Monthly Archives: November 2017

Will Trump’s Telecom Deregulation & NAFTA Talks Undermine Net Neutrality in Canada?

The regulatory ‘cooperation’ and ‘harmonization’ agenda built into NAFTA would do just that

net-neutrality-canada

The renegotiation of the North American Free Trade Agreement (NAFTA) poses a threat to net neutrality in Canada.

The Toronto Star reports, “U.S. telecom regulators have confirmed plans to roll back Obama-era rules designed to protect net neutrality.”

In response, Innovation Minister Navdeep Bains has commented, “Canada will continue to stand for diversity and freedom of expression. Our government remains committed to the principles of net neutrality‎.”

Let’s hope so.

The loss of net neutrality would mean “a two-tiered system where certain content is favoured for paid subscribers, while other streams are blocked or slowed.”

The Toronto Star news report cautions, “John Lawford, executive director and general counsel for the Public Interest Advocacy Centre [says] major wireless carriers in Canada could seek a review of Canadian Radio-television and Telecommunications Commission net neutrality policies, arguing that harmonization with the U.S. to protect investment here is now warranted…”

OpenMedia has warned, “Canada has some of the strongest pro-consumer net neutrality safeguards in the world, recently reinforced by the CRTC’s landmark decision to ban telecom providers from engaging in discriminatory pricing practices. By contrast, the U.S. under Trump is moving to rapidly dismantle its own net neutrality safeguards, and the concern is that they’ll use NAFTA to force Canada into line with an agenda that prioritizes the narrow interests of U.S. telecom giants over the broader interests of Canadian consumers.”

They have additionally highlighted, “Canada has strong Net Neutrality regulations that protect free expression and create the conditions innovators need to succeed. Under NAFTA, we should not accept any policies that would weaken these safeguards or prevent us from enforcing these rules.”

But it’s very likely that the regulatory ‘cooperation’ and ‘harmonization’ agenda built into NAFTA would do just that.

The Council of Canadians has long argued for net neutrality.

In May 2008, Council of Canadians campaigner Meera Karunananthan spoke at a net neutrality rally on Parliament Hill.

We believe the Internet should be a commons that prioritizes equitable access to information over commercialization. Given the growing number of media outlets in crisis, net neutrality is an increasingly essential principle for ensuring public participation in what can and must be a much more democratic media system.

Taken from, commondreams.org

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Have NAFTA Talks Reached A Breaking Point?

As efforts re-negotiate the North American Free Trade Agreement (NAFTA) continue, the U.S. team continues to push a hardline stance that the governments of Canada and Mexico aren’t going to accept.

14247774_10102654795131140_381174149_oRight now it seems like very little progress is being made. On November 29 Mexico’s Minister of Economy Ildefonso Guajardo exited a meeting with Trump’s team in Washington with a negative outlook. “I was clear that the domestic content [proposal] is something that is not viable at this point,” Guajardo said.

The U.S. appears to be adamant that it will squeeze concessions out of Mexico and Canada and deliver a win for Donald Trump’s administration. So far Trump’s team is ignoring criticism from business groups in the U.S. that have warned about the potentially disastrous consequences of the U.S.’s current proposals.

In a statement U.S. Trade Representative Robert Lighthizer said, “While we have made progress on some of our efforts to modernize NAFTA, I remain concerned about the lack of headway. Thus far, we have seen no evidence that Canada or Mexico are willing to seriously engage on provisions that will lead to a rebalanced agreement. Absent rebalancing, we will not reach a satisfactory result.”

Representatives from Canada and Mexico, however, aren’t yet willing to seriously discuss the U.S.’s controversial proposals for new rules for increasing the U.S. content on cars produced under the NAFTA framework or a so-called sunset provision that would require the three countries to re-affirm their commitment to NAFTA every five years. One Canadian official explained, “On the controversial proposals, we cannot really negotiate as there seems to be little room to do so and little logic to the proposals.”

Trump’s team appears to be threatening to be ready to cancel NAFTA if serious concessions aren’t made. Mexico and Canada, however, are willing to stall and wait for Congress and U.S. business chambers to increase the pressure on the Trump administration to preserve the current framework. Right now it’s still not clear if Trump really is willing to walk away from NAFTA and risk losing up to $12.8 billion in yearly exports to Mexico and up to 50,000 jobs in both the U.S. agricultural and auto manufacturing sectors. After all, most people in the U.S. might end up blaming Trump if NAFTA ends and the U.S. economy takes a serious hit. Trump has latched on to out-dated mercantilist ideas that don’t account for the complexity of the modern economy. Trump needs to understand that walking away from NAFTA would be a major disruption for important U.S. corporations with complicated cross border supplier and client networks such as Ford, GE, John Deere, and HP.

 For now the talks appear to be stalling and negotiations are expected to drag on (at minimum) into early 2018.

 

To ask about what we might see next in the NAFTA talks I reached out to Jason Marczak, the Director of the Adrienne Arsht Latin America Center at the Atlantic Council, a Washington D.C. based think-tank.

Nathaniel Parish Flannery: How optimistic are you right now that progress is being made in the ongoing talks about NAFTA’s future?

Jason Marczak: Last week, the 5th round of NAFTA negotiations concluded in Mexico City. So far, progress has been made in the minor and more technical sectors of the pact such as digital trade, the establishment of a NAFTA Trilateral Small and Medium Size Enterprise (SME) Dialogue, food safety, sanitary and environmental standards. Although all countries are in favor of updating the agreement to better fit the needs of a 21st century economy Canada and Mexico will not accept a deal that is bad for them.  Little progress has been made on the major points of contention such as rules of origin, labor standards, dispute settlement resolution, agricultural trade and government procurement. On average, the United States has taken 18 months to negotiate a bilateral trade agreement that then has to be ratified by the U.S. Congress. The March deadline is overly ambitious. Assuming all parties continue to agree to meet, we will likely see this process conclude in 2019. It will be quite tough for negotiators to make concessions in heat of the campaign leading up to the Mexican presidential election in July 2018, and the U.S. mid-term elections in November.

Negotiators from the three countries are going to have to find a way to tackle the sticky issues that remain. For example, in this last round we saw how Mexico presented a counter offer to the U.S.’s sunset clause, with Mexico instead proposing periodic reviews for the pact. This is an example of a concession that could be agreed to as long as all countries are willing to give and take.

Parish Flannery: Right now what are the main sticking points?

Marczak: The sticky points are far-reaching at this point. I’ll just cover three of them. One is rules of origin, which determine what percentage of a product needs to be made in North America to be entitled to preferential tariff treatment under NAFTA.  At the last round, the U.S. proposed that half of all content of autos be from U.S. and that the total required North American content rise from 62% (currently the highest of any trade agreement) to at least 85%. From the Canadian and Mexican side, country-specific rules of origin are considered as non-starters for negotiations since they could eliminate the competitive edge North America has globally in the automotive sector. Both have called for content to be measured regionally instead of nationally.

A second issue is the dispute settlement mechanisms, specifically Chapter 19 of the agreement, which allows the private sector to challenge antidumping and countervailing duty rulings. Currently this takes place in an international tribunal, but the U.S. would like to bring it into the U.S. court system. Canada on the other hand has repeatedly stated that the NAFTA dispute settlement mechanism cannot be eliminated or weakened and should remain independent of any single national justice system. Canada could walk away if an independent dispute resolution mechanism isn’t reached. Remember, this was a hold-up for Canada when NAFTA was first negotiated.

Hopefully there could agreement around the sunset clause. The underlying assumption from Canada and Mexico is that a sunset clause would ultimately drive down confidence and hurt long-term investment in the region, two of the big wins under NAFTA. With all the instability in different areas of the world today, the last thing we should be doing is detracting from the stable market we have created right here in North America.

Parish Flannery: At this point how optimistic are you that NAFTA is going to survive 2018?

Marczak: I think – and hope – that it continues to be abundantly clear that ending NAFTA would have dire consequences on the U.S. workers who already are concerned about their future. Why add to their uncertainty? Why upend the jobs of millions of Americans? In the end, not only would a withdrawal from NAFTA hurt U.S. workers, but it would cause significant harm to the United States beyond North America. We would be seen as a less credible trading partner. It would give huge advantages to China to make further gains in its quest to be the driver’s seat in setting global trade rules. And China surely wont’ be writing those rules to benefit the American worker.

So, I believe that the United States and our NAFTA partners see the bigger picture implications of getting this deal right. Either way, U.S. credibility is already being questioned. It is critical that we reach a successful conclusion so that we reverse this.

As well, if the U.S. administration does decide to terminate the agreement, it is still a lingering question how much authority Congress has to prevent elements of any such decision from being enacted.

In the end, I remain optimist. I see a deal as being reached eventually. And if we get this right, it can serve as a blueprint for future deals.

From Forbes

NAFTA renegotiation threatens family farmers and the environment

View at Medium.com

Donald Trump’s effort to renegotiate the North American Free Trade Agreement puts sustainable family farms and the environment at risk.

Family farm groups from Mexico, Canada, and the United States have issued a joint statement, declaring that: “The Trump administration has stated its clear intention to continue its trend of putting multinational corporations’ narrow interests first by using the same blueprint that shaped the failed Trans-Pacific Partnership (TPP).” As Food and Water Watch observes, “it’s clear the Trump agenda has morphed into something decidedly anti-rural…”

Trump’s Commerce Secretary Wilber Ross has made clear that the TPP is the model for its NAFTA renegotiation agenda for chapters of the agreement intended to curb environmental, climate, and other important regulations. This is in line with Trump’s war on the Environmental Protection Agency and other administrative agencies, Trump’s simple-minded hostility to environmental and public health regulation subordinates the role of governments in ensuring economic fairness and environmental protection to corporate greed. Polluting industries are freed from responsibility for the costs they impose on people, communities, and the planet itself. (1)

 
Rally against Trans-Pacific Partnership, Trump’s model for NAFTA renegotiation, Feb. 2016.

Dozens of powerful lobby groups for corporate agri-business ranging from the American Farm Bureau and the Corn Growers Association to DuPont Chemical have filed public comments with the U.S. Trade Representative’s office demanding a rollback of public interest regulations related to farm and food policy. Agribusiness giants want a new NAFTA that doubles down on chemical-intensive, polluting industrial agriculture. This would further ramp up their huge profits by promoting environmentally-hazardous pesticides, synthetic fertilizers, antibiotics, growth hormones and, genetically engineered seeds. It can be further expected that even more family farmers will be caught in unfair contracts with global pork and poultry giants who own the animals while the farmer absorbs the production costs and risks. Finally, it might be expected that corporate-controlled factory farms will seek to take control of water resources needed to sustain family farms and the planet.

Industry and Trump administration objectives for multiple chapters of a new NAFTA.

A new NAFTA on the TPP model would lead to less regulation of Big Ag’s environmentally harmful factory farming practices resulting in worse air and water pollution, inhumane treatment of animals, deforestation, and massive use of environmentally-hazardous pesticides, chemical fertilizers and fossil fuels. Corporate confined animal feeding operations (CAFOs) would likely multiply further all across North America, at the additional expense of rural communities whose air and water would be further polluted and whose economies almost certainly would be further hollowed out. As a detailed analysis by Friends of the Earth documents, “Industrial agriculture relies on monocultures, large-scale energy-intensive operations and chemical inputs that are harmful to humans and the planet.”

For just a few examples of chapters in a new NAFTA deal that could fundamentally threaten sustainable agriculture, consider the chapters on technical barriers to trade, sanitary and phytosanitary measures, regulatory review, and enforcement chapters.

TBT-Plus
Renegotiation of a Technical Barriers to Trade — Plus chapter of NAFTA on the model of the TPP is likely to expand the legal basis for Big Ag to push for international suits before NAFTA trade tribunals challenging agrichemical and pesticide regulations in North America. As a result, the new NAFTA could force the rollback of effective chemical regulations in some U.S. states, such as California’s Green Chemistry initiative and preclude future, more effective regulation of dangerous agri-chemicals by Canada, Mexico, and the U.S. federal government. (1)

A TBT-plus chapter in a renegotiated NAFTA also could thwart efforts to stop the use of neonicotinoid (neonic) pesticides in order to save the bees and other pollinators that are essential in pollinating 75% of the food crops humans eat. A Big Ag challenge to regulation on insecticides, for example, would require the promulgating jurisdiction to meet a high burden of proof to show that it is not “discriminatory”, that it is “necessary,” and that it is the “least trade restrictive,” rather than the most effective means of regulation. NAFTA 2.0 promises international legal protection of the practices of Bayer, Syngenta, Monsanto and other global agrichemical giants.

Anti-neonic pesticides action at Bayer’s shareholder meeting, April 2016.

Trade associations like CropLife America are likely seeking to drive NAFTA renegotiations on chemicals and insecticides with the assistance of manufacturers like BASF, Bayer, Dow, DuPont, Monsanto, and Syngenta. Family farmers and the rural environment in the U.S. are already threatened by corporate control of genetically modified seeds and hazardous herbicides like Monsanto’s Roundup (glyphosate) and Dow’s Dicamba.

TBT-plus provisions in the new NAFTA could also further undercut food-labeling standards, thereby violating consumers’ right to know what is in their food and whether their food is produced in a manner protective of human health, animal welfare and the environmental.

SPS -Plus.
With respect to the chapter of NAFTA on sanitary and phyto-sanitary measures, Friends of the Earth U.S. is concerned that provisions in a renegotiated NAFTA could make it easier to challenge safeguards that fall into the categories of sanitary measures related to food safety and phyto-sanitary measures intended for animal and plant health. New biotechnology and GMO safeguards are also threatened. (2) In addition to that, a renegotiated NAFTA could give food exporters greater powers to challenge border inspections and substitute private food safety certifications for government inspections.

A new NAFTA regulatory review chapter.
A new regulatory review chapter in a new NAFTA deal would likely encourage business-friendly, cost-benefit analysis that would hamstring agricultural, food safety, and other environmental regulations. For example, insecticide safety standards would be lowered if the undervalued “benefit” of protecting the bees is outweighed by the “cost” to corporate profits. (3)

Quantifying in dollar terms the benefits of environmental regulation can be difficult, for example because the financial cost data of bee population declines may not be as comprehensively collected or easily measured as economic data. Worse, quantifying environmental benefits in monetary terms in order to compare them to economic costs to business, on its face, diminishes the perceived importance of maintaining the equilibrium of the eco-system. It can be challenging and sometimes impossible to attribute a price to the intrinsic value of living things and nature itself.

NAFTA dispute resolution enforcement.
Trump’s renegotiated NAFTA, like other recent “trade agreements,” mandates the rollback of public interest regulations and policies that have been established by democratic institutions. Unlike other international deals these so-called trade deals can be effectively enforced through a system of tribunal “arbitration” that can countermand the decisions of democratic government institutions at the national, state, and local levels and in other countries. International trade tribunals, largely employing corporate trade lawyers to serve as both plaintiff and judge in a revolving door fashion. These tribunals effectively enforce their decisions with retaliatory trade sanctions like punitive tariffs on a country’s exports or withdrawing international property rights like patent protections. In the case of investment tribunals, they can levy awards of unlimited money damages — sometimes in the billions of dollars. This can have the effect of both the withdrawal or weakening of government regulations and a chilling effect on the establishment of new regulations.

Petition delivery to end ISDS, a form of corporate-run international trade tribunals, Oct. 2017.

Small and sustainable farmers across North America are threatened

Under the current NAFTA deal, independent ranchers and farmers are already in economic distress due to declining prices for their products when they are sold to wealthy commodity speculators and the giant corporations that process and market the finished goods for export. At the same time, a new NAFTA deal on agriculture modeled on the TPP would further increase the volatility of agricultural markets and corporate control of agriculture at the expense of already declining rural communities, struggling small farmers, and the environment. The double-whammy of market volatility and declining prices, combined with deregulatory features of a new NAFTA, would harm each these three North American countries in varying ways:

Small farmers in Mexico are at risk
The existing NAFTA agreement has been devastating for small Mexican farmers. Mexico was flooded with cheap, subsidized U.S. corn and other commodities when the agreement went into effect. An estimated 2 million Mexicans farmers went out of business. In order to feed their families, many left for the United States to find any kind of job. Trump’s new NAFTA is undoubtedly intended to further ramp up U.S. exports of corn, other agricultural crops, and meat to Mexico. The consequence could be more economically-driven immigration across Mexico’s northern border.

Under Trump’s plan for a new NAFTA, necessary regulations would be reduced, allowing Big Ag’s products to be produced more cheaply. This allows agribusiness corporations to export at prices that do not fully reflect the cost of production and damage to the environment — which will certainly continue to devastate Mexican farming communities.(4)

Meanwhile, in the process of renegotiating NAFTA, U.S. biotechnology giants are further menacing traditional and environmentally sustainable Mexican farming practices. For example, NAFTA 2.0 threatens the traditional practice of saving and sharing of seeds by Mexican farmers. If based on TPP intellectual property chapter, a new NAFTA IP chapter would mandate that Mexico ratify the ironically-named International Convention for the Protection of New Varieties of Plants, which provides 20 to 25 years of intellectual property protection for corporate breeders of any plant. As Ben Lilliston of the Institute for Agriculture and Trade Policy notes: “Mexico is home to many ancient breeds of corn and tomatoes that are critical in adapting to climate change. Monsanto has long targeted Mexico’s intellectual property laws for seeds in order to sell genetically engineered corn in the country.”

Furthermore, as Dr. Steve Suppan at the Institute for Agriculture and Trade Policy has observed: “ [T]he U.S. Biotech Crops Alliance asked the U.S. Trade Representative to include a NAFTA 2.0 chapter on agricultural biotechnology.” This would likely protect and expand massive U.S. exports to Mexico of genetically engineered yellow corn, as well as open the door to the planting and consumption of GE white corn in Mexico. As Tim Wise, writing for a Tufts University publication notes: “Mexico’s industrialized white maize is the market Monsanto wants.Jaime Mijares Noriega, Monsanto’s Latin America Director for Corporate Affairs, was surprisingly frank. “In order for the penetration of biotechnology crops to be successful, it will have to be for both white and yellow corn,” he said. “If it was only yellow, we would not be investing.” Not surprisingly, as Dr. Suppan notes: “Some Mexican producer associations and social movements have called on the government to either exempt agriculture from NAFTA 2.0 or withdraw from the agreement altogether.”

Small farmers in Canada are at risk. 
Family-operated dairy and poultry farmers in Canada may well be put at an economic disadvantage. Canada’s supply management system for dairy, eggs and poultry is at severe risk. As Brent Patterson of the Council of Canadians explains: “a system of supply management came into effect in Canada to regulate the supply of dairy products. The national system, managed by the Canadian Dairy Commission, means that imports of these goods are limited in areas where domestic products can meet demand. The system means consistent prices for both producers and consumers.” Ben Lilliston of the Institute for Agriculture and Trade Policy notes: “Poultry companies like Tyson and Pilgrims Pride want some of the gains won under the TPP that weakened Canada’s poultry supply management system to transfer to NAFTA.”

Dairy farm in Manitoba, Canada, May 2008. Image via Flickr Creative Commons.

Small farmers in the U.S. are also at risk.
As the U.S.-based National Family Farm Coalition has stated: “Trade deals like NAFTA thrive on commodity speculation that boosts corporate profits, while bankrupting family farmers, price gouging consumers, and destroying the environment.” Overproduction for export of agricultural goods by U.S. factory farms promises to depress the price that U.S. family farmers get for their product but not the high profit that corporations get for processing and marketing. This would drive more U.S. farming families off the land and undermine efforts to build a more environmentally sustainable agricultural economy in the United States.

Environmentalists must resist Trump’s NAFTA rewrite and the dangerous industrial food system that it promises to expand.

NAFTA has entrenched North America’s industrial food system, and Trump’s rewrite of NAFTA is likely to compound its dominance at an even more terrible cost. If Trump and giant agribusiness get their way, we can expect decreased regulation to lead to further depletion and degradation of the continent’s soil, water and biodiversity. The industrial agriculture model is highly dependent on the use of fossil fuels and CAFOs employing liquefied manure treatment systems that emit vast amounts of greenhouse gasses (5), thus a NAFTA renegotiation that encourages these practices through decreased regulations will worsen climate disruption. The health of farmworkers, farmers, and other vulnerable populations will further deteriorate. The wealth and power of global agribusiness corporations and investors will be compounded.

North America needs a totally different trade policy and agricultural system based on the principles of economic fairness and ecological agriculture. “Unveiling the hidden costs of mainstream agriculture. . . [shows] that investing in conversion to sustainable food and agriculture systems is a much cheaper option than current expenditures for environmental mitigation and public health,” says Nadia El-Hage Scialabba of the United Nation’s Food and Agriculture Organizations. (6)

Environmentalists and family farm advocates in the U.S., Canada, and Mexico are sounding the alarm about these threats and are mobilizing in response to Trump’s renegotiated NAFTA. Now is the time to organize locally, talk to neighbors and the press, and forcefully communicate to Members of Congress.

Sidebar: The High Cost of the Industrial Food System

Farming for the Future: Organic and Agroecological Solutions to Feed the World, a groundbreaking Friends of the Earth report authored by Christopher D. Cook, Kari Hamerschlag, and Kendra Klein, PhD documents the high cost of the industrial food system.

Farming for the Future report documenting the high cost of the industrial food system.

“The dominant industrial food system … generates enormous social and public health costs. The political and economic structures underlying the global food system are consolidating wealth and power over food-related resources and accelerating world poverty and hunger. Meanwhile, overconsumption of unhealthy foods in some regions drives rising rates of chronic diseases such as obesity and type 2 diabetes. A growing body of evidence links certain classes of agricultural pesticides to illnesses including cancers, neurodevelopmental disorders, reproductive disorders, asthma, birth defects and acute poisonings. These diseases disproportionately impact low income communities and people of color in the U.S. and around the world. Together, the global economic cost of premature death, disability and disease connected to food production and consumption is hundreds of billions of dollars a year. Evidence of industrial agriculture’s destructive path is everywhere:

  • Rapid depletion and degradation of soil and water resources.
  • Generation of major greenhouse gas emissions and significant vulnerability to climate change.
  • Widespread pesticide and fertilizer pollution of water ways and oceanic “dead zones” linked to fertilizer runoff.
  • Large-scale habitat and biodiversity losses threatening essential species, including pollinators.
  • Rapidly dwindling genetic diversity of seeds, crops and livestock breeds.
  • Severe animal suffering.
  • Impoverishment of farmers and agricultural workers worldwide.
  • Reduced effectiveness of antibiotics to fight human diseases.
  • Nearly 800 million people suffering from hunger, 1.9 billion overweight or obese, and billions spent on diet-related diseases.
  • Rapid loss and concentration of farmlands and water access due to land grabs and development.
  • Poverty wages for millions of agricultural and food industry workers who suffer high rates of injury and chronic illness.
  • Increased obesity and type 2 diabetes epidemics in some countries and pesticide-related diseases suffered disproportionately by farm workers and rural communities worldwide.”

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Selected Endnotes

  1. Such cost shifting or spillover effects of market activity are what economists refer to as negative externalities resulting from deregulation or failure to regulate. People and the planet pay the social, economic, and environmental costs for regulated economic activity of a private company or individual speculator. .
  2. See DuPont’s Federal Register comments: “DuPont agrees that there are many aspects of NAFTA that can, and should be, modernized. We would support provisions that preserve or modernize the following areas: National Treatment/Market Access of Goods; Energy; Agriculture/Sanitary and Phytosanitary Standards; Technical Barriers to Trade; and Biotechnology and Regulatory Cooperation. During the upcoming negotiations we should look for opportunities to improve regulation of crop protection chemicals. NAFTA has facilitated efficient risk assessments for new crop protection products by encouraging joint reviews of data by the appropriate regulatory agencies; we can build upon that progress. Common registration data requirements and data interpretation increase efficiencies and result in significant cost savings for companies, farmers, and customers. NAFTA also encourages identification of trade barriers, leading industry and regulator agencies to think beyond their own borders, facilitating Maximum Residue Level {MRL) alignment and harmonization among countries to the benefit of U.S. companies like DuPont.”https://www.regulations.gov/document?D=USTR-2017-0006-1401
  3. See these Federal Register comments of the corporate oriented American Soybean Association, ASA LISTS BENCHMARKS IN COMMENTS ON NAFTA RENEGOTIATION June 13, 2017, “With regard to biotechnology, ASA urged USTR to pursue stronger language on sanitary and phytosanitary standards (SPS) geared toward enhancing cooperation between regulatory agencies and avoiding trade disruptions related to agricultural production technologies.” http://kneb.com/agricultural/asa-lists-benchmarks-in-comments-on-nafta-renegotiation/; See also, Federal Register comments of Beth Hughes, International Dairy Foods Association, Sanitary and Phytosanitary Measures (SPS), https://www.regulations.gov/document?D=USTR-2017-0006-0807
  4. As Sharon Anglin Treat, a senior lawyer and policy analyst at the Institute for Agriculture and Trade Policy explains: “Corporate supporters of a new NAFTA are aiming to rewrite U.S. domestic policy to conform to a corporate wish-list that will hurt, not help, workers, consumers, and small-scale farmers. If they get their way, NAFTA 2.0 will prevent new regulations from being adopted and place roadblocks in the way of enforcing existing standards, reducing consumer and environmental protections to the lowest common denominator. This is a key demand of agribusiness, which objects to Trump’s talk of trade deficits and instead wants to see a beefed up regulatory chapter added to NAFTA. Known variously as “regulatory cooperation,” “regulatory convergence” or “good regulatory practices,” the idea of a cross-border process for reviewing and collaborating on regulations seems benign. In fact, regulatory cooperation provides a powerful toolkit to corporations to achieve through secretive international meetings the policies they are unable to enact in a more public and democratic domestic process. With tariffs on most agricultural products already extremely low or nonexistent, corporations have turned their attention to getting rid of domestic regulations that increase the cost of business or, like some food safety and pesticide regulations, can prevent export of noncompliant products altogether. Big agriculture sees the renegotiation of NAFTA as an opportunity to insert intrusive “modern” provisions into an older trade deal that currently lacks these enforceable deregulatory provisions.” Will Trump Use NAFTA To Institutionalize The Wholesale Delay And Repeal Of Public Protections? https://www.commondreams.org/views/2017/09/08/will-trump-use-nafta-institutionalize-wholesale-delay-and-repeal-public-protections
  5. As a Tufts University Institute on Global Development and Environment report documents: “With the opening of the Mexican economy under the North American Free Trade Agreement (NAFTA), Mexican agriculture came under new competitive pressures from U.S. exports.” The U.S. appears to have exported subsidized agricultural goods to Mexico at prices below the cost of production, “one of the definitions of a violation of anti-dumping rules as defined by the World Trade Organization.” According to the Tufts report: “ We estimate “dumping margins” for eight agricultural goods — corn, soybeans, wheat, rice, cotton, beef, pork, and poultry — all of which are heavily supported (directly or indirectly) by the U.S. government… experienced dramatic increases in U.S. exports to Mexico after the agreement.” http://www.ase.tufts.edu/gdae/policy_research/AgNAFTA.html
  6. The National Association of Local Boards of Health reports that: “Globally, livestock operations are responsible for approximately 18% of greenhouse gas production and over 7% of U.S. greenhouse gas emissions (Massey & Ulmer, 2008). While carbon dioxide is often considered the primary greenhouse gas of concern, manure emits methane and nitrous oxide which are 23 and 300 times more potent as greenhouse gases than carbon dioxide, respectively. The EPA attributes manure management as the fourth leading source of nitrous oxide emissions and the fifth leading source of methane emissions (EPA, 2009). The type of manure storage system used contributes to the production of greenhouse gases. Many CAFOs store their excess manure in lagoons or pits, where they break down anaerobically (in the absence of oxygen), which exacerbates methane production.” https://www.cdc.gov/nceh/ehs/docs/understanding_cafos_nalboh.pdf
  7. Friends of the Earth, Farming for the Future: Organic and Agroecological Solutions to Feed the World, p.8, https://1bps6437gg8c169i0y1drtgz-wpengine.netdna-ssl.com/wp-content/uploads/wpallimport/files/archive/FOE_Farming_for_the_Future_Final.pdf

Nafta Talks Get Bogged Down

  • Congress, business groups ask White House to moderate posture
  • Most controversial issues likely to wait for future rounds

A NAFTA logo is seen during the fifth round of NAFTA talks involving the United States, Mexico and Canada, in Mexico CityCanada and Mexico are holding firm in their resistance to addressing America’s most contentious proposed changes to Nafta in the latest talks, with the parties making some slow progress on areas of greater consensus.

 The U.S. is frustrated with what it perceives to be the reluctance of Canada and Mexico to present counter-proposals to U.S. positions on key issues such as regional content requirements and dispute settlement, said a person close to the negotiations. American officials are especially discouraged by Canada for publicly stating that the U.S. proposals are unacceptable, without presenting alternatives at the negotiating table, said the person, who spoke on condition of anonymity.

The fifth round of talks, which began in Mexico City on Nov. 15 and wrap up on Tuesday, is the first held without the top trade chiefs from the three countries. That’s allowed the respective teams to work on the challenge of updating the more mundane facets of the nearly 2,000-page North American Free Trade Agreement, which started in 1994 and is undergoing a major overhaul.

 Progress was slow over the weekend. While hundreds of hours of talks are unfolding on issues ranging from car manufacturing to telecommunications, negotiators have punted decisions on the most divisive issues to future rounds. The three countries have extended the deadline for the talks to March, when they could be complicated by elections in Mexico and U.S. midterms.

Mexico and Canada are holding out hope the U.S. will bow to domestic pressure from lawmakers and industry groups to soften its demands — and Canada is warning there won’t be a deal if it doesn’t.

Since talks left off in October, U.S. companies and business groups, led by the U.S. Chamber of Commerce, have mounted a campaign to mobilize Congress and convince the White House to back down from proposals they see as damaging to corporate interests. The Chamber on Friday warned that an American pullout would hit hardest some of the swing states that President Donald Trump took on his road to power.

Key Demands

The fate of the talks may hinge on that lobbying effort and whether the U.S. relaxes key demands. With Washington lawmakers focused on tax reform, that’s a question expected to linger into 2018. Two Canadian government officials, speaking on the condition of anonymity, said this weekend there’s no chance of any deal without the U.S. significantly altering its most contentious proposals.

That message was echoed by a prominent Canadian union leader. “As long as the U.S. has those proposals on the table, nothing is going anywhere” on less controversial issues, Jerry Dias, head of Canada’s largest private-sector union, said Sunday in Mexico City. “These negotiations are going nowhere fast.”

The fifth round of talks has produced no substantial breakthrough so far and has largely avoided the most divisive U.S. proposals on dairyautomotive content, dispute panels, government procurement, and a sunset clause.

Weekend Talks

Talks over the weekend focused on a wide range of subjects, and officials said they made progress in less-contentious areas. Negotiators are scheduled to spend much of their time on auto rules of origin, which govern how much of a vehicle must be produced in North America to trade without tariffs, though discussions on that have centered on mundane details such as paperwork requirements.

“It’s very important to have advances, not just on the most controversial topics, to be able to continue with a pace of advance and so that the cost of leaving for the U.S. keeps rising,” Moises Kalach, the head of trade for Mexican national business chamber CCE, said on Friday in comments aired on El Financiero Bloomberg TV.

Sensing danger, the auto industry has stepped up its lobbying to preserve Nafta. A coalition of industry associations called Driving American Jobstraveled to Mexico City to make its case.

Auto Rules

That’s because the White House has proposed major changes to Nafta’s auto requirements, introducing a stipulation that 50 percent of parts or vehicles be U.S.-made, and increasing the minimum amount of regional content needed to 85 percent from 62.5 percent.

Tightening the rules of origin would make auto manufacturing in the region less competitive, said John Bozzella, president and chief executive officer of Global Automakers, a lobbying group that represents the U.S. operations of foreign automakers and suppliers.

More than 70 House Republicans and Democrats in a recent letter threw their support behind the auto industry’s opposition to changes sought by the Trump administration.

Mexican Economy Minister Ildefonso Guajardo said last week that Mexican negotiators planned to ask the U.S. for a more detailed explanation of the autos proposal and the reasons for it, but didn’t yet plan to present a counteroffer. A person familiar with discussions said Mexico views the U.S. position as completely unworkable.

Canada will respond to the U.S. auto proposal this round by detailing why it thinks implementing the plans would harm the sector, but won’t formally propose a counteroffer, one Canadian official said.

Slow start to fifth round of NAFTA talks in Mexico City

U.S. showing no flexibility on procurement proposals that Canada and Mexico won’t accept.

sunset-nafta-20171116-1NAFTA Talks are off to a slow start in Mexico City, where the fifth round of discussions are underway. A source with direct knowledge of the talks tells CBC News about a dozen different topics have come up so far, with little movement following the first full day of discussions. The source pointed out that, so far, there have been no fireworks behind the scenes. That’s a change in tone from the last round in Washington, where American negotiators tabled five controversial demands that Canada would not support. Mexico has also shown similar resistance to some of the demands.

The so-called “poison pill” proposals include introducing a sunset clause, boosting made-in-America provisions in the auto sector, killing Canada’s supply management system for dairy, restricting access to procurement contracts with the U.S. government, and dismantling the Chapter 19 dispute resolution process.

Procurement discussed on 1st day

The source said procurement was discussed on the first day of talks, and that the U.S. is showing no flexibility on its position, which is reported to be that Canada and Mexico’s access should be on a “dollar-for-dollar” basis.

Canada’s Foreign Affairs Minister Chrystia Freeland has publicly complained about the American demands on procurement, saying the proposals would give Canadian and Mexican companies less access to U.S. contracts than companies in Bahrain.

Mexico is also using this round to resist accepting changes to labour standards, the source said.

A big point of contention for Canada and the U.S. is the lack of strong labour standards in Mexico, which allows workers there to be paid a fraction of what they would earn elsewhere.

The Americans are seeking dramatic improvements on this front, in the hopes of reducing its trade deficit with Mexico.

Negotiators are also tackling rules of origin, with the source saying time has been set aside every day to discuss the topic.

However, the most controversial aspect of this issue, American proposals to boost the overall North American content requirements from 62.5 per cent to 85 per cent in the auto sector, are not expected to come up this round.

 

The source says negotiators will be examining the frameworks that regulate other industries.

This round of talks will wrap up on Tuesday.

Kill NAFTA? Its not as easy as you think.

U.S. President Donald Trump repeatedly blasts the North American Free Trade Agreement and threatens to terminate the 1994 accord if talks to rewrite it don’t go his way.

NAFTA-North_American_Free_Trade_Agreement-1With the fifth round of negotiations set to resume on Nov. 15, Canada, Mexico and the U.S. remain deeply divided in five areas, including how to settle disputes and the amount of U.S. content in auto production. The terms of the Nafta treaty offer Trump an exit path, but considering the many complications involved, would he really pull the plug?

 1. Could the U.S. simply quit Nafta?

Any country can leave on six months’ notice. Trump hasn’t given such notice, while Mexico and Canada have signaled they don’t plan to, either. Trump told The Economist in May that he considered doing so, only to relent after speaking with Canadian Prime Minister Justin Trudeau and Mexican President Enrique Pena Nieto. Under Nafta’s rules, withdrawal notice is non-binding, meaning Trump could give it and decide not to withdraw after six months.

2. Could Trump leave on his own?

Not entirely. He’d need Congress to repeal Nafta’s enacting legislation. Whether lawmakers could drag their heels — in effect, block Trump’s withdrawal without a vote — is an “open question,” says former U.S. Trade Representative Michael Froman. If a repeal bill came to the floor, there’s no guarantee it would pass. Kevin Brady, the chairman of the House Ways and Means Committee, which has jurisdiction over trade legislation, has said he wants the negotiations to succeed. But if Congress opposed withdrawal, “my sense is a lot could be done by executive action,” Froman said at an Oct. 16 panel discussion in Washington.

3. What if Congress votes no?

No one knows what would happen because the U.S. has never terminated a free-trade agreement. But Trump would almost surely end up in court, said Mark Warner, a Toronto-based trade lawyer with MAAW Law who practices in the U.S. and Canada. “People are going to be in court the next day, asking for an injunction,” he said, and lawmakers could be among them. While the U.S. Constitution gives the president broad authority to negotiate treaties and conduct foreign policy, Congress shares responsibility with the executive over international trade, including ratification of trade deals and the imposition of duties. If Trump attempts to end Nafta over their heads, lawmakers could try to sue him in federal court on constitutional grounds.

4. What else would happen if Trump gave notice?

It would unleash a surge of lobbying. The U.S. Chamber of Commerce, for example, has pledged to “fight like hell” to save Nafta. Farm-state lawmakers, manufacturers and executives at multinational companies would also likely pressure Trump to step away from the ledge. And there’s the real possibility that it would cause negotiations to collapse. Mexico has signaled it would end talks if the U.S. gives withdrawal notice. The country’s July presidential vote would leave little room politically to back off that position.

5. And if the U.S. does leave?

U.S. law allows Trump to immediately restore tariffs to pre-Nafta levels, or he can wait 12 months, after which they automatically revert to World Trade Organization rules, says a 2016 Congressional Research Service report. In many cases, the rates would be only a few percentage points higher. Mexico charges an average of 7 percent on imports, followed by Canada’s 4.1 percent and the U.S.’s 3.5 percent. This means U.S. exports to Canada and Mexico would face the highest levies of the three. Some tariffs would skyrocket, though. U.S. dairy exports to Mexico, for instance, would see an average tariff of 21.6 percent. Canada could try to fall back on the suspended Canada-U.S. Free Trade Agreement, a Nafta predecessor, but it needs updating, so it wouldn’t be a quick fix. Canada and Mexico, meanwhile, would likely pivot commercially to other regions where they have deals.

6. What if they reach a deal?

If Trump stays at the table and reaches an agreement, he’ll still need to pass it at home. Froman, who negotiated the 12-nation Trans-Pacific Partnership that President Barack Obama concluded and Trump abandoned, said he sees little sign Trump can wrangle the votes in Congress for a new Nafta, especially if U.S. business groups are opposed. “Trade agreements are extraordinarily difficult to get through Congress,” Froman said.

7. What’s the rush?

U.S. Trade Promotion Authority, the so-called fast track for trade legislation that allows Congress to vote up or down on trade deals but doesn’t allow amendments, could expire as early as July 1, 2018. By that date — the same day as Mexico’s presidential election — Trump must ask Congress to extend TPA, a request that would be approved unless either chamber specifically votes to block it. With protectionist sentiment on the rise, it could be tough for Trump to get approval for a revamped Nafta without TPA. U.S. midterm elections in November 2018 also add urgency to the talks. While the three countries had been trying to get a deal by December, they’re now planning meetings through the end of March.

The Reference Shelf

  • A Congressional Research Service report on the legal issues in a Nafta withdrawal.
  • QuickTake explainers on how rules of origin work, U.S.-Canada disputes over dairy products and lumber, and an overview of the issues being negotiated.
  • A QuickTake on Mexico, where Nafta’s popularity is also waning.
  • An economics lesson on trade deficits.
  • An explanation of trade promotion authority.
  • profile of the U.S. trade representative, Robert Lighthizer.
  • A Bloomberg View editorial says Nafta hasn’t been such a bad deal for the U.S.

 

From Bloomberg

Nafta Negotiators Set to Look for Small Wins After U.S. Threats

As Donald Trump pushes to overhaul U.S. trade ties abroad, negotiations with his two biggest export markets are resuming in hopes of finding new common ground on easier subjects — leaving the most contentious U.S. demands for later.

metropolitan-cathedral-zocalo-mexico-cityThe fifth round of North American Free Trade Agreement talks starts Wednesday in Mexico City, two days earlier than initially scheduled. It’s the first meeting since U.S., Mexican and Canadian negotiators extended talks to March and added more time between sessions, abandoning Trump’s previous deadline.

 U.S. Trade Representative Robert Lighthizer capped the last session by chastising Mexico and Canada for balking at certain demands — it was the U.S. that sought the extension, according to two government officials familiar with the proceedings who spoke on condition of anonymity. The most contentious U.S. demands are on dairyautomotive content, dispute panels, government procurement and a sunset clause.

Mexico is warning talks could impact immigration cooperation with the U.S., while Canada is effectively holding up the Trans Pacific partnership — a deal Trump quit, that was also effectively a Nafta update — as it pushes for improvements. Lighthizer has complained that Mexico and Canada aren’t agreeing to what was already in TPP.

 One government official said Nafta negotiations this week are expected to focus on smaller issues related to modernizing the deal, and the thorniest discussions will be put off until later rounds. Many observers expect the same.

“Instructions are ‘let’s keep the ball moving, let’s not have fireworks,’” said Welles Orr, a former assistant U.S. Trade Representative under George H. W. Bush who is now a senior international trade adviser in law firm Miller & Chevalier’s international trade practice in Washington. U.S. lawmakers are fully focused on tax reform and that’s left little bandwidth to push quickly for a Nafta deal, Orr said.

He expects a handful of deals “on noncontroversial items to at least keep the pace of negotiations going and so that they can at least claim they’re making progress.”

‘Litmus Test’

Nafta covers more than $1 trillion a year in trade and government officials have described essentially two sets of negotiations — one focused on modernizing a 23-year-old agreement for an Internet era, and another where Mexico and Canada essentially rejected high-profile U.S. demands on subjects that bear Trump’s finger prints, like dairy and autos.

The negotiations, which started in August, cover 28 areas of trade. The countries have so far reached substantially or fully completed deals on chapters covering competition rules and small- and medium-sized enterprises. Chief negotiators are expected to arrive Friday and the ministers — Lighthizer, Chrystia Freeland and Ildefonso Guajardo — will join next week. A spokeswoman for Lighthizer declined to discuss the upcoming round.

Canada and Mexico are the first- and second-largest buyers of U.S. goods, but the U.S. still has a $53.1 billion merchandise trade deficit with Mexico through September of this year, and a shortfall of $12.4 billion with Canada. Trump has regularly criticized trade deficits and wants to reduce them; Canada and Mexico have said they’re not the best way to measure the success of a trade agreement.

“Nafta has become kind of a litmus test of U.S trade intentions” for other U.S. trading partners in Asia and Europe, said Colin Robertson, senior adviser at the Dentons LLP law firm and a former Canadian diplomat. The U.S. demands signal they’re seeking “a substantial redo” of a pact, and those kinds of negotiations typically take years, he said.

Remove Exports

The willingness to fight in public was obvious at the last round. Lighthizer said he was “surprised and disappointed by the resistance to change,” while Guajardo said Mexico has limits to what it can accept. Canada’s Freeland criticized a “winner-take-all mindset.” While Canada and Mexico may be able to compromise, the real question is whether the U.S. can too.

“What they’re asking of the Canadians and Mexicans is to take away their exports,” said Chad Bown, senior fellow at the Peterson Institute for International Economics. “It’s really back to the Trump administration to decide for itself how serious they are about those proposals. If they are serious about them, I don’t see a serious outcome.”

Mexican Foreign Minister Luis Videgaray warned over the weekend that Mexico will be less likely to cooperate with the U.S. on security and immigration if Nafta talks collapse. “It’s a fact of life and there is a political reality that a bad outcome on Nafta will have some impact on that,” he said in an interview Saturday at the Asia-Pacific Economic Cooperation summit in Vietnam. “We don’t want that to happen and we’re working hard to get to a good outcome.”

When asked on Nov. 2 about a deal, National Economic Council Director Gary Cohn offered conciliatory words. “We’re trying,” he said in Washington. “Negotiators are continuously meeting, and we’re continuously trying to get to a point where we think that American- based companies and American-based manufacturers are treated fairly in the agreement.”

Trump may have wiggle room after U.S. automakers urged him to keep Nafta, a pact he has said has led to one-sided trade and cost jobs.

Nafta Impact

Linda Hasenfratz, chief executive officer of auto parts maker Linamar Corp., said in an earnings call last week she sees four key areas of dispute — auto rules, the sunset clause, the dispute panels and government procurement. “There’s an opportunity to come to resolution on each of these issues if all parties want that to happen,” Hasenfratz, who sits on Canada’s Nafta advisory council, said on a Nov. 7 earnings call.

An American proposal for 50 percent U.S. content in vehicles has “no chance” of being agreed to, she said, but the overall content requirement could be raised from the current threshold, which requires 62.5 percent of a vehicle be sourced from the three Nafta countries.

If that happens, “there’s a chance we could win some new work,” Hasenfratz said. If Nafta dies, she said it’s likely they’d revert to World Trade Organization tariffs of between 2 and 2.5 percent. “The bottom line is, one way or another, we would deal with the 2 percent,” she said. “No one is going to spend billions of dollars shifting work to different countries for 2 percent.”

Reverting to WTO tariffs would cut Canadian GDP growth by a total of about 1 percent over five to 10 years, Royal Bank of Canada said in a report Friday. “The odds that NAFTA will be torn up, not simply amended, appear to be increasing,” Senior Economist Nathan Janzen wrote. “The end of NAFTA would be a negative outcome for the Canadian economy, but a manageable one.”

Trump and trade come home to roost

As President Trump heads to Vietnam for the Asia-Pacific Economic Cooperation summit, the full force and ramifications of his trade policies will be clear to see.

140325150054-richard-quest-profile-full-169

Firstly, he will come face to face with the leaders from all 11 other countries that were part of the Trans-Pacific Partnership, the trade pact that fell apart after Trump withdrew the U.S. from it shortly after he was inaugurated.

Those other countries, led by Japan and New Zealand, have been trying to salvage what they can and cobble together a new deal without America that may come to fruition early next year.

Canada & Mexico will also be at APEC. Both governments are bravely trying to re-negotiate the NAFTA treaty with the U.S. and salvage what they can — even as Trump seems hell-bent on leaving NAFTA if he can’t get a better deal.

Then there’s China — a country that has borne the brunt of Trump’s tough talk and threats. There has been a lot of noise from Washington about currency manipulation and closed markets, but no action yet. Meanwhile, the Chinese are taking advantage of the TPP’s collapse by pushing their own deal for Asia — the Regional Comprehensive Economic Partnership.

President Trump promoted reforms of U.S. trade policies a cornerstone of his campaign and is following through in his administration. But we may soon see just how much progress he’s made — or damage that’s been done with America’s economic allies.

Powell is expected to maintain the Fed’s policies of gradually raising interest rates. He’s also a proponent of Dodd-Frank, the sweeping banking regulation instituted after the financial crisis.

The decision means that Trump elected not to renominate current Chair Janet Yellen to another 4-year term, breaking the precedent of the last 40 years. Yellen is handing over the keys to Powell with the U.S. economy in much better shape since she joined the Board of Governors in 2010.

Yellen and Powell also met with the rest of the Fed’s monetary policy committee on Wednesday and decided not to raise rates, though a December rate hike is likely.

Watch Richard Quest from CNN Money speaking on the subject here.

A new Fed head would expose Trump’s empty promises on trade

President Trump spent much of his 2016 campaign shouting about the dangers of Chinese currency manipulation leading to trade deficits and U.S. job losses in manufacturing. He promised to take action.

1509139035415To date, he has taken no visible action against China over its currency policy. Furthermore, he is now actively considering candidates for Federal Reserve Chair whose policies would amplify currency misalignments, grow trade deficits and risk more job losses in manufacturing than any trade deal he can sign.

The administration’s choice on Federal Reserve chair will likely have more effect on trade flows than any trade deal. And if the administration risks going against precedent, financial markets’ and other central bankers’ advice and decides to not re-appoint Janet Yellen, the choice will almost certainly undercut Trump’s promises on trade and trade deficits. The finalists, with the exception of Janet Yellen, have views on monetary policy, financial regulation, and trade agreements at odds with Trump’s on his signature claim of protecting American jobs from trade.

Candidate Trump took a strong populist tone on trade . Indeed, he cited work on the costs of free trade deals and currency manipulation by the Economic Policy Institute , a group many conservatives are loathe to acknowledge, in part because it sticks up for workers.  But managing the United States’ trade balance is more than the art of the deal. The administration’s enthusiasm for Kevin Warsh, in the face of criticism , even confusion , from Fed watchers suggests Trump may not understand the import of this choice for trade policy, and the voters who elected him.

 

Direct currency management involves buying up another country’s currency. China did this to an enormous extent in the last decade, with its central bank acquiring trillions of dollars of U.S. assets . The effect of pushing up the dollar and the trade deficit to a high that approached 6.0 percent of GDP.  The Chinese government made these asset trades as part of a deliberate policy.

Conversely, traditional expansionary monetary policy occurs when a central bank buys its own currency to push down interest rates. Lower interest rates lead to a weaker currency. While this affects exchange rates, it is distinct from currency manipulation, which specifically aims to weaken a currency.

A more hawkish Fed will choose rates that make U.S. assets more desirable to investors, both domestic and foreign. Rising demand for dollars resulting from this portfolio shift will raise the dollar’s value relative to other currencies, slowing U.S. exports and raising imports, driving up trade deficits and displacing U.S. manufacturing jobs

Tighter money and higher interest rates are exactly what John Taylor and Kevin Warsh have pushed since the Great Recessions—Taylor in public , and Warsh as a Fed governor —even with a weak economy and clear predictions that this would increase trade deficits. While the US financial sector—which sells assets and hates any outbreak of unexpected inflation—may benefit from tighter monetary policy, workers in trade-exposed industries from Trump’s base in the Midwest, whose votes were so critical to his victory last November, would not.

It’s simple to understand these effects in a manufacturing example—US-based companies must pay workers and suppliers in dollars, while Chinese-based companies pay these costs in yuan.

If neither country intentionally manages their currency values and 1 US dollar = 1 Chinese yuan, then a US-based company that can profitably sell for $.99, while a China-based competitor could only make a profit at $1, would take the entire market contested between the two firms.

If China’s central bank decides to depreciate the yuan 20%, it sells yuans and buys US dollars until currency markets balance with 1 yuan = 80 cents. Now, the Chinese manufacturer still pays its costs in yuans, but it can earn 1 yuan by selling in the US for $0.80, and take the entire market. Neither firm got more efficient or lowered costs, but when the central bank changed the relative money supplies, the higher cost firm took the market.

Overly tight monetary policy at the Fed can raise the value of the dollar and leave the world with unbalanced trade flows. If the Fed keeps interest rates, and therefore the dollar, too high, it will further bias the US economy towards selling more US financial assets, and fewer US goods. That means more jobs (or at least more fees) for Wall Street, but fewer jobs in manufacturing.

The Pains of Protectionism: How the U.S. Is Already Suffering from Isolationist Sentiment

Discarded campaign promises have piled up within Trump’s White House.

rising-protectionism-facebookNo magnificent infrastructure package. No repeal of the Affordable Care Act. No big and beautiful wall on the border paid for by Mexico. But he has kept one promise: Under the mantra of “America First,” President Trump has ushered in a new era of protectionism. It’s causing serious harm to American workers, American businesses, and our country’s standing in the world.

In this memo, we outline four areas where Trump’s protectionist policies are wreaking havoc for the American economy. Specifically, the Administration’s agenda has led to:

  1. Less assistance for trade-displaced workers;
  2. Less trust from our neighbors;
  3. More tensions with East Asia; and
  4. Abdication of global economic leadership.

Less assistance for trade-displaced workers

Trump’s America First agenda has centered on a message of improving the lives of U.S. workers, particularly those hurt by international trade. One would then naturally assume that President Trump would prioritize and invest in programs that help trade-displaced workers with job placement and skills training. But the Administration has done just the opposite.

The Trump budget, proposed in March, would cut $2.5 billion from the Department of Labor, the agency tasked with administering most worker assistance programs. This decrease of 21% would jeopardize a host of programs—including the future of Trade Adjustment Assistance (TAA), the primary means to help American workers adversely affected by trade. The budget also defunds the Economic Development Administration, effectively eliminating initiatives that support local economies and assist businesses hurt by foreign competition. As a result of these cuts, an estimated 2.5 million Americans would lose access to job training and employment services.1

Slashing these important initiatives would hurt the ability of the American workforce to weather economic shocks by compromising the government’s role in the recovery process. Cuts to government spending would also have a disproportionate effect on trade-ravaged communities, the very constituents the President claims to be helping.

Less trust by our neighbors

The U.S. and Mexico share more than just a 1,989-mile border. The two countries have strong economic ties, with trade totaling over $1 trillion in 2015.2 Mexico is America’s third largest export market, and, in turn, 81% of Mexican goods and services are sold to the U.S.3 After two decades of closer trade relations, U.S. and Mexican companies are closely linked through global supply chains. The countries also work together on numerous policy initiatives, from migration and environmental protection to eliminating drug flows and coordinating counterterrorism efforts.

Trump’s rhetoric is threatening to upend this close collaboration. Between the President’s offensive comments about Mexican migrants during the campaign and his demands for Mexico to pay for a border wall, relations have taken a toxic turn. Almost two-thirds of Mexicans now harbor negative opinions towards the U.S., the highest level in 15 years.4 Further, while there is interest on both sides of the aisle to make changes to the decades-old North American Free Trade Agreement (NAFTA)—a partnership between the U.S., Mexico, and Canada—Trump has vacillated between unhelpful threats to withdraw from the agreement to impossible demands that risk causing Canada and Mexico to walk away from the table and driving investment to other areas of the globe.

What’s more, Mexico has a historical distrust of America, though stronger economic ties via NAFTA had helped Mexicans to put aside old resentments for new benefits. These suspicions have reemerged with the Administration’s protectionist impulses, reigniting the belief that the U.S. is a threat, not a friend. Mexican politicians face increasing pressure to both avoid further trade concessions and end U.S.-Mexico cooperation on a host of issues. Regardless of NAFTA’s future, it may take years to reverse the negative perceptions of America already elicited by Trump.5 Strained relations on both our northern and southern borders have already cost us financially, even by Trump’s own standards. The U.S. goods deficits have worsened with both Mexico and Canada over the first seven months of the year, falling by $4.4 billion and $8.4 billion respectively compared with the same period in 2016.6 If the Administration continues to antagonize our neighbors, the most likely result is fewer American exports, to the detriment of our trade balances, our economy, and our international relationships.

To reduce its reliance on the U.S., Mexico has already reached an agreement with Brazil to import more corn at lower prices. As a result, U.S. corn sales to Mexico have decreased by 6.7% in 2017, and Mexican Economic Minister Ildefonso Guajardo Villarreal has expressed a willingness to raise tariffs on U.S. corn to “inaccessible levels” should NAFTA fall through.7Mexico also reached a similar purchasing agreement on wheat from Argentina, with 30,000 tons of wheat to be delivered in December.8

More tensions with East Asia

For the past several years, the U.S. has sustained a huge focus on economic and strategic engagement in the Asia-Pacific region for a host of geopolitical reasons. Home to 4.23 billion people, the region represents 40% of the global economy, which is expected to grow by 5.5% in 2017.9 The Asia-Pacific region also boasts seven of the world’s top ten fastest-growing economies.10 But under the Trump Administration, this positive focus on Asia has turned into tension.

The President withdrew from the Trans-Pacific Partnership (TPP) just days after entering office, much to the dismay of Japan and other countries looking for a major economic alternative to China. Trump has also long been critical of the U.S. trade deficit with South Korea and has strongly considered ending the two countries’ free trade agreement (KORUS) as well as adding new, broad tariffs and quotas. As a result, our allies in East Asia no longer sense an American commitment to the region.

This disengagement comes at a time when South Korea and Japan have come under increasing pressure from surrounding countries, both economically and politically. China now has the upper hand in negotiations for its own Asia-Pacific trade deal, the Regional Comprehensive Economic Partnership (RCEP), of which South Korea and Japan are both participants. The countries also face escalating nuclear threats from North Korea. As the U.S. steps back from East Asia, trust of American intentions has faltered with the entire region made less secure.

American pork producers have already been hurt by the U.S. withdrawal from the TPP, which would have eliminated or reduced all of Japan’s tariffs on pork products.11 With both tariffs and a minimum price system on pork still in place, U.S. sales of pork to Japan have fallen by 9% as of August.12

US Trade Partners Seek New Friends

Abdication of global economic leadership

Since the end of World War II, the U.S. has stood at the forefront of the international arena by promoting capitalism and free markets. The current Administration has not prioritized this leadership role, and its protectionist implications have opened the door for other countries to chart a course for the global economy.

China appears most likely to seize this opportunity. With the U.S. withdrawal from East Asia, a gaping economic hole has been left in the Asia-Pacific region, and China has the means and influence to fill the void. Chinese President Xi Jinping, leader of a relatively closed economy, surprised the world by championing free trade and open markets at the Davos World Economic Forum in January. China’s Asia-Pacific trade deal may soon eclipse the now-defunct American efforts, and Chinese-dictated rules on trade have a history of making U.S. companies less competitive in the region.

The European Union has also stepped up to bat. With talks for a U.S.-EU free trade agreement stalled, the EU has entered into trade negotiations with several key economies across the globe. As the EU expands its economic ties with Canada, Mexico, and East Asia, U.S. influence is increasingly eroded.

Conclusion

The status quo on trade needs to be revisited. Policymakers must ensure the gains from trade are widely distributed between big and small business and among all communities. And they must better help communities negatively affected by trade. But the current protectionist agenda will only generate more economic struggles, with lost business, dwindling assistance for U.S. workers, and a declining international reputation. If we really want to put America first, let’s throw protectionism to the back of the line and seize opportunities in this new, interconnected economy.

Further resources and endnotes

  1. Hanks, Angela. “President Trump’s Budget Breaks His Promises to Workers – Again.” Center for American Progress, March 17, 2017.
    Accessed September 18, 2017. Available at:  https://www.americanprogress.org/issues/economy/news/2017/03/17/428535/president-trumps-budget-breaks-promises-workers/.
  2. “Mexico Trade at a Glance: Most Recent Values.” World Integrated Trade System, September 19, 2017. Accessed September 21, 2017. Available at: http://wits.worldbank.org/countrysnapshot/en/MEX.
  3. “Mexico Trade at a Glance: Most Recent Values.” World Integrated Trade System, September 19, 2017. Accessed September 21, 2017. Available at: http://wits.worldbank.org/countrysnapshot/en/MEX.
  4. Chwe, Hanyu and Margaret Vice. “Mexican Views of the U.S. Turn Sharply Negative.” Pew Research Center, September 14, 2017. Accessed September 28, 2017. Available at: http://www.pewglobal.org/2017/09/14/mexican-views-of-the-u-s-turn-sharply-negative/.
  5. Guajardo, Jorge. “You Won’t Like Mexico When It’s Angry.” Politico, September 11, 2017.  Accessed September 11, 2017. Available at: http://www.politico.com/magazine/story/2017/09/11/donald-trump-us-mexico-relations-215594.
  6. “Trade in Goods with Mexico.” United States Census: Foreign Trade. Accessed October 2, 2017. https://www.census.gov/foreign-trade/balance/c2010.html; See also “Trade in Goods with Canada.” United States Census: Foreign Trade.Accessed October 2, 2017. https://www.census.gov/foreign-trade/balance/c1220.html.
  7. Stargardter, Gabriel, and Mitra Taj. “Mexico Warns U.S. of Alternatives on Trade, Points to China.” Reuters, May 11, 2017. Accessed September 21, 2017. Available at: http://www.reuters.com/article/us-usa-trade-mexico/mexico-warns-u-s-of-alternatives-on-trade-points-to-china-idUSKBN18725S.
  8. Wall Street Journal Editorial Board. “Trump’s NAFTA Threat.” Wall Street Journal, October 15, 2017. Accessed October 16, 2017. Available at: https://www.wsj.com/articles/trumps-nafta-threat-1508105756.
  9. International Monetary Fund. Asia and Pacific: Stabilizing and Outperforming Other Regions. Regional Economic Outlook Report, May 2015. Accessed September 28, 2017. Available at: http://www.imf.org/en/Publications/REO/APAC/Issues/2017/01/07/Regional-Economic-Outlook-Asia-and-Pacific5; See also International Monetary Fund. Asia and Pacific, May 2017: Preparing for Choppy Seas. Regional Economic Outlook Report, May 2017. Accessed September 28, 2017. Available at: http://www.imf.org/en/Publications/REO/APAC/Issues/2017/04/28/areo0517
  10. Gray, Alex. “These Are the World’s Fastest-Growing Economies in 2017.” World Economic Forum, June 9, 2017. Accessed September 28, 2017. Available at: https://www.weforum.org/agenda/2017/06/these-are-the-world-s-fastest-growing-economies-in-2017-2/.
  11. “Fact Sheet: Trans Pacific Partnership and Japan: Key Outcomes for Agriculture.” U.S. Department of Agriculture, November 19, 2015. Accessed October 18, 2017. Available at: https://www.usda.gov/media/press-releases/2015/11/19/fact-sheet-trans-pacific-partnership-and-japan-key-outcomes.
  12. Behsudi, Adam. “Japan Exasperated by Trump’s Trade Policies.” Politico, October 15, 2017. Accessed October 16, 2017. Available at: http://www.politico.com/story/2017/10/15/japan-trump-trade-243767.

From the Third Way website