NAFTA Negotiations Begin This Week

written on behalf of Feigenbaum Law

NAFTA negotiations began in Washington D.C. this week, with working groups focused on more than two dozen topics, including those expected to be most controversial, holding their first meetings. Groups on government procurement and intellectual property met yesterday, groups on auto-parts rules of origin are scheduled to meet today, and groups on agriculture are scheduled to meet tomorrow.

Significant Changes Sought

As we’ve previously discussed, the U.S. is seeking significant changes to the current NAFTA regime. This week. U.S. Trade Representative Robert Lighthizer issued a statement, noting that President Trump is “not interested in a mere tweaking of a few provisions and a couple of updated chapters”. Lightziger went on to say “we feel that NAFTA has fundamentally failed many, many Americans and needs major improvement.”

Canada and Mexico have taken softer stances on the renegotiations, but are both also seeking a modernization of the two-decade old agreement, and have each also identified areas they believe are in need of significant change.

U.S. Objectives

The U.S.’s 18-page “wishlist” outlining its negotiation goals was the most extensive publicly available wishlist, outlining more than 100 points for change. Top goals identified include:

• Improve the trade balance in goods;

• Add transparency to customs laws and regulatory implementation;
• Streamline and automate importing/exporting and transportation processes;
• Strengthen rules of origin;
• Strengthen labour standards;
• Secure commitments around customs duties on digital products and online purchases.

Lighthizer noted earlier this week that there may be an “irritant” ahead during the talks on automobiles. Indeed, Canada and Mexico have taken a different stance than the U.S. and are aligned in not wanting to change the rules of origin.

Under the current rules, a common automobile is exempt from cross-border tariffs if 62.5% of that car’s value is from content made in any of the three member countries. Raising that percentage, or creating a new threshold for content made in the U.S. could impact trade between NAFTA and non-NAFTA countries.

Canadian Objectives

Canada publicly revealed its trade objectives earlier this week, with the Chrystia Freeland, Minister of Foreign Affairs, noting that an overarching goal would be to provide governments with “an unassailable right to regulate in the public interest.”

Canada has, notably, opposed U.S. efforts to get rid of the binational settlement mechanism currently enshrined in Chapter 19. Canada has also advocated for changes to Chapter 11 provisions on cross-border investment. Other top goals identified include:

• Strengthening labour and environmental standards;
• Adding gender rights and Indigenous rights provisions;
• Expand procurement/”Buy American” rules;
• Address “Buy American” rules;
• Regulate anti-dumping measures.

Canada wants to integrate enhanced environmental protections into the agreement to ensure that no NAFTA country weakens environmental protection in favour of attracting investment. Freeland has also emphasized Canada’s focus on climate change.

Freeland has pointed to Canada’s recently negotiated trade agreement with the E.U. as a reference with respect to the more progressive goals on Canada’s agenda, and has stated “Progressive elements are also important if you want a free-trade deal that’s also a fair-trade deal.”

Mexico’s Objectives

Experts have said that Mexico views the NAFTA discussions as an ideal opportunity to democratize trade and create a more inclusive economy.

Labour issues are expected to be a large sticking point between Mexico and the U.S., particularly in light of President Trump’s previously articulated anti-Mexico rhetoric. Top goals include:

• Strengthening North American competitiveness;
• Fostering more inclusive regional trade;
• Updating current energy, digital, and telecommunications provisions;
• Maintaining agricultural access; and
• Promoting “certainty of trade and investment”.

60% of total Mexican exports are represented by the auto and electronics sectors, and Mexico is expected to seek an expansion of those industries. Agriculture is also a critically important export industry for the country, and there has been some concern that food exports may be overlooked in the negotiations.

Proactive Tax Advice and Guidance for Cross-Border Businesses

We will continue to monitor developments as NAFTA negotiations unfold, and will provide updates as needed. In the meantime, if you have begun to anticipate what impact the outcome of the negotiations will have on your business, contact the knowledgeable team at Feigenbaum Tax Law. To make an appointment, contact us online, or call our office toll free at (877) 275-4792.