STEPS TO RENEGOTIATE NAFTA UNDERWAY

During the 2017 Presidential campaign, Donald Trump promised he would dismantle or renegotiate the NAFTA agreement, claiming it alone was responsible for the loss of jobs in America.  He further promised to impose strong tariffs on goods imported into the U.S. from Mexico and prevent U.S. companies from moving jobs to Canada or Mexico.  This week, the United States Trade Representative (USTR), began the initial steps to undertake renegotiation of the treaty.

The Negotiation Predicates

Trade negotiations conducted by the Trade Promotion Authority or TPA are controlled by laws and regulations that must be followed before formal negotiations can commence.  These predicates are necessary to give public notice and open comment by Congress who is required to vote on the proposed legislation with an up-or-down vote with no amendments permitted.  The President, through the USTR, must consult with the House Ways and Means Committee, the Senate Finance Committee, and other congressional committees on the proposed negotiations.  Ninety days prior to the initiation of negotiations, the President must provide formal notice to Congress of his intent to negotiate and outline the objectives of the negotiations.  Thirty days prior to formal initiation of negotiations, the USTR must publicly post detailed negotiating objectives to the public along with a description of how the agreement will further those objectives.

Following consultation with the relevant congressional committees last week, the USTR sent to Congress a formal notification of the Administration’s intent to begin renegotiation of NAFTA with Canada and Mexico.  As a result, NAFTA renegotiations cannot formally begin no earlier than mid-August 2017.  During this window the Administration will be further developing its strategy.  This opens a window of opportunity for the public (i.e., businesses with an interest in NAFTA renegotiations) to advocate their positions to the USTR, the relevant Administration officials, and to members of congress.

What are the Objectives of the Renegotiated NAFA Agreement? 

Although formal notice has been given to renegotiate NAFTA, the Trump Administration has not yet outlined nor articulated details goals other than to eliminate provisions that encourage the off-shoring of US manufacturing through the rules controlling origin of goods.  Specifically, the Trump Administration would seek to restrict access to the US market for Mexican- and Canadian-origin goods and/or restrict access to the overall North American market by lowering the amount of non-NAFTA origin inputs that could be permitted in NAFTA-qualifying goods.  The Commerce Department and particularly Commerce Secretary Ross appear to have focused particularly on the auto industry.

In a first draft of the objectives, then Acting USTR Vaughn sent to Congress a proposal to revise the trilateral relationship to “respond to new twenty-first century challenges” and outlined a nineteen-point strategy for renegotiation.  The list included rules of origin, a panel review, as well as a number of topics that had also been proposed and incorporated into the much maligned Trans-Pacific Partnership agreement which both Canada and Mexico are parties.  The Administration has subsequently distanced the White House from USTR Vaughn’s draft.

The formal notification sent to Congress last week from the USTR discusses the need to update NAFTA, but lacks any specifics set forth in the earlier notification.  The notice provides that the Administration’s aim is to modernize NAFTA to include provisions to address intellectual property rights, regulatory practices, state-owned enterprises, services, customs procedures, the control of cross-border agricultural pests and pathogens, labor, environment, and small and medium enterprises.  The notice also proposes “establishing effective implementation and aggressive enforcement of the commitments made by our trading partners” is an important goal that “should be improved in the context of NAFTA.”  While unmentioned in the notice, renegotiation may also address or otherwise facilitate resolution of longstanding sources of trade friction.  These could include restrictions on US dairy exports to Canada or settlement of the longstanding trade disputes involving Mexican sugar exports to the United States or even possibly softwood lumber from Canada.

On April 29, 2017, Trump signed an Executive Order (EO) directing a “performance review” of all existing trade agreements to which the United States is a party.  The Oder directed the U.S. Department of Commerce and the USTR to determine in particular whether U.S. trade agreements were resulting in the creation of jobs in the U.S. and whether those agreements were being violated. Commerce Secretary Ross indicated that NAFTA would be a “big part” of this report.  Presumably the results from this report, which are due by November 2017, will be fed into any NAFTA renegotiation.

What Role Will Congress Play?

Before trade negotiations can be conducted by the USTR, Congress must be notified at least 90 days prior to the beginning of any negotiations so that it can provide input to the President.  That window opened last week.  The Administration shall brief relevant congressional committees throughout the negotiation to obtain their input and guidance.  Congressional approval of the completed NAFTA renegotiation will depend on the nature and extent of changes to be negotiated.  At this stage, it appears the objectives are so broad and generally stated that specifics will need to be fleshed out to obtain congressional approval.

What Role Should U.S. Business Play?

As mentioned above, the filing of last weeks’ notice opens a window of opportunity for the public (i.e., businesses with an interest in NAFTA renegotiations) to comment and advocate their positions or concerns to the USTR, the relevant Administration officials, and members of congress.  If you believe your business may be impacted, positively or adversely, by changes to the NAFTA Agreement, make your positions known.  You may do so directly with the respective offices, although it is recommended your contact your congressman and senator.  If you have any questions regarding the comment mechanism, feel free to contact my office at 616.726.5905 or via email at info@kaneplc.com.

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