Trump Administration Prepares for NAFTA Negotiations

President Trump’s promise to renegotiate the North American Free Trade Agreement (NAFTA) is taking shape. On March 29, the Administration provided a draft notice of the President’s intention “to initiate negotiations” related to that Agreement to the congressional committees with jurisdiction over trade (Senate Finance and House Ways and Means). This post highlights key elements of the notice.

The 2015 Trade Promotion Authority (TPA) legislation, which sets out the requirements for the negotiation of trade agreements, requires the President to notify the Congress of his plans to initiate negotiations at least 90 days before they begin.

The draft notice recognizes the importance of U.S. trade with Canada and Mexico, noting that it has tripled since 1993, and that its partners account for 29% of total U.S. trade in goods. Citing the “persistent U.S. deficit in goods trade” with the NAFTA countries, the Administration seeks “swift action to revise the relationship”.

The Administration’s notice emphasizes that most of the NAFTA chapters are outdated and do not reflect standards found in more recent U.S. trade agreements. It particularly points to digital trade, labor, environment, intellectual property rights (IPR), state-owned enterprises (SOEs), rules of origin and customs procedures.

The notice details specific objectives for negotiations in 19 areas. Overall, the objectives follow closely those set out in the TPA legislation. They also include new issues, such as the aim of seeking “to level the playing field on tax treatment”, an objective that is likely intended to address President Trump’s criticism of Mexico’s value-added tax as unfair to U.S. exporters. Some objectives are predictable based on the Trump trade team’s criticisms of NAFTA, including seeking “rules of origin that ensure that the Agreement supports production and jobs in the United States”.

In a number of areas, including IPR, SOEs, investment and digital trade, the U.S. will seek commitments from the NAFTA countries that are similar to provisions in the Trans-Pacific Partnership (TPP). For example, the Administration’s digital trade aims include commitments to not impose customs duties on digital products and refrain from implementing measures that require local storage or processing of data, both of which were included in TPP.

On government procurement, the draft notice indicates that the U.S. wants “rules that require government procurement to be conducted in a manner that is consistent with U.S. law and the Administration’s policy on domestic procurement preferences”. If the President’s team intends to seek a rollback of its waiver of the Buy American Act for Canadian and Mexican products, it could be expected to meet significant resistance.

The Administration has also indicated in the notice that it wants to eliminate Chapter 19 dispute settlement of anti-dumping and countervailing duty determinations, as a consequence of “U.S. experiences where panels have ignored the appropriate standard of review and applicable law, and where aberrant panel decisions have not been effectively reviewed and corrected”. This objective could have ramifications for the softwood lumber dispute, which was reignited last fall when U.S. firms filed anti-dumping and countervailing duty cases against Canada.

The final notice, which would be expected to incorporate congressional comments, must include the date on which the President intends to initiate negotiations, the specific U.S. objectives for the negotiations, and whether the President intends to seek an agreement, or changes to an existing agreement. The draft notice states that the Administration does not yet know what form the final agreement will take. It could be separate bilateral agreements with Canada and Mexico, a new trilateral agreement among the three countries or a revision of NAFTA.

The Administration has indicated it would like to submit the finalized official notification as soon as April 7 (before Congress leaves for a two-week recess). But, it is unclear whether it will be able to do so, as it has not yet consulted with the Senate Advisory Group on Negotiations, a requirement of TPA. According to Politico’s Morning Trade, the Democrats on that committee take the position that such consultations must be with a USTR that has been confirmed by the Senate. Although the Senate has not yet confirmed the USTR nominee, Robert Lighthizer, the Senate Finance Committee chair has indicated he will schedule a vote on the nomination as soon as possible.

Jean Heilman Grier

April 4, 2017

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