Reports today were released that the UK is angling joining NAFTA if Brexit negotiations break down as part of its planning for a “no deal” scenario. According to the Telegraph:
Joining Nafta would enable the UK to boost its trade with three of the world’s economic powerhouses, which have a combined Gross Domestic Product (GDP) of £17.2 trillion, compared with the EU’s GDP of £15.7 trillion.
Together, Britain, the US, Canada and Mexico account for more than 30 per cent of the entire global economy.
Joining Nafta would give British importers and exporters better access to the US, Canada and Mexico without the UK having to go through painstaking negotiations to strike a new free trade agreement[…]
Where… to… start?
First, I’m not sure NAFTA would be my back-up plan if I was Prime Minister May given Mr. Trump’s repeated suggestions that the agreement should be terminated.
Second, adding a new member to NAFTA would still require not only the United States, but also Canada and Mexico to acquiesce. This in turn would likely necessitate a thorough renegotiation of terms across NAFTA’s various sectors and twenty-two chapters, including the rule of origin issues under review currently.
Third, membership in NAFTA would not translate into any amplification of the UK’s geostrategic clout. To be sure, the new administration does appear to laud some of the committee structures in NAFTA (see pg. 191) to remove stumbling blocks to coordination. But NAFTA is not a customs union, and does not have political structures that would allow the UK to project its policy preferences through the agreement.
Fourth, even if you could get past all of aforementioned problems, the increasingly possible introduction of a NAFTA sunset provision would make membership an ever-precarious value proposition for UK (and everyone else).
Finally, NAFTA just isn’t the EU. The UK’s neighborly proximity to the rest of Europe makes it a natural trading partner. Moreover, Britain’s global capital markets gives enables an enormously lucrative relationship with the (bank-centered) Continent. North America is quite the contrary: The US also boasts highly competitive, highly liquid, and global capital markets—where much of Canada and Mexico already raise capital. So although the NAFTA bloc may be larger in economic terms, it seems unlikely that the UK would get the returns on membership that it currently does in the European Union.
As is increasingly the case in many of these discussions, I’m left with the impression that the NAFTA idea is being floated as a means of securing leverage with the EU. But I’d be highly surprised if Brussels took the bait.