The Devil’s in the Details: NAFTA Puts Trump in a Political Pickle

As a presidential candidate, Donald Trump promised to renegotiate the 1994 North American Free Trade Agreement (NAFTA) in favor of American workers or scrap the deal altogether. That message resonated in the Rust Belt, where manufacturing jobs disappeared in NAFTA’s wake. Trump reminded voters that President Bill Clinton had championed NAFTA, and he successfully swiped votes in traditionally Democratic areas away from the Hillary Clinton campaign. Victories in Ohio and Michigan propelled Trump into the presidency.

Fast-forward to today, when the Trump administration faces a political deadline for getting Canada and Mexico behind a new NAFTA agreement between the three countries after more than a year of talks. Congress requires a 90-day notice for new trade deals, and the White House sent that notice today in order to give lawmakers enough time to sign off on a NAFTA replacement before the sitting Mexican president leaves office at the end of the year. If Trump is to keep a central campaign promise before seeking re-election, giving Mexico’s leftist president-elect a chance to balk at any part of the new NAFTA deal is not a risk he can take.

Some progressives and labor leaders found bright spots in a preliminary bilateral agreement announced by the US and Mexico earlier this week, although they say it’s far too soon to celebrate. Others warn that “NAFTA 2.0” may be similar to the original with some limited reforms and updates to reflect technological advancements, and Trump may be more interested in scoring points with voters than negotiating a successful agreement.

Meanwhile, Republicans and big business groups are complaining about proposed changes to controversial protections for corporate investors, putting Trump at odds with his own party and its financial backers.

Of course, there is still a lot we don’t know about the new NAFTA because the text of the preliminary agreement between the US and Mexico remains under wraps, to the dismay of civil society groups that have demanded negotiations be transparent. Negotiations with Canada are ongoing, and the administration now faces a 30-day deadline for finalizing negotiations and delivering the text of the agreement to Congress.

The White House announcement of the US-Mexico deal earlier this week was widely seen as a PR stunt designed to impress voters and pressure Canada to resume talks after months of public feuding between Trump and Canadian Prime Minister Justin Trudeau over trade. Trump held a phone call with Mexican President Enrique Peña Nieto in front of the press and declared that NAFTA was being replaced by a new agreement between the two countries, and it’s up to Canada to join them.

Critics quickly pointed out that reworking NAFTA requires authorization from Congress and probably Canada as well, but in its public statements, the White House framed the announcement as a “promise kept.”

Manuel Pérez-Rocha, an associate fellow at the Institute for Policy Studies, said that the “supposedly concluded” renegotiation of NAFTA had reached a “Kafkaesque” stage. “Not only [have] the negotiations not been finalized, and without Canada, but the texts remain hidden from the public,” Pérez-Rocha said in a statement. “However, it is not surprising that the governments have conducted the negotiations in complete secrecy from the very beginning of Trump’s imposition to renegotiate NAFTA.”

Ending NAFTA’s Corporate Tribunals

What we do know about the preliminary agreement comes from fact sheets released by the White House and the Office of the United States Trade Representative. Language about digital trade would be updated for the 21st century, and enhanced intellectual property protections have some advocates worried about access to affordable medicines. New rules would increase the percentage of auto parts required to be manufactured within the trade region to avoid tariffs, and at least 40 percent of auto parts would be manufactured by workers paid at least $16 an hour. There is also a limited section on the environment, which was sorely lacking in the first agreement.

The preliminary agreement would also nearly eliminate Investor-State Dispute Settlements (ISDS) under NAFTA, a common feature of international trade agreements that progressives have fervently opposed for years. The ISDS system allows international investors to sue governments for damages when they feel their “rights” under NAFTA have been violated. Instead of going through the host country’s court system, ISDS allows corporations to bring their case before a tribunal of corporate lawyers and seek huge damage payments from taxpayers.

Lori Wallach, the director of Public Citizen’s Global Trade Watch, has tracked ISDS cases for years. She told Truthout the preliminary agreement would end ISDS in the US and Canada. The ISDS system would only be available to a small group of energy and infrastructure investors who have contracted with the Mexican government as it denationalized oil and gas production, and only after they have exhausted other options. This carve-out has angered progressives who want the system eliminated completely, but Wallach said ending NAFTA’s corporate tribunal system in the US and Canada sets an important precedent for future trade deals.

“Progress has definitely been made on some essential NAFTA changes that we’ve long sought, like razing NAFTA’s corporate tribunals, where already multinationals have grabbed almost $400 million from taxpayers after attacking environmental land use and public health polices and toxic [chemical] bans,” Wallach said.

ISDS is supposed to shield investors from the risk of doing business in countries with corrupt or disorganized legal systems, but Wallach and other opponents argue the tribunals allow multinationals to undermine labor standards and public health laws. Mexico’s legal system may have a reputation for nepotism and corruption, but courts in the US and Canada are generally considered stable. However, by Wallach’s count, 56 of the 59 ISDS cases brought against the US and Canada were filed by US or Canadian firms, suggesting that corporations used ISDS to circumvent the legal system.

For example, in 2016, TransCanada filed a $15 billion ISDS claim against the US after the Obama administration rejected a permit for the controversial Keystone XL pipeline, which would have transported carbon-heavy oil from the Canadian tar sands across a large chunk of the central US. The company dropped the case after President Trump signed an executive order inviting the company to reapply for permits and made other concessions.

ISDS also incentivizes outsourcing. Wallach said the tribunals provide “zero-cost risk insurance” for corporations seeking to do business in countries with cheaper labor and lower environmental standards. This explains why Trump’s trade negotiators and progressives have found something to agree on.

However, ending ISDS alone will not eliminate incentives to send US jobs across the border because wages and labor standards in Mexico remain dismal compared to the US. (Manufacturers routinely use the threat of outsourcing to negotiate lower wages for union workers in the US.) The preliminary agreement contains provisions requiring Mexico to update labor standards and expand collective bargaining rights for workers, but labor groups remain concerned that these standards will be unenforceable.

“Getting rid of [ISDS] is important, but at the same time, we know that swift and certain enforcement for what we understand are improved labor standards remain lacking,” Wallach said. “That has to be addressed, or US corporations will keep outsourcing jobs to Mexico to pay workers there a pittance, dump toxins and ruin communities, and export the products back here for sale.”

Trump Finds Himself in a Political Pickle

Wallach said Trump has painted himself into a political corner. In order to keep his key campaign promise to protect American jobs from outsourcing and lower the trade deficit, Trump must forge an agreement with Canada and Mexico that ends special rights for corporations and empowers Mexican workers to organize with legitimate unions for better working conditions — measures that are bound to upset the Republican Party’s Wall Street backers. In fact, dozens of congressional Republicans have already threatened to vote against a reworked NAFTA if the ISDS system is not preserved.

Even if Trump is able to gain congressional approval for a reworked NAFTA, the deal has to deliver. The government releases trade and employment numbers every month, and it will be obvious whether the new deal is working. If it doesn’t, Democrats would have plenty of ammo to attack Trump on an issue he so effectively used to draw working-class white voters away from Hillary Clinton.

“He is in a really serious political pickle, and that is the only reason why progressives have been able to Ju-Jitsu this moment and actually get some of the changes we have been demanding for decades,” Wallach said.

Whether those changes will make it into a successful NAFTA deal remains to be seen. Negotiations and the actual text of the new NAFTA agreement are not yet public, and as the leaders of major US labor unions said in a collective statement on the negotiations this week, the “devil is in the details.”