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January 11, 2018 2:45 PM, EST

Trade Experts Expect to See a ‘Zombie’ NAFTA

Mexico Border Associated Press

WASHINGTON — The most likely scenario of what will happen if negotiations to reset terms for the North American Free Trade Agreement are successful — or not — is that President Donald Trump announces, probably via Twitter, a U.S. withdrawal from the deal. This would leave what experts call a zombie NAFTA.

Experts from the United States, Canada and Mexico offered that analysis Jan. 10 during the Transportation Research Board’s annual meeting, saying it would leave Mexico and Canada to devise a new way forward while sowing confusion and uncertainty among business leaders.

It also would give China the chance to fill a void left by the United States in providing leadership in global trade, they said.

Miller

“It’s a muddle,” said Scott Miller, a senior adviser at the Center for Strategic and International Studies in Washington, in describing the state of NAFTA negotiations.

The next round of NAFTA talks are slated to take place in Montreal later in January with negotiators working on a self-imposed deadline to complete work by March.

While progress has been made on revising some aspects of the trade pact, such as updating regulations for e-commerce, the parties appear to be still far apart on the most contentious issues, such as raising the percentage of domestic content for goods made outside the United States and changing government procurement rules.

Miller said Trump’s views on trade were formed many years ago and he doesn’t expect the president to back off from his campaign pledge to scuttle trade deals that have led to the loss of American jobs and resulted in large trade deficits.

Laura Dawson, director of the Canada Institute at the Woodrow Wilson Center for Scholars, and colleague Duncan Wood, director of the Mexico Institute at the center, expressed pessimism that NAFTA could be saved.

Dawson

“How do you negotiate with someone who is wanting to kill the deal?” Dawson asked. She sees Canada resisting changes that would open its dairy and lumber industries to more competition and cultivating new ties with countries in Asia and Europe if the United States withdraws from NAFTA.

Wood, a former professor who lived and worked in Mexico City for 17 years, said Mexico is in perhaps the best position to prosper in a post-NAFTA world because the country has negotiated more trade agreements than any other, including deals with South Korea and the European Union. Mexico also has reached out to China to compensate for any loss of investment from the United States.

Canadian government officials said they expect Trump to give a six-month notice of withdrawal, although it’s not clear if the president can officially scuttle the agreement without the approval of Congress.

Breaking apart NAFTA, in any case, would undermine the competitiveness of industries, such as automotive and electronics, that have used Mexico as a platform for low-cost manufacturing and as a way to compete with other trading blocs in Europe and Asia, according to the speakers at TRB.

In fact, Wood said, he knows of one company that has decided to build a new factory in Europe rather than North America because of the uncertainty surrounding NAFTA.

Toyota Motor Corp.’s manufacturing plants for its popular Tundra trucks in the United States and in Mexico are operating at capacity and could face a similar decision about where to expand, Wood said.

In 2017, Toyota pledged a U.S. investment of $10 billion over five years, and Jan. 10 officials from Toyota and Mazda announced plans to build a new joint venture car manufacturing plant in Huntsville, Ala.

Notwithstanding the risk posed by NAFTA, Miller said there are signs of a manufacturing revival in the United States due to recently passed tax reform and continued growth in low-cost domestic oil and gas supplies. Those trends could offset some of the negative consequences from the loss of NAFTA trade, he said.

Wood

Regarding trucking provisions in NAFTA, Wood said he sees little interest by any of the parties in making major changes, although U.S. negotiators have floated a proposal that would restrict Mexican trucks from operating more freely in the United States.

Under the current trade pact, Mexican trucks can deliver goods in the United States if they meet the same safety regulations as U.S. drivers and U.S. drivers can deliver goods in Mexico. The provision has been sparsely used, in part, because trucking companies prefer to keep operations separate.

“It’s more of an issue for Mexico, which could use it as bargaining chip,” Miller said. “I’m not optimistic that we’ll see a complete resolution. The momentum is not there.”