Opinion | Is slash and burn the new norm in global trade?
The S&B strategy of the US marks an end to the neo-liberal trading system
Is slash and burn (S&B) becoming the new norm in global trade? Until now, S&B remained limited to clearing land, especially for temporary agriculture. Two unrelated developments on 27 August suggests that it is going to be replicated for striking new trade deals and for slashing existing legal arrangements, which encased international trade rules. In both cases, the principal protagonist for implementing the S&B method is the same country: the world’s largest trading member, à la the US.
To start, the new trade deal reached between the US and Mexico on Monday paves the way for operationalizing the S&B mechanism. Embattled US President Donald Trump took to the airwaves to announce that a new bilateral trade agreement between the US and Mexico will replace the North American Free Trade Agreement (NAFTA).
NAFTA came into force on 1 January 1994 and continued for 24 years. But Trump, who made rewriting NAFTA one of his top priorities on the trade front, claimed success in striking what he called the “US-Mexico Trade Agreement”. The NAFTA name is being erased because it had “bad connotations” for the US, he declared.
He issued a subtle threat to Canada: Fall in line with new concessions like Mexico or prepare for the removal from the bilateral free trade agreement. “It’s a big day for trade, it’s a big day for our country,” he claimed. The President did not provide any figures for the concrete material gains from the proposed new deal to rewrite NAFTA.
It remains to be seen whether Canada and Mexico give their consent to replacing NAFTA with a new name. Canada, which is watching the latest development from outside, insisted that it “will sign a new NAFTA that is good for Canada and good for the middle class”, according to a spokesperson for Canada’s foreign minister Chrystia Freeland. But President Trump made it clear that “Washington ‘is not going to stand’ for a continuation of Canada’s high tariffs on US dairy products”, according to the Washington Trade Daily of 28 August.
That Mexico is ready for a revamp or rewrite of large portions of NAFTA, particularly in the controversial area of rules of origin in the auto and other sectors, is well known. Besides, several bilateral issues between the US and Mexico, which generated constant trade frictions in areas such as auto, agricultural products, labelling and health standards and energy policies (particularly for the leading US oil companies which have been angry with Mexico’s policy framework for the energy sector), seems to be partially addressed.
The US is a strong votary for complex rules of origin, which imply the national source of a product. That poor countries suffer in global trade due to complex rules of origin is well-established. The harmonization work programme for non-preferential rules of origin ought to have been completed by July 1998. But the US, which continues to use rules of origin as a major weapon of non-trade barriers, has single-handedly blocked any agreement on the HWP.
Little wonder that in the latest US-Mexico trade agreement, Washington forced Mexico City to agree to stricter rules of origin for Mexican car exports to the US. The new framework requires Mexico to ensure that 75% of the content be made in North America, and that 40-45% of the content be made with a minimum wage for workers of $16 per hour. Effectively, such stringent measures will force car companies to relocate their manufacturing activities away from Mexico due to prevailing lower wages in Mexico.
In a similar vein, the US seems to have secured tariff-free access for its heavily subsidized farm products and labelling and health standards for tuna and other products. The US also succeeded in diluting the investor-state dispute settlement (ISDS) in the NAFTA, under which companies can bring claims to an international tribunal when they reckon that their investments in host countries were unfairly treated. Mexico managed to secure a sunset commitment from the US to ensure that the new agreement has a longevity of 16 years, as against five years.
The US also deployed the S&B method at the World Trade Organization (WTO) on Monday, blocking the reappointment of Shree Baboo Chekitan Servansing for a second term at the WTO’s highest adjudicating body for trade disputes. Washington’s decision will bring an end to the appellate body by December 2019. In short, the S&B strategy of the US marks an end to the neo-liberal trading system it had built since 1980s.