The first five rounds of the scheduled seven rounds of the modernization and renegotiation of the North American Free Trade Agreement (“NAFTA”) has officially drawn to a close. The sixth round is slated to take place in Montreal from January 23 to 28, 2018.
Whilst the renegotiation is progressing steadily as planned based on Trilateral Statement[s], one of the challenges facing trading partners, especially regions with a less internationally focused economy like Wisconsin is the misconception on how a regional free trade agreement like NAFTA actually works; or why other regions of the world like Asia would be interested in renegotiation developments in a non-Asian, regional free trade agreement halfway across the world.
For a start, NAFTA is not just a regional free trade agreement between the three countries (U.S., Canada, and Mexico); it is also an agreement that impacts global trade. Trade and investment ties between NAFTA countries and Asian countries have grown significantly since NAFTA was first concluded in 1994. Similarly, trade and investment relationships between Wisconsin and Asia mirrors this growth trend. A 2017 report produced by the U.S. Census Bureau listed 13 Asian countries among the top 25 exporting countries of goods originating from Wisconsin.
These figures are markedly greater than 20 years ago when only six of 18 Asian countries were listed among Wisconsin top export destinations; and with trade to China and Japan alone amounting to approximately 11 percent of all exports from Wisconsin. Similarly, Wisconsin’s annual exports to South Korea have grown 33 percent since 2010, due in large part to dairy exports. According to the International Dairy Foods Association, American-made cheese exports to South Korea amounted to approximately $170 million in 2016, making it the fourth largest market for U.S. dairy exports.7
The potential impact of changes to NAFTA not only impacts Wisconsin-Asian trade relationships on the exporting side, but also on the importing side. Wisconsin firms imports from Asian countries are an invaluable addition to the manufacturing supply chains for Wisconsin made products. Specifically, a 2017 U.S. Census Bureau report listed 11 Asian countries among the top 25 importing countries to Wisconsin; with imports from China as the top country of origin and amounting to approximately 25 percent of all imports to Wisconsin.
Not only are trade relationships between Wisconsin and Asia growing at a significant rate, many Wisconsin multinational corporations have established Asia Pacific corporate headquarters and are for all legal purposes legal citizens in their respective Asian countries. Similarly, many Asian companies such as Foxconn Technology Group that have either invested heavily or plan on investing in Wisconsin are watching closely to see what happens with respect to NAFTA renegotiation and what impact proposed changes could have on their products, operations and supply chains.
As business relationship and entanglements with NAFTA countries is significant, trading partners are undoubtedly following the NAFTA developments with a lot of interest. You should too.
is a senior advisor at Brookfield-based Addison-Clifton LLC, focusing on its Asian Market Services practice sector.