NAFTA Update*

The renegotiations of the North American Free Trade Agreement (NAFTA) began with a rocky start when President Trump threatened to withdraw from the Agreement unless it was renegotiated on terms more favorable to the United States. The renegotiations began on August 16, 2017, and have proceeded at an unexpectedly slow pace, due in large part to the steel and aluminum tariffs that have overshadowed NAFTA-specific trade issues.

Certain key focus areas of the NAFTA renegotiations have been historically important issue areas, such as automobile manufacturing, agriculture, and rules of origin. Another ongoing conflict in current negotiations is the U.S.’s desire to redesign investor-state dispute settlements and the push to eliminate the Chapter 19 dispute settlement mechanism, a move that would be a deal-breaker for the Canadians. While some current areas of contention have been ongoing since NAFTA’s inception, all parties agree that revising and updating NAFTA is necessary.

Although monumental in the early 1990s and an overall successful trade agreement, NAFTA did not include policy areas such as environmental obligations, labor standards, and Mexican energy investment.  NAFTA also did not include chapters for digital commerce, which would cover online goods such as MP3s and videos or online services such as web design. The U.S. in particular seeks to reduce certain barriers to digital trade, which include requirements that foreign enterprises localize data and digital activity.

Many negotiators have looked at the framework from the Trans-Pacific Partnership as a model to follow with respect to: (1) protection of cross-border data flows, (2) prohibition on the imposition of tariffs on electronic transmissions, (3) prohibition of the obligation for a business to locate specific computing facilities in exchange for market access, and (4) providing a mechanism for member states to cooperate on a range of e-commerce related issues. Particularly in the e-commerce domain, differences in product regulation, licensing requirements, certification, and conformity assessment represent significant barriers to trade. Overall, the need to modernize NAFTA centers on the inclusion of chapters on digital trade in goods and services as well as cross-border data flows.

The seventh round of NAFTA talks concluded on March 5th, and negotiators are under pressure to speed up progress since all three countries are holding key elections this year. Only six chapters of NAFTA have been closed in the renegotiation talks, and some of NAFTA’s most pressing issues, such as automobile manufacturing and rules of origin, have yet to be resolved.

The commencement of the eighth round of NAFTA negotiations saw a gain in momentum when U.S. negotiators lowered their automotive demands. However, negotiators missed the May 17th deadline set by Speaker Paul Ryan, and U.S. Trade Representative Robert Lighthizer made a statement on May 17th warning that the deal was “nowhere near close.” The steel and aluminum tariffs imposed on Canada and Mexico continue to complicate the situations and will likely further delay the completion of the agreement.

Overall, the renegotiation process has remained sluggish, and any final deal would still face the uphill battle of Congressional approval. Sequoia Legal, LLC, with its presence in Washington, stays up-to-date on negotiations as they evolve and can help your company adjust accordingly.

*This publication does not necessarily deal with every important topic or cover every aspect of the topics with which it deals. It is not designed to provide legal or other advice.  www.sequoialegal.com