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Scowcroft Paper No. 12 The Future of the North American Free Trade Agreement By Carla Anderson Hills This a joint policy paper by the Scowcroft and Mosbacher Institutes based on a presenta- tion by Carla A. Hills delivered during a discussion on the North American Free Trade Agreement (NAFTA) at the Bush School of Government and Public Service at Texas A&M University in College Station, Texas. This discussion on NAFTA was sponsored and hosted by: The Scowcroft Institute of International Affairs and The Mosbacher Institute for Trade, Economics, and Public Policy We would like to especially thank The George H.W. Bush Presidential Library Foundation for their financial support of this event. November 15, 2017 The Future of the North American Free Trade Agreement By Carla A. Hills Introduction The NAFTA renegotiation talks among Mex- ico, Canada, and the United States that began Good evening. I have been asked to this past August had the ambitious goal of share my thoughts on the future of the North reaching a conclusion by the end of American Free Trade Agreement (NAFTA), 2017. After the 4th round of negotiations, the a topic that we have been hearing about, for parties agreed to extend the negotiations better or worse, for many months. through March 2018. The process will not be easy. We are likely to be in for a bumpy ride. These are turbulent times economically, po- litically, and technologically that are affect- NAFTA’s Historical Accomplishments ing our domestic, bilateral, and global rela- tionships. Global institutions that helped to Before discussing the renegotiation, it is im- create unprecedented peace and prosperity portant to remember what NAFTA accom- during the 70-years following World War II plished for its benefits are of substantial sig- are under siege as never before. Brexit, the nificance economically and strategically to surprisingly positive performance of nation- all three countries. alist parties across Europe, the 2016 presi- dential election in the United States are all • It was the first comprehensive Free Trade signs of the backlash against globalization. Agreement to join a developing economy with developed ones. In America, economic nationalism is now the • By linking the economies of Canada, short-hand term used by some to describe our Mexico, and the United States, it created current trade policy. In his inaugural address, a $19 trillion market with 490 million President Trump stated “[w]e must protect consumers. our borders from the ravages of other coun- • It eliminated tariffs on all industrial prod- tries making our products, stealing our com- ucts and almost all agricultural products panies, and destroying our jobs.” Shortly but for a handful with Canada. after making those remarks, he withdrew the • It was the first trade agreement to open a United States from the landmark Trans-Pa- broad range of services, including finan- cific Partnership and focused on his second cial services and banking, and provide na- central campaign pledge by announcing he tional treatment for cross-border service would renegotiate or terminate the NAFTA, providers. if he could not fix it. For months now, off • It opened up the agriculture, automotive, and on, he has threatened to scrap the agree- textiles, and apparel markets between ment and others like it which his supporters Mexico and the United States. see as a threat to our national sovereignty and • It removed significant investment barri- economic well-being. ers, ensured basic protections for North For more information: bush.tamu.edu/Scowcroft/ 1 The Future of the North American Free Trade Agreement American investors and created an effec- NAFTA’s Positive Impact Today tive dispute settlement mechanism to en- sure investors had access to neutral, third- After nearly a quarter century how party arbitration in cases of disagree- has the NAFTA’s impacted North Amer- ments with host governments. ica? Without question all three economies • It was also the first trade agreement to es- have benefited. US manufacturing output is tablish enforceable protection of copy- up 40 percent since we signed the NAFTA, rights, patents, trademarks, and trade se- and last year hit a record $2.4 trillion. Four- crets. teen million US jobs depend on US trade with Mexico and Canada. In Mexico, it acceler- Its expanded coverage set a powerful exam- ated and “locked in” ongoing economic re- ple globally, giving much needed momentum forms that reduced its public debt, stabilized to the Uruguay Round of Multilateral Trade inflation and built up its foreign reserves. To- Negotiations, the largest multilateral trade day, 80 percent of world trade is conducted negotiation ever. through global supply chains, and NAFTA has created one of the most vibrant. Special- The Uruguay Round, launched in 1986, was ization among the three NAFTA partners has an effort by the then 123 member nations of boosted the region’s productivity. Our col- the General Agreement on Tariffs and Trade laboration has made North America the most (the GATT) to upgrade that agreement. competitive region in the world. Those negotiation had reached a stalemate in 1990. Within four months of the NAFTA tak- Intraregional trade is up five-fold since the ing effect in January 1994, the Trade Minis- agreement’s implementation. Last year ters from all 123 participating nations re- alone, more than $1 trillion in goods were turned to the negotiating table and completed traded in North America. And, today, one the Uruguay Round. They incorporated third of the United States’ global trade is with many of the new provisions in the NAFTA our NAFTA partners. You have undoubtedly (like protection of intellectual property), and noticed that a disproportionate share of the created the World Trade Organization, our criticism about NAFTA in the United States modern-day system governing international is focused on Mexico. It is said that “NAFTA trade. NAFTA’s disciplines not only incen- is Mexico’s gain, and America’s pain.” Too tivized our global system to create a broad few Americans know that Mexico is the range of enforceable trade disciplines, mov- United States’ second largest export destina- ing beyond past agreements governing tariffs tion, behind only Canada. US exports to on goods, it provided a template for our fu- Mexico are up six-fold since NAFTA took ef- ture regional and bilateral trade agreements. fect in 1994. In fact, the United States sells more to Mexico than to all the rest of Latin America combined. Indeed, we sell more to Mexico than to Germany, France, the United Kingdom, and the Netherlands combined. In reality, we don’t simply sell to each other, we For more information: bush.tamu.edu/Scowcroft/ 2 The Future of the North American Free Trade Agreement make things together. Forty percent of what that any significant decoupling would be cat- the United States imports from Mexico con- astrophic economically. But we would not sists of US content, 25 percent from Can- only suffer commercially. Equally worri- ada. By comparison the US content in goods some, decoupling would put at risk unprece- imported from China is 4 percent and from dented trilateral collaboration in dealing with Japan 2 percent. today’s strategic challenges. Today our three governments work closely together to im- In addition, Mexico is not only a vibrant trad- prove the security at our borders. We share ing partner, it is a terrific export agent for the intelligence to reduce the reach of organized United States. It has twice as many trade crime and to expedite more efficient move- agreements as the US involving 45 nations ment of legitimate travel and products across including the European Union. Mexico’s ex- our borders. We work together to respond to ports have high US-content which effectively pandemics and natural disasters and much give US producers of that content preferential more. NAFTA helped to catalyze these new access to markets where we have no trade habits of cooperation in order to take full ad- agreements. And remarkably every dollar vantage of the economic opportunities it cre- Mexico earns on its exports, it spends ated. We cannot assume that our strategic roughly 50 cents on US goods. partnership would hold up if our economic relationships were adversely impacted. In the United States, it is sometimes said that Mexico has taken American jobs. But How to Upgrade NAFTA (Without Dam- NAFTA has helped create jobs in both of our aging Our Economies) countries. In 1993, US jobs connected to trade with Mexico totaled 700,000. Today It is decidedly in our shared interests that figure is 5 million. Similarly, according to build on the vibrant commercial and secu- to a study by the Mexican Institute for Indus- rity ties that have developed over the past two trial Development & Economic Growth, 2.7 decades. Much has changed since we million Mexican jobs are directly related to launched the NAFTA negotiations over 25 its NAFTA trade with the United States. Con- years ago. We need to modernize NAFTA to st trary to the public posturing on both sides, take advantage of new 21 century opportu- neither of us can afford to lose these very sub- nities. stantial economic benefits. Without It is clear that all three of our nations would NAFTA, the average tariff on US shipments benefit from agreeing to modern rules gov- to Mexico would be 7.4 percent, about twice erning digital flows, e-commerce, financial what Mexican exports would face coming services, telecommunications, and en- into the United States. ergy. Concerns with cross-border data flows But in specific sectors like agriculture and and the export of digital products did not ex- auto parts, key exports for Texas, tariffs ist in the early 1990s.

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