Updating the North American Free Trade Agreement

Transcription

1 Updating the Nrth American Free Trade Agreement Jeffrey J. Schtt PIIE Senir Fellw June 13, /13/2017 Petersn Institute fr Internatinal Ecnmics 1750 Massachusetts Ave., NW Washingtn, DC

2 Updating NAFTA The NAFTA recrd is n balance psitive cntributed t rbust expansin f trade and investment. It desn t deserve unfettered praise, but neither des it merit harsh criticism. NAFTA was state f the art when cnstructed in the early 1990s but imperfect subsequent US trade deals imprved NAFTA. NAFTA negtiatins will primarily fcus n new and/r imprved rulemaking. Ultimate aim f new talks shuld be advancing reginal cmpetitiveness a different gal frm President Trump s America First bjectives. 2

3 US-NAFTA trade and investment, 1993 vs (billins f current US dllars) 1993 US imprts US exprts Trade Inward FDI Outward FDI Gds Services Gds Services balance stck stck Canada Mexic NAFTA ttal Wrld ttal NAFTA % f wrld 26% 14% 31% 15% 0 9% 15% 2016 US imprts US exprts Trade Inward FDI Outward FDI Gds Services Gds Services balance stck a stck a Canada Mexic NAFTA ttal Wrld ttal 2, , ,134 5,041 NAFTA % f wrld 26% 11% 34% 11% 9% 9% 9% FDI = freign direct investment a. FDI data fr 2015, latest available. Surces: Gds data frm UN Cmtrade; FDI and services trade data frm US Bureau f Ecnmic Analysis.

4 Negtiating Objectives NAFTA shuldn t require majr structural refrms, but it needs t cme up t cde with 21st century trading practices. Negtiating bjectives set in Trade Prmtin Authrity prvide basis fr cnstructive new talks, but TPA entails a lng agenda and will require prtracted negtiatins. A discrete agenda culd be dne relatively quickly, building n the Trans-Pacific Partnership and ther trade deals, if the negtiatrs fcus n the fllwing areas: New rights and bligatins n ecmmerce/digital trade Upgraded, enfrceable bligatins n labr and envirnment Sectral cperatin in energy Imprved dispute settlement prcedures with respect t Chapter 11 n investr-state dispute settlement and Chapter 19 n the review f trade remedies. But this limited agenda wuld nt yield as big dividends t Nrth American cmpetitiveness as refrms in services, regulatry cperatin, and ther sectrs. 4

5 NAFTA Landmines Care shuld be taken t avid US gals that sharply deviate frm past US practice: Reduce US trade deficit and rebalance trading relatinships; Mre restrictive rules f rigin; Imprt restrictins t cunteract use f value-added taxes; Restrict access t US federal gvernment prcurement in favr f Buy America plicies. Specific disputes regarding lngstanding bilateral irritants ver dairy and sftwd lumber als culd prevent brader prgress. 5

6 Alternates t Successful Negtiatin: US-Canada In talks fail, President Trump has threatened t withdraw frm NAFTA. If Trump abrgated NAFTA, US-Canada trade relatins wuld largely revert t terms f US-Canada FTA f In large measure, ld deal wuld carry n much f the bilateral trade preferences. Hwever, the deal did nt address prblems that has prvked Trump s criticism f NAFTA. Canada and Mexic wuld cntinue t apply NAFTA t their bilateral trade. 6

7 Alternates t Successful NAFTA Negtiatin: US-Mexic Mexic and the United States wuld revert t mst favred natin (MFN) tariff treatment like ther WTO members. US applied MFN tariffs average 3.5%, Mexican MFN tariffs average 7%. But Mexic s high bund rates the upper threshld cmmitted t in the WTO gives it great latitude t raise tariffs beynd MFN. Mre than 90% f US exprts t Mexic (by value) are in prducts with bund rates abve 30% (Amiti and Freund 2017). Mexican pes wuld likely depreciate, widening bilateral trade deficit. Mexican-prduced cars wuld becme mre cmpetitive in US market, US agricultural gds mre expensive in Mexic (De Blle 2017). Mre imprtantly, abrgating NAFTA wuld severely disrupt Nrth American supply chains. 7