The first round of negotiation meetings of North American Free Trade Agreement (NAFTA) 2.0 were held in Washington D.C. on August 16-20, 2017. The negotiating parties convened to modernize the NAFTA agreement (implemented in 1994) at the request of the Trump Administration. Trump has repeatedly threatened to withdraw from the Agreement, unless new terms (favorable to the U.S.) are struck.
On July 17th, 2017, the Office of the United States Trade Representative (USTR) published the “Summary of Objectives of the NAFTA Renegotiation.” The Summary includes the key points that the Trump Administration wishes to rewrite into the new NAFTA negotiations.
The main bone of contention for the Trump administration is promoting an “America First” policy. This policy is summed up in the introductory statement of the document: “A successful renegotiation of NAFTA will further the negotiating objectives of the United States […] will benefit the economies and populations of the United States and of our trading partners. The result will be a much better agreement for Americans.” It is unclear if the reference to Americans includes Canadians and Mexicans who are also part of the North American continent. However, some of the main points of contention in the Summary suggest that the U.S. views the negotiations as a zero-sum game.
The Summary discusses the need to review and renegotiate Rules of Origin, which may impact the eligibility for preferential rates. These changes could take place if new Regional Value Content (RVC) requirements are set in place. For example, an increase in the percentage of NAFTA originating materials to qualify goods as NAFTA originating may make it harder for companies to achieve the minimum threshold. The Summary also mentions the elimination of the NAFTA Ch. 19 Dispute Settlement Mechanism. The format of this Mechanism to review anti-dumping and countervailing cases currently includes a bilateral panel composed of the two parties in dispute. Elimination of this chapter will allow the one side to introduce anti-dumping and countervailing duties without a possibility for the exporting country to participate in the determination. The United States also wishes to remove the NAFTA Global Safeguard exclusion so that it does not restrict the U.S. from applying such measures in future investigations.
The second round of negotiations happened the first week of September in Mexico City, while the third round is being held September 23-27 in Ottawa, Canada. Although the parties have claimed their desire to modernize the NAFTA agreement, Mexico will be heading into an election year, and so a successful negotiation may be in jeopardy as the competing parties in Mexico take positions on the renegotiation efforts. Mexico’s top trade negotiator, Economy Minister Ildefonso Guajardo, stated that renegotiation of Rules of Origin will be a red line for Mexico. Similarly, Canada’s Prime Minister, Justin Trudeau, stated that the revocation of Ch. 19 Dispute Settlement Mechanism is where he draws the red line.
All in all, there are several advantages and disadvantages of NAFTA – however both Canada and Mexico are in a position to push off U.S. pressure. Neither country is eager to rush to unfavorable terms. On the 23rd of August, 2017, President Trump stated publicly that he doesn’t believe negotiations will succeed. Ultimately, if the U.S. withdrew from NAFTA, the U.S. may have the most to lose among all parties. Both Mexico and Canada will continue to enjoy the mutual benefits of NAFTA membership. In addition, they are still party to the TPP (Trans-Pacific Partnership) – which includes 11 members (not yet implemented). Last but not least, Mexico has an FTA in place with the European Union, while CETA (Canada-Europe Trade Agreement) became effective on September 21st, 2017.
While it will be some time before any trade policy changes become law, having an automated trade management solution that keeps track of the changes will position your company to be one of the first to take advantage of any duty reductions, while helping keep you on top of compliance requirements.
Amber Road Support
As a revised NAFTA enters into force, global companies will need to leverage the technology found in Free Trade Agreement management software solutions like Amber Road to support the process. The platform needs to include all of the current trade agreements to allow identification and qualification of goods by using a global trade content database which contains the rules of origin, product classifications and duties and taxes for the major preferential trade programs.
Utilizing a best-of-breed technology solution can help open up new markets for your company by simplifying the compliance and qualification processes. With new FTAs on the horizon or just passed around the world, global trade compliance becomes key to the opportunities ahead.
This post was published on September 25, 2017 and updated on September 25, 2017.