New NAFTA deal to cut US trade deficit
New rules to govern the trade in telecommunications and financial services
22 July, 2017
The Trump administration unveiled last Monday its goals for renegotiating the North American Free Trade Agreement (NAFTA), issuing a broad plan for how it hopes to rewrite the terms of trade and transform the US economy for decades to come, news wires reported. The document contained a broad list of objectives, including some goals that have been specifically championed by President Trump. Negotiations with Canada and Mexico are scheduled to begin on 16 August.
While the US had a nearly $8bn trade surplus with Canada in 2016, it also had a $63bn trade deficit with Mexico in goods and services, which the Trump administration believes hurts the US. The total amount of trade between the NAFTA countries is worth more than $1.2 trillion. More than a third of US exports flow to Canada and Mexico, and business and labour groups were watching closely to see what Trump's team would prioritise in the negotiations. Companies that export products to Canada and Mexico are wary of anything that could limit their future access to those markets.
In a 17-page document, the trade agency outlined a plan to reduce the US trade deficit with Mexico, restrict the amount of imported material in goods that qualify under the agreement, and eliminate a controversial mechanism to review trade remedies. The document's first provision contained the clear stamp of the Trump White House, as it called for the US to reduce its trade deficit with NAFTA countries. Trump has often seized on bilateral deficits, which occur when the US imports more from a trading partner than it exports to it, as a sign of a broken trading system, despite criticism from economists who say the measure can be misleading.
The document called for new rules to govern the trade of services, like telecommunications and financial advice, as well as digital goods like music and e-books, which were not included in the original 1994 agreement. It also called for creating an “appropriate mechanism” to ensure that the countries did not manipulate their currency to gain an unfair competitive advantage, a practice that China has used in past years to subsidise its exporters.
The notice called for eliminating the Chapter 19 dispute settlement mechanism, which allows companies to appeal decisions by domestic courts on trade remedies in an alternative panel. The US lumber industry and others have railed against the mechanism, arguing that it prevents the US from fully enforcing its trade laws.
Democrats were critical of Trump's objectives, saying they didn't go far enough. Sen. Ron Wyden (D-Ore.) criticised the document as “hopelessly vague” and said that provisions on topics including the environment looked like “watered down versions of TPP proposals.” “It is surprising that in key areas the Trump Administration is seeking outcomes that were achieved in the TPP, which the President said was a bad agreement,” he said in a statement. Republicans were more positive about the statement, though some still had criticisms.