North America to qualify for duty-free treatment. This is the highest such rule of origin in the world for this sector.
If the administration’s proposal were to move forward, companies would cease trading under NAFTA and simply pay the generally low U.S. tariffs established under the rules of the WTO.
So the impact would be the opposite of what’s intended: U.S. industry would source more inputs from Asia and less from the U.S. That’s right—this proposal would actually send business overseas.
Investor-state dispute settlement
Changes to investor-state dispute settlement (ISDS), a method of using neutral arbitration to resolve disagreements, also cause worry for the business community. Donohue explained:
ISDS is a long-standing mechanism for using neutral arbitration to resolve investment disputes. And for the record, the U.S. government has never lost a case.
Far from infringing on anyone’s sovereignty, it ensures that investors are treated fairly and compensated in the event of expropriation. Making it optional would raise questions around the world about America’s commitment to these due process principles.
Any of these proposals would be “extremely dangerous” and “do harm” to American companies, John Murphy, U.S. Chamber senior vice president for International Policy, told reporters last week, running counter to the Trump administration's insistence it would take a “do-no-harm” approach in NAFTA negotiations.
The U.S. Chamber is rallying the troops to protect the trade agreement. It is sending trade proponents to lobby Congress, and engaging in the media.
Along with the U.S. Chamber's efforts, more than 300 state and local chambers of commerce signed a letter urging the Trump administration “to support America’s workers, farmers, ranchers, and businesses of all sizes by protecting and preserving the deep economic ties and benefits the United States continues to enjoy under NAFTA.”
“I want it to be abundantly clear that the U.S. business community will stand up for an important agreement that makes North America stronger and more prosperous,” promised Donohue.
About the authors
Sean Hackbarth
Sean writes about public policies affecting businesses including energy, health care, and regulations. When not battling those making it harder for free enterprise to succeed, he raves about all things Wisconsin (his home state) and religiously follows the Green Bay Packers.
