The NAFTA Renegotiations: Round One
Planning to travel to Washington this week? Good luck finding a hotel room.
Why? Because this week marks the first round of formal talks to rewrite the NAFTA. Yes, there is a crowd descending upon this nation’s capital, from government officials to the global media and rooms are at a premium.
The scene is set. Each delegations will arrive armed with massive briefing books. They will have their offensive as well as defensive negotiating positions well-rehearsed. And they come to Washington with (hopefully) a good sense of their domestic interests – from environmentalists to labor groups.
There will be “winners” and “losers,” although in recent years these lines have blurred dimmer and dimmer as companies in North America have expanded operations to almost every corner of the globe.
Trade negotiations have been described as a blunt public policy instrument ill-equipped to address a modern private sector where corporate decisions are made with surgical precision. These critics point out that trade pacts are too often held hostage to geopolitical interests at the expense of otherwise rational economic imperatives.
Everyone will have their say and voice their disagreements on the NAFTA in the weeks ahead. But they all share one certainty at least: much is at stake.
Earlier this month, I had the privilege of addressing the Kentucky Auto Association Conference in Lexington. The state is home to an impressive list of top OEMs and suppliers. Top of mind for many conferees was the NAFTA talks. I shared the stage with a representative from one of the world’s largest automotive parts manufacturer whose presentation helped place the NAFTA talks in a corporate perspective.
Speaking to a rapt audience, he argued the need for companies to take a critical look at their North American operations and why any changes to the current NAFTA could (nay will) affect their near and long term business plans, from sourcing to customer loyalty. When the announcement came that the NAFTA was up for renewal, his company was quick to recognize the need to take a fresh look at what they make, where they make it and where they sell and from where they buy.
Once they had the answers, the company’s CEO and Directors were in a best informed position to understand what is at stake for their bottom line, their suppliers, their customers and yes, their competitors.
Where to begin? Perhaps the most important questions is who in your company is able to do this analysis? If your answer is I don’t know, you are not alone. As my fellow speaker on the podium pointed out, if you do not know, then seek outside expert help. (He suggested turning to Arent Fox LLP. Thank you, but I digress).
No one knows what the NAFTA will look like when the talks conclude. And the NAFTA is only one of several US FTA’s up for “review and improvement.” US Trade Representative Robert Lighthizer has already signaled to his South Korean counterparts that the KORUS is next in line. This will be important if your company has operations in the United States and sells to South Korea, buys from South Korea or competes with companies doing business with South Korea. And if you have operations in both the North American sphere as well as in the Pacific Rim, you may want to know how these two trade pacts differ.
There will be much news out of Washington this week. But allow me to conclude here with a personal observation. My thirty five years (okay, 35+) in the world of government trade policy has been exciting and extremely interesting. But it has only been these last three years with Arent Fox LLP that have offered me an insight into the world where trade policy meets corporate reality and where government rules intersect with production timelines.
Walking corporate executives through the trade maze continues to be rewarding and for which I am thankful. But I also have learned how companies can (and should) use these trade rules. In the same way corporate tax rules are important to grasp, trade rules offer competitive positioning. And like tax policy, trade rules goes far beyond the numeric rate.
This place in time in which we currently find ourselves is rife with potential and pitfalls. Now more than ever, sophisticated companies will want to know their own offensive and defensive trade positions in order to best prepare those negotiators sent to represent them.
Birgit Matthiesen is Director, North American Automotive at Arent Fox LLP in Washington DC. Her professional career involving trade policy includes her tenure at the Embassy of Canada during the NAFTA negotiation and implementation period. Arent Fox LLP works with a number of companies in North America providing legal and strategic advice in regard to the NAFTA and other US trade agreements.