NAFTA renegotiations - the USA's objectives

Introduction

United States Trade Representative Robert Lighthizer has released a Summary of the USA's North American Free Trade Agreement renegotiation objectives. The USTR's Press Release states that "too many Americans have been hurt by closed factories, exported jobs and broken political promises… USTR will negotiate a fair deal." The Summary's introduction states:

"But NAFTA also created new problems for many American workers. Since the deal came into force in 1994, trade deficits have exploded, thousands of factories have closed, and millions of Americans have found themselves stranded, no longer able to utilize the skills for which they had been trained…

The new NAFTA must continue to break down barriers to American exports. This includes 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…"

The Summary of Objectives for the NAFTA Renegotiation cover existing chapters of NAFTA (e.g. Trade in Goods; Customs and Rules of Origin; Services; Technical Barriers to Trade; Intellectual Property ; Trade Remedies and Dispute Settlement) and new areas such as Digital Trade in Goods and Services and Cross-Border Data Flows; Anti-Corruption; and Currency. Further details about some of the USA's NAFTA renegotiation objectives are set out below.

Intellectual Property

The objectives include:

• Ensure provisions governing intellectual property rights reflect a standard of protection similar to that found in U.S. law.
• Provide strong protection and enforcement for new and emerging technologies and new methods of transmitting and distributing products embodying intellectual property, including in a manner that facilitates legitimate digital trade.
• Ensure standards of protection and enforcement that keep pace with technological developments, and in particular ensure that rightholders have the legal and technological means to control the use of their works through the Internet and other global communication media, and to prevent the unauthorized use of their works.
• Provide strong standards enforcement of intellectual property rights, including by requiring accessible, expeditious, and effective civil, administrative, and criminal enforcement mechanisms.
• Prevent or eliminate government involvement in the violation of intellectual property rights, including cybertheft and piracy.
• Respect the Declaration on the TRIPS Agreement and Public Health, adopted by the World Trade Organization at the Fourth Ministerial Conference at Doha, Qatar on November 14, 2001, and to ensure that trade agreements foster innovation and promote access to medicines.
• Prevent the undermining of market access for U.S. products through the improper use of a country's system for protecting or recognizing geographical indications, including failing to ensure transparency and procedural fairness and protecting generic terms.

Investment

• Establish rules that reduce or eliminate barriers to U.S. investment in all sectors in the NAFTA countries.
• Secure for U.S. investors in the NAFTA countries important rights consistent with U.S. legal principles and practice, while ensuring that NAFTA country investors in the United States are not accorded greater substantive rights than domestic investors.

Trade Remedies

The objectives include:

• Eliminate the Chapter 19 dispute settlement mechanism.
• Eliminate the NAFTA global safeguard exclusion so that it does not restrict the ability of the United States to apply measures in future investigations.
• Seek a separate domestic industry provision for perishable and seasonal products in AD/CVD proceedings.
• Exclude state-owned enterprises as part of the domestic industry in AD/CVD proceedings.
• Facilitate the ability to impose measures based on third country dumping.
• Strengthen existing procedures and create new procedures to address AD/CVD duty evasion, including the ability to conduct AD/CVD verification visits.

Government Procurement

The objectives include:

• Increase opportunities for U.S. firms to sell U.S. products and services into the NAFTA countries.
• Exclude sub-federal coverage (state and local governments) from the commitments being negotiated. Keep in place domestic preferential purchasing programs such as:
  • Preference programs for small businesses, women and minority owned businesses (which includes Native Americans), service-disabled veterans, and distressed areas;
  • "Buy America" requirements on Federal assistance to state and local projects, transportation services, food assistance, and farm support; and
  • Key Department of Defense procurement.
• Maintain broad exceptions for government procurement regarding:
  • National security;
  • Measures necessary to protect public morals, order, or safety;
  • Protecting human, animal, or plant life or health; and
  • Protecting intellectual property.
• Maintain ability to provide for labor, environmental, and other criteria to be included in contracting requirements.

Digital Trade In Goods And Services And Cross-Border Data Flows

• Secure commitments not to impose customs duties on digital products (e.g., software, music, video, e-books).
• Ensure non-discriminatory treatment of digital products transmitted electronically and guarantee that these products will not face government-sanctioned discrimination based on the nationality or territory in which the product is produced.
• Establish rules to ensure that NAFTA countries do not impose measures that restrict crossborder data flows and do not require the use or installation of local computing facilities.
• Establish rules to prevent governments from mandating the disclosure of computer source code.

Anti-Corruption

• Secure provisions committing each Party to criminalize government corruption, to take steps to discourage corruption, and to provide adequate penalties and enforcement tools in the event of prosecution of persons suspected of engaging in corrupt activities. In particular by:
  • Requiring the adoption or maintenance of requirements for companies to maintain accurate books and records, which facilitate the detection and tracing of corrupt payments;
  • Encouraging the establishment codes of conduct to encourage high ethical standards among public officials; and
  • Requiring parties to disallow the deduction of corrupt payments for income tax purposes.

Currency

• Through an appropriate mechanism, 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.

Trade In Goods

Industrial

The objectives include:

• Maintain existing reciprocal duty-free market access for industrial goods and strengthen disciplines to address non-tariff barriers that constrain U.S. exports to NAFTA countries.
• Maintain existing duty-free access to NAFTA country markets for U.S. textile and apparel products and seek to improve competitive opportunities for exports of U.S. textile and apparel products while taking into account U.S. import sensitivities.
• Promote greater regulatory compatibility with respect to key goods sectors to reduce burdens associated with unnecessary differences in regulation, including through regulatory cooperation where appropriate.

Agriculture

The objectives include:

• Maintain existing reciprocal duty-free market access for agricultural goods.
• Expand competitive market opportunities for U.S. agricultural goods in NAFTA countries, substantially equivalent to the competitive opportunities afforded foreign exports into the U.S. market, by reducing or eliminating remaining tariffs.
• Seek to eliminate non-tariff barriers to U.S. agricultural exports including discriminatory barriers, restrictive administration of tariff rate quotas, other unjustified measures that unfairly limit access to markets for U.S. goods, such as cross subsidization, price discrimination, and price undercutting.
• Provide reasonable adjustment periods for U. S. import sensitive agricultural products, engaging in close consultation with Congress on such products before initiating tariff reduction negotiations.

Customs And Trade Facilitation

The objectives include:

• Provide for streamlined and expedited customs treatment for express delivery shipments, including for shipments above any de minimis threshold. Provide for a de minimis shipment value comparable to the U.S. de minimis shipment value of $800.
• Ensure that, to the greatest extent possible, shipments are released immediately after determining compliance with applicable laws and regulations and provide for new disciplines on timing of release, automation, and use of guarantees.
• Ensure that NAFTA countries administer customs penalties in an impartial and transparent manner, and avoid conflicts of interest in the administration of penalties.
• Provide for automation of import, export, and transit processes, including through supply chain integration; reduced import, export, and transit forms, documents, and formalities; enhanced harmonization of customs data requirements; and advance rulings regarding the treatment that will be provided to a good at the time of importation.
• Provide for both administrative and judicial appeal of customs decisions.
• Provide for disciplines on the use of customs brokers, preshipment inspection, and the use of reusable containers.

Rules Of Origin

• Update and strengthen the rules of origin, as necessary, to ensure that the benefits of NAFTA go to products genuinely made in the United States and North America.
• Ensure the rules of origin incentivize the sourcing of goods and materials from the United States and North America.
• Establish origin procedures that streamline the certification and verification of rules of origin and that promote strong enforcement, including with respect to textiles.
• Promote cooperation with NAFTA countries to ensure that goods that meet the rules of origin receive NAFTA benefits, prevent duty evasion, and combat customs offences.

Services

Trade in Services

• The trade in services objectives include rules that apply to all services sectors, including rules that prohibit:
  • Discrimination against foreign services suppliers;

o Restrictions on the number of services suppliers in the market; and

o Requirements that cross-border services suppliers first establish a local presence

• Where any exceptions from core disciplines are needed, the negotiation, on a negative list basis, of the narrowest possible exceptions with the least possible impact on U.S. firms.
• Improve the transparency and predictability of the regulatory procedures in the NAFTA countries.

Telecommunications

• Promote competitive supply of telecommunications services by facilitating market entry through transparent regulation and an independent regulator.
• Secure commitments to provide reasonable network access for telecommunications suppliers through interconnection and access to physical facilities and scarce resources.
• Establish provisions protecting telecommunications services suppliers' choice of technology.

Financial Services

• Expand competitive market opportunities for United States financial service suppliers to obtain fairer and more open conditions of financial services trade.
• Improve transparency and predictability in their respective financial services regulatory procedures.
• Ensure that the NAFTA countries refrain from imposing measures in the financial services sector that restrict cross-border data flows or that require the use or installation of local computing facilities.

Technical Barriers to Trade

• Require NAFTA countries to apply decisions and recommendations adopted by the WTO TBT Committee that apply, inter alia, to standards, conformity assessment, transparency, and other areas.
• Include strong provisions on transparency and public consultation that require the NAFTA countries to publish drafts of technical regulations and conformity assessment procedures, allow stakeholders in other countries to provide comments on those drafts, and require authorities to address significant issues raised by stakeholders and explain how the final measure achieves the stated objectives.
• Ensure national treatment of conformity assessment bodies without conditions or limitations and encourage the use of international conformity assessment recognition arrangements to facilitate the acceptance of conformity assessment results.
• Establish an active TBT Chapter Committee that will discuss bilateral and third party specific trade concerns, coordination of regional and multilateral activities, regulatory cooperation, and implementing Good Regulatory Practices.

Sanitary and Phytosanitary Measures

• Provide for enforceable SPS obligations that build upon WTO rights and obligations, including with respect to science based measures, good regulatory practice, import checks, equivalence, and regionalization, making clear that each country can set for itself the level of protection it believes to be appropriate to protect food safety, and plant and animal health in a manner consistent with its international obligations.
• Establish a mechanism to resolve expeditiously unwarranted barriers that block the export of U.S. food and agricultural products.
• Establish new and enforceable rules to ensure that science-based SPS measures are developed and implemented in a transparent, predictable, and non-discriminatory manner.
• Improve communication, consultation, and cooperation between governments to share information and work together on SPS issues in a transparent manner, including on new technologies.
• Provide for a mechanism for improved dialogue and cooperation to address SPS issues and facilitate trade where appropriate and possible.

Energy

• Preserve and strengthen investment, market access, and state-owned enterprise disciplines benefitting energy production and transmission and support North American energy security and independence, while promoting continuing energy market-opening reforms.

State Owned and Controlled Enterprises

• Define SOEs on the basis of government ownership or government control through ownership interests, including situations of control through minority shareholding.
• Retain the ability to support SOEs engaged in providing domestic public services.
• Ensure that SOEs accord non-discriminatory treatment with respect to purchase and sale of goods and services.
• Ensure that SOEs act in accordance with commercial considerations with respect to such purchases and sales.
• Ensure that strong subsidy disciplines apply to SOEs, beyond the disciplines set out in the WTO Agreement on Subsidies and Countervailing Measures (SCM Agreement).
• Require that SOEs not cause harm to another Party through provision of subsidies.
• Require that SOEs not cause harm to the domestic industry of another Party via subsidized SOE investment.
• Ensure impartial regulation of SOEs, designated monopolies, and private companies.
• Provide jurisdiction to courts over the commercial activities of foreign SOEs (i.e., limited sovereign immunity).
• Allow Parties to request information related to the level of government ownership and control of a given enterprise, and the extent of government support.
• Develop fact-finding mechanism based on Annex 5 of the WTO SCM Agreement to help overcome the evidentiary problems associated with litigation on SOEs.

Competition Policy

• Maintain rules that prohibit anticompetitive business conduct, as well as fraudulent and deceptive commercial activities that harm consumers.
• Establish or affirm basic rules for procedural fairness on competition law enforcement.
• Promote cooperation on competition enforcement-related matters.

Labor

• Include the labor provisions into the core of NAFTA rather than in a side agreement.

The objectives also include:

• Require NAFTA countries to adopt and maintain in their laws and practices the internationally recognized core labor standards as recognized in the ILO Declaration, including:
  • Freedom of association and the effective recognition of the right to collective bargaining;
  • Elimination of all forms of forced or compulsory labor;
  • Effective abolition of child labor and a prohibition on the worst forms of child labor; and
  • Elimination of discrimination in respect of employment and occupation.
• Require NAFTA countries to have laws governing acceptable conditions of work with respect to minimum wages, hours of work, and occupational safety and health.
• Establish rules that will ensure that NAFTA countries do not waive or derogate from their labor laws implementing internationally recognized core labor standards in a manner affecting trade or investment between the parties.
• Establish rules that will ensure that NAFTA countries do not fail to effectively enforce their labor laws implementing internationally recognized core labor standards and acceptable conditions of work with respect to minimum wages, hours of work, and occupational safety and health laws through a sustained or recurring course of action in a matter affecting trade or investment between the parties.
• Require that NAFTA countries take initiatives to prohibit trade in goods produced by forced labor, regardless of whether the source country is a NAFTA country.
• Provide access to fair, equitable, and transparent administrative and judicial proceedings.
• Ensure that these labor obligations are subject to the same dispute settlement mechanism that applies to other enforceable obligations of the Agreement.

Environment

• Include the environment provisions into the core of NAFTA rather than in a side agreement.

The objectives also include:

• Establish strong and enforceable environment obligations that are subject to the same dispute settlement mechanism that applies to other enforceable obligations of the Agreement.
• Establish rules that will ensure that NAFTA countries do not to waive or derogate from the protections afforded in their environmental laws for the purpose of encouraging trade or investment.
• Establish rules that will ensure that NAFTA countries do not fail to effectively enforce their environment laws through a sustained or recurring course of action in a matter affecting trade or investment between the parties.
• Require NAFTA countries to adopt and maintain measures implementing their obligations under select Multilateral Environment Agreements (MEAs) to which the NAFTA countries are full parties, including the Convention on International Trade in Endangered Species of Wild Fauna and Flora.
• Establish a means for stakeholder participation, including commitments for public advisory committees, and a process for the public to raise concerns directly with its government if they believe it is not meeting its environment commitments.
• Require NAFTA countries to ensure access to fair, equitable and transparent administrative and judicial proceedings for enforcing their environmental laws, and provide appropriate sanctions or remedies for violations of their environmental laws.
• Combat illegal fishing, unreported, and unregulated (IUU) including by implementing port state measures and supporting increased monitoring and surveillance.
• Establish rules to prohibit harmful fisheries subsidies, such as those that contribute to overfishing and IUU fishing, and pursue transparency in fisheries subsidies programs.
• Promote sustainable fisheries management and long-term conservation of marine species, including sharks, sea turtles, seabirds and marine mammals.
• Protect and conserve flora and fauna and ecosystems, including through action by countries to combat wildlife trafficking, including timber trafficking.

Dispute Settlement

The objectives include:

• Establish a dispute settlement mechanism that is effective, timely, and in which panel determinations are based on the provisions of the Agreement and the submissions of the parties and are provided in a reasoned manner.
• Establish a dispute settlement process that is transparent by:
  • Requiring that parties' submissions be made publicly available;
  • Requiring that hearings be open to the public;
  • Requiring that final determinations by a panel be made publicly available; and
  • Ensuring that non-governmental entities have the right to request making written submissions to a panel.

General Exceptions

• Include general exceptions that allow for the protection of legitimate U.S. domestic objectives, including the protection of health or safety and essential security, among others.

Conclusion

The USA's renegotiation objectives that are set out in the 17 page Summary are vague enough to provide wide negotiation room for the USTR. Many of the bullet points set out above are boilerplate free trade agreement negotiation statements. However, some of the objectives are specific and will be contentious issues for the Government of Canada.

For instance, one of the USA's objectives is to eliminate the Chapter 19 binational panels that review final determinations by the Department of Commerce and the International Trade Commission in antidumping and countervailing duty proceedings. Canada insisted on the creation of the Chapter 19 binational panel system during the negotiation of the Canada-US Free Trade Agreement. Whether this objective will become a deal breaker for Canada remains to be seen. The objective to eliminate the NAFTA global safeguard exclusion will also be contentious.

Although Canada's supply management for dairy and other products is not expressly mentioned in the Summary, the agriculture objective to eliminate the restrictive administration of tariff rate quotas puts supply management in play. This does not mean that Canada has to abandon supply management for dairy and poultry products, but improved access for American farmers through increased quotas and reduced tariffs is a likely outcome.

The US objectives do not mention investor-state arbitration found in Chapter 11 of NAFTA. The Parties can nevertheless agree to "update" the Investment Chapter such as occurred in the Comprehensive Economic and Trade Agreement between Canada and the European Union. Another possible scenario is that the investor-state arbitration claims for damages is eliminated from NAFTA.

The objectives for the rules of origin do not reveal the USA's demands for higher regional content or a requirement for a certain minimum percentage of US content in goods imported into the USA that will qualify for NAFTA duty free treatment. Rules of origin for automobiles and auto parts will be a sensitive topic of renegotiation.

Government procurement negotiations will be contentious. The US Government does not want local and state government procurements to be subject to NAFTA obligations and disciplines and it wants to keep in place "Buy America" purchasing programs and exclude key Department of Defence procurements.

Canadian retailers will oppose the US objective of allowing $800 USD of imports duty free. Currently the Canadian de minimis value is only $20. While Canadian online shoppers may be happy with the $800 USD objective, the economic impact on Canadian retailers will be damaging. An increase in the de minimis value for duty free imports is likely, but not by 40 times the current threshold.

The Government of Canada will be holding town hall meetings in August and has made available an online survey as part of its continuing consultations with stakeholders. Renegotiations of NAFTA are expected to commence in mid-August. While President Donald Trump's mantra is "America first," the renegotiation of NAFTA is not however a one-way American street. Let the renegotiations begin!