NAFTA Preparations Ramp Up as US Trade Rep Releases Negotiating Objectives

20 July 2017

The Office of the US Trade Representative (USTR) released a summary of its planned negotiating objectives for the upcoming renegotiation of the North American Free Trade Agreement (NAFTA) on Monday 17 July, outlining a series of areas where it would like to see changes to existing provisions or the enactment of new terms.

Negotiators from the three NAFTA countries – the US, Canada, and Mexico – are slated to begin formal talks to update the decades-old pact on 16 August in Washington. The publication of this summary is required under the 2015 Bipartisan Congressional Trade Priorities and Accountability Act, known more commonly as Trade Promotion Authority. (See Bridges Weekly, 2 July 2015)

That legislation requires the Office of the USTR to release publicly “a detailed and comprehensive summary of the specific objectives with respect to the negotiations, and a description of how the agreement, if successfully concluded, will further those objectives and benefit the United States” at least 30 days before the official launch of negotiations.

Tackling deficits

The USTR document sets out over nearly 17 pages the Trump Administration’s planned approach to goods and services trade, technical barriers to trade, investment, intellectual property, labour, environment, and a host of other topics that it would like to see addressed in the planned NAFTA reboot.

The text frames this endeavour as a way to “ensure truly fair trade,” claiming that under the current version of the trilateral accord, “trade deficits have exploded,” with manufacturing jobs taking a particular hit.

Achieving the above-mentioned fair trade, the document says, would mean “the elimination of unfair subsidies, market-distorting practices by state-owned enterprises, and burdensome restrictions of intellectual property” and taking steps to make market access more “reciprocal.”

The original NAFTA has been in force since 1994, and includes sections governing goods trade, government procurement, technical barriers to trade, investment and services, dispute settlement, and intellectual property rights. The prospect of an updated deal has fuelled intense interest from industry groups, civil society actors, and trade negotiators alike. According to the US Federal Register, over 12,400 comments were submitted during the public consultations period.

Objectives raised

The negotiating objectives set out on Monday refer to changes both in existing chapters of the accord – such as trade in goods and services, or dispute settlement – along with advocating for a series of topics that were either not part of the original deal or were instead included in a side agreement.

For example, the US is looking to see specific provisions on digital trade, state-owned and controlled enterprises, labour, and environment. The final two subjects – labour and environment – were addressed in the original NAFTA mainly under the North American Agreement on Labour Cooperation (NAALC) and the North American Agreement on Environmental Cooperation (NAAEC), respectively.

On labour and environmental issues, the USTR document said that it is looking to see “strong and enforceable” provisions that would be subject to NAFTA dispute settlement rules, and to bring these areas into the main trade deal text instead of addressing them separately. It then goes on to outline goals such as ensuring that parties “do not waive or derogate” from the relevant labour and environmental laws “in a manner affecting trade or investment between the parties,” among other objectives.

The negotiating objectives on environment include bullet points on tackling illegal, unreported, and unregulated fishing (IUU) and banning “harmful fisheries subsidies, such as those that contribute to overfishing and IUU fishing.” Concurrently, WTO members are negotiating global disciplines on harmful fisheries subsidies, with the goal of finalising a deal in time for the organisation’s upcoming ministerial conference in Buenos Aires, Argentina, this December. (For more on the WTO fisheries negotiations, see related story, this edition)

On investment, the negotiating objectives refer to cutting back on hurdles that limit US companies’ abilities to invest in Canada and Mexico. It also refers to investor protections, without going into much detail on that front. The current version of NAFTA has an investor-state dispute settlement (ISDS) mechanism in place under Chapter 11, which deals with investment issues more broadly.

The new USTR objectives call for “[securing] for US investors in the NAFTA countries important rights consistent with US legal principles and practice, while ensuring that NAFTA country investors in the United States are not accorded greater substantive rights than domestic investors.”

The topic of NAFTA dispute settlement has also been raised in relation to other negotiating areas, with the US looking to “eliminate the Chapter 19 dispute settlement mechanism” with respect to trade remedies and to take steps on state-state dispute settlement to make it more “transparent” and “timely.”

Meanwhile, the section on digital trade calls for enacting NAFTA provisions that prevent countries from limiting cross-border data flows, among other steps, and ensure digital products do not face custom fees or discriminatory treatment.

Along with covering various other areas, the objectives conclude with a brief paragraph on the hot-button subject of currency, which calls for setting up an “appropriate mechanism” to prevent currency manipulation, without elaborating what that mechanism would entail.

The mechanism would “ensure that the NAFTA countries avoid manipulating exchange rates in order to prevent effective balance of payments adjustment or to gain an unfair competitive advantage.”

Last month, Lighthizer responded to US lawmakers’ questions on whether enforceable rules on currency would feature in the updated agreement, even though the issue of manipulation itself has not been a specific problem with Washington’s NAFTA partners.

At the time, the US trade chief said that the administration was still weighing its options, while suggesting that the upcoming NAFTA talks could serve as a chance “to put together what is a model agreement.” (See Bridges Weekly, 29 June 2017)

US House, Senate lawmakers weigh in

The top US Senate and House lawmakers on trade swiftly issued statements in response to the negotiating objectives, with some welcoming the move as a useful clarification, while others calling for further details and greater ambition.

“These objectives – which will be further developed as the negotiations proceed – are an important part of the public discussion about the launch of the upcoming trade talks among our three nations,” said Orrin Hatch, the Republican senator from Utah who chairs the Senate Finance Committee.

The Utah senator also said that the negotiating objective should go further, particularly in terms of intellectual property protections, regulatory provisions, and enforcement.

His Democratic counterpart on that panel, Senator Ron Wyden of Oregon, flagged some areas in the USTR document that he argued were lacking in sufficient “ambition,” while also criticising the overall document for being “hopelessly vague” on how this approach would “benefit the United States” in certain important areas.

He also noted that some of the objectives raised in the USTR document involve topics that were already negotiated under the Trans-Pacific Partnership (TPP) Agreement, of which the US is no longer a signatory.

“It suggests that in other areas, such as the environment, the Administration is planning to come to the table with watered down versions of TPP proposals. It is surprising that in key areas the Trump Administration is seeking outcomes that were achieved in the TPP, which the President said was a bad agreement,” said Wyden.

The TPP was a 12-country trade agreement that previously included the United States among its signatories. While the accord was one of the top priorities under former US President Barack Obama’s trade strategy, particularly given its potential to develop deeper ties with Asia-Pacific markets and set a template of future trade rule-making, the TPP was panned by Trump on the campaign trail last year and was subject to heavy public scrutiny.

After taking office, Trump withdrew the United States from the trade deal, leaving the remaining 11 members – a group that includes Canada and Mexico – to examine how best to proceed without the coalition’s largest economy. (For more on the TPP-11, see related story, this edition)

Trudeau: Avoid “race to the bottom”

The release of the document came just days after Canadian Prime Minister Justin Trudeau addressed US state governors at a meeting of the National Governors Association, defending the benefits seen under the current version of NAFTA while noting the potential gains from an upgrade – along with the pitfalls that could emerge.

Speaking in Providence, Rhode Island, on 14 July, the Canadian leader repeatedly emphasised the importance of the US-Canada relationship, while noting that like any relationship, it requires continued care and attention.

“Let’s face it, this is another truth about good neighbours: sometimes we take each other for granted. Sometimes the very dependability and ease of a relationship can lead to us paying too little attention,” he said.

Trudeau also touted the benefits of NAFTA for workers on both sides of their shared border, noting that approximately two-thirds of American states count Canada as their biggest destination for exports, and that Canada overall is the United States’ “biggest, best customer, by far,” outpacing China, Japan, and the United Kingdom.

“This is the most successful economic partnership in the history of the world. It’s worth about a trillion dollars each year, and most importantly, it’s well balanced,” he added, while supporting the idea of updating the accord.

However, Trudeau warned against taking “politically-tempting shortcuts,” such as incorporating local content requirements, being less open in public procurement market access, and taking on additional trade barriers.

“Such policies kill growth. And that hurts the very workers these measures are nominally intended to protect. Once we travel down that road, it can quickly become a cycle of tit-for-tat, a race to the bottom, where all sides lose. My friends, Canada doesn’t want to go there,” he said.

Mexican, Canadian ministries highlight own preparations

The US’ NAFTA partners have both welcomed the additional clarity on Washington’s intended approach, issuing statements noting their preparations for the mid-August launch of negotiations.

Both Canada and Mexico are currently holding public consultations with their domestic constituencies, with the time period for Ottawa’s consultations recently extended. Mexico’s consultations will end in early August.

“The government of Mexico will work towards a constructive negotiating process that will help boost trade and investment flows and consolidate cooperation and economic integration in order to strengthen North American connectivity,” said the Mexican Secretariat of the Economy.

“When negotiations begin, we will be ready to work with our partners to modernise NAFTA, while defending Canada’s national interest and standing up for our values,” said Canadian Foreign Affairs Minister Chrystia Freeland.

ICTSD reporting; “Federal government extends public consultations as launch of NAFTA renegotiations looms,” THE CANADIAN PRESS, 18 July 2017; “Trump administration reveals goals ahead of NAFTA talks with Canada, Mexico,” CBC NEWS, 17 July 2017.

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