NAFTA Notes: The Latest in Trade

International Trade Daily™ provides rapid, reliable notification of the most significant developments affecting U.S. trade and international business policy, as well as the policies of major U.S....

By Rossella Brevetti, Jeremy Hainsworth, Peter Menyasz, Emily Pickrell, and Andrew Wallender

Country-by-country developments tracking the latest news regarding the North American Free Trade Agreement and efforts to renegotiate and restructure it.

UNITED STATES
Canada Gets an Ambassador Nominee

  • What’s new: After months of speculation, President Donald Trump officially nominated Kelly Knight Craft as ambassador to Canada. The post was vacated when Trump came into office Jan. 20.
  • Did you know: The ambassador to Canada post is usually seen as a reward for party loyalists and big donors. Craft, married to billionaire coal executive Joseph Craft III, is no exception. She donated $265,400 to Trump’s campaign in 2016, according to Federal Election Commission filings, and consistently stood by the Republican nominee throughout his campaign.
  • What to watch for: Craft now joins eight other ambassador nominees in awaiting Senate confirmation. If confirmed, Craft will be a major influencer in NAFTA talks and carry a key responsibility of smoothing over any binational trade disputes that jeopardize renegotiations.

Stitch Up NAFTA Loopholes

  • What’s new: Don’t waste time discussing tariff reinstatements in NAFTA 2.0, the U.S. textile industry told the U.S. trade representative in an official comment. Instead, the National Council of Textile Organizations suggested the U.S. close rule of origin loopholes that allow other countries to piggyback off NAFTA benefits and sidestep North American fiber, yarn and fabric inputs.
  • What to watch for: American textile and apparel companies last year produced $74.4 billion in output, so expect comments by the NCTO to carry weight. The organization testified at the in-person USTR hearing on NAFTA renegotiations, so look for further pressure by the industry group to tighten up rule of origin loopholes and customs enforcement.

Deja Vu

  • What’s new: Twenty-four years ago, Rep. Peter A. DeFazio (D-Ore.) voted against NAFTA’s ratification. And now he’s filed an official comment with the Office of the U.S. Trade Representative, re-affirming his dissent and urging major changes that the congressman is calling “The Worker’s Bill of Rights.”
  • Did you know: The elimination of Chapter 19 panels, the addition of “Buy America” provisions and the end of the investor state dispute settlement process are the major negotiating objectives DeFazio outlines in his “Bill of Rights.”
  • What to watch for: The NAFTA changes DeFazio seeks are exactly the type of issues that some key stakeholders hope to avoid in NAFTA talks. Canadian officials and Mexican officials have suggested they will not accept the elimination of chapter 19 or the inclusion of “Buy America” in NAFTA 2.0. Look for the USTR’s official negotiating objectives to be released mid-July.

Get That Outta Here

  • What’s new: Opponents of NAFTA from Public Citizen, the AFL-CIO and the Roosevelt Institute narrowed in on the investor-state dispute settlement (ISDS) system during a briefing on NAFTA for congressional staffers. They called it an area of NAFTA “that has to come out” when renegotiations begin.
  • Did you know: ISDS rules allow investors to personally sue countries when they feel their investor rights have been violated. Investors then have their case ruled on by a bilateral tribunal, as laid out in chapter 11 of NAFTA.
  • What to watch for: Any congressional pressure to remove NAFTA’s Chapter 11 during trilateral renegotiations would most likely complicate discussions and throw a wrench into plans to finish talks by December.

NAFTA Trucking Trade

  • What’s new: The statistics are out and U.S. trade with NAFTA partners is up for a sixth-straight month. That’s according to the Department of Transportation’s Bureau of Transportation Statistics April freight data. The stats show that U.S. trade with Mexico and Canada increased 0.8 percent annually to $91.1 billion. The report also showed that trucks continue to be the most utilized mode of transport for NAFTA goods.
  • What to watch for: Continued NAFTA trade growth with renegotiations on the horizon is a positive sign. Other data releases showed that U.S. agricultural exports were down in the face of NAFTA uncertainty. But look for next month’s data release by the Bureau of Transportation Statistics as a better gauge on how markets are reacting to a renegotiation of the deal. That data will show how trade fared during May, the month President Trump officially announced NAFTA renegotiations.

Border Session?

  • What’s new: Sen. John Cornyn (R-Texas) and Rep. Henry Cuellar (D-Texas) want U.S. Trade Representative Robert Lighthizer to agree to a meeting on NAFTA between him and all members of Congress representing constituencies along the U.S.-Mexico border.
  • Did you know: The U.S.-Mexico border region registered $579 billion in two-way trade between the U.S. and Mexico in 2016. Exports from Texas to Mexico have increased more than 300 percent since the deal went into effect, according to Cuellar’s office.
  • What to watch for: If Lighthizer returns to the capitol, expect him to be grilled on specific U.S. negotiating objectives for NAFTA 2.0. Questions from the Small Business Committee will most likely touch on intellectual property stipulations in NAFTA and whether an updated agreement will contain a section on small businesses.

Keep Supply Chains Moving

  • What’s new: The Advisory Committee on Supply Chain Competitiveness is weighing in on the NAFTA reboot. Committee members discussed a draft letter to Commerce Secretary Wilbur Ross outlining priorities for the committee. The letter was finalized and sent June 27.
  • Who said: Tiffany Melvin, subcommittee chair, NAFTA working group, said NAFTA negotiations should not slow down the work that has been under way on border issues. “Do the doable now,” she said.
  • Did you know: Integrated supply chains have created 5 million new U.S. jobs through NAFTA related exports, according to the committee. Nearly 40 percent of U.S. imports from Mexico originated with U.S. companies.
  • What to watch for: Advisory Committee members are seeking a meeting with senior Commerce officials to discuss NAFTA priorities, including streamlined customs procedures and increased automation.

CANADA
Environmental Commission Meets

  • What’s new: The NAFTA commission tasked with tracking environmental enforcement in Mexico, Canada and the U.S. received its 89th complaint of lax enforcement June 26. The complaint says Canada is not enforcing laws on the leaking of harmful substances from oil sands tailings ponds in Northeast Alberta.
  • Who said: The new complaint was announced during an annual environmental gathering of the Commission for Environmental Cooperation (CEC) on Canada’s Prince Edward Island June 27. Noticeably absent from the meeting was substantial comment on impending NAFTA renegotiations.
  • What to watch for: Three complaints are now pending with the CEC. In addition to the new Canadian complaint, there are two Mexican complaints. But don’t expect a result any time soon. Reviewing a submission can take two and a half years. So there may be a new NAFTA in place before the review is complete. Also, the silence on impending renegotiation at the Commission’s annual gathering suggests it won’t publicly push for certain environmental revisions in the trilateral agreement. They’re leaving that to negotiators.

Dairy Not Laughing Matter

  • What’s new: Canada’s agriculture minister may have joked and had a good time with his U.S. and Mexican counterparts during a visit to Savannah, but behind the scenes, he was securing his position as a staunch supporter for Canada’s controversial dairy supply management program. He told the Globe and Mail in a phone interview from Savannah that his government would defend the program against any changes.
  • What to watch for: Dairy farmers in Canada should breathe a sigh of relief as American NAFTA negotiators prepare for a fight. Canada’s top agriculture official said NAFTA’s sections dealing with agriculture will get a small “tweak” in a NAFTA 2.0. But if that’s the case, somebody forgot to tell President Trump who wants to use NAFTA talks to address bilateral trade grievances. “Some very unfair things have happened to our dairy farmers,” Trump told a Wisconsin audience in April, referring to Canada’s dairy policy.

Georgia Meets Ontario

  • What’s new: Ontario Premier Kathleen Wynne met with Georgia Gov. Nathan Deal and some of the state’s top business leaders to talk up NAFTA and the benefits of free trade. Wynne said she and Deal remain committed to supporting sectors that are tightly linked through integrated supply chains. She also met with representatives of film and production firms SIM Digital and Pinewood Studios, which have operations in Toronto.
  • Did you know: Ontario accounted for more than half of the C$12 billion ($9 billion) in goods trade between Canada and Georgia in 2016, including Ontario imports of C$1.6 billion ($1.2 billion) in vehicles and vehicle parts. More than C$140 million ($105 million) worth of vehicles and parts flow between Ontario and Georgia each month.
  • What to watch for: One of Ontario’s main concerns is “Buy American” policies, including legislation approved by New York state that takes effect in April 2018. Wynne says Ontario’s free trade advocacy efforts led to narrowing application of the provisions and making them much less punitive, but warned that the fight isn’t over. Look for more push back from Canada on any protectionist moves from the U.S.

NAFTA Road Show in Ohio

  • What’s new: International Trade Minister Francois-Philippe Champagne recently took Canada’s pro-NAFTA pitch on the road to Cincinnati to remind Ohioan officials and business leaders how much their state’s economy relies on Canada. Champagne met with Ohio House Majority Leader Dorothy Liggett Pelanda (R) and representatives of major businesses, including Procter & Gamble, DHL International GmbH.
  • Did you know: Champagne also pitched the benefits of free trade to Cincinnati Reds chief operating officer Phil Castellini and chatted with four-time Major League Baseball All-Star Joey Votto, the team’s Canadian-born first baseman.
  • Did you also know: Almost 39 percent of Ohio’s merchandise exports are to Canada, so the state sells more to Canada than the next eight largest foreign markets combined.
  • What to watch for: The Ohio trip follows on similar visits by Champagne and other cabinet ministers to various U.S. states to highlight the importance of open bilateral trade, and Champagne’s staff says stay tuned for more trips.

Protect Chapter 19

  • What’s new: The Business Council of Canada, headed by former deputy prime minister John Manley and representing some of Canada’s top international firms, will stand firm in backing Canada’s demands for a NAFTA dispute mechanism similar to those already negotiated for the Trans-Pacific Partnership or the Canada-European Union Comprehensive Economic and Trade Agreement.
  • Who said: Council spokesman Ross Laver told Bloomberg BNA Canada should not accept U.S. demands that a U.S. body determine if the U.S. is in compliance with the trade deal. Laver said the Chapter 19 dispute mechanism has worked well and Canada does not see it as a problem.
  • What to watch for: Expect Canadian firms and business advocacy groups to continue lobbying efforts to NAFTA negotiators through the federal government.

MEXICO
Potential Pipe Dream

  • What’s New: Former Mexican President Vincente Fox envisions a future in which legal marijuana flows across the Mexican border and supplies up to 60 percent of U.S. cannabis consumption.
  • What to watch for: He told participants at a recent cannabis convention in California that Mexico intends to take the lead in marijuana exports and that the drug should be addressed in NAFTA negotiations.

Strength Through Unity

  • What’s new: Two sister organizations responsible for environmental infrastructure projects along the U.S.-Mexican border will soon operate as a single entity after a joint board of directors meeting in Mexico approved the merger.
  • Did you know: The two organizations, the North American Development Bank in San Antonio and the Border Environment Cooperation Commission in Ciudad Juarez, were formed out of a 1993 NAFTA side agreement on the environment.
  • What to watch for: Final formalities for the merger will likely be worked out later this year. The American government approved the merger in January and the Mexican Senate approved the change in April, signaling a binational desire to create stronger environmental infrastructure projects in the border region. Look for this merger to hint at stronger environmental commitments in NAFTA 2.0.

NAFTA Energy Goals

  • What’s new: The U.S. and Mexico should increase data sharing, convene increased energy industry dialogues and better tap into binational skilled labor markets, according to the first series of recommendations issued by the U.S.-Mexico Energy Business Council. Twenty-six total recommendations were issued during the council’s second meeting since its founding in 2016.
  • Who said: “I think that if we say that the work has changed, it’s an understatement,” council co-chair and Under Secretary for Foreign Trade at Mexico’s Secretariat of Economy Juan Carlos Baker said. Since its founding at the 2015 U.S.-Mexico High Level Economic Dialogue, the council has found itself in the midst of a discussion on how to modernize NAFTA’s energy components.
  • What to watch for: The U.S.-Mexico Energy Business Council is not set to meet again until late 2017 in Mexico City. Because officials hope to wrap up NAFTA negotiations by December, look for this first set of recommendations to influence any trilateral negotiations on energy.

‘Chapter 19 or Bust’

  • What’s new: Mexico must resist a U.S. attempt to rid NAFTA of Chapter 19, a former top Mexican economic official advised at an event at the Peterson Institute for International Economics. Chapter 19 establishes a panel review process for antidumping and countervailing duty disputes between NAFTA partners.
  • Who said: Antonio Ortiz-Mena, a senior advisor at Albright Stonebridge Group and former Head of Economic Affairs at the Embassy of Mexico in the United States, said that “it’s NAFTA chapter 19 or bust.” Mexico and Canada would almost certainly be adversely affected by the elimination of NAFTA dispute panels at a time when the U.S. is upping trade policy enforcement, he added.
  • What to watch for: Elimination of Chapter 19 is likely to be a key negotiating objective for the U.S. in NAFTA talks. Major pushback from Mexico could lead to a rough start to formal NAFTA renegotiations and derail hopes of finalizing NAFTA 2.0 by December.

Bound for New England

  • What’s new: When regional leaders from all three countries meet July 14 in Rhode Island to discuss their common interests regarding trade, environmental issues are likely to be one of the key topics. Mexican leaders plan to push hard to ensure that an environmental agreement is included in the main text of the new agreement and is in line with other more recent trade agreements.
  • Who said: Mexico City’ Mayor Miguel Mancera told Bloomberg BNA that he plans to push for an environmental agenda in NAFTA that parallels that found in the Trans-Pacific Partnership, which created a range of enforceable commitments for environmental issues. Mancera is among the first to campaign for the issues included in the TPP.
  • What to watch for: The Mexican Business Advisory Council plans to attend the July meeting, and its support for stricter environmental standards will be essential in selling the idea to the country as a whole.

Business Strategies

  • What’s new: As Mexico waits for the U.S. to issue its strategic objectives for the NAFTA renegotiation — which it expects to do by July 17 — Mexico’s private sector, which essentially provides technical sector-by-sector expertise during the negotiations, is developing strategies to handle three different scenarios of U.S. demands.
  • Did you know: Mexico is preparing for the U.S. to either negotiate sector-by-sector; or to focus on manufacturing or to focus on rules of origin and related tariffs. If the focus is on rules of origin, the negotiations could focus on revising the rules in favor of more regional content and further limiting unfair competition, according to Moises Kalach , who heads the strategy room for Mexico’s Business Advisory Council.
  • What to watch for: Mexican trade officials say they will be open to changes to rule of origin requirements but have not revealed the nature of these changes. Look for more information about Mexico’s approach to rules of origin after the U.S. announces its objectives.

WHAT WE’RE READING

Policy PapersThe Bipartisan Policy Center simplifies the complexities of NAFTA and spells out the impact of the trade agreement in its latest report.

NAFTA did not matter as much as most people think, but renegotiation matters a whole lot, writes Russell A. Green and Tony Payan in a Rice University Baker Institute for Public Policy policy brief.

Trump is going about reducing U.S. trade deficits all wrong. The president’s rhetoric on NAFTA is proof of that, writes C. Fred Bergsten in a Peterson Institute for International Economics policy brief.

News ReportsCanadian officials are building up troves of data breaking down the effect of U.S.-Canadian trade by congressional district in an attempt to convince law makers of the benefits of NAFTA, BC Local News reports.

Canada will have lots of negotiating leverage during NAFTA talks despite it having a smaller economy than the U.S., political economist Maxwell Cameron writes in HuffPost Canada.

Quebec Premier Philippe Couillard left a 20-minute meeting with Commerce Secretary Wilbur Ross feeling more optimistic that U.S.-Canada trade disputes can be resolved, CBC reports.

A number of U.S. agricultural exports to Mexico fell in the first four months of 2017 due to uncertainty over NAFTA’s future, the Wall Street Journal reports.

American energy firms are enjoying an energy trade surplus in Mexico but that could change if Trump takes too hard of an approach with NAFTA, the Economist reports.

The U.S. Chamber of Commerce warned the government against trying to include “buy American” policies in NAFTA, the Washington Examiner reports.

To contact the reporters on this story: Rossella Brevetti in Washington at rbrevetti@bna.com; Peter Menyasz in Ottawa at correspondents@bna.com; Emily Pickrell in Mexico City at correspondents@bna.com, Andrew Wallender in Washington at awallender@bna.com, and Jeremy Hainsworth in Vancouver at correspondents@bna.com

To contact the editor responsible for this story: Jerome Ashton at jashton@bna.com

Copyright © 2017 The Bureau of National Affairs, Inc. All Rights Reserved.

Try International Trade Daily