U.S. Trade Representative Takes Next Step in Modernizing North American Free Trade Agreement

Yesterday, the Office of the U.S. Trade Representative (USTR) issued a summary of its objectives for the upcoming negotiations to modernize the North American Free Trade Agreement (NAFTA). Objectives can be found on the USTR website here.

The President originally provided written notice to Congress regarding NAFTA modernization on May 18, 2017, as a part of the 90-day process established by the Bipartisan Congressional Trade Priorities and Accountability Act of 2015 (TPA2015).  The USTR then published a notice in the Federal Register soliciting comments. More than 12,000 responses were received, followed by three days of public hearings with more than 140 witnesses, who provided testimony on a wide range of sectors, including agriculture, manufacturing, services, and digital trade.

The objectives reflect the input received during the preceding consultation period from Congress, advisory committees, other agencies, and members of the public. The USTR will continue to consult with Congress and stakeholders and update these objectives as negotiations advance.  August 16, 2017 is the earliest date the negotiations with Canada and Mexico can begin.

According to the USTR, the Administration intends to ensure truly fair trade by seeking the highest standards covering the broadest possible range of goods and services.

The result will be the elimination of unfair subsidies, market-distorting practices by state owned enterprises, and burdensome restrictions of intellectual property. The new NAFTA will be modernized to reflect  21st century standards and will reflect a fairer deal, addressing America’s persistent trade imbalances in North America. It will ensure that the United States obtains more open, equitable, secure, and reciprocal market access, and that the trade agreement with our two largest export markets is effectively implemented and enforced.

The USTR has laid out Specific Negotiating Objectives for the Initiation of NAFTA Negotiations in areas that include: Trade in Goods; Sanitary and Phytosanitary Measures (SPS); Customs, Trade Facilitation, and Rules of Origin; Technical Barriers to Trade (TBT);  Good Regulatory Practices; Trade in Services, Including Telecommunications and Financial Services; Digital Trade in Goods and Services and Cross-Border Data Flows; Investment; Intellectual Property;  Transparency; State-Owned and Controlled Enterprises; Competition Policy;  Labor; Environment; Anti-Corruption; Trade Remedies; Government Procurement; Small- and Medium-Sized Enterprises; Energy; Dispute Settlement: and Currency

CalChamber Comments

In June,  the California Chamber of Commerce submitted comments on NAFTA to the USTR. The CalChamber understands that the NAFTA was negotiated more than 25 years ago, and, while our economy and businesses have changed considerably over that period, NAFTA has not. We agree with the premise that the United States should seek to support higher-paying jobs in the United States and to grow the U.S. economy by improving U.S. opportunities under NAFTA.

The provisions of NAFTA have been beneficial for U.S. industries, agricultural enterprises, farmers, ranchers, energy companies and automakers. Any renegotiation of NAFTA must recognize the gains achieved and ensure that U.S. trade with Canada and Mexico remains strong and without interruption.

The CalChamber actively supported the creation of the NAFTA among the United States, Canada and Mexico, comprising 484.3 million people with combined annual trade with the United States being around $1.069 trillion in 2016. In 2016, goods exports exceeded $496.919 billion while goods imports totaled nearly $572.217 billion.

The CalChamber’ s long-standing support for NAFTA is based upon an assessment that it serves the employment, trading and environmental interests of California and the United States, as well as, Canada and Mexico, and is beneficial to the business community and society as a whole. Since 1993, trade among the three NAFTA countries has nearly quadrupled.

The CalChamber now urges a quick and efficient process, and one that does not hinder ongoing trade and investment among the three NAFTA members who must be kept united in the same end-goal of a successful renegotiation. Throughout this process, the Trade Promotion Authority with its objectives and procedures should be followed. Further, during the process, the CalChamber encourages re-examination of the provisions agreed upon by the three countries during the already-negotiated Trans-Pacific Partnership (TPP), as these may provide a starting point for further discussion.

NAFTA Facts

Per the U.S. Chamber “Facts on NAFTA,” the agreement has generated substantial new opportunities for U.S. workers, farmers, consumers, and businesses.

  • Trade with Canada and Mexico supports nearly 14 million American jobs, and nearly 5 million of these jobs are supported by the increase in trade generated by NAFTA.
  • The expansion of trade unleashed by NAFTA supports tens of thousands of jobs in each of the 50 states—and more than 100,000 jobs in each of 17 states.
  • Since NAFTA entered into force in 1994, trade with Canada and Mexico has nearly quadrupled to $1.3 trillion, and the two countries buy more than one-third of U.S. merchandise exports.
  • The United States ran a cumulative trade surplus in manufactured goods with Canada and Mexico of more than $79 billion over seven years (2008–2014). For services, the U.S. surplus was $41.8 billion in 2014 alone.
  • NAFTA has been a boon to the competitiveness of U.S. manufacturers, which added more than 800,000 jobs in the four years after NAFTA entered into force. Canadians and Mexicans purchased $487 billion of U.S. manufactured goods in 2014, generating nearly $40,000 in export revenue for every U.S. factory worker.
  • NAFTA has been a bonanza for U.S. farmers and ranchers, helping U.S. agricultural exports to Canada and Mexico to increase by 350%.
  • With new market access and clearer rules afforded by NAFTA, U.S. services exports to Canada and Mexico have tripled, rising from $27 billion in 1993 to $92 billion in 2014.
  • Canada and Mexico are the top two export destinations for U.S. small and medium-size enterprises, more than 125,000 of which sold their goods and services in Canada and Mexico in 2014.

The goals of NAFTA are to eliminate trade barriers and facilitate movement of goods and services across borders, promote fair competition, increase investment opportunities, provide protection and enforcement of intellectual property rights, create procedures for trade disputes, and establish a framework for further trilateral, regional, and multilateral cooperation to expand the trade agreement’s benefits.

NAFTA, the actual document, is more than 1,700 pages long, with 741 pages belonging to the treaty itself, 358 pages for annexes, and 619 for footnotes and explanations. The treaty is separated into eight parts: General; Trade in Goods; Technical Barriers in Trade; Government Procurement; Investment, Services and Related Matters; Intellectual Property; Administrative and Institutional Provisions; and Other Provisions. These eight parts are made up of 22 chapters, with an additional seven annexes.

Issues for Future Negotiations

Per the Federal Register notice, the CalChamber made brief comments below on a series of issue areas for future negotiations:

Digital Trade/ E-Commerce:

California is a leader in the field of e-commerce, which positively impacts all aspects of business and society. We need binding rules among the three nations that address current restrictions on cross border data flows and forced localization of computing assets. E-commerce was never negotiated in the NAFTA’s original “pre-digital” universe. Since TPP has been shelved, it would be sensible for Canada, the U.S., and Mexico to adapt TPP’s e-commerce chapter into the NAFTA context. A modernized NAFTA is the perfect opportunity to set a precedent for an e-commerce trade policy.

Intellectual Property Rights:

California is also a leader in innovation and in related intellectual property, and needs more rights and protections for patents, copyrights, and trademarks. Although this area was included in the original NAFTA, the entire field needs to be updated and upgraded.

Regulatory Practices:

Regulatory barriers to trade is an area which needs to be revisited. Regulations need to be standards and science based.

State-Owned Enterprises (SOEs):

This subject should be discussed to ensure that SOEs operate and conduct international transactions within the framework of the Agreement.

Services:

As California becomes more of a service-oriented economy, it is important to remember that trade agreements are not just about trade in goods, but also, to a great extent, about services.

Customs Procedures:

With the World Trade Organization Facilitation Agreement, this subject has come to the forefront. Customs, trade facilitation and related logistics are an everyday subject for importers and exporters. The NAFTA could improve even further on this important subject. The de minimis levels should be in alignment with other agreements. Canada and Mexico need to raise their de minimis levels to assist importers. This would be especially helpful to small and medium sized enterprises(SMEs). To ensure the reliable and efficient movement of goods and services, customs procedures should be a North American priority.
Sanitary and Phytosanitary Measures:

Especially in the area of agriculture and related areas, sanitary and phytosanitary measures are key to a smooth international transaction. The process included should be based on science and common sense.
Rules of Origin:

Each NAFTA country forgoes tariffs on imported goods “originating” in the other NAFTA countries. Rules of origin enable customs officials to decide which goods qualify for this preferential tariff treatment under NAFTA. Current NAFTA Rules of Origin are restrictive and complex. A modernized NAFTA should adopt changes to the rules which make it easier to qualify for NAFTA benefits and simplify the related administrative process.
Energy:

Per the U.S. Department of Energy, the 1994 implementation of the NAFTA did not apply to Mexico for energy commodities, due to its constitutional provisions. As a result, while the NAFTA promoted U.S. and Canadian energy market integration, it has been less successful in achieving energy market integration between the United States and Mexico. Recent regulatory reforms undertaken by Mexico in both the hydrocarbon and electricity sectors are anticipated to open its energy market to foreign investment, to present an opportunity for increased integration with the broader North American energy system, and to elevate the importance of its energy commodities in trade with the United States and Canada through NAFTA.

The USTR should be committed to a quick and efficient NAFTA renegotiation. Global trade is crucial to the world economy, and trade agreements are an integral part of that success. The issues outlined above should provide a guide to a modernized NAFTA which serves the interest of American producers, employees and consumers.

Trade Stats

Mexico

Mexico continues to be California’s No. 1 export market, purchasing 16.2% of all California exports. California exports to Mexico amounted to $25.262 billion in 2016, a slight decrease from 2015. Computers and electronic products remained California’s largest exports, accounting for 21.7% of all California exports to Mexico. Exports of transportation equipment and machinery from California to Mexico grew to total more than $5.1 billion, with chemicals continuing to be a strong export sector as well.

Canada

At a CalChamber Canada Day event in March, Canadian Consul General Brandon A. Lee noted that nearly 9 million jobs in the U.S. depend on trade and investment with Canada and 35 states in the U.S. have Canada as the No.1 buyer.

Canada remained California’s second largest export market, with California exports to Canada increasing to top $16.18 billion in 2016. Canada purchases more than 10% of all California exports. Computers and electronic products remained California’s largest exports to Canada, accounting for more than 30% of all California exports to Canada. California exports to Canada directly and indirectly support approximately 110,000 jobs in California, with many of those resulting from export growth under NAFTA.

Staff Contact: Susanne T. Stirling