Robert Lighthizer was sworn in as the next US trade representative in May, sounding the starting gun for the long awaited renegotiation of the North American Free Trade Agreement (Nafta). The 1994 agreement created a trilateral trade bloc in North America consisting of Canada, Mexico and the US. It has been hotly disputed since inception: while GE backed Nafta and threw its weight behind Mexico, senator Bernie Sanders has been a fierce adversary for more than two decades.
Although scrapping the agreement isn't widely supported, its three member states are in agreement that it could use something of an overhaul to bring it up to date. But as time has passed, and importantly, bar a rather harsh retroactive 20% tax on Canadian lumber, the status quo remains intact. Despite fears to the contrary, trade between the three countries continues as usual.
Trump has decided, to avoid a shock to the system that the agreement should be renegotiated, and Lighthizer is his man for the job. There is an underlying fear here that this sudden backtrack is a political chess move by Trump; rather than remove the US from the accord and face the inevitable bipartisan backlash, the US will put forward a negotiated deal that will be so unfavourable to Mexican trade that it is nigh on impossible to accept.
How then should Lighthizer et al go about refreshing the agreement? The first thing to tackle is perhaps Mexico's labour standards which, by most accounts, fall well below acceptable levels. Increased labour regulation in Mexico would make the US a more competitive workplace, and the agreement itself more attractive to all parties. Introducing more stringent rules of origin would also go some way towards ensuring that members, and especially the US, benefit the most from trade. This is not the case if this loophole remains, and the market continues to be flooded with cheap Asian goods.
The bill, written four years before Google was founded, does not accommodate online transactions, and bears no mention of the country's burgeoning energy or telecommunications sectors. An updated Nafta would do well to incorporate rules to regulate these areas into a renegotiated version.
Nafta is and has been crucial to all parties concerned with WTO figures suggesting that 81% of Mexico's exports are sent to the US. Mexico is the US's second largest export market. What has yet to be fully clarified is the role that Canada has to play. When it seemed that the only country likely to suffer from the removal of Nafta would be Mexico, Canada kept quiet and suggested it would allow the US to take care of things alone. Since then the US has slapped a tariff on its softwood lumber, and threatened similar measures to the dairy industry. It could be that Canada and Mexico will have to realise sooner rather than later, that working together is going to be a more efficient way to secure a mutually beneficial outcome.