President Trump is expected to sign an executive order soon that mandates review of all U.S. trade deals currently in place. White House press secretary Sean Spicer said in late January that this would be the administration’s “No. 1” trade priority, adding the goal would be to “figure out if we can improve them.” The North American Free Trade Agreement with Canada and Mexico is expected to be at the top of the list for renegotiation, given the confirmation of Commerce Secretary Wilbur Ross and the likely confirmation of U.S. Trade Representative Robert Lighthizer before the April Congressional recess. Both are expected to play leading roles in trade deal renegotiations and assume much higher public profiles once the NAFTA process begins again.
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To date, much of the attention given to NAFTA renegotiation has focused on lowering its tariff restrictions. Two subsequent side agreements negotiated by the Clinton administration covered labor and environmental laws of the three countries, with the U.S. having stricter regulation than its counterparts, particularly Mexico. The Trump administration believes that each of these aspects has hurt the U.S. by creating incentives for American companies to install factories and create jobs across the border in Mexico. The theory is that increasing tariffs and requiring comparable labor and environmental standards for our partners will create greater parity with the United States, resulting in fewer American companies looking to relocate.
Less discussed, but still significant, are other aspects of NAFTA that have been more favorable to the U.S. and its domestic companies. The treaty’s telecommunications provisions are a case in point. They include a “bill of rights” for providers and users of telecommunications services that cover access to public telecommunications services; connection to private lines that reflect economic costs and availability of flat-rate pricing; and the right to choose, purchase, or lease terminal equipment best suited to their needs. These free-market principles reflect American values.
Although the provisions have benefitted American companies involved in relocating facilities by giving them greater flexibility in their telecommunications planning, they also have created opportunities for U.S. telecommunications terminal equipment firms to expand their reach to Canada and Mexico without restriction. The net gain thus may be greater than the net loss in economic terms. Consequently, one approach might be to keep telecommunications off the table for NAFTA renegotiations.
But given the growth of the Internet in the 23 years since NAFTA’s implementation, a better approach would be to expand the scope of the telecommunications provisions by removing related trade barriers that have emerged. Barriers such as international roaming rates for mobile calls, restrictions on cross-border transfer of digital information (such as electronic payments and digital signatures), and the forced localization of data centers have a detrimental impact on American companies. Consequently, the Trump administration would be well-advised to advocate for a broader bill of rights that adheres to the notion of freedom of choice. It should uphold the ability of U.S companies to offer their world-class information services in Canada and Mexico. Such a position may be easier to gain in a renegotiated agreement since the other items on the NAFTA version 2.0 agenda (e.g., tariffs) undoubtedly will receive greater scrutiny and are likely to be far more contentious.
The U.S. still has some leverage over China, because China clearly wants a deal. ... U.S. financial markets also seem to have been boosted by the prospects of a U.S.-China trade deal, so I think it could have a negative effect on both financial markets and economic activity in both countries if a deal is not struck