Can US, Mexico, and Canada modernize NAFTA?
Can US, Mexico, and Canada modernize NAFTA?
With his hands on the wheel of what looks to be a large black American sedan, President Obama tells the gas station attendant – who happens to be Mexican President Enrique Peña Nieto – “Fill’er up – and I’ll take the gas station, too.”
The cartoon in the left-leaning Mexico City daily La Jornada captures the sentiment of worried Mexicans who question Mr. Peña Nieto’s controversial reform of Mexico’s state-run petrochemical sector. The fear is that foreign investors – and in particular oil-thirsty gringos – will finally be able to get their hands on Petroleos Mexicanos, or PEMEX, which many Mexicans still consider to be the country’s crown jewel.
But in a broader sense, the cartoon speaks to the lingering doubts for many Mexicans about their economic path under the North American Free Trade Agreement, or NAFTA, which turned 20 this year. Those concerns about the economic future and the impact of an inexorably globalizing marketplace are front and center as Peña Nieto welcomes his two NAFTA colleagues, Mr. Obama and Canada’s Prime Minister Stephen Harper, to a North American leaders’ summit today.
The barely six-hour summit in Toluca – about 39 miles southwest of Mexico City – is billed by all three NAFTA governments as an opportunity to highlight the need to “bring NAFTA into the 21st century.”
The plan is to modernize NAFTA by way of the Trans-Pacific Partnership, a much broader trade accord being negotiated by 12 Pacific Basin countries – including the three NAFTA partners. The TPP, whose rules would apply to NAFTA trade, would regulate trade in sectors like e-commerce and some services that didn’t even exist when NAFTA was negotiated. It will also address issues like labor and environmental standards that were purposely left off the NAFTA table.
“We’ve got 21st-century trade with a 20th-century framework,” says Arturo Sarukhán, who until 2013 was Mexico’s ambassador to Washington. NAFTA “detonated the integrated supply and production chains” that mean the three countries increasingly produce “North American” and not national products, he says. A car produced in North America will on average cross borders eight times before it is ready for the showroom, for example.
What the 1994 trade pact hasn’t done is keep up with key changes in the global economy, he adds.
Perhaps the biggest challenge for the North American leaders is winning their populations over to TPP’s vision of a broadened trade agreement. If the leaders take a break from their discussions to listen to what’s going on beyond the walls around them, they may hear the chants of protesters who aim to derail any expansion of NAFTA.
Obama, too, faces stiff resistance at home from trade-pact opponents – concentrated largely in his own Democratic Party. If a free-trade agreement with Mexico was bad for American workers, as some companies moved south of the border where labor was cheaper, they say, how much worse will a pact be that includes the likes of Vietnam?
“What may make sense from the perspective of CEOs may not reverberate with public opinion,” says Sarukhán, now an associate analyst at the Brookings Institution in Washington. He notes that the “two huge elephants in the room during NAFTA negotiations” – environmental standards and labor standards and mobility – were left off the table because the pact simply wouldn’t have passed with them.
Senior administration officials involved in preparing the Toluca summit say all three leaders are aware of a need to communicate more effectively about NAFTA's benefits – and why it’s time for an update. NAFTA has fostered modernization of North American manufacturing, proponents say, created higher-paying jobs in Mexico in export-related manufacturing, opened Mexico to cheaper consumer products, and created a boom for US farmers.
“President Obama is well aware of the voices that have been raised in opposition to NAFTA,” says one senior administration official. From the White House perspective, a large part of the criticism stems from what NAFTA left out. If that’s the case, then a new trade pact that brings in labor and environmental standards should be seen as a plus, officials reason.
“The point I’d make is that TPP in part is intended to plug those holes,” the official says.
Supporters of NAFTA point to the explosion in North American trade the pact has spawned and to growth in trade-related jobs, particularly in Mexico. But critics counter that while the big numbers – $1.2 trillion in US trade annually with Mexico and Canada, better than a three-fold increase since NAFTA's inception – may look good, the micro level is less rosy. “We’ve had quite enough time to get an idea of what’s happened under NAFTA, and we can say at this point that much of it has been negative,” says Laura Carlsen, director of the Center for International Policy’s Americas program in Mexico City.
She ticks off a list of what she says are direct results of NAFTA: Some 2 million small Mexican farmers leaving the land largely as a result of huge increases in American corn imports; the expansion of Mexico’s informal economy; and sluggish economic growth leaving more Mexicans below the poverty line. “The daily lives of millions of Mexicans have gotten worse as a result of this trade policy,” Ms. Carlsen says. Such sentiments highlight the difficult sales job facing the three summit leaders – especially if they hope to see TPP win political support.