Marrying NAFTA and The TPP: The “US-Mexico Trade Agreement”

By Barkley Rosser, Professor of Economics at James Madison University in Harrisonburg, Virginia. Originally published at EconoSpeak

I really am not sure where to begin with this latest farce, Trump’s announcement yesterday of a supposed US-Mexico Free Trade Agreement. Of course there was the farce of him trying to make the announcement with a live phone call between him and outgoing Mexican President Pena-Nieto (to be replaced on Dec. 1 by leftist populist Obrador), which took awhile to get going. There is the problem that some details appear to be unresolved, but most importantly that Pena-Nieto insisted four times that Canada needed to be part of the deal for it to be accepted in Mexico, including with his last words to Trump, while Trump seems fine with just having a two-nation deal leaving Canada in the dust, or perhaps hoping that Canada will simply be forced to sign onto this deal as is, which it might. But for Congress to approve it prior to Obrador coing into office, given Congress’s 90-day waiting period on such legislation, Trump has four (now only three) days to get Canada to sign on. Prospects for that and Mexico also passing it before Dec. 1 do not look too good, maybe not much better than the prospects of actually getting North Korea to denuclearize.

So what is in this deal? Most of the publicity has been about its automobile section, which some in the US hope will increase automobile production in the US, although that is not definitely the case. The two main parts are to increase the portion of parts made in North America from 62.5% to 75% in order to avoid facing tariffs. This apparently would affect Toyota, Nissan, and Mazda most severely, but hardly any other non-North American producer. Maybe some of those companies might shift some production to North America, maybe at least production of parts, but there is no reason to believe any such increase will go to the US ra4ter than to Mexico, although probably some would.

The other part is that at least 40-45% of production must come from workers earning more than $16 per hour. Offhand that looks like it might help US workers. However, average US auto wages are $22 per hour while Mexican average auto worker wages are $10 per hour. This may help Mexican workers get higher wages, but it is not obvious it will do much for US auto workers.

Of course this is the big stick Trump is using on the Canadians: if they do not get on board with this agreement, they will face tariffs… But this is a potential mess given the complicated supply chains between the Canadian and US auto industries, and it is notable that the US auto industry has not supported imposing tariffs on foreign cars, precisely because of this.

Trump wants to rename the agreement as “NAFTA” supposedly has “bad connotations.” Well, why would it not with him having repeatedly denouncing it as “the worst trade deal ever”? But the hard fact is that it is still legally in place, and apparently he cannot unilaterally just end it. Congress must approve, and apparently there are many in Congress not willing to do that without Canada being in place for any replacement agreement. Trump can call it whatever he wants, but at best this is a minor change in the still-existing NAFTA.

Now as a matter of fact there are some parts of this agreement that look like improvements. These would include tightened environmental and labor union rules for Mexico, as well as stronger property rights protections for US intellectual property, although some would question if this latter is really so great: making Mexicans pay more for US Big Pharma drugs? Also, the bottom line of the auto part of this would raise car prices for consumers in both nations.

However, here is the great irony. Both Mexico and Canada have already agreed to these environmental, labor, and intellectual property rights rules. They did so when they signed on to the Trans-Pacific Partnership (TPP) agreement, which in fact both of them are still parties to. Trump removed the US from this almost immediately after becoming president, also denouncing the TPP as something just awful, even though the US led the negotiations for it to come about. So the US is out of it, but all the other 10 nations, including both Mexico and Canada, have followed Japan’s leadershp to continue with the agreement and make it happen. So accepting these conditions on the part of Mexico was not a big deal at all. They have already done so, just not with the US.

Which leads us to a bizarre bottom line. With NAFTA actually still in place, and with these portions of this agreement already in place for Mexico (and for Canada if it joins in) in the TPP deal, this makes rhis agreement basically a marriage bwtween NAFTA and the TPP, both agreements that Trump has denounced, but now he is keen on a combination of them. The only part of it that cannot be characterized as that is the automobile part, but if Canada does not go along with that, the whole thing will probably end up going kaput anyway, much like the North Korean denuclearization. But, hey, globla stock markets rose on the news, presumably on the grounds that it means Trump may be less likely to initiate a full-blown global trad war in the near future, whatever becomes of this odd possible NAFTA-TPP going by whatever new name.

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      1. JTMcPhee

        Stuff that goes on while most of us sleepwalk.

        There’s this on some efforts to remove or maybe ‘revise” the ISDS giveaway of legitimacy and power to supranational corporations:

        “Ask your state legislators to stand up to global corporations, speak out against ISDS in NAFTA”

    1. David

      According to the WSJ (source),

      As part of the deal, the dispute settlement panels will remain for certain industries, but not others. Oil and gas, energy and infrastructure companies will retain their ability to go to the dispute settlement panels.

  1. Doug Hillman

    “…Mexican average auto worker wages are $10 per hour.”?

    If true, Pres-elect Obrador may consider building St McCain’s “dang fence” on his own to deter undocumented gringos.

    Sources I’ve seen put avg wages at a fraction of that, incl Wolf Street, which puts the avg rate at $3.25/hr.

    He includes a chart, which shows Mexico at 2nd to last above India at $1/hr. Think about that the next time you call tech support. Assertions from conservatives like the late St John McCain that Americans can compete with workers anywhere in the world always evoke mirthless laughter.

  2. JEHR

    President Trump gives Mexico more than three weeks to negotiate a “bi-lateral” agreement with the US and gives Canada about four days to go over all those documents plus design its own agreement with the US. It is clear T hopes that Canada will get panicky and just sign any old thing. Instead, the Canadian delegation is working late into the night and most of the next day to read everything before it signs anything. I am proud of the Canadian delegation’s work undertaken with nary a discouraging word. We have a great negotiating team!

  3. Jason

    Both Mexico and Canada have already agreed to these environmental, labor, and intellectual property rights rules. They did so when they signed on to the Trans-Pacific Partnership (TPP) agreement, which in fact both of them are still parties to.

    Are you sure of this? My understanding is that many of the rules the US wrote into the TPP for its own benefit were stripped out after it withdrew.

  4. danpaco

    Supply management for dairy products was to be phased out in Canada in the original TPP. Im sure it will be in NAFTA 2.0 as well. Trump can now claim a great victory for America.
    “Meet the new boss, same as the old…”

    1. John Partyka

      Dairy supply management thrives in Canada since TPP2 was signed and I doubt Cdn negotiators will concede that for NAFTA2. Trudeau is in serious doodoo with the trans mountain pipeline fiasco and can’t tolerate more heat for abandoning yet another voter base… and everyone knows that Trump can’t kill NAFTA on Friday anyway.

  5. vapor_knave

    This article seems to hinge on the idea that Congress would oppose Trump’s trade policy. Why would any member of Congress that wanted to keep his job do that? Trump has an 85% approval rating among Republicans; drawing his ire seems to guarantee you’ll be primaried.

    1. Tom

      Trade legislation would be subject to a filibuster in the senate. Can’t pass on a party line vote, and there’s not even unity amongst the GOP on trade

    2. Richard Kline

      Everything about this botch of a deal is intended as a campaign banner for Nov 2018. I doubt whether the Trump cares if anything holds up after that. What matters is that he can issue ultimatums every other day on national TV and have his base lap that up, “Crawl before us, foreign minions!” The entirely insulting treatment of Canada is surely intentional, and payback at least for Trump’s embarrassing preposteriorisms at the G-9 (or however many there are this week) in Vancouver BC. This is a large part of why there is no there there with the substance of this ‘deal’ with Mexico. The schlub on the way out the presidential door down South of the border to land on his butt signed off on a few non-concessions, just like Juncker did when he came to make kissy faces at Trump. It is grotesque that Mexico is willing to grovel like this, but there is surely a ton of billionaire industrialist pressure on the Mexican President to feed the American guy a milkbone and get him to back off. To the 24-hour cycle, this sounds like a ‘win’ so it’s reported as a win, when it’s just a large and transient wind from the nether interface of the Trump.

      DT is a miserable negotiator. He gets nothing concrete down on paper. There’s zero follow through with Congress to actually get something shaped up, signed, and ratified. Trump hasn’t actually concluded a single deal; just rumors of deals, which fall over like playing card palaces a few weeks on, but remain in myth and legend as ‘wins.’ That starts with his Catepiller media circus and his ‘lump of coal in every stocking’ promises, right to now. NO follow through. Only when there is an existing institutional structure Trump’s minders can goose-step into higher gear, like ICE, has anything of his grander dreams been sustained. All the rest are delirium tremens chimeras.

      I strongly suspect that this particular opera bouffa braying on ‘a better and different NAFTA’ dies in the night weeks from now with no surviving issue of substance. But you can bet that the Trump will be boobing on about how he slapped sense into ‘those Mexes’ on Election eve this November. The man’s a legend in his own mind, but no more than a fissure in the national consciousness where results are concerned.

    1. beelzebub

      To a degree, this is Trump Theatre. You need to become familiar with ‘Rasslin here in the US to get a sense of how this works. To enjoy the education, watch Neflix’s “Gorgeous Women of Wresting” I am serious!
      Canada has “stabbed us in the back” you see. Trudeau and you socialists must pay. Trump wants to show his base you all coming, supplicant, to ask his favor and grace and kiss his ass.
      Canada is also his “out”: the negotiations fail because of you or at minimum, Canada kept Trump from getting the terms he wanted cause he had to take care of your interests, too.

  6. Susan the other

    This has the look of a rushed agreement before Amlo is sworn in. He has promised to restructure Pemex as his first priority – and since he is a socialist more or less he will be looking for more severance tax or license fees from big US oil companies no doubt. But, clearly, something went on in this agreement that has not been made public because it was almost done in a panic and the result is no there there. Pena Nieto is not cordial with Trump but Amlo will most likely be even more skeptical. So Canada would have been too many cooks in this hasty kitchen as Canada has an acute interest in making an oil trade deal to its benefit. We have not been told what this was really about. It prolly also had something to do with the fall of Venezuela.

    1. Alex Cox

      “The fall of Venezuela”?

      I note that the US is engaged in war games off the coast of Venezuela – with the help of its top lackeys, England, Colombia, Mexico and Honduras – but Venezuela hadn’t fallen when last I looked.

  7. anonymous

    This seems a rather disingenuous article.

    If I’m understanding it correctly, the part of the TPP that Trump now approves pertains to labor and environmental standards?

    But how can one say the re-negotiated NAFTA is a merger of NAFTA and the TPP when the TPP is so much more than labor and environmental standards?

    For starters, the TPP:

    “rolls back the initial reforms to trade-pact environmental and medicine patent rules that congressional Democrats forced Bush to include in his last trade deals. It would double U.S. liability under the investor-state dispute settlement regime by empowering an additional 9,200 Japanese and Australian firms to attack our laws in foreign arbitration tribunals. (While billions have been paid to foreign investors under this regime, so far we have dodged the bullet because past U.S. pacts have been with developing nations with few investors here.)”

    and the TPP:

    “Unlike past pacts, the TPP would empower financial firms to use extrajudicial tribunals to
    challenge financial stability measures that do not conform to their “expectations.” The TPP’s
    Financial Services chapter “reads in” Investment Chapter provisions that would grant multinational
    banks and other foreign financial service firms expansive new substantive and procedural rights and
    privileges not available to U.S. firms under domestic law to attack our financial stability measures. For
    the first time in any U.S. trade pact, the TPP would grant foreign firms new rights to attack U.S.
    financial regulatory policies in extrajudicial investor-state dispute settlement (ISDS) tribunals using the
    broadest claim: the guaranteed “minimum standard of treatment” (MST) for foreign investors. ”

  8. Winston Smith

    I think the media has done a particularly terrible job of reporting on this story. Everywhere I see articles outlining the fact that Canada HAS TO SIGN this agreement. There is a very complex political/legal/economical context to this story and very few outlets have have attempted to describe it. Most stories imply that all the [power resides with the president which is patently untrue. Very frustrating if you are trying to understand the situation and the possible scenarios that could arise from it

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