MGMT2801 International Business- NAFTA Negotiations

Issue Identification. Identify the specific issue that is under review.

State the position (goal) of each of the three negotiating countries related to the issue you identified. Note: some additional research may be required if the article does not provide that insight.  

Analyze. Explain why Canada is taking the position that it has? Who will benefit the most if Canada is successful in achieving what they want on this issue? (Be specific). Which types of businesses are the most concerned about how this part of NAFTA will be written? How can the concerned Canadian businesses reduce the risk if negotiations go against their favour?

Answer

Introduction

The article on NAFTA negotiations by Robyn Urbac, dated July 28, 2017, was published by the CBC News. The North American Free Trade Agreement, often abbreviated as NAFTA, is being constructed carefully for over twenty three years, in order to create a satisfactory balance of protectionism and liberalization. In such trade negotiations, sum of the opposite views, not necessarily yield a satisfactory medium. This occurs especially at times, when one party refuses moving and the other doesn’t accept the deal. This situation is reported by the third round observers of NAFTA 2.0 negotiations (Dunning, 2012).

The report throws light on the NAFTA negotiations, through conducting an analysis of a news article and identifying the specific issues under this topic.

The report comprises an explanation regarding the position of three negotiating countries related to the issue, the position of Canada in NAFTA negotiations and why the country has taken it. Moreover, it includes the type of businesses NAFTA is concerned of as well as the way in which these businesses reduce the risk factors, if negotiations go against their favor.  

Summary

The NAFTA negotiations are being split into two different tracks. One is focused into improving and modernizing areas of common interest and the other one is characterized by the differences which threaten the negotiations. The modernization track helps in streamlining the custom clearances, regulatory alignment, facilitating trades for small as well as medium sized enterprises and digital modernization. Much of this consensus is the products from Trans Pacific Partnership texts, which is already being approved by three parties. However, these non contentious factors could have delivered biggest competitive gains for the economy of North America. Broader facilitation, regulatory alignment and ecommerce not only helps in reducing costs of transaction across the world, but also makes it easier for the smaller traders to compete more effectively and efficiently in the huge market (Long, 2014).

However, the factors which seek to deconstruct the negotiations of NAFTA, focuses on the advancement of the instruments regarding protectionism, short term gains related to politics, investor’s stability, regional comparative advantages and manufacturing efficiency. After four years, the proposed clause of NAFTA will dissolve this agreement if US expectations of reducing the deficit of trade are not adequately met. Moreover, this particular issue will result in terrible conditions for the producers and the investors, whose livelihoods mainly require predictability in decision making. Furthermore, dismantling the protections of investor against expropriation by the foreign government as well as eliminating their right to appeal against the dumping claims will destabilize the economy of the North America (Villareal & Fergusson, 2014).

Issue Identification

NAFTA received several criticisms as it took away US jobs. However, the agreement did many good things which enhanced the economy of the North America; it also has many issues related to the agreement. These weaknesses of the agreement have severe impact on the Mexican and American workers as well as the environment. Among the critics of this agreement, Donald Trump has promised to withdraw from or renegotiate NAFTA. One of the main issues related to this agreement is losing of US jobs. Mexican labors are cheaper due to which majority of the manufacturing industries or units withdrew their production part from the higher cost United States. The US trade business lowered and maximum jobs went to Mexico. Around eighty percent losses were in the manufacturing units and the states which got affected were New York, California, Texas and Michigan (Villareal & Fergusson, 2017).

Moreover, this issue suppressed the wages of United States. It was not that all the companies were moving to Mexico, some used this threat as union leverage at organization of drives. At the time, when the workers were given to choose between losing factory and joining union, they chose the plants. Without the support of union, majority of workers had very little power of bargaining. This was the main reasoning of suppressing the growth of wage.  However, in response to the competitive pressure of NAFTA, Mexico started using more chemicals and fertilizers, which became expensive for the country’s economy. It also resulted in the deterioration of Mexico’s environment. Expansion of marginal lands by the rural farmers resulted in deforestation at a huge rate every year. This whole situation also caused exploitation of the workers and Mexico’s farmers were running out of business (Paquin, 2013).

Positions

All three countries US, Mexico and Canada are renegotiating NAFTA and they have determined goals. The trade representatives of Mexico, United States and Canada are successfully working on this particular task, in order to redefine the whole economic relationship. This will result in reshaping the entire economy of United States, which was increasingly depending on their trades with Canada and Mexico since the NAFTA plan backfired. Trade negotiators have started reshaping the North American Free Trade Agreement. The whole process is time consuming and not that easy. Moreover, there is also a chance of one party leaving and the whole agreement falls apart. The law allows all the three countries to sell each other their products without any tariffs. For example; American cars are now manufacture with parts and are produced in all the three countries respectively (Coffey et al., 2012).

This deal helps the US manufacturers lower their costs of production and also allows them to compete with the Asian factories. It also led to the movement of thousands of factories to Mexico, where the labor costs are cheaper. The main goal of United States administration is to reduce trade deficit. The administration is taking care that US is importing less and exporting more (Aggarwal, 2013). On the other hand, Mexico’s goal is to ensure that United States doesn’t slap tariffs on their products. The main point of NAFTA was creating a tariff free zone for the businesses so that the three countries would export and import their products easily without any extra costs. Likewise, Canada’s goal is also to stop United States from imposing tariffs on their goods and products, in order to carry out exporting and importing freely (Cbc.ca. 2017).

Analysis

Canada’s main aim is stopping United States from imposing the tariffs on their goods and products, which they have been trading for decades, freely. The softwood lumber industry of Canada and the Canadian energy industries are fully dependent on free trading with United States. Particularly, the country is concerned about administration’s goal and NAFTA’s provision. This deal section helped in creating a special process of settlement, which will allow all the three countries challenge the duties of imports. Under the rules of International trade, a country may impose duties of imports, which intentionally sells at below market prices and are not fairly subsidized by the government of the exporters (Aggarwal, 2013).

Canada has been the largest market of export for the American manufactured goods. United States does not want to lose their assistance in exporting goods to their northern neighbor. Approximately nineteen percent of the United States’ exports end there. Moreover, Canada imports products from United States, which mostly includes heavy machinery and parts of automobile. They maintain a specific kind of balance in the trading measures. Canada can even retaliate through imposing restrictions on the imports of US goods or products, which in turn affects US manufacturers (Paquin, 2013).

This gives detailed description regarding the biggest challenge faced by the administration of the countries in reshaping the whole deal of trade. Moreover, all three countries’ economies are completely interdependent with each other. Hence, any restrictions imposed on the import processes can cause serious damage and problems to the manufacturers of the United States and also, their businesses are totally dependent on those two countries’ markets. This is a major factor which the administration should take care and if United States cannot manage the agreements, the whole economy of the country would get hampered (Cbc.ca. 2017).

References

Aggarwal, V. K. (2013). US free trade agreements and linkages. International Negotiation, 18(1), 89-110.

Cbc.ca. (2017). No, [insert stupid partisan attack] will not derail NAFTA negotiations: Opinion. CBC News. Retrieved 14 October 2017, from https://www.cbc.ca/news/opinion/undermining-nafta-opinion-1.4225014

Coffey, P., Dodds, J. C., Lazcano, E., & Riley, R. (2012). NAFTA—Past, Present and Future (Vol. 2). Springer Science & Business Media.

Dunning, J. H. (2012). International Production and the Multinational Enterprise (RLE International Business). Routledge.

Long, T. (2014). Echoes of 1992: the NAFTA negotiations and North America now.

Paquin, S. (2013). Federalism and the governance of international trade negotiations in Canada: Comparing CUSFTA with CETA. International Journal, 68(4), 545-552.

Villareal, M., & Fergusson, I. F. (2014). NAFTA at 20: Overview and trade effects.

Villareal, M., & Fergusson, I. F. (2017). The North American Free Trade Agreement (NAFTA).