NAFTA: A third failure?

NAFTA: A third failure?

By Vladimir Terekhov

The most obvious and significant evidence of radical changes in the world order (which began with the ascension of the new administration of the United States) is the effective collapse of two regional partnerships: the Transatlantic and the Trans-Pacific. Both projects served as cornerstones of the former US leadership’s plans to strengthen the country’s dominance during the 21st century worldwide. And both of them, on the whim of new president Donald Trump, went belly up without even being born.

But now the fate of the third largest integrated association (which, unlike the first two, has been functioning since 1994) is in question – the North American Free Trade Agreement (NAFTA), which includes the United States, Canada and Mexico.

In January 2017, President Trump announced to renegotiate NAFTA and that he will withdraw the US from it if the partners fail to reach an understanding.

Just like with the two aforementioned failed partnerships, the same problems were voiced, among them financial expenses, as well as the loss of US jobs in favor of the other two NAFTA members, mainly Mexico. According to the German newspaper Welt, bilateral trade between the USA and Mexico ended in 2016 with a trade deficit of $ 70 billion for the former and $30 billion for Canada.

The negotiation process between representatives of the member states was launched in mid-August 2017. As of now, the fourth round of talks has taken place on October 11-17 in the suburbs of Washington, and the participants have departed to Mexico for the fifth round. They were accompanied by a special message from Trump that if the Agreement isn’t revised, then “it’ll be terminated and that will be fine.”

A statement of the US Department of Commerce on October 6, a week before fourth round of the NAFTA talks, illustrates the gravity of the situation. The statement voiced the intention to satisfy Boeing’s request for a 300 % in duties on the narrow-body passenger planes of the Canadian company Bombardier, purchased by American air carriers on domestic routes.

The official explanation for this step is the “absurdly low prices” of Canadian aircraft due to their producer’s government support. The latter can now not only suffer multi-billion losses, but also face the prospect of a drastic reduction in production capacity, as well as the dismissal of tens of thousands of employees.

Attempting to somehow resolve the unexpected problems with one of the leading industrial companies in Canada, as well as to find a compromise for the preservation of NAFTA, Canadian Prime Minister Justin Trudeau set off on October 11 to the United States and then Mexico. In general, though, the American press was mostly skeptical about the outcome of his conversation with President Trump.

Concerning US representative Robert Lighthizer, he, too, didn’t seem at all optimistic after the end of the fourth round of NAFTA negotiations. “Frankly, I am surprised and disappointed by the resistance to change by our negotiating partners on both fronts,” he stated.

All three parties agreed to resume negotiations until the end of the first quarter of 2018. But this prolonged standoff begins to resemble the back-and-forth negotiations around the TTP, which were put to a decisive end by Trump.

The fate of the world’s largest FTA goes beyond the relations of the three North-American countries. In particular, all three German auto giant who have businesses in Mexico and produce components for assembly plants on American soil, expressed fears about possible business losses in the US.

At the beginning of this year Trump addressed German carmakers with roughly the following words: “You want to make and sell cars in the US? Great. But in order to escape duties, you should increase production localization and the number of jobs in the United States.”

The most controversial reaction to the whole chaos with NAFTA was expressed by Great Britain. First, in late September, Prime Minister Theresa May spoke out sharply against the prospect of imposing duties on the CanadianBombardier. In response, Britain threatened to reduce purchases of military equipment produced by Boeing, bearing in mind that there is a factory of this company in Northern Ireland (which employs 4000 UK citizens).

But two weeks later, The Telegraph reported that the British government is considering the possibility of the country joining NAFTA. This can happen if a non-beneficial agreement for London is reached at the ongoing negotiations on the conditions of the UK’s withdrawal from the EU, scheduled for March 2019.

It should be noted, however, that even if NAFTA is preserved (at least in some modified form), this potential feint will not compensate the UK’s losses from leaving the European market, Britain’s export to which is much higher than to the USA.

However, other options for the formation of free trade zones with the inclusion of Britain in case of an unsuccessful scenario of the post-Brexit period are also being considered. For example, an agreement could be formed with Canada and New Zealand, or with Japan. Prime Minister Theresa May assessed the latter’s position in this matter during her recent trip to Tokyo.

Everything that is now happening around NAFTA serves as an appropriate cause for analyzing a broader political agenda. This is because, as noted above, the likely prospect NAFTA’s disbandment goes hand in hand with the radical reformation of the political map of the entire world. The beginnings of this process were outlined at the peak of the Cold War, when, in the first half of the 1980s, President Ronald Reagan got the green light from Congress to speedily negotiate the creation of a regional Free Trade Area in North America first with Canada and then with Mexico. Even then, the future FTA was seen as means to balance the European Economic Community, which was quickly gaining both economic and political power.

The cracks in the body of the notorious West did not immediately begin to spread (visibly, that is) only because of the presence of a common geopolitical opponent in the face of the USSR. Following its collapse, the most important binding factor preventing the disintegration of the West disappeared. The evidence for this is the formation of NAFTA and the signing of the Maastricht Treaty in Europe. The latter marked the creation of the political and economic association known as the European Union.

The only body that continues to somehow connect the shores of the Atlantic Ocean is NATO, which, however, begins to resemble a dinosaur that doesn’t understand the reason for its useless existence. Attempts to extend NATO’s lifeline by means of relatively short provocations, e.g. the Ukrainian Project or the construction of a shaft from the East European limitrophes, are doomed to fail.

The Transatlantic Trade and Investment Partnership, which, like the TTP, was buried by the new US administration, could have become an extremely important unifying body. It is likely that now, NAFTA will also end up on the burial ground of regional political and economic projects. All these are clear signs of the atomization of the international community.

There is a lot of lone wolves out in the foggy political climate nowadays. The strongest of them stand out, such as the USA, China, EU (read: Germany), Russia, Japan and India. Some of them continue to cling to connections formed long ago and in conditions that have little relevance to the current reality. Therefore, each of them begins to look for something unique (e.g. Japan and the EU) and often quite literally seek it in faraway lands.

The good news today is that these lone wolves don’t bare their fangs and mindlessly attack each other.