What does the stalemate with the NAFTA renegotiation mean for the Pacific Alliance?
NAFTA parties decided last week to hold only one extra round of negotiations before the end of 2017, after previous announcements that seven rounds would be carried out before the end of this year. The decision was motivated by a stalemate reached during the fourth round of negotiations when some proposals made by the US were not well received by its Canadian and Mexican counterparts. The WTO-minus proposals made by US negotiations raised concerns over the likely success of the renegotiation process. Other controversial proposals included a sunset clause for the renewal of the agreement every five years, the elimination of the investor-state dispute mechanism and the more stringent rules of origin.
However, it is not likely that it would be Canada and/or Mexico who would put an end to NAFTA with a very thorny road ahead. Withdrawal from the US is also remote. Extensive legal debates on the matter include whether the US president could withdraw from the agreement without congressional approval and how far the executive’s powers go regarding foreign affairs relations. An arsenal of legal and judiciary tools will be ready to prevent and block such an outcome (see CRS).
In any case, a cooling off process after November is envisioned where Canadian and Mexican negotiations will take time to examine the ‘unconventional’ proposals made by the US in critical areas of the NAFTA renegotiation. With the current state of affairs could the Pacific Alliance use the deadlock in NAFTA renegotiation to its advantage? Does this issue have any significance to the role the Pacific Alliance plays in the region? It seems worthwhile exploring these questions at the geopolitical and economic levels.
At the geopolitical level, in times of uncertainty, the Pacific Alliance firmly stands as the only economic integration mechanism in the region that advocates the ideas and principles of open regionalism and trade. In this way, the PA’s strategic regionalism may be paying dividends to the members that joined it in the hope of being able to boost their influential power at the regional level as more than individual secondary powers (ie Colombia and Chile). US protectionist rhetoric, proposals for local content requirements and changes to rules of origin run counter to their long-standing positions for open markets, free trade and pro-globalisation for which NAFTA has always been the paradigm.
Does the stalemate provide the PA with an opportunity to design and innovate on international economic/trade governance rules? I think it certainly does.
At the moment the Commercial Protocol stands as the only new generation agreement in force to implement innovative rules on e-commerce, telecommunications, financial services and regulatory coherence/improvement. Even though the Protocol takes many elements from previous FTAs and the TPP, the Protocol provisions go beyond existing FTAs. The PA members also have the opportunity of figuring out creative ways of implementing these provisions sooner than the TPP members. (It is also uncertain when TPP 2.0 or TPP-minus US will be concluded).
The challenge for the Pacific Alliance members is to figure out innovative ways to achieve the implementation of new ground provisions in practice. Some of these provisions will push forward for stronger rules on value chains and other key areas in the near future.
Additionally, the negotiation of agreements with potential associate states could serve as a ‘laboratory’ for innovative and new rules that respond to the current way in which trade is conducted and to views towards ‘fairer free trade.’ These negotiations are now underway after the first round of negotiations was held in Cali, Colombia this week.
Finally, this NAFTA renegotiation stalemate is a juncture point reminding the Pacific Alliance members of a significant issue more often than not overlooked. There is a need to take policy measures and put in place adjustment instruments. Through adjustment assistance programs FTAs would take a lower toll on workers making it easier for them to transition to more competitive industries when jobs are lost in affected industries. Job losses in some industries are an inevitable result of the FTAs effect on competition but represent the price paid for overall welfare gains in economies.
I look forward to hearing your views on these issues as we are facing interesting times!
I have some thoughts on regional value chains… but I will leave them for another post.
Sources: The Washington Post, Trade Talks, Foreign Policy.com, brookings.edu; Bloomberg, NAFTA press conference