NAFTA: Trust, but Modernize

Signal Group

NAFTA should look for opportunities to modernize, which will be beneficial to the tech industry.

Authored by Clare Sahin

For better or worse, our president was elected on a promise to shake up the way the United States does business–from federal budgets to foreign relations. In trade policy circles, this has meant withdrawing from the historic Trans Pacific Partnership (TPP) and preparing to revisit the long-standing North American Free Trade Agreement (NAFTA).

While many U.S. industries continue to mourn the death of the TPP and the related market access and state-of-the-art legal frameworks it would have provided, numerous industry leaders now wonder how a NAFTA renegotiation will impact trade with our closest neighbors and largest export markets. NAFTA has stood the test of time surprisingly well, more than tripling regional trade over the last 20 years and boosting the competitiveness of many U.S. industries via cross-border supply chain integration.

But while businesses are justified in their concerns over what a large-scale renegotiation could mean for their bottom lines, industries should also consider the upside of a targeted “modernization” of the agreement.

The opportunities presented by revisiting NAFTA are particularly acute for the tech industry, which was still in its infancy when NAFTA took effect in 1994. Of NAFTA’s 22 chapters, none account for the transformative power of the Internet–let alone the massive digital economy that has grown up around it. An entire industry of online micro-businesses has taken off since the early nineties, made possible by the digital platforms of companies like eBay, Etsy, and PayPal. Still, micro-sellers face artificially low customs thresholds in Canada that prevent them from fully engaging in trade with our northern neighbor. A NAFTA renegotiation provides an excellent opportunity to discuss harmonizing de minimis customs values so that more of our small businesses can reap the benefits of trade with our closest partners.

An updated NAFTA could also incorporate many of the so-called “Digital 2 Dozen” principles that would have made their debut in the TPP. These digital tenets include promoting a free and open Internet; prohibiting customs duties on digital products; extending non-discrimination principles to digital goods and services; liberalizing cross-border data flows; fighting data localization policies; promoting balanced copyright laws and IP enforcement; and eliminating tariffs on information and communications technology (ICT) hardware. In fact, strong digital trade policies like these will also benefit trade in industries beyond what is strictly thought of as “tech”. A recent McKinsey & Company report estimates that around 75% of the Internet’s benefits are realized by more traditional industries that use digital platforms to expand their footprint and more efficiently manage their supply chains.

And while it is true that countries like Canada rank near the bottom of any list of digital economy offenders, the standards achieved in a modernized NAFTA will become the standards against which all future U.S. trade agreements are measured. Thus, it is imperative that the tech industry organize and fight to include the best possible terms in any updated agreement.

NAFTA has worked well for decades, and many U.S. industries now depend on deeply integrated supply chains in Canada and Mexico. If the Trump Administration wants a better deal without disrupting and destabilizing entire industries, it should focus on modernization rather than large-scale renegotiation–trust what has worked so well in the past, but modernize to embrace a digital future.