First Round of NAFTA Negotiations Begins Today

The first round of the negotiations for the North American Free Trade Agreement (NAFTA) between the United States, Canada and Mexico will take place in Washington, D.C. today and will continue until August 20.

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 current 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.

The negotiations immediately follows the 90-day consultation period with Congress and the public initiated on May 18, 2017. On that day, Ambassador Robert E. Lighthizer notified Congress of President Trump’s intent to renegotiate NAFTA to get a better deal for America’s workers, farmers, businesses and manufacturers.

In late July, Ambassador Lighthizer also announced that John Melle, assistant U.S. trade representative for the Western Hemisphere, will serve as chief negotiator for the NAFTA negotiations. In his role as chief negotiator, Melle will be responsible for the day-to-day negotiations at the staff level.

Steps to Renegotiation

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 Office of the United States Trade Representative (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, per the USTR 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 Supports Modernizing NAFTA

In June, the CalChamber 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. The CalChamber agrees 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.

In July, the CalChamber also sent a letter to the Federal Register Notice (FRN) supporting the modernization of NAFTA.

The CalChamber actively supported the creation of 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 totaled over $496.919 billion while goods imports totaled nearly $572.217 billion.

The CalChamber, in keeping with long-standing policy, enthusiastically supports free trade worldwide, expansion of international trade and investment, fair and equitable market access for California products abroad, and elimination of disincentives that impede the international competitiveness of California business.

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’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.

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.

Staff Contact: Susanne T. Stirling