The North American Free Trade Agreement (NAFTA) between Canada, the U.S., and Mexico took effect in 1994, operated for 25 years, and was superseded by ‘USMCA’ in 2020. NAFTA functioned throughout a turbulent global era, was both hailed and maligned for most of its history, and produced threats for its unilateral termination. Yet USMCA substantially followed NAFTA’s example with a needed update rather than a radical departure: “NAFTA v1.1.”
Negotiations large and small require significant work in advance. Preparation for a negotiation includes understanding the context and establishing the personality, with context taking priority.
Context includes four steps about the ‘what’ of the negotiation: assessing cooperation and competition, clarifying goals and outcomes, examining leverage and their barriers, and considering hierarchy and control.
Illusions of Control
Popular descriptions claimed that NAFTA was a recipe for disaster (or a solution to all ills). Only after the 2016 U.S. presidential campaign did one nation, the U.S., demand renegotiation and threaten cancellation. However, the three economies had become highly dependent upon each other and faced an international environment as competitive with China as had been for the stagnant world economy of the early 1990s.
The context for general, broad topics generally remains constant over time. Influence and positions change only slowly. Familiar actors such as national and industry interest groups persist, whether internal or external.
Trying to control outcomes, like a ‘good cop / bad cop’ routine, requires an organizational hierarchy that is absent between nations. Demands hold little weight unless it is clear to the recipients that the threats are practical.
Notional Leverage
The U.S. wields enormous leverage with the largest market, although Mexico holds considerable untapped human resources, and Canada a highly flexible economy. To ratify an agreement, the U.S. political system involves a separation of powers—a designed strength and weakness—while Mexico and Canada operate through more direct approval processes. Each nation has topics critical to them other than trade, such as migration, energy, and agreements with other countries.
Advantage depends upon the target party’s perception of practicality and possible barriers to use. A party may perceive one influence as offsetting another, wholly unrelated, or too expensive for the originator to exert.
Leverage does not need to be equal for parties to find beneficial outcomes. Moreover, negotiation on one topic does not automatically extend influence to other areas. Parties choose to unite to achieve more together than apart.
Rejuvenated Goals
The negotiation of NAFTA 30 years ago, as well as that for USMCA, involved debates over business ‘liberalization’ in intellectual property, labor, and environmental protection. While NAFTA did not benefit all equally, no nation had a credible alternative (BATNA) to updating the existing relationship. Although the Republican U.S. administration demanding the update had different objectives than that of NAFTA, each nation used legislatively induced changes to support ratification.
Successful parties perceive a context conducive for mutual benefit, for a collaborative outcome, even if the motivations differ. Goals do not need to be equally enticing nor do benefits or risks. Goals usually differ.
Yet robust goals remain relatively constant over time. Consistency in goals helps each party understand and respond appropriately. Cooperation on a common solution creates more than that available from competition.
Cooperation Redux
With gains from NAFTA operating as an integral part of North America’s business assumptions, all parties had an interest in advancing their continued relationship. Over the decades, all had identified outstanding concerns with NAFTA. Negotiation for USMCA inside the U.S. administration may have been the most problematic and derived the most from competition. Yet mutual benefit drove all parties to negotiate an updated NAFTA successfully.
Cooperation dominates in successful partnerships. Similar goals endure even when adjusted over implementation, leverages remain balanced, and neither party dominates the other. Collaboration works.