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There is no doubt that the North American Free Trade Agreement (“NAFTA”) has generated an enormous amount of economic activity in North America. Regional trade increased 128% since NAFTA came into effect. The figures for the bilateral trade relationship between the United States and Mexico (which triggered the current renegotiation process) reflect a gross increase in the exports from the United States into Mexico of 455%. The exports from Mexico to the United States increased 637% since the commencement of NAFTA.
NAFTA was implemented in January, 1994. Almost 25 years later, it is still unclear as to whether it has fulfilled the promises that the Mexican, U.S. and Canadian governments made prior to its enactment. Negotiations for the modernization of the treaty between the three countries, which started in August 2017, continue and resolution of the most substantive matters of discussion is still pending.
I think NAFTA, as we know it, is dead. Whatever happens next, hopefully there will be an agreement where the idea of a “North America” survives and where all three nations-Mexico, Canada and USA, continue to strive to improve and protect the most powerful regional trade area in the world.
Some defenders of the recently launched NAFTA renegotiation process believe that the prevalence of low wages in Mexico has ‘stolen’ jobs from United States, diverted direct investment towards Mexico and rendered made-in-the-U.S.A. goods uncompetitive in terms of price vis-à-vis Mexican products. Therefore, in their view, NAFTA should be modified to force the Mexican Government and entrepreneurs to increase salaries in their territory in order to stop a practice commonly known as ‘labor-dumping’, i.e. gaining a larger share of the market by reducing their labor costs.
The US Government announced recently that one of its objectives in the renegotiation of NAFTA is the elimination of NAFTA’s dispute settlement chapter dealing with administrative determinations on unfair trade practices (anti-dumping and countervailing duties). This mechanism, which is unique in the world, is contained in NAFTA Chapter 19. The US position generated concern and confusion among industry players and made it evident that there is a significant lack of knowledge with respect to the different dispute settlement procedures in NAFTA and their operation. By way of example, the Mexican Senate formally asked Mexican government negotiators to reject the elimination of Chapter 19 as this would result in anti-dumping disputes being resolved in accordance with US laws rather than NAFTA rules. It escaped their attention that the laws of the jurisdiction that issued the anti-dumping measure are always used in the review process in Chapter 19 cases and that, in any event, Chapter 19 has always been an alternative voluntary and optional review mechanism.
The renegotiation of NAFTA has begun. Since he was on the campaign trail, President Trump has openly criticized the agreement calling it the “single worst trade deal ever” signed by the US and one through which the US has been ripped off by Mexico. A few months ago, the press reported that President Trump even considered withdrawing from NAFTA by invoking article 2205 of the agreement. After the first round of negotiations, President Trump stated in Arizona that he personally does not think NAFTA can be renegotiated and that he may need to “kill” the agreement.