Tax & Accounting Blog

Is Everything Negotiable in Trade?

Blog, Checkpoint, Global Trade, ONESOURCE April 28, 2017

In January 2017, I wrote an article shortly after the Trump Administration took office discussing their official withdrawal from the Trans-Pacific Partnership (TPP). This answered my own rhetorical question of whether the U.S. withdrawal effectively killed all new multilateral agreements with the response, “it depends on who you ask.”[1]  Since then, many (including my colleagues) have written how the “American First” protectionism approach stifles Global Trade.[2]  Today, as President Trump agreed to renegotiate the North American Free Trade Agreement (NAFTA) rather than end it, in contrast to his statements even before taking office,[3] my follow-up article will not dwell upon protectionism and trade. Rather, this article will evaluate how the “everything is negotiable approach” adopted by the Trump Administration may affect the success of the current U.S. trade agenda.[4]

In a segment on Trump’s First 100 Days in office, one news commentator described the current administration’s negotiation approach–(including trade matters)–as essentially a three-step process:  (1) take an extreme approach that appears unreasonable; (2) move toward dialogue; and (3) compromise and negotiate a reasonable outcome.[5]  Sometimes the approach works and we obtain the outcome the President wants for U.S. trade policy, which is really all you can ask when negotiating with other nations on trade issues.

Where NAFTA is concerned, it appears the United States, Mexico and Canada are publicly stating support to modernize the agreement since Trump announced he will renegotiate rather than terminate the pact.[6]  Mexico’s Foreign Minister Luis Videgaray stated that he “believe[s] that all the conditions to reach a good negotiation exist, that will suit Mexico . . . and that is also good for the region, for both Canada and the United States.”[7]  Canada is also “ready to come to the table at any time” once NAFTA negotiation begins among the three nations, reported Alex Lawrence, spokesman for Canadian Foreign Minister Chrystia Freeland.[8]

In the re-negotiation, President Trump will likely try to tighten NAFTA rules of origin to ensure that these rules promote U.S. manufacturing and jobs (a common theme coming from his administration) by tightening the rules of origin under NAFTA.  He may try to limit the amount of non-regional content that is permitted in complex manufactured goods and still considered NAFTA-eligible.  For example, Trump may specify that even Chinese components are allowed in complex manufactured products under the NAFTA rules without changing the country of origin from Mexican or Canadian.  Trump has often focused his ire on China as a bad actor in their trade practices.[9]  He may use the China illustration under the current NAFTA rules as leverage in negotiating the new NAFTA rules with Mexico and Canada.

Trump will also will likely revisit antidumping and countervailing duty laws.  Trade remedies under NAFTA are currently reviewed by a NAFTA panel, rather than the courts of each country, like antidumping or countervailing duty cases arising from products originating from other countries.[10]   The administration may insist that NAFTA trade remedies cases are reviewed judicially like all others, particularly in light of Trump’s executive order focusing on the “enhanced collection and enforcement of antidumping and countervailing duties and violations of trade and customs laws,”[11] aimed to curtail unfair trade practices.

Mexico’s primary bargaining chip with the Trump administration is need of the U.S. to get Mexico’s help on border security and immigration.[12]  “All issues that define our bilateral relationship are on the table, including security, migration and trade,” said Mexican President Enrique Pena Nieto.[13]  Trump will need to compromise in the negotiation, but at least the parties have “moved toward dialogue” and will negotiate, rather than walk away from NAFTA.

There is risk.  However, it seems that re-negotiation of the trade deal is moving the administration’s trade agenda along a path far safer than walking away completely, which many considered extreme.   So is everything in trade negotiable?  In the case of NAFTA, I guess we will wait and see.

 

Read More Articles on Free Trade Agreements

Sources

[1] Suzanne Offerman, “What Does the United States’ Withdrawal from the TPP Really?”, Tax & Accounting Blog, https://tax.thomsonreuters.com/blog/onesource/what-does-the-united-states-withdrawal-from-the-tpp-really-mean  (Jan. 27, 2017), reprinted in Oil and Gas Investor, Hart Publications, http://www.oilandgasinvestor.com/what-does-us-withdrawal-tpp-really-mean-1486476 (Mar. 16, 2017).

[2] John Plender, “Trump trade blind to global cost of protectionism,” Financial Times, https://www.ft.com/content/2bee373a-e786-11e6-893c-082c54a7f539 (Jan.  31, 2017); Marcos Piacitelli, “Will Wave of Protectionism Make International Trade Great Again?,” Oil and Gas Investor, Hart Publications, http://www.oilandgasinvestor.com/will-wave-protectionism-make-international-trade-great-again-1490806#p=1 (April 3, 2017); Balazas Koranyi, “Protectionism may raise, not cut, trade deficits: ECB,” Reuters.com, http://www.reuters.com/article/us-global-economy-protectionism-idUSKBN16T0WR, (Mar. 22, 2017).

[3] Ashley Parker, Philip Rucker, Damian Paletta & Karen DeYoung, “’I was all set to terminate’: Inside Trump’s sudden shift on NAFTA,” The Washington Post, https://www.washingtonpost.com/politics/i-was-all-set-to-terminate-inside-trumps-sudden-shift-on-nafta/2017/04/27/0452a3fa-2b65-11e7-b605-33413c691853_story.html?utm_term=.7463e6ceb972, (April 27, 2017).

[4] Neil Irwin, “the Art of the Bluff: The Limits of Trump’s Negotiation Strategy,” The New York Times, https://www.nytimes.com/2017/04/27/upshot/art-of-the-bluff-the-limits-of-trumps-negotiation-strategy.html?&moduleDetail=section-news-1&action=click&contentCollection=Economy&region=Footer&module=MoreInSection&version=WhatsNext&contentID=WhatsNext&pgtype=article&_r=0, (April 27, 2017).

[5] Greg Gutfeld, “Trump pushes ahead with agenda ahead of 100-day milestone,” The Five, FoxNews, video podcast at http://www.foxnews.com/on-air/the-five/videos#/v/5414273864001/p/1040983441001, minute 5:45  (April 27, 2017).

[6] Reuters, Mexico’s president says opportunity to update NAFTA to benefit all 3 countries, http://www.cnbc.com/2017/04/27/mexicos-president-says-opportunity-to-update-nafta-to-benefit-all-3-countries.html, (April 27. 2017).

[7] Susan Heavey, “Trump says ‘will renegotiate’ NAFTA deal with Canada, Mexico,” Nasdaq.com http://www.nasdaq.com/article/trump-says-will-renegotiate-nafta-deal-with-canada-mexico-20170427-01547, (April 27, 2017).

[8] David Ljunggren, “Canada says ready to come to NAFTA talks ‘at any time’,” Reuters.com,   http://www.reuters.com/article/us-usa-trade-nafta-canada-idUSKBN17S2KP, (April 26, 2017).

[9] David Lawder, “Trump considers trade order that could lead to duties: official,” Rueters.com, http://www.reuters.com/article/us-usa-trump-trade-order-idUSKBN17C0DT, (April 10, 2017).

[10] NAFTA, Chapter 19.

[11] Presidential Executive Order on Establishing Enhanced Collection and Enforcement of Antidumping and Countervailing Duties and Violations of Trade and Customs Laws, (March 31, 2017)

[12] Reuters, How Mexico Plans to Negotiate Trade with Trump,” http://fortune.com/2017/01/12/mexico-trade-donald-trump-administration/, (Jan. 12, 2017) (“Mexico’s government aimed to use security and migration to gain leverage over the United States in its talks with Trump, and could offer to reinforce its borders to get a better deal on trade.”).

[13] Id.