Last year, as a result of the expiration of certain language in China’s World Trade Organization (“WTO”) Protocol, the U.S. Department of Commerce conducted a review of its designation of China as a non-market economy country for purposes of the U.S. antidumping laws. The Department announced the results of its review of China’s status on October 26, 2017, concluding that China continued to be a non-market economy country. Further, none of the USMCA member countries have a free trade agreement with China. As a result, China would be considered a “non-market country” for purposes of the USMCA.

Article 32.10 requires a USMCA member country seeking to negotiate a free trade agreement with China, or any other “non-market country” to:

1. Inform the other member countries of their intention to negotiate such an agreement, at least three months prior to commencing negotiations;
2. Upon request of another USMCA member country, provide “as much information as possible” regarding the negotiating objectives; and
3. Provide the other USMCA member countries an opportunity to review the full text of the agreement at least 30 days before the date of signature.

This provision, as well as a number of other provisions aimed at strengthening trade enforcement, including Article 10, Section C, regarding the prevention of duty evasion of antidumping, countervailing, and safeguard duties, reflect the Trump administration’s strong stance against unfair trade practices by China.

Experts, however, are cautiously optimistic about the news and what it could mean for 2018. Last year, significant uncertainties about critical aspects of the global economy made it difficult to predict the track of trade growth. The WTO cited unpredictability with respect to government action on monetary, fiscal, and trade policy, and whether trade would be restricted in favor of attempts to address domestic wage stagnation and unemployment. Moreover, the process of establishing global value chains – spreading production processes around the world – is stabilizing. That process had been a key driver in boosting global trade flows out of economic crisis, but is naturally beginning to slow.

In the United States, political and economic analysts struggled early in 2017 to estimate the impact of President Trump’s decision to withdraw from the Trans-Pacific Partnership (TPP) negotiations and to renegotiate NAFTA. On one hand, those trade policy “shocks” have been countered by trade-promoting policies in other regions, including the recently finalized Comprehensive and Progressive Agreement for Trans-Pacific Partnership among the 11 remaining parties to the original TPP. Trade among the NAFTA countries continues to dominate regional trade arrangements in the world, second only to intra-European Union trade flows. And President Trump has started this year with strong messaging on the importance of international trade – downplaying the fear of trade wars and signaling an interest in rejoining the TPP. On the other hand, the world is watching as President Trump considers whether to impose what may be broad trade restrictions on imports of steel and aluminum products under Section 232 of the Trade Expansion Act of 1962.

Notwithstanding these developments, the better-than-expected growth in 2017 have given economists a reason to expect a high rate of growth to continue at least through 2018, spurred by strong investment spending, growing demand in the EU, and new trade agreements. The WTO had forecasted global trade expansion for 2017 of only 2.4%, with the actual results being far better. For 2018, the WTO predicts trade growth to “pick up slightly.” Although much depends on the impact of political decision-making, the trend suggests that trade flows will continue to be strong this year.

Specifically, Canada and Mexico have rejected the U.S.’s proposals on the elimination of NAFTA dispute panels in AD/CVD decisions, dairy, automotive content, government procurement, country-specific rule of origin rules, and a sunset clause.

U.S. Trade Representative Lighthizer, Mexican Economy Minister Guajardo, and Canadian Foreign Minister Freeland noted in a joint statement that the extended timelines provide the countries with an ability to discuss the challenging issues in light of the stark “conceptual gaps” between them. They also stated that they have called upon negotiators from the three countries to “explore creative ways to bridge these gaps.”

Guajardo told reporters on Tuesday that while Mexico wants to find a solution that is a win for all countries involved, it will not sign onto an agreement that is detrimental to Mexico’s national interests.

Freeland, said she was disappointed in the “winner-take-all-mindset” of the negotiations, and that while an agreement for an improved NAFTA is “absolutely achievable,” it cannot be reached with an “approach that seeks to undermine NAFTA rather than modernize it.”

Lighthizer noted he’s not focused on the possibility of the U.S. exiting NAFTA, but instead on getting “a good agreement” in place. He stated he was “surprised and disappointed by the resistance to change” from Canada and Mexico, and that the three countries would do “just fine” without NAFTA. He further explained that a core objective of the U.S. in negotiations is to shrink its trade deficit.

Following the next round of negotiations in Mexico City in mid-November, it has been reported that chief negotiators will meet in Washington in December and that further negotiations will be scheduled into the first quarter of 2018, with the sixth round of negotiations taking place in Canada.

In view of the limited time to hear witnesses, oral testimony at this hearing will be from invited witnesses only. However, any individual or organization may submit a written statement for consideration by the Committee and for inclusion in the printed record of the hearing.

Details Hearing on Modernization of the North American Free Trade Agreement (NAFTA)

Hearing Information Tuesday, July 18, 2017, at 10:00 AM in Room 1100 of the Longworth House Office Building

Public Submissions For The Record Please click here to submit a statement or letter for the record

Over the course of 3 days, USTR officials heard from a number of U.S. industries regarding their interests and goals for an overhauled NAFTA. These industries included steel and metal, auto, apparel, agriculture, and farming, among others. Representatives from the entertainment industry, as well as the NFL, also presented their views on how a renegotiated agreement should benefit their industries. USTR heard from over 100 witnesses who expressed a variety of views regarding the effectiveness of NAFTA in its current form and provided opinions on how to improve the agreement.

With the administration’s focus on strengthening American manufacturing, several witnesses emphasized having strong “Buy American” policies that favor domestically produced products. In his testimony, Representative Pascrell (NJ) stressed that a renegotiated NAFTA must not weaken the Buy American policies that currently benefit U.S. producers. Rules of origin issues also took center stage, with certain auto industry representatives calling for strengthened tracing requirements for NAFTA rule of origin automobiles, and steel producers requesting the application of tracing requirements to steel. The administration will have to take into account the wide spectrum of views presented at the hearings, as well the thousands of written comments it has received in recent weeks, when USTR representatives sit down at the negotiating table later this summer.

In a previous post, we discussed the general timeline for NAFTA renegotiations established by the administration earlier this year. Check back for regular updates on NAFTA.

Renegotiating NAFTA has been a major issue at the center of the administration's trade policy. USTR Lighthizer stated that the goal of renegotiation is to create an agreement that advances the interests of America’s workers, farmers, ranchers, and businesses. Last week, USTR received over 1,300 comments from stakeholders following its request for input on how to “modernize” NAFTA. Next week, USTR will hold a public hearing during which stakeholders can present their views for consideration by the administration.

According to Secretary Ross, the administration’s proposal to Congress will address the services, financial, and natural resource sectors. Also on the table for discussion are likely to be currency issues, production overcapacity in particular sectors, like steel, and various other trade measures. The administration is also keen to reexamine the current country of origin rules, which guide whether a product that is made, to some extent, from foreign components can be considered of NAFTA origin.

The Trade and Manufacturing Monitor will continue to provide updates on the renegotiation of NAFTA – check back for updates.