Don't Repeal NAFTA, Just Bring It Into the 21st Century
In his letter to Congress last month, U.S. Trade Representative Robert Lighthizer emphasized that “NAFTA was negotiated 25 years ago, and while our economy and business have changed considerably over that period, NAFTA has not.” He’s right; the North American Free Trade Agreement (NAFTA) was written at a time when people still watched movies on VCRs, made calls from payphones, and played cassette tapes in their cars. We must modernize the agreement in a way that best serves Americans. With the hearings in the House and Senate this week and another executive branch hearing next week, our hope is that President Trump and his team will work hard to maintain the parts of the agreement that are working.
The U.S. insurance industry, for example, has greatly benefited from NAFTA. When the agreement was first written, financial services commitments in trade deals were in their infancy and the industry was more fragmented and less technologically-enabled. But thanks to NAFTA, Mexico was required to eliminate rules that were preventing U.S. insurance groups from fully owning their companies in Mexico, and Canada and Mexico were required to remove unfair, discriminatory regulations that were being imposed on U.S. insurers.
As the industry has grown and we’ve modernized our technological capabilities, we should explore the ways that these agreements can further enable American insurers to cover risks around the world. In turn, U.S. insurers will generate value and create jobs. If a U.S. insurer does more business, even in Mexico or Canada, jobs are created in the United States. The reason for this is because many of the professional positions in a U.S.-based insurance company support international operations. These include new American jobs in analytics, finance, legal services, and underwriting, to name a few. With simple modernization, NAFTA could bring even more stable, good-paying jobs here at home.
An area ripe for improvement and modernization is how we allow companies to store their data. Currently, as with many industries, modern technology has enabled real-time access and analysis from data sources around the world. This digitalization has revolutionized an insurer's ability to serve its customers and develop products to meet their needs. Unfortunately, a disturbing trend has developed wherein foreign governments are forcing companies to house their data locally, even if it's not cost effective. Insurance companies, and really all other tech-enabled U.S. businesses, would benefit if NAFTA included a binding commitment to store data in the location that best suits their business model and to transfer data freely across borders.
Finally, our hope is that a modern NAFTA will allow insurers to serve customers from around the world without having to open a physical office or hold capital in a specific country. Current rules on cross-border insurance trade are limited, forcing U.S. companies to offer services through a local office in foreign countries, minimizing efficiency and preventing these companies from creating more jobs at home. Going forward, a new deal should include commitments that will allow insurers to offer protection to large companies on a cross-border basis. Such commitments will facilitate U.S. insurance trade and support more exports by U.S. companies that want their U.S. insurance partner to cover their trade activities in foreign markets.
VCRs and payphones no longer play a large role in American life, but it’s essential – for the sake of our economy – that NAFTA does. It is not just insurers who stand to gain from modernizing NAFTA, but with certain improvements they will be much better off.
