News About International Trade Negotiations and NAFTA from Crista Huff

by Crista Huff

 

The following is an excerpt from the June 2018 issue of Cabot Undervalued Stocks Advisor, a subscription-only stock market advisory:

The vast majority of Americans are not exposed to what’s happening in international trade negotiations, simply because the topic is too extensive to be covered by common news sources. So instead, Americans receive sound bites amounting to approximately two sentences that throw around words like “protectionism” and “tariff” without conveying any sense at all about what is being agreed to and/or opposed by trade negotiators. Since I have access to news sources that most of you never see, I thought I might just list a few facts about what’s happening with the North American Free Trade Agreement (NAFTA).

One of the big sticking points in NAFTA is that the U.S. wants to add a five-year sunset clause, whereas Canada does not want to do so. The sunset clause would require NAFTA to be renegotiated every five years, so that problems that arise regarding the trade agreement’s effects on various parts of the three countries’ economies can be periodically ironed out. I think that sounds incredibly reasonable. Would you permanently agree to something that’s very complicated, which involves many people’s cooperation and affects your personal livelihood, knowing in advance that you might never be allowed to renegotiate the ensuing problem areas?

Could it be true that the U.S.-imposed Section 232 steel tariffs on Canada and Mexico were intended to put pressure on those nations to negotiate further on NAFTA topics that are currently stonewalled? Absolutely. I certainly do not believe that last week’s new tariffs had anything to do with steel, steelworkers, the Rust Belt or protectionism. I believe that steel is simply a pawn in this game, interchangeable with pharmaceuticals or textiles or IP.

Do I agree with that negotiation method? My opinion doesn’t matter. I’m more interested in facts and outcomes; I’m not privy to everything that takes place behind closed doors; and I ignore the media hype and personalities involved. Herein, I’m simply reporting on topics that you’re probably not otherwise exposed to. They’re messy. But it’s important to understand that the status quo was also messy, with trouble brewing for decades. You simply weren’t bombarded with that news every day like you are in 2018.

Ironically, Inside U.S. Trade reported on June 1, “French President Emmanuel Macron earlier this week called on the U.S., the EU and China to come together and design a ‘complete update’ of WTO rules.” The World Trade Organization’s (WTO) Director-General Azevêdo called Macron’s request “comforting” and noted it was “exactly the kind of political leadership that we need.” I find it somewhat laughable that the concept of updating rules and regulations and trade agreements can be lauded or reviled, depending on who is proposing the updating! I agree with Director-General Azevêdo, with French President Macron and with U.S. Commerce Secretary Wilbur Ross that periodically updating institutions and agreements devoted to international trade is a good idea.

Also controversial is the current Investor-State Dispute Settlement (ISDS) mechanism within NAFTA. ISDS, which is a common component within many trade agreements, has ended up dismaying many political and business leaders and diplomats. (When I worked in international trade, opposition to ISDS came from the political left, right and center.) The function and decisions of the dispute panels have turned out to be occasionally shocking and often unacceptable to countries that are otherwise accustomed to their own judicial systems’ checks and balances, unbiased judges and appeal processes.  (You can read more about objections to ISDS in this letter to Congress signed by 220 law and economics professors in September 2016.) The U.S. is seeking to change this facet of NAFTA, while Canada and Mexico oppose the suggested changes.

The Comprehensive Economic and Trade Agreement (CETA) between the EU and Canada, which was ratified by European Parliament in September 2017 and provisionally implemented, must also be ratified by the EU Member States. The big sticking point is the trade agreement’s Investment Court System (ICS) – similar to NAFTA’s ISDS – which ostensibly conflicts with EU law, and contains other problematic aspects that remain highly controversial. (I did extensive reporting on the problems associated with the international court provisions of trade agreements, several years ago; the point being that trade agreements are far more complicated than you will ever hear on the nightly news. Clearly, there’s more to a document such as the Trans-Pacific Partnership (TPP) trade agreement, which was over 5,000 pages long, than just “protectionism” and “tariffs”.)

In the coming days and weeks, it will not be surprising to learn that diplomats from Canada and Mexico agree to further discuss NAFTA’s sticking points, and for the U.S. to therefore cease implementing Section 232 steel tariffs. I’m sure the media will portray such a scenario as one of President Trump being double-minded. I will believe, however, that it’s all a chess match between experienced opponents who are each relishing the game, trying to achieve the best deal for their respective countries, and being promoted by their public relations teams.

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Crista Huff is the Chief Analyst of Cabot Undervalued Stocks Advisor, a stock market newsletter that uses a proprietary combination of fundamental and technical analysis to outperform the S&P 500 index. Please send questions and comments to Crista@CabotWealth.com or research@goodfellowllc.com.

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