US President Donald J. Trump managed to flay two sturdy institutions last week. One was the United Nations through his own no-strings-attached speech. The other was the North American Free Trade Agreement (NAFTA).
Trump's administration had placed September 30 as the cut-off line for a NAFTA decision. Mexico agreed to a deal in late August 2018, so it was left to Canada to come to terms with its largest trading partner, and hitherto, a partner it shared the world's largest and freest trade border with. September 30 came and went, without any NAFTA murmur. What does that mean?
Sticky points in Canada-US trade relations were discussed in this newspaper (September 29, 2018, p. 10). Without rehashing them, the forest the NAFTA tree belongs to demands fresh appraisal.
For a country that fathered multilateral trade, NAFTA association might appear as a Little League club-membership. Yet, when NAFTA implementation began in January 1994, there was no World Trade Organisation (WTO), and the only multilateral vehicle, the General Agreement on Tariffs and Trade (GATT), was tottering. The 8th GATT negotiating effort, known as the Uruguay Round, was dead-on-arrival in August 1986. Even before, the United States began exploring GATT exit points. Followed by its maiden free-trade agreement (FTA) with Israel in 1984, it signed the Canada-US Free Trade Agreement (CUFTA) in 1988, bringing the then world's top-two trading partners together. Both Canada and the United States found this a better alternative to the GATT battlefield.
GATT growth had not been blanketed by infighting: Seven previous GATT rounds had reduced tariffs, began work on non-tariff barriers, but found itself touching, increasingly, deeply sensitive products: agriculture and services.
No wonder Canada sought a CUFTA dispute settlement mechanism before joining (one of the two thorny issues behind today's NAFTA shipwreck). No wonder the United States stooped to a lesser trade level. It had just won the Cold War, and seemed unstoppable from rewriting post-Cold War rules, including a different approach to establish multilateralism than in 1947, even if this meant a brick-by-brick restructuring. No wonder Canada begrudged the United States accepting a Mexican proposal at the 1990 World Economic Forum (WEF) to extend the US FTA crusade southwards. Wanting to retain its privileged US market-access to itself, Canada found Mexico's similar sentiments echoing louder in Washington. Bailed out by the United States only recently (through the Baker and Brady plans of the 1980s), Mexico had the world to win in market-access, and the United States as grand a start at that. Mexico won over Canada in the short-term: George H.W. Bush's Enterprise for the Americas looked more south than north, augmented by the Cartagena agreement he made with young, forward-looking, liberal-minded Latin leaders in 1989. As Mexico's August 2018 deal with the United States suggested, it may have also won a long-term victory over Canada in North America.
Yet, NAFTA distaste in Washington evokes more negative Mexican sentiments than Canadian. Mexico's trade surplus in each NAFTA year was coupled by drug-trafficking anger and low-waged illegal migrants, even though both fed dire US demands. Canada's trade surpluses did not carry these appendages, but its supply management of dairy trade and lumber riled Trump more than the "rapist" haven to the country's south. Something somewhere does not add up in the policy-making prescription.
Camouflaging some underlying tensions was the US FTA roll. From Mexico, the United States captured Latin America, both from 1994. The December Summit of the Americas in Miami paved the way for the Free Trade Area of the Americas (FTAA) by 1997, vindicating the US crusade to recreate multilateralism differently. Though the World Trade Organisation came into being in January 1995, US interests lay elsewhere to build a FTA-driven multilateral order. By the turn of the century, the US FTA scorecard, consisting of only 2 (two), still looked so promising that a true crusade began that would add another dozen in the next dozen-odd years. More importantly, benign neglect of WTO developments allowed China's entry (in 2001), even as it flouted basic trade rules and principles. When China replaced Canada as the largest US trading partner last year, all three top US trading partners had become villains (the fourth, Japan, once went through its own villainous moments).
China took over the empty WTO saddle through Xi Jinping's 2017 WEF speech. Back in North America, the US shift beyond the Western Hemisphere, under a competitive liberalism trade policy-approach, did not pan out well across South America. When 9/11 struck, the heart of free-flowing trade gave way. Mexico was looking forward to deepening integration with the United States, but elsewhere in the continent, other independent reasons pushed them elsewhere, at times towards Europe, at times towards Asia. As global trade lost its US anchor, Mexico's and China's surpluses with the United States simply soared. If not Trump, someone had to emerge to heed this public US cry.
All three North American countries had been too whetted by trade successes since the belt-tightening 1980s to think only of North America. Recreating multilateralism failed, trade negotiations increasingly became more uphill everywhere, and as old difference resurfaced (with Mexico, reviving the same bracero mindset of the 1940s; with Canada, over the same issues as before CUFTA initiation), the United States has decided to pick up its own marbles and retreat, not just from the WTO but also NAFTA institutions.
NAFTA disruption will hit Canada and Mexico, but the former more so over the short-term than the long: it has reached out effectively across the world, especially Asia and Europe. Mexico has not been as successful, but its southern reaches look more promising now than before (though Latin countries struggle now more than in the recent past). That may be the NAFTA fate: returning to bilateralism from its FTA journey, and a more mixed trade relationship than in the past generation. Without NAFTA on steady ground, it will be difficult for the rest of the world to remain stable. After all, the key assumption behind all of these developments was that the United States is the world's largest market to every exporter. Every country, like Canada and Mexico, must go back to the drawing board now, the sooner, the better. Solutions await, but since breaking-up is so hard to do, we may be more mired in negative actions and thinking than positive vibes to find them.
Dr. Imtiaz A. Hussain is Professor & Head of the newly-built Department of Global Studies & Governance at Independent University, Bangladesh.