Click here to print page

NAFTA stance could damage trade and diplomatic relations

Sunday, September 02, 2018

Bullying is a universal problem. The victims can suffer serious injury and, in some cases, the effects can be fatal. Those who submit to bullying do so because, in their calculation, it is less harmful than refusing the demands of the bully.

A threat may be sufficient to induce submission if the bully has a reputation or track record of inflicting harm or if the bully is manifestly more powerful.

The problem with bullying practised by governments is that it obviates the need for negotiations and diplomacy.

The North American Free Trade Agreement (NAFTA) between Canada, Mexico, and the United States of America came into existence on January 1, 1994. It superseded the Canada–United States Free Trade Agreement of 1987, but was politically divisive from its conception.

Negotiated during the Administration of President George H W Bush, it was campaigned against by Bill Clinton who, when he became president, amended it with labour and environmental provisions.

It is now generally accepted that NAFTA has had a net beneficial impact on all three economies. Over the life of the agreement, trade between the three countries grew from US$290 billion to over US$1.1 trillion in 2016. Cross-border investment has also increased.

But, like all trade agreements, there are winners and losers in some industries. The upshot is that some industries relocated to Mexico from the US. This is evidenced by the fact that US foreign direct investment in Mexico increased from US$15 billion to more than US$100 billion. In spite of all the evidence of benefits it is fashionable to criticise trade agreements because job losses get more attention than investment and employment gains.

During his campaign for the US presidency, Mr Donald Trump promised to withdraw from NAFTA if it was not changed in the way that he wanted. He called NAFTA “the single-worst trade deal ever approved by the US”.

The renegotiation of NAFTA has been going on for over one and a half years without much progress. With the November congressional elections looming, and trade disputes with the European Union and China festering, President Trump has announced that an “agreement” has been reached with Mexico.

He also informed Canada that it had until last Friday to agree to the terms he stipulated or he would go attend with the US-Mexico deal and withdraw from NAFTA.

Canada was not intimidated and President Trump has extended the deadline. Mexico depends on the US economy and has a tradition of offering only token resistance to American demands. Not so for Canada. What appears to be pitbull trade tactics to Mexico is an invitation to negotiations for two sovereign neighbours between whom there is mutual dependence.

The Trump Administration's foreign policy towards its two closest allies and neighbours with the longest common borders and a history of peaceful coexistence is an enigma. Washington has obviously adopted for a “take it or leave it” approach on this issue.

That does not bode well for diplomatic, trade and other relations.