As the USMCA grinds its way toward replacing NAFTA, it is time to question whether the problems with NAFTA and WTO and TPP are due to the fact that the participants in those treaties are countries instead of companies?
The idea of trade treaties with companies is one I had never heard of or considered, but an idea that popped out as an off hand comment at an unrelated meeting a few weeks ago, and an idea that won’t go away.
If we are to talk about free trade, we have to go back to Adam Smith and his Wealth of Nations, the first book to advocate free trade. Smith advocated for lower tariffs, and tariffs are the domain of government, and thus it follows logically that countries talk to countries about tariffs.
However, in the chapter about Mexico in Feeding Tomorrow, there is a story of a hog processor who expanded to Mexico after NAFTA, whose massive intensive farming led to water pollution, 45 deaths from swine flu, and the collapse of the local market for pig farming. In the country-to-country framework of trade treaties, the solution falls on the emerging economy country to add regulations, which for a multitude of reasons they often can’t do.
Imagine instead that NAFTA was an agreement from the U.S. to any U.S. based company that wanted to operate in Canada or Mexico. In exchange for complying with existing U.S. regulations (and local regulations), their products could be imported into the U.S. tariff free.
The same deal could then be offered beyond North America, to U.S. companies operating in any country that is an ally of the U.S. No negotiations needed country by country or trading block by trading block.
Note I said U.S. based companies. Create an incentive for multinationals to be based in the U.S., rather than letting them shop the world for the lowest-cost tax haven.
This idea doesn’t preclude other trade treaties for non-U.S. companies or other trade treaties between nations, but if done correctly it brings the benefits of free trade while minimizing the issues that come from powerful companies pushing around the less powerful governments of the emerging market countries.
