During the 2016 presidential campaign, Donald Trump blamed the trilateral North American Free Trade Agreement (NAFTA) among Canada, Mexico, and the United States for the U.S. trade deficit with Mexico and for lost American manufacturing jobs. Upon taking office, Trump said he was determined to either engage in renegotiation of NAFTA or walk away from the pact. Then–Mexican President Enrique Peña Nieto and then–Canadian Prime Minister Justin Trudeau persuaded Trump to give NAFTA renegotiation a chance, according to the Wall Street Journal.
When the renegotiation got underway in August 2017, the three sides were miles apart on a host of issues, from Canadian dairy policy to wages for Mexican autoworkers to whether the pact should eventually expire. The renegotiation was repeatedly delayed by threats, stalemates, and unclear motives. On September 30, 2018, the parties agreed to a deal that was less an overhaul of NAFTA than a modest adjustment. Dubbed the United States–Mexico–Canada Agreement (USMCA) aka the new NAFTA or NAFTA 2.0, the pact was ratified by all three countries and went into effect on July 1, 2020.
Claim your FREE copy: Dealmaking
Discover how to boost your power at the bargaining table in this FREE special report, Dealmaking: Secrets of Successful Dealmaking in Business Negotiations, from Harvard Law School.
The difficult, drawn-out NAFTA renegotiation offered the following four lessons for updating existing contracts.
-
Don’t Expect Artificial Deadlines to Work
The NAFTA renegotiation was marked by repeated delays and missed deadlines. Not until Peña Nieto was due to leave office, at the end of 2018, did negotiators finally get serious about finalizing a deal.
Anyone who’s worked on a long, complex project knows that it’s hard to take artificial timetables seriously, especially when parties have incentives to drag things out. The governments of Canada and Mexico, for instance, might have wanted to push NAFTA renegotiation down the road in the hope that the Trump administration would accept the status quo. Some also speculated that the White House threw roadblocks at the talks because of the concern that Congress, pro-business leaders, and voters would be angered by whatever outcome was reached. Only when the parties faced a real deadline—Peña Nieto’s departure—did they get serious about wrapping up talks.
The lesson: If you really want to get a deal done, you may need to find ways to commit yourselves to a deadline, such as imposing financial or other penalties.
-
Give to Receive
The Trump administration made several extreme demands during the NAFTA renegotiation while offering few concessions on issues important to the other parties. For example, Trump proposed a “sunset clause” in which NAFTA would expire in five years unless explicitly renewed. This was a nonstarter for Canada and Mexico, which argued that businesses would balk at investing in the changes Trump wanted if the deal might be abandoned after five years.
Ultimately, the White House ended up backing down from its demand for a sunset clause to forge an agreement with Mexico. Mexico, for its part, agreed to meet autoworker wage demands from the United States. It took a year, but the two parties finally agreed to a trade-off.
In a renegotiation, you can engage in hard bargaining and hope that the other side caves in. But in addition to claiming value in negotiation, you should also strive to create value by conceding on issues that matter less to you in exchange for what you want most.
-
Use Threats Only as a Last Resort
The NAFTA renegotiation came to a standstill in June 2018, when Trump unveiled several protectionist U.S. trade measures, including new tariffs on Canadian steel and aluminum imports, and a ban on some imported cars.
In response, Canada and Mexico both threatened tariffs on U.S. goods. “Canadians, we’re polite, we’re reasonable, but we will not be pushed around,” Trudeau said at a news conference.
Trump responded in a tweet by calling Trudeau “meek and mild.” The next round of NAFTA meetings was put on hold.
In negotiation, threats should be used only as a last resort. They often beget counterthreats, in addition to breaking down trust and damaging relationships. You’re much more likely to reach your goals by exploring trade-offs across issues.
-
Weaker Parties Should Stick Together
In early June, 2018, Larry Kudlow, the director of Trump’s National Economic Council, told Fox News that Trump was “very seriously contemplating . . . a shift in NAFTA negotiations” from a multiparty negotiation to separate bilateral negotiations with Canada and Mexico. The following month, Trump suggested that the United States was narrowing in on a new bilateral trade deal with Mexico and that talks with Canada could come later.
Canadian and Mexican officials responded by reaffirming their commitment to trilateral negotiations. They had clear incentives for doing so. In multiparty negotiations, weaker parties can enhance their strength by forming alliances. Against the United States, the strongest of the three NAFTA partners economically, Canada and Mexico each would have been in much weaker bargaining positions.
For stronger parties, a “divide and conquer” strategy can offer value-claiming advantages. However, the more parties there are in a renegotiation, the more opportunities there will be for value creation. The benefits of taking the biggest slice need to be weighed against the potential gains of adding more parties and issues to the mix.
What challenges have you faced in renegotiation of contracts, and how have you overcome them?
Claim your FREE copy: Dealmaking
Discover how to boost your power at the bargaining table in this FREE special report, Dealmaking: Secrets of Successful Dealmaking in Business Negotiations, from Harvard Law School.
Thank you so much for this article. A lot of these tips will help in crafting my daughter’s IEP and explaining to the school how progress has been made in autism research. They are still operating under outdate, dog-training techniques.