Canada: What Steps Can Canadian Companies Take Between NAFTA Modernization Rounds?

Last Updated: August 24 2017
Article by Cyndee Todgham Cherniak

In the week of August 16, 2017, Canada's NAFTA modernization team met in Washington D.C. with the United States Trade Representative's NAFTA renegotiation team and Mexico's NAFTA modernization team. At the end of the meeting, they issued a Trilateral Statement on the Conclusion of NAFTA Round One and indicated that Round Two will be held in Mexico between September 1-4, 2017.  The Third Round will be held in Canada at the end of September.

Canadian companies have two weeks to develop a follow-up strategy and engage in the NAFTA modernization process.  The NAFTA modernization process currently has a short timeline and the opportunity may be over if Canadian companies do not strategize quickly, do not engage quickly, and do not communicate quickly.

On July 19, 2017, the United States Trade Representative released the U.S. NAFTA Renegotiation Objectives. At the start of NAFTA Round One, the United States Trade Representative made an opening statement in which he briefly indicated top negotiating priorities for the United States, including:

  • Modernizing or creating provisions which protect digital trade;
  • Modernizing or creating provisions which protect services trade;
  • Modernizing or creating provisions which protect e-commerce;
  • Update customs procedures;
  • Protect intellectual property;
  • Improve energy provisions;
  • Enhance transparency rules;
  • Promote science-based agricultural trade;
  • develop model provisions that can be used for years ahead and that have the flexibility to adapt to future innovations;
  • Assure that huge U.S. trade deficits do not continue and that the U.S. has balance and reciprocity;
  • Require rules of origin, particularly on autos and auto parts, to have higher NAFTA content and substantial U.S. content;
  • Add country of origin labelling (COOL) provisions: Country of origin should be verified, not "deemed";
  • Add labor provisions in the agreement and draft them in a manner that will be as strong as possible;
  • Add effective provisions to guard against currency manipulation;
  • Revise dispute settlement provisions (especially NAFTA Chapter 19) to respect the U.S. national sovereignty and U.S. democratic processes;
  • Add provisions to guard against market-distorting practices of other countries, including third-party dumping and state-owned enterprises;
  • Ensure that there is equal access and reciprocity in government procurement; and
  • Ensure that there is equal access and reciprocity in agriculture (e.g., end Canada's supply management regimes for dairy, poultry and eggs).

We have also learned that 27 subject areas were discussed, including the following topics or objectives:

  • Adding a new chapter on the environment;
  • Adding a new chapter on labour;
  • Adding a new chapter on gender rights;
  • Adding a new chapter on indigenous rights;
  • Removing the NAFTA Chapter 19 dispute settlement process for bi-national panel reviews of antidumping and countervailing duty cases from NAFTA;
  • Revisions to the tendering process rules and transparency rules in NAFTA Chapter 10;
  • Proposals concerning greater access to public procurement opportunities;
  • The U.S. maintaining "Buy America" provisions that do not exempt Canada and Mexico;
  • Adding digital trade to the NAFTA and including provisions on cybersecurity;

It can be expected that the 27 subject areas included (1) trade in goods (NAFTA Chapter 3); (4) rules of origin (NAFTA Chapter 4 and Annex 401), (3) autos, (4) textiles, (5) agricultural products, (6) medical devices/bio-technology, (7) customs procedures (NAFTA Chapter 5), (8) Energy (NAFTA Chapter 6), (9) sanitary and phyto-sanitary measures (NAFTA Chapter 7), (10) technical barriers to trade (NAFTA Chapter 9), (11) government/public procurement (NAFTA Chapter 10), (12) investment/ISDS (NAFTA Chapter 11), (13) trade in services (NAFTA Chapter 12), (14) trade in digital services, (15) trade in financial services (NAFTA Chapter 14), (16) trade in telecommunication services (NAFTA Chapter 13), (17) competition policy and state-owned enterprises (NAFAT Chapter 15), (18) mobility of persons (NAFTA Chapter 16), (19) intellectual property (NAFTA Chapter 17), (20) antidumping/countervailing duties/safeguards (NAFTA Chapters 19 and 8), (21) dispute settlement (NAFTA Chapter 20), (22) institutional provisions (NAFTA Chapters 18 and 20), (23) environment, (24) labour, (25) gender, (26) indigenous rights, and (27) exceptions.  Some of these subject areas may have been combined so there are a few more topics under discussion.

What Should Canadian Companies Do?
Will Canada be forced to agree to changes to NAFTA that will harm Canadian businesses?  The answer is that it is possible that demands will be made under threat that NAFTA will be "ripped up" by President Trump.  To minimize the risk of new NAFTA provisions that do not advance the interests of your company, you must strategize, act and communicate quickly.

  1. If you have not done so already, create an internal team to discuss how the NAFTA renegotiation may affect you.  Identify the team members and assign tasks to stay on top of the NAFTA modernization activities and information;
  2. Determine how much of your business would be affected by proposals floated by the USTR and U.S. NAFTA renegotiation team – quantify your risk;
  3. If you have not done so already, hire a Canadian trade lawyer and a Canadian lobbyist to assist you in communicating your company's needs to the Canadian government negotiators;
  4. If you have not done so, determine the extent to which your company benefits from provisions of NAFTA and which provisions benefit your company;
  5. Focus of the positive: If you have not done so already, determine what you would like to see in a revised NAFTA – what changes would improve your business' bottom line – what changes will make your business run more smoothly – what changes within NAFTA could help your company respond to competitive pressures from China – what changes do you need to help your company grow;
  6. Review the company data for the last 23 years and determine where you ran into difficulties (e.g., a rule of origin was too restrictive, the testing requirements were redundant, Canada and the United States have conflicting regulations, etc.);
  7. Minimize the negative: If you have not done so already, determine what you would not like to see in a revised NAFTA – what would be detrimental to your business;
  8. Develop a strategic plan that includes with whom you must communicate and when the communications must be made. Set up meetings with the people you must speak with.  Plan written communications and face-to-face discussions. Plan follow-up communications.  You need a plan so that you do not miss your opportunities;
  9. If you have not done so already, develop a strategy to ask your U.S. suppliers and customers to communicate with local U.S. officials, state officials, senators, congressmen, industry associations and possibly the USTR's office. Any positive effects of their businesses that could flow from what is being proposed by the USTR and President Trump should be communicated Any negative effects of their businesses that could flow from what is being proposed by the USTR and President Trump should be communicated.  For example, an auto parts company may see that their parts could be replaced by cheaper Chinese parts if the rules of origin become too onerous;
  10. If a large portion of your business comes from U.S. government contracts, develop a strategy to communicate with the Canadian negotiators about what U.S. procurements should be open to Canadian companies;
  11. If your company faces U.S. regulations that add red tape and costs to selling into the United States, develop a strategy to communicate with the Canadian negotiators about what U.S. regulations should be amended and where reciprocal benefits should be requested;
  12. If your company sends workers to the United States and/or hires U.S. workers and encounters red tape and issues relating to visas, develop a strategy to communicate with the Canadian negotiators about what changes would reduce your costs and risks;
  13. If your company sells agricultural goods, consider what would a beneficial "science-based agricultural trade" rule entail and communicate with the Canadian negotiators and your U.S. business partners;
  14. Understand what Canada may agree to in order to get what they want – supply management is on a negotiating table – dispute settlement is on a negotiating table – autos is on a negotiating table, country of origin labeling is on a negotiating table – use of steel is on a negotiating table;
  15. Determine what you need to survive should Canada agree to USTR demands of interest to your company;
  16. Develop a social media strategy but know that what you write on social media can become viral in a bad way; and
  17. Develop a crisis management strategy should the NAFTA modernization process turn into cancellation of NAFTA or where proposed changes could effectively do more harm than good to your business.

NAFTA trade is not just a three way street – it is the map that takes you from where you are to where you want to be.  You cannot set out too late.  You cannot get lost along the way.  There isn't enough time for taking the wrong turn.

This free trade agreement negotiation will be more public than what is normal. For this reason, you may want to determine what you wish to discuss privately – that is, what you do not wish to have in the newspaper with your name next to it.

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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