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Testimony 

NTU to Trump Administration: Expand Trade Via NAFTA Renegotiation

by Brandon Arnold / /

To:
Mr. Edward Gresser
Chairman, Trade Policy Staff Committee
Office of the U.S. Trade Representative
600 17th Street, NW
Washington, D.C.
From:
Brandon Arnold, Executive Vice President
National Taxpayers Union
25 Massachusetts Avenue, NW, Suite 140
Washington, DC 20001
Subject:
Negotiating Objectives Regarding Modernization of North American Free Trade Agreement with Canada and Mexico
Docket ID:
Docket ID: USTR-2017-0006

Last month, the President of the United States notified Congress of his intention to renegotiate the North American Free Trade Agreement (NAFTA). While the current Administration may view the agreement with considerable skepticism, economic data have revealed significant benefits to all three nations. NAFTA demonstrates that free trade leads to economic efficiency that produces a reduction in consumer prices, higher profitability for companies, and higher employment in specialized industries. NTU strongly supports NAFTA, however, over time, it is essential that trade agreements be modernized and adjusted to keep up with innovative changes in the economy. To that end, NTU recommends that the USTR pursue the following goals for renegotiating NAFTA.

Low Tariffs

High tariffs are not in the best interest of the United States because they restrict the free flow of goods and services and create economic distortions and inefficiency. Tariffs increase the cost of goods on consumers who bear most of the burden. In fact, the main beneficiary of a tariff is the government which collects additional revenue at the expense of the consumer. NAFTA, over the course of fifteen years, eliminated the vast majority of tariffs on products manufactured or grown within the member countries. The recent threat of new tariffs of 20 or even 35 percent on goods imported into the U.S. from Mexico would not only make consumers pay more out of pocket, but would disrupt vital supply chains in many sectors of the economy. Tariffs on Mexican goods would lead to a loss in economic efficiency to the tune of $40 billion annually. The result would be thousands of lost jobs and billions of dollars in lost income. Additionally, tariffs act as a regressive tax which adversely affects low-income individuals and families as they will be required to spend a greater portion of their disposable income on consumer goods. Economists estimate this tariff would cost low-income families an additional $2,000 over five years.

Reduction of Non-Tariff Barriers

NTU supports efforts to eliminate Non-Tariff Barriers (NTBs), which inhibit cross-border transactions. Removing protectionist NTBs with Canada and Mexico can reduce artificial deterrents to economic growth by enabling greater specialization through comparative advantage. Companies will become more productive and profitable when supply chains are transparent and free. Complex rules on goods like agricultural or electronic products hurt U.S. companies and foreign consumers. Removing barriers such as quotas, permitting and licensing barriers will improve innovation and gains from trade. Additionally, the three countries should agree to reduce market-distorting subsidies and agree to open up protected domestic markets to international competition.

Maintaining Reasonable Rules of Origin Requirements

Rules of Origin requirements are intended to facilitate free trade, not hinder it. To achieve their stated purpose and enable maximum utilization, these rules should be crafted in a reasonable manner that is as straightforward and simple as possible. Rules of Origin must not be used to impose protectionist policies. For this reason, NTU opposes efforts to increase the current minimum percentage requirements under the Rules of Origin agreement. Raising the percentage would impose higher costs and greater instability on delicate global supply chains. Complex goods with extensive supply chains, such as automobiles, depend on lower-cost inputs from non-NAFTA countries. Imposing stricter rules of origin requirements would force companies to acquire new suppliers, allocate more resources for these additional costs, and ultimately raise prices on U.S. consumers.

Recognition of Critical Partnerships with Mexico and Canada

U.S. firms exported $262 billion to Mexico and $320 billion to Canada, making these countries the top two destinations for U.S. exports. Nearly 14 million jobs rely on trade with Canada and Mexico, and more than 200,000 jobs in export-related jobs are created annually. Having integrated regional economies means any attempts to hurt one country economically will also cause economic harm to industry in our country. Additional job opportunities created by trade with and foreign direct investment in Mexico have resulted in a steady decline of illegal immigration to the U.S. Maintaining strong and mutually beneficial relationships with our neighbors is of vital national security and economic interest to the United States in an increasingly uncertain world.

Conclusion

International trade is not a zero-sum game where in order for one country to “win” another must “lose.” Trade is a cooperative endeavor where nations seek mutual gains through exchange. Comparative advantage allows countries to produce goods in which they have the lowest cost to produce. Allowing people in Mexico or Canada to benefit from trade with America is not a shortcoming of NAFTA, it is a critical feature. The USTR must pursue policies which promote the creation of employment and wealth for residents of all income-brackets in the United States, Mexico and Canada. At a time when our economic relationships with Canada and Mexico are being tested, it is more important than ever for policymakers in Washington to foster an environment that increases commerce with our North American economic partners.

Sincerely,
Brandon Arnold
Executive Vice President