Time to Focus on Proposals to Expand, Not Restrict, Trade Under NAFTA

By Tom Linebarger, Chairman & Chief Executive Officer of Cummins Inc. and Chair of the Business Roundtable International Engagement Committee

August 2nd, 2018

North American Free Trade Agreement (NAFTA) negotiations are set to continue this week. This is an opportunity for the Administration to modernize and strengthen this important trade pact to reflect today’s economy and expand U.S. economic opportunities. Any updates to this trade agreement should increase U.S. businesses’ access to our two largest export markets in Canada and Mexico and make products more competitive.

But splitting the NAFTA talks into separate bilateral negotiations could lead to different U.S. trade rules with Canada and Mexico, creating more rather than fewer regulatory burdens and costs for U.S. businesses. Such an outcome would disrupt U.S. companies’ North American supply chains, hurt U.S. manufacturing operations, and risk well-paying American jobs.

Each year, businesses throughout the U.S. economy export $583 billion of goods and services to our NAFTA trading partners. At Cummins alone, we export more than $2.5 billion in goods to Canada and Mexico. In this video, I explain how trade and NAFTA supports thousands of jobs for Cummins employees in Indiana and around the country.

These benefits of NAFTA, and potential gains the Administration is seeking to achieve through the current negotiations, are at risk. This is largely because the Administration is pushing for controversial proposals such as requiring a sunset provision, weakening investor-state and state-to-state dispute settlement procedures, creating unworkable rules of origin for autos, and curtailing government procurement market access.

Continuing to insist on such proposals would harm the U.S. economy and could derail the NAFTA negotiations. Similarly, giving notice on the intent to withdraw from NAFTA would hurt U.S. businesses and workers. Business Roundtable estimates that termination of NAFTA would lead to an estimated 1.8 million U.S. jobs lost and a decline in U.S. production of nearly $120 billion.

Take two of the Administration’s five harmful proposals as cases in point.

  • The Administration’s insistence that NAFTA sunset every five years unless all three countries agree to extend it would significantly undermine the ability of U.S. companies to do what the Administration is asking of them — make long-term investments to capitalize on U.S. tax and regulatory reforms.
  • The Administration’s proposal to weaken dispute settlement provisions also has risks. U.S. companies have used Investor-State Dispute Settlement (ISDS) provisions 40 times under NAFTA, winning 11 cases and settling the others on favorable terms. Similarly, the U.S. has won all 20 NAFTA ISDS cases brought against it. Part of modernizing and strengthening NAFTA should also include keeping ISDS provisions, ensuring the fair treatment of American investors in foreign markets and enabling American companies to pursue international growth opportunities with confidence.

Increasing short-term risks and uncertainty by including these and other controversial Administration proposals would not benefit American companies. Instead, the Administration should focus more on its other proposals to expand, rather than restrict, trade under NAFTA. These include strengthening intellectual property protections, promoting e-commerce and digital trade in goods and services, streamlining customs rules, and eliminating other barriers to trade in goods and services. Such trade-expanding proposals will result in an even better NAFTA deal that enhances benefits for U.S. businesses and workers.