NAFTA renegotiation is upon us. The newspapers here have plastered their front pages with stories about the united front Canada and Mexico are putting up against the elimination of Chapter 19.
What’s Chapter 19? It’s the part of NAFTA that mandates binational panels review any anti-dumping actions imposed by one NAFTA country on another. Without it, NAFTA countries would be at the mercy of national courts if they contested anti-dumping actions aimed at their exports. You can find the details of all 118 NAFTA trade cases here; roughly 69% of all cases have been against the United States. (More stats at this link.)
It turns out to be remarkably hard to calculate success rates. Who wins more in these panels? Someone would need to go through all 118 decisions and figure that out. (The headline decisions often split the difference, so it would be a judgment call.) That said, the data here let me do a quick-and-dirty estimate: in cases brought by Canada against the United States, the panel either made no decision or found in favor of the U.S. around 65% of the time. Winning!
There is a case to replace the ad hoc panels with a genuine international court, European Union style. But that is not on the cards. Another possibility would be to trust domestic courts: let American exporters put their faith in Mexican courts and Canadians trust American ones. But national court systems are slow and expensive, so Mexico and Canada have made it clear that they would rather junk NAFTA than rely on domestic courts to make decisions.
Now one can imagine all three countries setting up special domestic trade courts to review agency decisions on behalf of NAFTA plaintiffs in a timely manner. But the Trump administration has shown no sign of wanting to reform American courts along those lines and it unlikely that Canada and Mexico would accept such reforms regardless. It really looks like Chapter 19 or nothing.
Moreover, Mexico is putting its opposition on autopilot. The Third Commission of the Permanent Committee of the Mexican Congress (don’t ask, it gets complicated) has gone on record rejecting changes to Chapter 19. A full congressional resolution could tie the hands of the Mexican negotiators ... which might be, in fact, exactly what the Mexican government wants Congress to do. Consider two idiots playing chicken on Francis Louis Boulevard at 3am in Queens. One of them throws their steering wheel out the window. That idiot would certainly have an advantage in the resulting game ...
I would bet that the Trump administration quietly backs down, but with this man in office, you never really know. Still, FDI into Mexico is keeping pace, around $25 billion so far this year, similar to the $27.4 billion in 2016, $33.3 billion in 2015, and $27.7 billion in 2014. Similarly, the peso has recovered to around 17.8 per dollar, pre-Trump levels.
So, yeah, our terrible negotiator-in-chief is not likely to win this one, which is good.
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