Canada: What's Next For NAFTA – USTR Releases Its NAFTA Renegotiation Objectives

Last Updated: July 19 2017
Article by Heather Innes

On July 17, 2017, following consultation with Congress, stakeholders and the public, United States Trade Representative Robert Lighthizer released a detailed summary of the U.S. negotiating objectives for the renegotiation of the North American Free Trade Agreement (NAFTA) entitled the Summary of Objectives for the NAFTA Renegotiation (the "US NAFTA Renegotiation Objectives List").  The summary focuses on President Trump's stated objectives of reducing the U.S. trade deficit by improving market access in Canada and Mexico for U.S. manufactured goods, agricultural goods and services.  While it recognizes that NAFTA created opportunities for U.S. exporters and the U.S. economy, it restates the Trump Administration's position that NAFTA has created problems for many American workers, creating trade deficits and forcing factory closures.

Generally, it calls for a break down of barriers to U.S. exports including an elimination of unfair subsidies, market-distorting practices by state owned enterprises and the restrictions on intellectual property.  It calls for a reconsideration of the rules of origin and rules for government procurement that exempt sub-Federal entities, thereby permitting the continued use of certain Buy America requirements.

Below is a summary of the more specific objectives set out in the US NAFTA Renegotiation Objectives List.  Careful consideration should be given to how the stated U.S. wish list items will impact your organization and the steps available to provide a response and alternative approach (if needed) to our Canadian negotiators who are likely to start the formal negotiation process within the month.

SUMMARY OF THE US NAFTA RENEGOTIATION OBJECTIVES LIST

  1. Trade in Goods:

(a) Industrial Goods: maintain reciprocal, duty-free market access while addressing non-tariff barriers;

  • Textile & Apparel Products: maintain existing duty-free access to NAFTA country markets for U.S. textile and apparel products and seek to improve opportunities for U.S. exports.  Continue to take into account U.S. import sensitivities.
  • Promote greater regulatory compatibility:  reduce burdens associated with unnecessary differences in regulation, including through regulatory cooperation.

(b) Agricultural Goods:  Maintain existing reciprocal, duty-free market access for agricultural goods.

  • Reduce/eliminate remaining tariffs for U.S. agricultural goods.
  • Eliminate non-tariff barriers including discriminatory barriers, restrictive administration of tariff rate quotas, other unjustified measures, such as cross subsidization, price discrimination, and price undercutting.
  • Provide adjustment periods for U. S. import sensitive agricultural products, before negotiating tariff reductions.
  • Promote greater regulatory compatibility to reduce burdens associated with unnecessary differences in regulation.
  1. Sanitary and Phytosanitary Measures (SPS):
  • Provide enforceable SPS obligations that build upon WTO rights and obligations, including science based measures, good regulatory practice, import checks, equivalence, and regionalization, making clear that each country can set for itself the level of protection to protect food safety, and plant and animal health, consistent with its international obligations.
  • Establish a mechanism to resolve unwarranted barriers that block the export of U.S. food and agricultural products.
  • Establish rules and mechanisms to ensure that science-based SPS measures are developed and implemented in a transparent, predictable, and non-discriminatory manner and improve communication, consultation & cooperation.
  1. Customs, Trade Facilitation, and Rules of Origin:

(a)  Customs and Trade Facilitation:

  • Build on high WTO agreement standards for trade facilitation and customs valuation.
  • Increase transparency by publishing customs laws, regulations on the internet.
  • Ensure release of shipments immediately after determining compliance – provide for use of guarantees.
  • Provide expedited customs treatment for express delivery shipment and increase de minimis shipment value to $800.
  • Ensure customs penalties are impartially and transparently administered.
  • Provide automated import, export and transit processes, harmonized, reduced documents/forms, and advance rulings.
  • Permit electronic payment of duties, taxes, fees and charges.
  • Provide for administrative and judicial appeal of customs decisions.
  • Provide for the use of risk management systems for customs control and post-clearance audit procedures.
  • Provide for disciplines on the use of customs brokers, preshipment inspection, and the use of reusable containers.
  • Establish a committee for Parties to share information and cooperate with a view to resolving inconsistent treatment.

b)  Rules of Origin:  Note that very few specifics were provided in US NAFTA Renegotiation Objectives List.  Rather, the following general recommendations were included:

  • Update/strengthen the rules of origin, to ensure that the benefits go to products genuinely made in NAFTA countries;
  • Ensure the rules of origin incentivize the sourcing of goods and materials from the United States, Canada and Mexico;
  • Streamline the certification and verification of rules of origin, including with respect to textiles; and
  • Promote cooperation to ensure that qualifying goods receive NAFTA benefits, & prevent duty evasion.
  1. Technical Barriers to Trade (TBT):
  • Require application of WTO TBT Committee decisions and recommendations adopted re: standards, conformity assessment, transparency, and other areas.
  • Require publication of drafts of technical regulations and conformity assessment procedures and permit comments.
  • 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 TBT Chapter Committee to discuss trade concerns, coordination of regional and multilateral & regulatory activities.
  1. Good Regulatory Practices: Obtain commitments to facilitate market access and promote greater compatibility among regulations, including:
  • Transparency and accountability in the development, implementation, and review of regulations;
  • Providing meaningful opportunities for public comment in the development of regulations; and
  • Promoting use of impact assessments to ensure regulations are evidence-based, current, & avoiding redundancies.
  1. Trade in Services, Including Telecommunications and Financial Services:

(a)  Trade in Services:  Improve transparency and predictability of regulatory procedures and secure commitments to provide fair and open conditions for services trade, including through:

  • Rules that apply to all services sectors, including rules that prohibit: (i) discrimination against foreign services suppliers; (ii)  restrictions on the number of services suppliers in the market; and (iii) requirements that cross-border services suppliers first establish a local presence;
  • Specialized sectoral disciplines, including rules to level the playing field for U.S. delivery services suppliers; and
  • Use of a narrow, negative list if exceptions from core disciplines are needed.

(b)  Telecommunications:

  • Facilitate market entry through transparent regulation and an independent regulator.
  • Secure reasonable network access for telecommunications suppliers through interconnection and access to physical facilities and scarce resources.
  • Provisions to protect telecommunications services suppliers' choice of technology.

(c)  Financial Services:

  • Expand competitive market opportunities for U.S. financial service suppliers by securing fairer and more open conditions of  financial services trade.
  • Improve transparency and predictability in financial services regulatory procedures.
  • Secure commitments to not impose measures restricting cross-border data flows or requiring local computing facilities.
  1. 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, videos, 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 restrict imposition of measures restricting cross- border data flows or requiring local computing facilities.
  • Establish rules to prevent governments from mandating the disclosure of computer source code.
  1. Investment:
  • Establish rules that reduce or eliminate barriers to U.S. investment in all sectors.
  • Secure for U.S. investors important rights aligned with U.S. legal principles/
  1. Intellectual Property:
  • Ensure full implementation of the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS).
  • Provide protection for emerging technologies and new methods of transmitting and distributing products such as digital trade.
  • Prevent discrimination in intellectual property rights enforcement
  • Ensure standards of protection and enforcement keep pace with technological developments. Ensure that rightsholders have the legal and technological means to control the use of their works through the Internet & other media.
  • Provide strong standards of enforcement of intellectual property rights.
  • Prevent or eliminate government involvement in the violation of intellectual property rights, including cybertheft and piracy.
  • Secure fair & nondiscriminatory market access opportunities for U.S. persons who rely upon intellectual property protection.
  • Respect the 2001 WTO TRIPS Agreement and Public Health Ministerial declaration, at the Fourth Ministerial Conference at Doha, Qatar on November 14, 2001, 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 trademark system.
  1. Transparency: Commit each Party to provide levels of transparency, participation, and accountability in the development of regulations and other government decisions that are comparable to those under U.S. law with respect to federal statutes and regulations.
     
  2. State-Owned and Controlled Enterprises:
  • Define SOEs on the basis of government ownership or government control through ownership interests, including control through minority shareholding.
  • Retain the ability to support SOEs providing domestic public services.
  • Ensure that SOEs accord non-discriminatory treatment & act in accordance with commercial considerations with respect to purchase and sale of goods and services.
  • Ensure SOE subsidy disciplines beyond those in the WTO and ensure SOE's don't cause harm to other Parties through provision of subsidies or SOE investments.
  • Provide jurisdiction to courts over the commercial activities of foreign SOEs.
  • Provide access to information re: level of government ownership, control, and support.
  • Develop WTO Annex 5, SCM-type fact-finding mechanism to overcome evidentiary problems associated with litigation involving SOEs.
  1. Competition Policy
  • Maintain rules that prohibit anti-competitive 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.
  1. Labor: Bring the labor provisions into the core of the Agreement rather than in a side agreement and require the adoption of ILO Declaration core labor standards, including freedom of association, elimination of discrimination, acceptable work conditions and access to fair and transparent administrative and judicial proceedings.
     
  2. Environment: Bring the environmental provisions into the core of the Agreement rather than in a side agreement and require each country to adopt and maintain measures implementing their obligations under select Multilateral Environmental Agreements (MEAs) to which the NAFTA countries are full parties, including the Convention on International Trade in Endangered Species of Wild Fauna and Flora.  Also included are objectives to combat illegal fishing, harmful fisheries subsidies and to promote sustainable fisheries management and long-term conservation of certain marine species.
     
  3. Anti-Corruption: Secure a commitment by each country to criminalize government corruption, and provide adequate penalties and enforcement tools.  Each country's law should require companies to maintain accurate books & records, encourage the establishment of codes of conduct and disallow the deduction of corrupt payments for income tax purposes.
     
  4. Trade Remedies:
  • Preserve the United States' ability to enforce rigorously its trade laws, including the antidumping, countervailing duty, and safeguard laws, while eliminating the NAFTA global safeguard exclusion and eliminating the Chapter 19 dispute settlement mechanism.
  • Seek a separate domestic industry provision for perishable & 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.
  • Promote cooperation among the trade remedies administrators of the NAFTA countries, particularly with regards to the sharing of information.
  • Create new procedures to address AD/CVD duty evasion, including AD/CVD verification visits.
  • Establish an early warning import monitoring system for non-NAFTA sensitive product imports.
  1. Government Procurement: Increase opportunities for U.S. firms to sell U.S. products and services into NAFTA countries, securing increased transparency and procedural fairness, including impartial administrative or judicial review.
  • Sub-federal entities (state and local governments) should be excluded from the commitments, permitting the continued use of domestic preferential purchasing programs (e.g. Programs for small businesses, women, minority owned businesses, service-disabled veterans, distressed areas, and Federal assistance, including Buy America requirements, and Federal support provided to state & local projects, transportation services, food assistance and farm support).
  • Broad exceptions should apply to government procurement regarding national security, protection of public morals, order, safety, human, animal or plant life or health and the protection of intellectual property.
  • Maintain ability to provide for labor, environmental & other contract requirements
  1. Small- and Medium-Sized Enterprises: Cooperate on SME issues, establish an SME Committee and secure commitments to provide information resources to help SME's navigate NAFTA export requirements.
     
  2. Energy: Preserve and strengthen investment, market access, and state-owned enterprise disciplines benefiting energy production and transmission.  Support North American energy security and independence while promoting continuing energy market-opening reforms.
     
  3. Dispute Settlement: Establish a timely, transparent dispute settlement mechanism, requiring parties' submissions to be publicly available and hearings to be open to the public. Non-governmental entities should have the right to make written submissions.
     
  4. General Provisions: 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.
     
  5. 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.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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