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Missed Deadline Makes NAFTA Overhaul Unlikely

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Since February, Section 232 talk has dominated the metals industry trade world. Whether the conversation involved tariffs or quotas, exclusions or retaliatory actions, the steel and aluminum industries have been obsessed with that three-digit number. 

Somewhat lost amid that conversation is the ongoing state of the North American Free Trade Agreement, the original pact that earned the ire of President Trump. Perhaps that’s one reason a significant deadline for a fix came and went in May with no new deal, and very little notice. 

Earlier in the year, outgoing House Speaker Paul Ryan said a renegotiated deal must be delivered to Congress by May 18 to have a chance to be voted upon before the mid-term elections. Obviously, no new pact was reached. In fact, there’s little evidence the sides were ever close to such an agreement.

For most in the metals supply chain, and the broader economy, this was probably a case of no news being the good kind. Though many of President Trump’s policies have been greeted warmly by the business community, the target he’s placed on NAFTA is decidedly not one of them. Numerous executives agree the deal could use a little refreshing and modernizing after a quarter-century of use. However, there’s considerable skepticism that the end result will be an upgrade, with significant downside risk.  

The Business Roundtable, an association of American CEOs, summarized the general sentiment toward the renegotiation process in advance of the deadline. “Regardless of whether officials from the U.S., Canada and Mexico can meet specific legislative deadlines, modernizing NAFTA in ways that expand, not restrict, trade should be the administration’s primary objective in these negotiations. Proposals that would weaken investor-state or state-to-state dispute settlement mechanisms, implement overly restrictive rules of origin requirements, institute a sunset clause, or curtail government procurement opportunities would create uncertainty for U.S. businesses and should be rejected,” a release from the group said. 

That position is consistent with the viewpoint within the metals industry. “The Metals Service Center Institute believes NAFTA has been uniquely successful for North American manufacturing and has urged negotiators to upgrade, but not endanger, the trillion dollar-plus annual trading relationship that NAFTA has established between the United States, Canada and Mexico,” MSCI declares on its website.

Even the steel industry’s leading voices for tougher trade measures – whether that’s an association such as the American Iron and Steel Institute or a steelmaker like Nucor – have supported the push to simply strengthen the existing agreement. 

The missed deadline could be significant beyond 2018. The midterm elections threaten to upset the balance of power in the Beltway, with the House of Representatives more likely to change party control. Such a change could result in the president’s inability to get any meaningful changes to the pact. Gridlock has some perks.

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