In a statement released by the Office of the United States Trade Representative, USTR ambassador Robert Lighthizer welcomed the beginning of a fourth round of renegotiations between the U.S., Mexico,and Canada over the North American Free Trade Agreement (NAFTA) that recently took place in Arlington, VA. NAFTA has been in place since the mid-1990s and current discussions are significantly interesting to U.S. nonwovens manufacturers considering the below table, which was featured in September’s Capitol Comments column.

In the run-up to Round Four of the NAFTA renegotiation process, Ambassador Lighthizer noted, “I am pleased to welcome back Secretary Guajardo, Minister Freeland, and their teams to continue negotiations here in Washington. Thus far, we have made good progress, and I look forward to several days of hard work.”

Expanding on this, the Office of the USTR issued a statement that the fourth round of renegotiation talks were expected to cover more than two dozen topics, while “Building on the progress of NAFTA round three and the close of a chapter on Small- and Medium-sized Enterprises, the U.S., Canada and Mexico have now closed the chapter on Competition.”

USTR continues: “The new NAFTA Competition Chapter substantially updates the original NAFTA and goes beyond anything the U.S. has done in previous free trade agreements. The U.S., Canada and Mexico have agreed to obligations providing increased procedural fairness in competition law enforcement so that parties are given a reasonable opportunity to defend their interests and ensured of certain rights and transparency under each nation’s competition laws.” 

Perhaps the most important thing to keep in mind with any sort of international trade negotiation, is that talks are, by design, mired in secrecy to promote the chances of successful conclusions. Every single person in the room while any trade discussions of this magnitude holds a security clearance of some sort and risks prosecution for divulging negotiation details. But once you get to Round Four of any trade talks, broad parameters tend to come into focus.

With Round Four of the NAFTA renegotiations, for instance, Canadian Prime Minister Justin Trudeau was in D.C. prior to the talks to meet with U.S. President Donald Trump separately.  In the aftermath of these meetings, and in previous remarks to Mexico’s Senate, Trudeau noted that one area of common concern between the U.S. and Canada relates to wages and worker protection offered in Mexico as compared to those offered in the U.S. and Canada. 

As Trudeau put it, “[We} must pursue trade agreements that are win, win, win, helping workers across North America achieve better standards, wages and working conditions….Progressive labor standards are how we ensure that a modernized NAFTA will also bolster not just free and fair trade, but will enjoy long-lasting popular support.”

According to recent media reports, wages in Mexico are artificially held down by “antiquated labor laws” and “pro-government unions that often sign contracts behind workers’ backs,” according to the Washington Post, and “some unions are so absent from the workplace that employees sometimes don’t even know [their union] exists.” A direct result of these practices, according to WaPo, is that auto workers in Mexico often earn about $2 per hour compared with $30 or more by their counterparts in the other two NAFTA nations.

Similarly, President Trump has been especially outspoken in outlining his goals for NAFTA renegotiation. In an interview with Forbes magazine just before Round Four talks began, Trump reiterated his determination to unilaterally withdraw from the agreement entirely if he can’t get what he wants in the negotiations. 

If this happens, the president plans to then pursue new bilateral agreements with the governments of Canada and Mexico separately.  “I happen to think that NAFTA will have to be terminated if we’re going to make it good. Otherwise, I believe you can’t negotiate a good deal,” is how the president explained his position to Forbes.  With this in mind, USTR is seeking several objectives regarding the renegotiation that have been described as “poison pills” for Mexico and Canada because they could allow the U.S. to withdraw from NAFTA on the pretext that the renegotiation process failed to meet basic U.S. requirements and, therefore, are futile. 

Specifically, WaPo reports that U.S. objectives include: 1) increased auto production in the U.S. in order for Mexico and Canada to receive NAFTA benefits; 2) requirements that more government contracts in the NAFTA region are awarded to U.S. companies; 3) a “sunset clause” be added to the agreement such that NAFTA would automatically expire every few years unless parties vote to extend it; and 4) termination of a dispute-resolution process that is favored by Canada. None of these objectives are acceptable to either Mexico, Canada or both.

Considering that NAFTA has virtually eliminated duties on nonwoven roll goods and converted goods traded within North America and has also served as the basis for establishing complex transportation and logistics procedures that have evolved over decades, it is easy to see how difficult it would be for the nonwovens industry if the U.S. does indeed unilaterally withdraw from the agreement (which the White House can arguably do on its own, especially if Congress doesn’t push back).

It could take years, or more, therefore just to implement new tariff regimes for all impacted nonwovens. Distribution chains for nonwovens would also likely have to be created pretty much from scratch in potentially hostile political environments. U.S. investment in Mexico and Canada related to roll good manufacturing and conversion would likely be threatened. U.S. consumer prices for nonwoven products would most definitely increase – perhaps permanently – potentially undercutting demand. In short, it could be sheer bedlam in the short term, and possibly for years or decades to come. 

As noted by U.S. Commerce Secretary Wilbur Ross, negotiators are under pressure to reach a deal this year in anticipation of a much less favorable political environment in 2018 when presidential elections will be held in Mexico and midterm elections will take place in the U.S. This means drastic action by the Trump Administration may come within the next few months. 

In the meantime, it is critical that business entities work with their elected representatives in the Administration and Congress to express concerns they have over U.S. withdrawal from NAFTA. Corporate Boards should also be discussing contingency plans should the U.S. walk away from NAFTA. 

As Thomas Donohue, president of the U.S. Chamber of Commerce, vowed in Mexico earlier this fall, his organization is “…going to fight like hell to protect [NAFTA].” Concerned members of the nonwovens industry should be doing just the same.