Time to mod­ern­ize NAFTA

The Detroit News - - Business - BY JEFFREY KUPFER

Even as it dom­i­nates all the press at­ten­tion, the back and forth tar­iff bat­tle with China is not the only im­por­tant trade is­sue on the ta­ble right now. Since Don­ald Trump took of­fice, there have been seven rounds of North Amer­ica Free Trade ne­go­ti­a­tions and a min­is­te­rial level dis­cus­sion that re­cently con­cluded in Wash­ing­ton, D.C. While progress is re­port­edly be­ing made, just last week, the pres­i­dent threat­ened once again to ter­mi­nate the agree­ment. If that were to hap­pen, it would be most un­for­tu­nate, both for the coun­try as a whole and for in­di­vid­ual states like Michi­gan that rely heav­ily on in­ter­na­tional trade.

Ac­cord­ing to the U.S. Cham­ber of Com­merce, a NAFTA with­drawal would hit Michi­gan harder than most other U.S. states. That’s be­cause al­most 40 per­cent of Michi­gan’s econ­omy de­pends on trade and over 62 per­cent of the state’s ex­ports ($37 bil­lion out of $60 bil­lion) go to Canada and Mex­ico. Canada is Michi­gan’s largest trad­ing part­ner by far, pur­chas­ing over $25 bil­lion in oil and gas, petroleum, coal, min­er­als, trans­porta­tion equip­ment and other prod­ucts from the state in 2013, ac­cord­ing to the Michi­gan Eco­nomic De­vel­op­ment Cor­po­ra­tion. Data from the U.S. In­ter­na­tional Trade Ad­min­is­tra­tion shows that the Detroit-War­ren-Dear­born metro area was the 6th largest ex­port­ing area in the U.S. in 2016, ex­port­ing $42 bil­lion worth of goods, which was two-thirds of Michi­gan’s to­tal ex­ports. The Detroit area was the largest U.S. metropoli­tan area ex­porter to Canada and the sec­ond largest to Mex­ico, trail­ing only El Paso, Texas.

And it’s more than just the value of the ex­ports; it’s also the jobs. The ex­port of goods from Michi­gan in 2015 sup­ported more than 270,000 jobs, a 30 per­cent in­crease from six years ear­lier. Nearly 15,000 dif­fer­ent com­pa­nies ex­ported goods from Michi­gan in 2015, and over 13,000 of those firms were small or medium sized. When you con­sider that about half of Michi­gan’s work force is em­ployed by firms with less than 500 em­ploy­ees, you can see the sig­nif­i­cant im­pact of trade on the av­er­age Michi­gan cit­i­zen.

Michi­gan’s trade with NAFTA coun­tries has risen dra­mat­i­cally over the past decade. From 2007 to 2017, Michi­gan grew its ex­ports to NAFTA part­ners by nearly $7 bil­lion, far out­dis­tanc­ing the next coun­try on the list, South Korea, which had ex­port growth of only $650 mil­lion. The stake of Michi­gan in NAFTA trade is clear, and the ef­fect of its demise on Michi­gan’s econ­omy would be pro­found.

De­spite all the data demon­strat­ing the pos­i­tive im­pact of NAFTA on Michi­gan’s econ­omy, Pres­i­dent Trump con­tin­ues to ques­tion the agree­ment’s value. While he is right that the agree­ment, which is over two decades old, could cer­tainly ben­e­fit from some mod­ern­iza­tion, any sort of ter­mi­na­tion or full with­drawal would be ex­tremely harm­ful, es­pe­cially to the same peo­ple in Michi­gan who, pin­ning their hopes on Trump’s eco­nomic lead­er­ship, nar­rowly elected him in 2016.

As part of any mod­ern­iza­tion, Trump ad­min­is­tra­tion of­fi­cials should push for the in­vestor state dis­pute set­tle­ment sys­tem to re­main in­tact. This mech­a­nism – a pri­vate right of ac­tion be­fore an in­de­pen­dent, neu­tral ar­bi­tra­tion tri­bunal – found in most trade agree­ments en­sures that Amer­i­can com­pa­nies are treated fairly in for­eign in­vest­ment dis­putes. Re­cently, over 100 mem­bers of Congress, in­clud­ing five from Michi­gan, wrote that ISDS “pro­tec­tions pro­vide cer­tainty for U.S. com­pa­nies in all sec­tors, in­clud­ing U.S. en­ergy com­pa­nies that drill or op­er­ate pipe­lines or ser­vice sta­tions in Mex­ico; U.S. rail­roads that op­er­ate on both sides of the U.S.-Mex­i­can bor­der; agri­cul­ture en­ti­ties that main­tain feed­lots or pro­cess­ing or stor­age fa­cil­i­ties; and U.S. ser­vices com­pa­nies that main­tain cap­i­tal in Mex­ico to meet reg­u­la­tory re­quire­ments or es­tab­lish fa­cil­i­ties.” Sim­ply stated, ISDS is crit­i­cal for pro­tect­ing cit­i­zens and Michi­gan’s busi­ness op­er­a­tions in Mex­ico and Canada.

Michi­gan is known for its in­dus­try, man­u­fac­tur­ing and trade. The state has a lot rid­ing on what comes next for NAFTA be­cause a U.S. with­drawal would level a real blow to its econ­omy. Michi­gan pol­i­cy­mak­ers, busi­ness own­ers and work­ers should all raise their voices and make sure that mes­sage gets heard loud and clear in Wash­ing­ton.

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