News Analysis: NAFTA renegotiation could be double-edged sword
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E-mail Xinhua, August 15, 2017
By Xinhua writers Xu Jing, Miao Zhuang, Wang Ping
CHICAGO, Aug. 14 (Xinhua) -- Renegotiation of the North America Free Trade Agreement (NAFTA), scheduled on August 16-20 in Washington, D.C., has caused concerns that rewriting the terms of trade could turn out to be a double-edged sword: benefiting some industries while hurting certain sectors.
Agriculture in the U.S. no doubt is the largest beneficiary of the NAFTA. Statistics show that after NAFTA officially took effect on January 1, 1994, U.S. annual agricultural exports to Mexico has skyrocketed from 4 billion U.S. dollars to 18.5 billion U.S. dollars. With exports to Canada added, U.S. annual exports to other NAFTA countries could reach 40 billion U.S. dollars, four times the amount reported before 1994.
For U.S. farmers, the current NAFTA has ensured them a steady and continuous access to the Canadian and Mexican markets. A broad consensus is that the NAFTA has increased the integration of the agricultural markets in North America. But as renegotiation for the agreement is around the corner, U.S. farmers are worried that their interest might be harmed as the concerns on trade imbalances expressed by U.S. President Donald Trump are mainly focused on manufacturing, not agriculture.
"Farmers in the U.S. have expressed to the administration strong concerns about doing anything in the NAFTA negotiations that would harm or undercut the expansion of agriculture trade we have experienced under the existing agreement," Kirk Leeds, chief executive officer of Iowa Soybean Association, told Xinhua, adding that they have repeatedly told Trump and members of his team "Do no harm."
"By some estimates, agriculture trade between the U.S., Canada and Mexico has quadrupled under the NAFTA. Any pull back from this progress would be detrimental to U.S. agriculture," Leeds said.
Automaking is another industry that has a mixed feeling, as no industry other than auto is more closely entwined with the NAFTA.
The NAFTA has eliminated barriers to trade in the region, and changed the way automakers manufacture products in North America. Thanks to the NAFTA, the three NAFTA countries are exporting and importing billions of U.S. dollars worth of auto parts from one another.
Now speculation runs high that Trump will seek to tighten the rule of origin requirements for automobiles and auto parts in order to reduce U.S.'s trade deficit with Mexico, and the required North American content may be increased to as much as 70 or 80 percent, as against the current 62.5 percent.
American Automotive Policy Council President Matt Blunt holds that the current 62.5-percent local content requirement strikes the right balance, and tightening the rules of origin in NAFTA could be disruptive and hurt the competitiveness of automakers in U.S., Canada and Mexico.
A recent study conducted by the Center for Automotive Research in Ann Arbor, Michigan, concluded that withdrawing from the NAFTA or restricting automotive trade would increase costs for manufacturers in the U.S., and make its auto sector less competitive. Rather than shifting production to the U.S., automakers would be more likely to move production to low-cost countries.
John Ciorciari, associate professor of public policy at the Ford School of Public Policy of the University of Michigan, said the image of laid-off auto workers has strong popular resonance, and Rust Belt grievances are real, "but bringing back jobs is not straightforward." "U.S. firms would suffer if cheap cars they make in Mexico become dearer or if their own exports to the NAFTA partners are disfavored," he told Xinhua.
"I expect the U.S. list of demands to be much less dramatic than the sweeping tariffs Trump suggested on the campaign trail," he added.
Dennis Chookaszian, adjunct professor of strategic management at Booth School of Business of the University of Chicago, said "the NAFTA agreement is a complex issue." The contention Trump made in the election is that jobs were being lost. But "the reality of it and all of the economic studies show that really has not been the case. Jobs have not been lost in America."
Chookaszian holds that the NAFTA in fact has had some positive benefits. In Chookaszian's eyes, the one real challenge with the NAFTA is: there was no e-commerce in 1994 when it was initiated.
E-commerce is now the way everybody ships. "The most important element of the NAFTA renegotiation isn't really about the NAFTA. It's about establishing e-commerce principles," Chookaszian told Xinhua.
"I'm actually in favor of seeing NAFTA renegotiation take place to get the e-commerce rules inserted," Chookaszian said, adding that "I believe a compromise will be reached that will make a sensible sort of e-commerce rules." Enditem
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