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Datamyne Blog

Covering trade & transport, with tips on using import-export data to advantage

USTR Outlines Objectives in Renegotiating NAFTA

Category: Markets, Trade Policy

The USTR plan for renegotiating NAFTA is largely about bringing it in line with trade policies developed since 1994. What’s really new: The U.S. states its goal is to reduce the U.S. trade deficit. Talks are set to open August 16.

The first round of talks to revise the 23-year-old North American Free Trade Agreement (NAFTA) begin August 16 – 30 days after the U.S. Trade Representative (USTR) published a summary of U.S. objectives in renegotiating the pact with partners Canada and Mexico.

The July 17 publication and much of the content of the USTR summary is dictated by the Trade Priorities and Accountability Act of 2015. TPA-2015 makes fast-track approval of trade deals (via an up or down vote by Congress) contingent on the Executive’s publication of U.S. negotiating objectives at least 30 days before formal talks begin.

As USTR points out, there have been substantial changes in the U.S. economy and global trading relationships since NAFTA entered into force – reason enough to update the trade agreement. Commentators agree that, on balance, the administration’s stated objectives in renegotiating NAFTA indicate it aims to modernize rather than completely overhaul the trade pact.

Renegotiating NAFTA: First, Do No Harm

USTR wants to maintain existing duty-free market access for industrial goods, textiles and apparel products and agricultural goods for NAFTA signatories. Commentators read the 30-day letter’s assurances to do no harm to NAFTA market access as a response to the strong advocacy of the U.S. industries that have reaped its benefits.

For example, the National Oilseed Processors Association (NOPA), among many others, pointed to agriculture as one of NAFTA’s biggest success stories: “Since the agreement was enacted, U.S. food and agricultural exports to Canada and Mexico have more than quadrupled — growing from $8.9 billion in 1993 to over $38 billion in 2016.”

From the U.S. Chamber of Commerce: “First, Do No Harm. Interrupting the $1.3 trillion in annual trade across our borders or reverting to the high tariffs and other trade barriers that preceded the NAFTA could put at risk many of the 14 million U.S. jobs that depend on trade with Canada and Mexico.”

The NOPA and Chamber statements were filed in response to the USTR’s invitation to comment on renegotiating NAFTA. They are among over 1,400 public submissions filed by individuals, companies and industry groups that can be viewed at regulations.gov, under Docket USTR-2017-0006. These published filings are a fraction of the 12,460 comments received during the public comment period, which was also mandated by TPA-2015.

Renegotiating NAFTA: Continuities

Altogether, 13 of the 30-day letter’s 22 sections stick with established policy rather than blaze new trails.

Ensuring some continuity in policy is TPA-2015: The same law that mandates a summary of negotiating objectives also specifies what those objectives should cover. Much of what’s in the USTR summary is from TPA-2015, according to an analysis from the National Law Journal.

For example, the USTR objectives calling for curbs on currency manipulation, reduced barriers to investing, and U.S.-standard protections for intellectual property rights are “cut-and-paste” from TPA-2015.

Similarly, objectives for core labor standards, the environment, small and medium-size enterprises, and digital commerce are sourced from TPA-2015 and also appeared in the Trans-Pacific Partnership. (The U.S. withdrew from the pending TTP trade agreement in January.)

Six sections adopt language found in TPA-2015 and the current NAFTA: technical barriers to trade, regulatory practices, transparency, competition, anti-corruption, and general provisions.

Renegotiating NAFTA: Updating the Rules

Several sections of the USTR 30-day letter are concerned with aligning NAFTA with contemporary regulation in such areas as customs administration, trade facilitation, sanitary and phytosanitary measures, and food safety. In addition, USTR will aim to develop ways to align and harmonize the NAFTA trade partners’ regulations, with the goal of reducing the burdens of “unnecessary differences.”

A number of objectives call for facilitating trade by, for example, increasing transparency, automating imports, electronic payment of duties and other charges, and speeding release after customs clearance. Freight forwarders, customs brokers and others involved in cross-border trade are keeping a close watch on how the potential changes may impact processes. This is of particular importance as the U.S. single window to government, the Automated Commercial Environment (ACE) platform, continues to develop.

While these proposals cover familiar territory, they aren’t necessarily free of controversy. The devil is in the details. For example, USTR wants to lower barriers to e-commerce. This means, as The Star reports, Canada will be asked to increase its duty-free limit for online purchases from the current de minimus level of $20 to $800. At $20, the limit is one of the lowest in the world. De minimus changes could have a substantial impact on trade.

Renegotiating NAFTA: What’s New

Top of the list of negotiating objectives, under the Section on Trade in Goods, is “Improve the U.S. trade balance and reduce the trade deficit with the NAFTA partners.” According to USTR, this is the administration’s signature change in U.S. trade agreement negotiating objectives.

As our data in the chart below shows, NAFTA partner Canada is well down the ranks of countries that export more than they import in trade with the U.S. The USTR release focuses on the overall deficit with Mexico, while singling out a few trade issues with Canada: “Since NAFTA was implemented in 1994, the U.S. bilateral goods trade balance with Mexico has gone from a $1.3 billion surplus to a $64 billion deficit in 2016. Market access issues have arisen in Canada with respect to dairy, wine, grain and other products — barriers that the current agreement is unequipped to address.”

Renegotiating NAFTA: U.S. balance of trade with its top trade partners in 2016

Other trade provisions in play include:

  • Rules of Origin: USTR wants to “incentivize” sourcing goods from the U.S. and North America. This could mean boosting the percentage of North American content in goods required for duty-free treatment.
  • Government procurement: USTR affirms a “Buy American” preference for the federal government, but states that any commitments negotiated would not apply to state and local governments, where domestic preferential purchasing programs should be kept in place.
  • Trade remedies: USTR wants to eliminate NAFTA’s Chapter 19 provisions for arbitration of challenges to anti-dumping and countervailing duty decisions. USTR would also end the exclusion of Canada and Mexico from “Global Safeguard” tariffs or quotas the U.S. imposes to assist its “seriously injured” industries. USTR wants to add the ability to impose measures based on third-country dumping.

One more thing that’s new: transparency. TPA-2015 aims to open ongoing trade negotiations to public scrutiny. As the administration moves ahead with renegotiating NAFTA, it must keep Congress in the loop, gauge and report the impact of agreement terms, and post the final agreement online at least 60 days before it is to be signed.

Related:

Renegotiating NAFTA: 2016 trade statisticsFrom the Descartes Datamyne™ free report library: Download Quick Look @ NAFTA Trade in 2016 for stats on each member’s top imports and exports, top markets and countries of origin, and top regional trade partners.

Descartes Customs Info™: With a sizeable database of duty, tax, tariff and trade information, our solution helps businesses minimize trade barriers and reduce duty spend. Learn more.

Descartes OneView™:  Amid rapidly changing trade regulations, our solution helps freight forwarders, customs brokers and more coordinate cross-border shipments, file U.S. Customs entries and security filings to the CBP ACE platform, and streamline billing. Learn more

Date posted: August 15, 2017

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