The three parties have spent the last 15 months negotiating the final text of the USMCA, with a deal reached first between the U.S. and Mexico at the end of August, and Canada signing onto the agreement with additional tweaks a month later. We have covered the USMCA in previous blog posts (here, here, here, here, and here).

Each country’s legislature must now approve the agreement for it to take effect. In the United States, the USMCA was negotiated under Trade Promotion Authority, or “fast track” legislation, meaning that the agreement is subject to an up-or-down vote and Congress cannot modify or amend the agreement itself. Instead, the hurdles involve the implementing legislation that will be required to give effect to the deal under U.S. law. The Administration has 60 days to submit to Congress a list of changes to U.S. law that will be required to implement the USMCA, and then must prepare a draft implementing bill and “statement of administrative action” at least 30 days before the bill is actually introduced in the House and Senate. The House must vote first before the bill moves to the Senate for consideration and a vote.

Given this timetable, the USMCA and its implementing legislation will almost certainly be considered next year in a Democratic-controlled House. Many Democrats have already expressed concerns about labor and environmental provisions in the USMCA and their enforceability, even though the Office of the U.S. Trade Representative has stated that the USMCA comports with the standards of the May 10^th Agreement – a 2007 set of terms on labor, the environment, investment, government procurement, and access to medicines, authored by House Democrats, that appear in the United States’ trade deals with Peru, Panama, Colombia, and Korea. House Republicans are also critical of certain aspects of the agreement, including provisions addressing non-discrimination on the basis of sexual orientation and gender identity.

In the meantime, other work related to the USMCA is being completed. The U.S. International Trade Commission is preparing its analysis on the deal’s potential economic impact, due in about 100 days. The Trump Administration also continues to negotiate with both Canada and Mexico on exemptions from the Section 232 steel and aluminum tariffs imposed earlier this year.

The intellectual property (IP) chapter of the new U.S.-Mexico-Canada Agreement (USMCA), in particular, reflects significant updates. While NAFTA included IP provisions – and was, in fact, the first trade agreement to do so – the USMCA reflects a more comprehensive approach to ensuring the United States’ most important trading partners respect and enforce IP rights at a high level.

The IP chapter of the USMCA is largely aligned with the IP terms agreed to by the United States, Canada, and Mexico in the Trans-Pacific Partnership (TPP) negotiations in 2016. Although the United States withdrew from the TPP, Canada, Mexico, and the 9 other remaining TPP countries ultimately adopted a modified version of that agreement, called the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), in March 2018. The USMCA builds on the updated terms reached by the United States, Canada, and Mexico as part of the TPP negotiations and final CPTPP agreement. Read More...

Under the Trade Promotion Authority (“TPA”) law, known as the Bipartisan Congressional Trade Priorities and Accountability Act of 2015, the ITC must prepare a report that assesses the likely impact of the Agreement on the U.S. economy as a whole and on specific industry sectors, as well as the interests of U.S. consumers. This report, which will be made public, is due to the President and Congress no more than 105 days after the President signs the agreement. The TPA requires the President to wait 90 days from the date of the notification before signing the USMCA. President Trump notified Congress of his intent to enter into the new trade agreement on August 31, 2018. Therefore, the earliest the President may sign the agreement is November 30, 2018.

Congress is expected to wait until the ITC report is issued before voting on the new agreement. In fact, Senate majority leader Mitch McConnell recently told Bloomberg in an interview that the vote on USMCA will be a “next-year issue.”

If Congress does not pass the TPA, the President has threatened to withdraw from NAFTA. Although the ITC is not required to analyze the impact of withdrawing from NAFTA, there is at least one study prepared by Trade Partnership Worldwide that estimates that withdrawing from NAFTA could cost 1.8 million jobs in the first year.

The ITC will hold a public hearing at 9:30 a.m. on Thursday, November 15, 2018. Parties wishing to participate at the hearing must file a request to appear by October 29, 2018. Written submissions for the record are due by December 20, 2018.

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.

USTR Lighthizer confirmed the United States has concerns with warning and consumption labels used by trading partners at a March 21 hearing before the U.S. Ways and Means Committee on U.S. trade policy, including and the status of NAFTA negotiations. During a line of questioning pursued by Rep. Lloyd Doggett (D-TX) inquiring specifically about the NYT article, Ambassador Lighthizer stated that while the United States was against obesity, it did not support the use of food label warning requirements “to create a protectionist environment.” Separately, a USTR spokesperson emphasized that “the United States supports science-based labeling that is truthful and not misleading.”

To combat growing obesity in their respective populations and on grounds supported by protecting public health, Canada and Mexico are considering taking actions similar to Chile, which in 2012 implemented food labelling laws requiring the placement of black hexagons resembling stop signs on labels of food with high caloric, fat, salt, or sugar content. Several countries, including the United States, challenged the Chilean law at the WTO; however, Chile argued successfully that the labeling and other related measures were necessary to combat obesity and for public health. In Canada, where 26 percent of adults are obese, the government has initiated a regulatory process to review and eventually select graphic front-package warnings that would be required for food. Similarly in Mexico, where the National Institute of Public Health has noted that many people are not able to read nutritional labels, there is an effort to consider Chile’s approach.

The NAFTA negotiating parties are under pressure to reach an agreement in principle before the July 1 Mexican presidential election. The next round of talks are scheduled to take place the week of April 8, however it is unclear whether it will be an official round or intercessional talks. It is further unknown whether the parties will address the U.S. proposal when they next meet.

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.

Based on news reports, Trudeau reminded the key U.S. lawmakers with jurisdiction over the nation’s trade that Canada is the United States’ largest customer. Ways and Means Committee Chairman Kevin Brady (R-TX)’s opening remarks acknowledged the importance of the beneficial trading relationship and recognized Canada as an important U.S. ally. Noting, however, that even strong relationships have their challenges, the Chairman expressed a hope for progress on issues related to customs barriers, intellectual property protection and greater market access for U.S. dairy producers.

Trudeau has taken a unique and unprecedented approach of making his case for preserving the U.S.-Canadian trade relationship directly with U.S. governors and legislative members, who respectively, have a high stake in supporting or key role in approving the deal. In July, Trudeau delivered the keynote address at the National Governors Association’s summer meeting, marking the first time a foreign head of state addressed the organization. His message in that venue was largely in defense of NAFTA, where he argued there was a need to update and modernize – but not abandon – the agreement.

Trudeau’s overtures with state government heads and district-based legislators demonstrates a deep understanding of U.S. internal trade politics and suggests a strategic effort to salvage a trade arrangement that is of great value to Canada. His challenge in the coming months is to convince similarly situated interest groups residing south of his nation’s border that NAFTA’s value is mutual – and outright withdrawal is option they will strongly oppose.

USTR Releases NAFTA Negotiating Objectives One Month Ahead of Anticipated Start to Renegotiations

Notably, USTR is now citing deficit reduction as an objective for the NAFTA renegotiations. Other key objectives cited in USTR's summary include:

• Establish rules that reduce or eliminate barriers to U.S. investment in all sectors in the NAFTA countries.
• Eliminate of the Chapter 19 dispute settlement mechanism for review of trade remedies administrative decisions.
• Require NAFTA countries to apply decisions and recommendations adopted by the WTO TBT Committee that apply, inter alia, to standards, conformity assessment, transparency, and other areas.
• Ensure that strong subsidy disciplines apply to SOEs, beyond the disciplines set out in the WTO Agreement on Subsidies and Countervailing Measures (SCM Agreement).

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.