Alfonso Llanes, Political junkie
The analysis should begin with what can Trump legally do if he decides to terminate NAFTA? Can he impose a 35% tariff as he is threatening to do? He can sure try it, but the affected companies will certainly contest it. A legal challenge to a Trump tariff has a sure shot at prevailing in court as a tariff is meant to target countries, not a corporation which means that Trump must follow the rules of WTO.
When Trump first made those noises, Ford was the first company to complain after realizing that the most improbable election had just happened with the help from the Russians. Ford, as well as Toyota, are still planning to move small car production to Mexico while keeping the same jobs in the U.S., company CEO Mark Fields has said to news media. Moreover, a withdrawal from NAFTA won’t allow Trump to automatically impose a 35 percent tariff, either, according to Fields
For instance, duties on goods produced in Mexico would only rise to the rate for countries with “most favored nation” status in the U.S.: about 4 percent in line with WTO rules. However, Trump could impose 15 percent duties for 100 days on GM’s cars, claiming a “balance payments emergency,” but that would fall short of the punishment he has threatened. Other tariff methods, such as anti-dumping duties, require special and lengthy procedures to enact. In short, Trump’s effort to follow through on his threatening trade tariffs is just hot air.
No matter the outcome is of domestic legal battles, should Trump decide to follow through and actually withdraws from US trade agreements, or if he imposes high tariffs, even as a threat or tactical maneuver. The likely result is that other countries will soon retaliate and will not wait for US court proceedings or litigation in the World Trade Organization to vindicate their claim under the agreement. Inmensurable economic damage will necessarily follow to US firms, workers, and probably will start a trade war long before the legal battle space is cleared.
Trump 35 percent tax is obnoxiously trying to regulate how companies conduct business, focusing on companies that shift production out of the U.S. and then sell back into the US market. Regardless of Trump’s trade rhetoric the focus should be on the impact NAFTA has on the economy despite his authority to terminate the agreement. Notwithstanding, business should have a strategic plan for failed negotiations as the Canadian and Mexican government officials rebuked the United States administration for its intransigence and for failing to undertake a modernization of NAFTA.
Canada for one has a new Comprehensive Economic and Trade Agreement (CETA) with the EU. Recently, Canadian Foreign Affairs Minister Chrystia Freeland was quoted as saying that the mindset of the U.S. negotiators was not to improve on NAFTA “ but on a negotiation where one party takes a winner-takes-all approach is a negotiation that may find some difficulties in reaching a conclusion U.S. was “…asking two countries to give up some privileges that they have enjoyed for 22 years, and we’re not in a position to offer anything in return, so that’s a tough sell.” Several U.S. proposals have been termed “poison pills” by its NAFTA partners, that eventually could derail the negotiations, and which certainly create conditions for a very difficult and contentious end to the fourth round and fifth rounds.
The round talks include:
- “A “sunset clause” so that NAFTA will automatically expire in five years, unless it is reviewed and extended which would cause a never-ending negotiation process within NAFTA.
- To eliminate Chapter 19 bi-national dispute settlement process for review of anti-dumping and countervailing duty findings.
- An “opt in” application of Chapter 20 of government-to-government dispute resolution concerning the interpretation and application of NAFTA.
- Reduce the ability of Canadian and Mexican businesses to participate in the U.S. government procurement market based on reciprocal monetary limits, instead of further liberalizing this sector.
- Impose a new 50% U.S. value content requirement for automotive goods and a significantly higher NAFTA content requirement of 85% (up from the current 60-62.5%, depending on the type of vehicle) and in the case of Canada, a challenge to its continuation of supply managed system for dairy, poultry and eggs. “
Under Nafta, tariffs were essentially reduced to zero among the three countries. Without NAFTA, tariffs would revert to levels agreed under the World Trade Organization treaty. Under NAFTA, supply chains have facilitated manufacturers with the ability to buy and produce wherever it makes the most business sense but that flexibility and savings would be lost out of NAFTA.
Some of the negotiators on the Canadian side have manifested that they are not clear about what the continuously changing and temperamental Trump is trying to accomplish other than perhaps bullying the parties to provoke Canada or Mexico to abandon the deal or make unsavory domestic trade concessions. Others think that Trump is just trying to please his supporters but the reality is that theatrics is actually obstructing tangible negotiations for the benefit of their peoples.
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