How to nail the NAFTA sunset clause sticking point

Mexico is showing realism with its latest move towards recognizing that the American administration wanted a different trade agreement, based on fair trade (and not just free trade), and that puts an end to the flight to the bottom of the wage scale.

Mexico is prepared to commit to conditions that will force an agreed percentage of auto content to be made by workers earning higher wages than the pittances the big auto companies are paying Mexican auto workers, as this Reuters article spells out:

Speaking to local media on Tuesday, Mexican Economy Minister Ildefonso Guajardo also suggested that negotiators have made progress on auto salaries. U.S. and Canadian trade unions have complained that more manufacturing has gravitated to Mexico due to the country’s low wages.

Mexico balked at the prospect of foreign intervention in salaries, but the debate has shifted, Guajardo said.

“Now what we are talking about is that a percentage of what is made in North America would be made in a high-salary zone,” he said. “What does this mean? That clearly, within the component of 100 percent of an automobile made in (the NAFTA zone), a percentage, it could be about 35 to 40 percent, is made in a high-salary zone.” 

This move by Mexico was inevitable, as Trump holds all the cards in the NAFTA renegotiation.

How to solve the Sunset Clause difference:

The major sticking point now is the 5-year sunset clause that Trump wants. Canada and Mexico are resisting this.

Trump will win on this point as well.

However, there is a way for Canada to permit a 5-year sunset clause to be agreed to, provided that certain conditions are met. 

The conditions must meet America’s wish to revisit NAFTA in 5 years time so as to assess yet again if NAFTA is indeed creating more auto manufacturing jobs in the USA.

Incorporate 3 Major Aims:

My suggestion is that Canada agree to a clause which allows any one of the three parties to NAFTA to terminate the agreement after 5 years if they are not satisfied with progress towards the reaching of two or three Major Aims, to be included as part of the new NAFTA.

The most important Major Aim should be an agreed timetable, extending over 5-yearly periods, for wages in Mexico to rise to various levels of the average of American and Canadian auto wages over that period. The express objective is for Mexican wages to be equal to that average in, say, 15 years time.

In the beginning of the 5^th year of the new NAFTA agreement, all 3 countries will appoint representatives to examine the progress towards the increased wage Major Aim, and towards the other two Major Aims. If the Major Aims are not achieved, then all 3 countries will enter into non-binding discussions on what might be needed to achieve the Major Aims within future agreed periods.

Termination rights of any country:

If any of the 3 countries does not agree to any suggestions made, and no agreement is reached by all 3 parties, then any of the 3 countries may give 18 months notice from the end of the first 5 year renewal period of its intention to exit the agreement. If that country’s needs are not met by the end of that 18-month notice period, NAFTA will then terminate.

If all 3 countries reach agreement, then the new NAFTA continues without any termination. However, every 5 years the same assessment of progress towards achieving the Major Aims continues, with the same 18 month termination right.

So we will end up with an agreement that is permanent unless terminated, rather than one that is terminated unless renewed.

Needs met by the proposed Sunset Clause:

The major needs of the USA will be captured in the 2 or 3 Major Aims. Unless the USA is satisfied with progress towards meeting those Major Aims, it will be able to exit the agreement.

This should meet Trump’s needs.

Finally, the name should be changed to the North American Fair Trade Agreement, by dropping the word “Free” and using “Fair”.

The Best Analysis yet of Trump’s America

The article by Frank Buckley, Brian Lee Crowley and Sean Speer in today’s Globe & Mail is by far the best analysis of the driving forces behind the new American  government that I have read.

The article (headed Canada must recognize that the game is changing) is a clear, insightful, penetrating and very accurate assessment of the changed world view all the countries now face in the Trump administration.

If you want to influence Canada’s reaction to Trump, cut out the article and send it (or a hyperlink to it), to your own MP and local journalists. The more people who read it the better for all of us. You can find the article here.  

Why is this analysis so remarkable?

Because most commentators and politicians (including the Trudeau Liberal government) are missing the boat.

Tectonic shift represented by Trump:

The essence is that there is a massive shift taking place in the view of Americans of the place that America occupies in the world, with some of that shift taking the form of the election of Trump.

The authors:

• dissect Trump’s views in the context of this tectonic shift, 
• agree that many of his positions reflect that shift, 
• point out that Trump has been very consistent in his own views, 
• highlight the nature of the change (from a more subdued nanny state posture to a more transactional one), 
• and recommend a fresh approach in dealings by other states with the new America.

Major facts of the new American approach:

A few quotes from their article will illustrate:

The truth is he’s been consistent about the need to revisit the basic framework for U.S. global engagement for some time. It started with his campaign launch when he talked about the United States’ asymmetrical trade and military relationships with various countries. As he put it then: “We have all the cards, but we don’t know how to use them. We don’t even know we have the cards because our leaders don’t understand the game.”

And about symmetry:

He’s fed up with asymmetry on inputs combined with symmetry in influence. One can certainly argue that he’s wrong or that his administration is mishandling these issues. But the questions he’s asking aren’t at all unreasonable.

And Americans’ views of the trade-offs:

Is the United States getting value for this spending? Are these institutions still the best means of advancing American interests?

Mr. Trump’s “America First” model, which has majority public support, says no. It thus proposes to replace the notion of “American leadership” of a largely consensual alliance with a rawer exercise of national interest. 

This doesn’t necessarily mean isolationism. But it unambiguously involves a narrower conception of American interests and the United States’ role in the world.

What this means for the future:

We’ll likely see more ad hoc arrangements in U.S. foreign policy rather than permanent international institutions or structures. We’ll also likely see more utilitarian or realist engagements with different countries on an issue-by-issue basis.

The ineffectiveness of tariff retaliations:

The truth is the Trump administration just doesn’t care.

It also isn’t going to be moved by “retaliatory” measures.

Change needed in Canada’s approach to the new America:

The authors propose several changes.

One critical one concerns China:

Instead, a new transactional arrangement must be focused on mutual exchange. The Canadian government must advance areas of mutual interest to work in partnership with the administration. 

Targeting China’s unfair trading practices and national security risks is one example of a policy on which Washington would welcome Canadian help. 

Co-operating on regulatory harmonization to reduce binational transaction costs is another.

Hurry to the newstand and get your hands on this article. Read it several times, until its arguments are lodged firmly in your mind. Send copies or links to all you think might be concerned about what’s happening.

And measure any proposals offered by politicians or pundits against the hard facts in this article.

You will be surprised by how vacuous most suggestions are.

Oh, and welcome to the new  age of America First.