The future of the North American Free Trade Agreement remains unclear although the leaders of the United States and Canada are trying to strike a new deal on Nafta, which seeks to eliminate trade barriers among the US, Canada and Mexico and generate trade growth.
The United States has threatened to withdraw from the agreement that has been in effect since 1994 with President Donald Trump terming it “bad” and “lopsided” from the US point of view.
Under Nafta, the three countries pay nothing on most goods that cross their borders.
If the United States exits the pact, the tariffs (or taxes) that Canada and Mexico put on its goods might rise. For some goods, tariffs could go as high as 150%, it is pointed out. That in turn would cause prices to spike and eat into company profits.
All the three countries are members of the World Trade Organisation, so tariffs could revert to the WTO-approved levels, economists say. Currently, they are 0% for most goods under Nafta.
But despite Trump threatening to withdraw from the deal, Canadian Prime Minister Justin Trudeau remains optimistic that the US, Canada and Mexico can still hammer out a “win-win-win” solution.
In order for the tri-lateral trade agreement to remain past its 23rd year, Trump has requested an increase in US auto production, more American companies securing government contracts in the Nafta bloc, and for the agreement to be abolished altogether unless countries agree every few years to extend it.
In addition, the US administration is seeking elimination of dispute resolution processes.
If negotiations fail to reach a solution, Trump even alluded to the possibility of having separate deals with Canada and Mexico.
In Mexico, where he met Mexican President Enrique Pena Nieto at the weekend, Trudeau said improving Nafta was the best way to improve the lives of North Americans.
Since the pact came into effect in 1994, United States trade with Mexico and Canada has more than tripled, growing more rapidly than American trade with the rest of the world.
Mexico and Canada are now the second and third largest exporters to the United States, after China. And the two countries are the leading importers of American products.
Pulling out of the pact, economists say, could have unintended economic consequences for North America and the whole world. Over the past quarter century, Nafta has reshaped the United States’ economy, and its demise could raise costs for American companies and consumers, they argue.
The Nafta agreement allows any of the countries involved to withdraw six months after notifying the other parties.
The US Congress could oppose a White House decision to withdraw, arguing that the country’s Constitution gives Congress power to “regulate commerce” with foreign nations.
But experts say there is no language in Nafta’s authorising law passed by Congress that requires Congressional assent before leaving the pact.
For this reason, Trump could easily dissolve Nafta with the stroke of a pen.
Obviously, concerns are mounting in Ottawa and Mexico City that Nafta could die before it is even renegotiated.
Nafta future unclear despite US, Canada bid to strike a deal